The Economy and Stock Market

[bpwallace49]

And who is 'that guy'? Moneymakers? Me?

 

Confused.

 

moneymakers.

 

While you have been preaching doom and gloom, I hold your posts in much higher esteem.

[bushwacked]

Brent has found his sky is falling partner in moneymakers.

[Brentastic]

Brent has found his sky is falling partner in moneymakers.

I haven't seen too many posts by moneymakers. I'd reserve Avernus as my huddle soul mate. He and I think a lot alike when it comes to economics, finance AND football. In other words, Avernus is a pretty fart smeller.

[Avernus]

[bushwacked]

Dear Editor, why do you publish the worst forecaster ever?

[The Irish Doggy]

Dear Editor, why do you publish the worst forecaster ever?

 

You'll all be sorry when he is eventually partially not completely wrong.

[Brentastic]

Ever hear of this? Created just 3 months after the Patriot Act. George Orwell was a prophet and a genius.

http://en.wikipedia.org/wiki/Total_information_awareness

 

Total Information Awareness (TIA)...achieved by creating enormous computer databases to gather and store the personal information of everyone in the United States, including personal e-mails, social networks, credit card records, phone calls, medical records, and numerous other sources including, without any requirement for a search warrant. This information would then be analyzed to look for suspicious activities, connections between individuals, and "threats".

 

If anyone thinks for a minute that the plan for a New World Order isn't real nor a major threat to humanity , I suggest you conduct your own research free from bias.

Edited March 2, 2011 by Brentastic

[bushwacked]

Interesting article discussing potential market bubble.

 

 

After historic gains, are stocks nearing a bubble?

Federal Reserve Chairman Ben Bernanke fielded the usual questions about inflation, tax cuts and government debt during a trip to Congress last week. Then a new question popped up: Is the Fed creating another bubble in stock prices?

 

By MATTHEW CRAFT and DAVID K. RANDALL

AP Business Writers

Federal Reserve Chairman Ben Bernanke fielded the usual questions about inflation, tax cuts and government debt during a trip to Congress last week. Then a new question popped up: Is the Fed creating another bubble in stock prices?

 

Bernanke told the Senate Banking Committee he saw "little evidence" that was happening. But he cautioned: "Of course, nobody can know for sure."

 

That's the problem with bubbles. You only know you're in one when it pops.

 

This week is the second anniversary of the bull market that followed the financial meltdown. The Standard & Poor's 500-stock index is in its fastest climb since 1955, doubling since the market bottomed on March 9, 2009. In January and February alone, it's up 5.5 percent, the best start to a year since 1998.

 

Stock bubbles are famously hard to define. In 1999, for instance, investors thought it was perfectly rational to pay 62 times a company's earnings per share for a technology stock because it seemed dot-com companies couldn't lose. They only realized their error when many of those companies turned out to be nothing more than slick marketing ploys.

 

After two bubbles in the past 10 years - tech stocks and real estate - investors are suspicious of consistent gains that seem too good to be true. Some worry that the Fed's dramatic measures to pump up the economy mean the market's gains are an illusion. But a range of measurements suggest the market isn't in the midst of a bubble now. Instead, the stock market may simply be back to normal.

 

"The last two years were the great giveaway," says Stephen Lieber, the chief investment officer responsible for $6 billion in assets at Alpine Mutual Funds. Stocks had fallen so low during the panic that anyone who bought stocks on March 9, 2009, received a once-in-a-lifetime deal, he says. Caterpillar Inc., for instance, closed below $24 that day. It's now above $100.

 

While stock prices are much higher than they were two years ago, Bob Doll, market strategist for asset-management giant BlackRock, says investors aren't irrationally optimistic.

 

"Bubbles occur when there are high valuations, evidence of lots of borrowing to lever up to buy something," he says. "When I look around the landscape I have a hard time finding anything that looks like that."

 

One sign of a bubble would be if stocks rose far beyond what's normal by historical standards, says Bill Stone, chief investment strategist at PNC Asset Management Group. By that measure, it's not happening yet. According to Stone's research, since 1928, the average bull market runs almost five years and gains 164 percent. By comparison, this bull market has barely hit middle age.

 

The fundamentals of the stock market don't suggest a bubble, either. The S&P 500 index now trades at 17.4 times the earnings of its stocks over the past year. In March 1999, during the tech bubble, the multiple was 30.6.

 

Corporations are expected to make record profits this year and have enough cash - $2 trillion - to pay bigger dividends and start buying back shares of stock, both of which make stocks more valuable.

 

"Corporate balance sheets haven't been in better shape over the last 200 years, period," says Joe Davis, the chief economist at fund giant Vanguard.

