Detoxing the Markets: Bears Still Look Hungry

Source: www.thestreet.com ^ | 07/16/2002 | By Peter Eavis

[FITZ]

I think people used to invest in the stock market by looking for companies to invest in over a long term ---but now it seems like it's more a day-to-day or hour-by-hour, watching the graphs to see when they might peak and everyone sells, then they watch to see when they might bottom out and everyone runs out to buy.

[steveegg]

Cha-ching! I needed that laugh.

[steveegg]

Not quite how I define subtle, but it works. Personally, when I am subtle, that 2x4 heads to the back of the head (I like the element of surprise).

[steveegg]

You nailed it. There's nothing like instant widespread communication.

[ken5050]

At a party, this drop dead gorgeous woman walks up to a very important CEO, and says to him, in a very sexy voice...."I'll do anything you want..absolutely anything."

He replies.."reprice my stock options."

[Willie Green]

To me, subtlety is a two-by-four into the face.
Not-subtle is when you swing it so that the 3" two-penny nail imbedded therein sticks out.

Laziness is repetition of quips that you've used before.
You used to be much more creative than that.
Must be slowing down in your old age.

[Southack]

Sure, the money supply has increased, but how fast has it increased compared to our rate of growth?

The whole reason that we got off of the Gold standard was so that we could make our money supply increase as fast as our economy needed capital.

Without enough capital, the economy stalls.

Our economy hasn't stalled, much less stalled from a lack of capital.

Our stock market, on the other hand, has been over-priced for 7 years. That's almost biblical. 7 years of stock-market-boom followed by ... of stock market bust.

In the meantime, Joe Averages around the country continue working and living paycheck to paycheck, dutifully producing and consuming. Joe's gonna be a bit pissed when he figures out that his 401(k) retirement fund is knocked back to 1994 levels, of course, but he's still gonna make his car payment, house payment, alimony payment, and buy beer for the big game.

[steveegg]

Nah; it's all the humidity in the air up here in the Midwest.

[RightWhale]

Looking at GM's latest dividend, it appears to be 50 cents on a stock of about $50 per share. If the dividend is quarterly, that amounts to a 4% annual return on investment. GM is paying a dividend; many other comapanies pay less or none at all. Bonds do better, some even twice as well, although muni nontaxable pay 50% more. Stock price of GM could drop to 2/3 to half its present level to achieve parity with bond return. DJIA could end up 4500 to 6000 if all the stocks were as good as GM. This would assume that stock prices are going to stay at that level and get-rich-quicker people don't bid them up again.

[steveegg]

Er, isn't that 8 years back to '94? Seriously, provided that the Cooked Book disease is limited to the companies that have been caught, the market should be at bottom now. The previous bottom was in '91, which, in a non-politicized market would have made the next botton in '98, with that bottom being at early-'97 or late-'96 levels. We're in '97 territory now.

Of course, I am assuming that (a) there are no more Enrons and (b) the goverment won't use this as an excuse to interfere. If either of these happen, I can't guarantee that the ultimate bottom of 0 won't be reached.

[Tauzero]

Last I looked M3 was flat.

[Tauzero]

How much of the latest increase is commercial paper?

[Tauzero]

"Inflation will occur if they keep this up, as well. I am shocked it hasn't!"

What do you think the 90s bull market was?

When newly-minted dollars push up the price of bread and gasoline, the government calls that inflation. When newly-minted dollars push up the price of stocks, why, that's a bull market!

[Southack]

It's always hard to call the bottom, but I'd guess that we're not there yet.

For one thing, mututal funds are just now beginning to get real quantities of sell orders. For another, we're going to see almost all of the Fortune 1000 companies restate their earnings between now and August 14 to comply with the new accounting rules in place.

On top of that fact, August is historically a bad (possibly the worst) month for stocks.

I feel safe in stating that there is no realistic chance of turning the corner on the bottom prior to a patriotic rally on/near 9/11/02, and even that could prove to be a sucker's rally if the disclosures that come out prior to that are too extreme.

If you have to be long in the Market, get thee to a high-dividend, stable earnings stock. Otherwise, you'd probably beat most professionals simply by sitting on cash for the next two or more months.

[qwertyz]

Do you mean the velocity of money is still low?

[habs4ever]

I'll go over to the St Louis Fed page and check.It certainly has improved since last October.

[Southack]

Isn't "velocity of money" just the speed that money changes hands?

We should be constantly setting new record highs for that here in the U.S.

[Dog Gone]

Sure, the money supply has increased, but how fast has it increased compared to our rate of growth?

I don't know, but looking at that graph, it certainly appears to me that that the money supply was increasing even during the recession.

I'm not even sure it's a bad policy. The strong dollar made vacations to Europe affordable, but it had drawbacks. A weaker dollar stimulates those portions of the economy, like exports, that could use a good stimulus.

Monetary policy is an inexact science at best, but you rarely hear it explained in blunt terms. Alan Greenspan ought to say, "I'm increasing the number of dollars in this economy, because I want to stimulate some demand for goods and to weaken it against foreign currencies. If the Japanese don't like it, tough."

[Dog Gone]

How much of the latest increase is commercial paper?

I don't know, but the M1 and M2 measures show a similar trend.

[Southack]

Well, in my opinion the Japanese aren't complaining about us weakening our Dollar because they are likewise over-printing Yen right along with us.

Europe wants a strong Euro for prestige, but it will kill their exports and make our goods and services far too competitive for their fragile corporations to compete with. In my opinion, the Europeans think that increasing the value of the Euro will give them a political position of power and prestige that is worth the cost to their economy. I also think that they are suckers for behaving that way. The whole world would be better off with three strong economies (EU/Japan-Asia/US) instead of just two, but at least we won't be the ones on the losing end of that game.

A cheap Dollar means that people will be selling foreign assets and bringing those profits home. It means that we'll import a little less and export a little more. And since oil is traded in Dollars, our main import won't be impacted by what would otherwise be inflation.

Mmm... Just what the doctor ordered.