September 28, 2010: Is the Battle Over?
September 28th, 2010
This morning on Bloomberg, a prediction was made for Dow 38,820 by 2025. Separately, a money manger called expectations for a ”new normal” (painfully slow growth coupled with persistently high unemployment) idiotic and said he expects a “great decade” for stocks.
So, are the bears finally dead forever? Is it really different this time? Has selling officially become dumb?
September, which is typically a weak month for the market, has been superb. With fifteen trading hours remaining in the month and quarter, the major averages have logged the following gains for September. Dow 30 +8.21%, S&P 500 +9.26%, Naz 100 +13.68%, and Ru 2000 +11.51%. Not only are those gains by far the best monthly gains in 2010, but they comprise the best broad market showing since April 2009. Individually, The Dow 30 is having its best month since July 2009 while the S&P 500 and Russell 2000 are having their best months since April 2009.
The NASDAQ 100 is on a whole different planet, technically speaking. The index is having its strongest monthly showing since October 2002 when it rallied 18.86%. Going back a bit further, in April 2001 the index rallied 17.92%. While it rallied an additional 11.6% by the May 2001 peak, the index abruptly reversed into a seventeen-month, 61.6% decline.
Since its bear market low in November 2008, the NAZ 100 has produced gains in fifteen months while producing losses in seven months. From THE low, the index rallied 102.1% over the next seventeen months while the industry philosophically debated the pros and cons of expansive government intervention and aggressive stimulus measures.
Regardless of where you come down on the government intervention question, the market is a huge fan of it. One of the most widely-quipped market sayings is, “don’t fight the Fed”. Since January 2009, the Fed Funds rate has been at 0-0.25% and at the conclusion of each of the twenty FOMC meetings since January 2009, the market has primarily been concerned with language (Fed-speak) that promises or strongly implies that the Fed will keep pumping liquidity into the Financial system as long as necessary (or it is able to do so). The current key phrase looked for by the market in relation to how long the Fed’s programs will stay engaged is, “for an extended period”. As long as that phrase can be extracted out of the Fed’s statement, markets are happy.
Federal spending is sure to be a popular topic as mid-term election campaigns kick into overdrive. Any overtones that the government may slow or stop its on-going stimulative policies could set the stage for at least a challenge of the current bullish psychology that is firmly in control of the prevailing trend.
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September 14, 2010: Back-to-School Thoughts
September 14th, 2010
August Retail Sales came out this morning and showed a +0.4% gain over July’s final number. Despite July’s number being revised to +0.3% from the +0.4% that was originally reported, today’s data shows that consumers are still spending. The question is how much stuff are they buying with their cash. Wholesale and Business Inventories both posted enormous gains in July. Wholesale Inventories for July (reported last week) jumped +1.6% (est. +0.4%) and Business Inventories (reported this morning) jumped +1.0% (est. was +0.5%) which was in addition to June’s upwardly revised +0.5% (original report was +0.3%).
Today’s Retail Sales report also showed that Retailers’ Inventories grew by +0.7% in July after growing by +1.1% in June. The bet seemed to be on a superb back-to-school selling season after retailers built up stockpiles. Today’s Retail Sales, on the surface, made a strong statement regarding consumers’ apparent willingness to keep on spending.
In a Bloomberg report, the following was said: ”Demand at stores like Kohl’s and Ross Stores climbed as more states had tax-free holidays and some merchants offered bigger discounts to lure back-to-school shoppers.”
While it is normal for this time of year to see aggressive discounts, the massive inventory build seems to point to an extremely big bet on merchandise-hungry consumers.
As an aside, in the September 12 Washington Post, an article was written entitled, “Grim Expectations for Report on Poverty in the United States”. The articles lays out expectations for 2009 Census data on growth in numbers of people at or below the poverty line which is thought to now be 15%; the highest level since 1993. That level is 13.6% higher than 2008’s level which would be the largest year-over-year increase on record. (Data began being tracked in 1959). That data implies one out of every seven people are at or below the poverty line.
The official report is expected later this week.
While implications of this data for the market are difficult to gauge, those data do seem to cast a bit of a cloud on the near term-prospects of Consumer Discretionary names. Further, if sales are being increasingly driven by tax-free holidays and discount programs, that could hurt EPS performance for retailers.