 

And there's no ignoring the economic recovery. The economy was shrinking at almost a 5 percent annual rate when stocks bottomed in 2009. Now it's growing at almost a 3 percent pace. Businesses added 222,000 jobs in February, the most since April 2010, and unemployment has fallen almost a full percentage point in three months.

 

"The economy is absolutely justifying what is happening in the stock market," says Liz Ann Sonders, an investment strategist at Charles Schwab.

 

Some investors say there isn't a bubble yet but worry that the market is in the first stages of inflating one. Rob Arnott, the founder of investment firm Research Affliates, thinks the stock market is "dangerously" overpriced. He points to Apple, which has a $321 billion market value, making it the second-largest company in the world behind Exxon Mobil. By revenue, profits or payouts to investors, however, Apple fails to crack the top 20, Arnott says.

 

"They have wonderful products and a finger on the pulse of the consumer like nobody else," Arnott says. "But the second-largest on the planet must mean Apple is the second-largest source of profits. Boy, that's a stretch."

 

Judged by other measures of value, the companies that make up the S&P 500 look rich. Investors are paying 24 times inflation-adjusted earnings over the last decade. The historical average is 16. That ratio could climb if people push stock prices higher because they expect earnings to catch up. But Arnott believes people are already underestimating larger problems ahead. The U.S. government's $14 trillion in debt and a greater share of the work force hitting retirement are both bound to drag down economic growth. "That's quite a hurricane," he says.

 

Legendary investor Jeremy Grantham, chief investment strategist of GMO, has a knack for timing. In a letter to investors released in early March 2009, Grantham argued it was impossible to declare a bottom in the stock market but said its steep drop was reason enough to jump back in. He predicted that the combined efforts of the Fed and government spending would spur a stock rally "far in excess of anything justified by either long-term or short-term fundamentals."

 

Grantham remains a critic of the Fed's stimulus program but isn't willing to say stocks have reached bubble territory. At least not yet. If the S&P 500, at 1,321 on Friday, climbs to 1,500 by October, then watch out. At that point, he says, "it will be a market looking for an excuse to go. On the first piece of really bad news, it will make a determined effort to tank."

Edited March 7, 2011 by bushwacked

[Brentastic]

I was clearly wrong about my short-term call that 2010 would be a down year and that we would be at the Mar 09 lows by now. However, my long-term forecast still remains fully intact and I continue to be adamant that the bear market will resume and pull stock market prices below the Mar 09 lows and that a deflationary depression will be recognized by everyone within a few years. Full on deflation takes time to tighten its grip. Major stock market tops take time too as investors scramble from market to market trying to squeeze the last bit of yield.

 

I half-heartedly believe that a market top is being made right now. However, because so many investors are foolishly optimistic on stocks and with the psychological aid of QE2, the market could remain irrational for another year before turning over. Nonetheless, everyone should be cash heavy in preparation of what's to come because when it hits, it's gonna hit hard and fast. If you're sitting on your hands, you may not be able to react quickly enough. Once mass defaults rule the headlines there will be a mad dash for cash.

[i_am_the_swammi]

Once mass defaults rule the headlines there will be a mad dash for cash.

 

Not sure we dip to 3/09 lows, but with the bolded part I 100% agree. There is a ton of pain still to be felt by the major banks. We just worked out a loan with Wells Fargo on our Hartford hotel, and they took a $8M write-down without even raising a fist. These transactions will hit theirs and others' balance sheets in the coming quarters.

Edited March 7, 2011 by i_am_the_swammi

[Brentastic]

Not sure we dip to 3/09 lows, but with the bolded part I 100% agree. There is a ton of pain still to be felt by the major banks. We just worked out a loan with Wells Fargo on our Hartford hotel, and they took a $8M write-down without even raising a fist. These transactions will hit theirs and others' balance sheets in the coming quarters.

Where was your support last year when I was saying the same thing

 

On a serious note, if everyone stopped reading/watching financial news and just looked at what's going on here in America and around the world in regards to over-saturation of credit, my forecasts should seem fairly obvious. It's just that it takes time to be fully recognized and most investors have a short-term mentality or overly long term (30+ years). The next decade is going to be worse than the prior (2000-2010).

[MikesVikes]

I was clearly wrong about my short-term call that 2010 would be a down year and that we would be at the Mar 09 lows by now. However, my long-term forecast still remains fully intact and I continue to be adamant that the bear market will resume and pull stock market prices below the Mar 09 lows and that a deflationary depression will be recognized by everyone within a few years. Full on deflation takes time to tighten its grip. Major stock market tops take time too as investors scramble from market to market trying to squeeze the last bit of yield.

 

I half-heartedly believe that a market top is being made right now. However, because so many investors are foolishly optimistic on stocks and with the psychological aid of QE2, the market could remain irrational for another year before turning over. Nonetheless, everyone should be cash heavy in preparation of what's to come because when it hits, it's gonna hit hard and fast. If you're sitting on your hands, you may not be able to react quickly enough. Once mass defaults rule the headlines there will be a mad dash for cash.

 

I just think that the markets have every reason to drop right now but with conflicting good news and bad news it is staying level. The market seams to want to climb with every reason not to do so, so there seems to be a enough confidence to sustain the markets right now. My 2 cents that is worth less, imo.

Edited March 7, 2011 by MikesVikes

[bpwallace49]

2 years after market low, the little guy is back

As the bull market turns 2, investors flood back into stocks, more confident but still wary

 

 

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EmailPrint..Companies:Bank of America Corporation ComJohnson & Johnson Common StockProcter & Gamble Company (The).

FILE - In this March 2, 2011 file photo, specialist John Urbanowicz, left, works at his post on the floor of the New York Stock Exchange. The stock market's fastest climb in decades reaches the two-year mark Wednesday, March 9, yet investors aren't exuberant. They're cautious and watching their stocks closely for fear that they might experience another meltdown. (AP Photo/Richard Drew, file)

 

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{"s" : "bac,jnj,pg","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} Dave Carpenter, AP Personal Finance Writer, On Tuesday March 8, 2011, 4:25 pm EST

CHICAGO (AP) -- As a historic bull market reaches its second birthday, everyday investors are piling back into stocks, finally ready for more risk and hoping the rally has further to go.

 

The Standard & Poor's 500 index has almost doubled since March 9, 2009, when it hit a 12-year low after the financial crisis. And the Dow Jones industrials are back above 12,000, about 2,000 points shy of their all-time high.

 

Little-guy investors appear to be on board. Since the beginning of the year, investors have put $24.2 billion into U.S. stock mutual funds, according to the Investment Company Institute. They withdrew $96.7 billion in 2010.

 

"It didn't feel right to be back in until now," says Richard Dukas, who heads a public relations firm in New York City. "I still don't want to put all my money in the market, but I believe we've come through the worst of it."

 

After the 2008 financial meltdown, Dukas and his wife converted their 401(k) retirement accounts into cash. They had been burned during the bubble in technology stocks a decade ago, and Dukas says he has been "extremely skittish" ever since.

 

Now Dukas, 48, says 85 percent of his portfolio is back in mutual funds, although he maintains a small cushion of cash.

 

More job security, strengthening retirement account balances and improvement in the overall U.S. economy are some of the factors that have brought everyday investors back to the market. A snapshot of what's happened:

 

-- The outlook of investors as measured by stock newsletters and market surveys has been extremely bullish for two or three months, says Mark Arbeter, chief technical strategist for S&P Equity Research.

 

-- Many workers have enjoyed seeing their 401(k) balances return to where they stood at the market's peak because they kept contributing during the down years. Many who have maintained their 401(k) accounts for a decade or longer still have some ground to make up because of their larger starting balances.

 

-- Americans who still have jobs are as secure as they've been in 14 years. That's because the number of planned layoffs has fallen to a low, according to outplacement firm Challenger, Gray & Christmas.

 

The combination has boosted confidence and brought investors back to a rising market. The Dow closed Tuesday's trading at 12,214, up 87 percent from the 2009 low. It's still 14 percent below its all-time high in October 2007.

 

While the economy is improving, it will take a lot longer to erase the abject fear that average investors have felt about owning stocks the last two years, says Jason Trennert, chief investment strategist for Strategas Research Partners in New York.

 

One reason to set aside their reservations: They can't find a better place to stash their money. The bull market in bonds has ended, money-market accounts are returning 1 percent or less, and the average two-year CD earns no more than 1.5 percent.

 

As a result, many investors returning to the market are tiptoeing back in. They're buying what Trennert calls "stocks that look like bonds" -- dividend-paying blue chips that they hope will hedge their risk by guaranteeing at least a dividend payout.

 

For example, while stocks like Johnson & Johnson and Procter & Gamble haven't gone up much since 2009, their yields -- 3.5 percent and 3.1 percent, respectively -- mean investors can still pocket something.

 

"What swayed me is being frustrated having my money parked where it's earning almost nothing," says Debra Condren, a New York business consultant, who has been easing back into the market over the last four months. She still has only 30 percent of her investments in stocks, compared with 80 to 85 percent before the crash.