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September 7, 2010: Is it Different This Time?
September 7th, 2010
There has been a flood of articles in recent days and weeks about the “cheapness” of the market based on time-honored gauges such as the P/E ratio. Various money managers and strategists have been quoted as being positive on the market “in here”; wherever “here” was at the time. Those managers talked about how they have been buying stocks.
But they are always buying…and selling. Asset managers get pummelled by consultants and large institutional clients if their aggregate cash levels get much above 5% (95% invested). If a manager gets crazy bearish and raises his/her cash level to above 10%, that manager is thought to be waaay out on a limb. In an increasingly competitive asset management environment where margins are being compressed seemingly by the day, the risk of lagging in a massive short-squeeze by having more cash than “the crowd” is simply too great to take on. No one wants to explain a 10% cash position (or greater) if the market has rallied; regardless of how much or how little that rally can be fundamentally justified.
After an ugly August (the worst in twelve years for the Russell 2000 and the second worst in twelve years for the Dow 30, S&P 500 and NAZ 100), the first three days of September produced rallies of 4.36%-6.92%.
At last Friday’s highs (three days into the month), the indexes had rallied more than any full September of the past twelve years.
Odds favor relative strength in the Naz 100 (six of the past eleven Septembers have been winners) and relative weakness in the Dow 30 (only four of the past eleven Septembers have been winners). S&P 500 and Russell 2000 have both produced five winning Septembers of the past eleven years.
With investors applauding a less-bad BLS Employment last Friday, expectations are again for extremely strong data to come. While fireworks related to the upcoming mid-term elections will likely keep the markets volatile enough for anyone’s taste, September’s history does not tell a happy story for market bulls.
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August 31, 2010: Bracing for Fall (the season, that is)
August 31st, 2010
We live in an age in which anyone with a computer can write articles that span the world with the push of the “enter” key. The investment world has always operated with and as a result of mountains of information; even when that information did not flow all that fast. Completely open flow of ideas and opinions is a great thing for a mature, thinking society.
A recent pair of opinion articles really caught my eye.
On August 28, MarketWatch ran an opinion piece called, “The Death of Equities, Part 2?” which was an opinion on the opinion piece from the New York Times on August 27 in which the author reflected upon a 1979 Business Week cover story called (not-surprisingly), “The Death of Equities”.
The NYT article, in a cursory fashion, discussed some of the fears investors were facing in 1979 such as: economic uncertainty, acute indecision in the market which showed itself through hyper-volatility, geo-political worries, and a seemingly non-stop exodus of money from the market. After reminding the reader that it was “only” three years until THE market bottom was established, the article ended with an ominous warning for anyone who has been selling as of late. “It would be a sad twist if people were to mirror their recent excessive risk-taking with excessive caution now”.
The MarketWatch opinion piece had a fascinating comment as it basically said the same thing as the NYT piece in that a warning was issued for anyone who has been bearish or skeptical on the prospects of the next trend phase for the market. This piece ended with the following: “Is there a new bull-market ahead? Who knows? But articles like the front-page story in last Sunday’s Times (Aug 27 article) are one sign we may be much closer to the end of this long bear market than the beginning.”
The Major Averages (Dow 30, S&P 400, 500, and 600, NASDAQ 100, and Russell 2000) are 55% to 81% above their respective bear market lows from 2008-2009. The S&P Financials is the only sector index to be officially in bear market territory (down 21.5% from its recent peak). Even still, the index is up 131% from its bear market low.
Comparing 2007’s peaks (all-time highs for three of the four Averages) to 2010’s recovery highs reveals some interesting technical data points. The recovery highs for the Dow 30 and S&P 500 were below bear market thresholds relative to 2007’s highs. The Naz 100 and Russell 2000 blasted right up through their bear market thresholds and came within 8% and 12.9%, respectively, of their 2007 highs before reversing lower. If the “long bear market” comment was in relation to 2007’s all-time highs, then I would agree…we are in a long bear market. But looking at the returns from 2008’s-2009’s lows, it seems that “the market” has priced in a superb recovery and on-going good economic and corporate news.
Bear? Bull? It truly depends on your perspective. However, with the major averages down 20%-33% from 2007’s bull peaks but also up 55%-80% from their recent bear market lows, the broad market could be closer to an important top than it is to an exasperated market bottom.
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