 

Besides reinvesting gradually, Condren says she's much more vigilant about her stocks. She says she won't hesitate to sell if she doesn't like what she sees in the market or senses a shift based on world events.

 

Among professional money managers, the shift back into stocks has been more dramatic. A February survey by Bank of America-Merrill Lynch of 270 top investment managers found them more bullish about stocks than at any time in the past decade.

 

But history shows experts may not have better insight about what's next. Plus, individual investors notoriously follow the crowd. So is it a worrisome sign that they're flocking back?

 

"Investors have the tendency to make the wrong decisions behaviorally," says Christopher Geczy, academic director of the Wealth Management Initiative at the University of Pennsylvania's Wharton School.

 

When they pile in or out of stocks, he says, it often signals that the market is about to turn in the opposite direction. For instance, investors pumped nearly $91 billion into stock funds in 2007, just as the market was reaching its all-time peak.

 

Yet analysts point to signs that the run could keep going for quite a while, as long as the economy cooperates. Corporations are still sitting on billions of dollars in cash that they may ultimately put to work in the market.

 

The S&P 500 has an average gain of 17 percent in the third year of a presidential cycle. But the market also tends to grow much more slowly in the third year of a bull run.

 

Stock prices are still not high by historic standards. The S&P 500 index now trades at 15.6 times the operating earnings of its stocks over the past year, well under the historical average of 19.3.

 

There are plenty of investors still looking for an opportunity to get back in. Kenneth Kracmer, who owns a marketing firm in Dallas, is restless after cutting his stock allocation by half, to 30 percent.

 

But he worries about unemployment, state governments in financial distress and a market he sees as artificially high in view of all the challenging economic news.

 

Other investors are clearly on edge, too. Before Tuesday, the market had fallen nearly 3 percent in two and a half weeks because of concerns about unrest in the Middle East.

 

"I want to play it smart until there's a little bit of economic certainty," Kracmer says. "I don't want to get in just before another drop."

 

[Big Country]

That article makes me want to pull back out a bit.

 

Once the general populace is bullish and flooding in to the stock market, it is time to back off. Not saying pull out completely all doom and gloom, but expect a bit of a retreat from these current highs.

[Ursa Majoris]

The "little guy" is obviously an idiot, apparently. Anyone with half a brain went all-in over two years ago. Returns now will flatten considerably but IMO it is worth staying in through the end of the year........but pay close attention.

[Brentastic]

That article makes me want to pull back out a bit.

 

Once the general populace is bullish and flooding in to the stock market, it is time to back off. Not saying pull out completely all doom and gloom, but expect a bit of a retreat from these current highs.

This is exactly right. Once the retail investors start getting into the market is exactly the time the big boys pull the plug (sell into the buying). This rally is unsustainable and is very close to turning if it hasn't already. 2011 may be a sideways year but just looking at the big swings of the last 2 weeks is enough to warrant caution even from the most bullish investor.

[MikesVikes]

Not a winning day for the Stock Market.

 

Only one stock mentioned in the Top Stocks in this Index (for the Dow) section shows a gain on the day. During one point of the day, even McdonaldS Corp. showed a loss making it a clean sweep of all major companies showing red.

[bpwallace49]

It wont be long now

[The Irish Doggy]

I'm starting to think the bear will be back this spring after first quarter earnings come in.

Edited March 12, 2011 by The Irish Doggy

[Brentastic]

I'm starting to think the bear will be back this spring after first quarter earnings come in.

I think you're gonna be sorry if you wait until 1st qtr earnings before getting out of equities. Like I said a few posts above, the market has shown itself the last few weeks and the time to get out is now. When the market swings daily by several hundred point increments, in both directions, regularly over a 3 week span, something's a brewin'. Know what I'm sayin'? Nobody can be certain about the market, I'm just saying that probability does not favor the long side of equities at this moment and imo, for an even longer duration of several years.

[wiegie]

Dow closed above 13,000 today for the first time since 2008.

[yo mama]

Dow closed above 13,000 today for the first time since 2008.

 

Dow be nimble, Dow be quick, Dow jump over the bear engulfing candlestick.

[bushwacked]

Dow be nimble, Dow be quick, Dow jump over the bear engulfing candlestick.

 

 

[SheikYerbuti]

Dow closed above 13,000 today for the first time since 2008.

 

 

And let's also mention that the S&P is trading at a low multiple when compared with historical valuations. . .something in the 13 range. So, stocks are for the most part, still cheap.

[Brentastic]

So you guys must think the worst is behind us?