Interesting article. I'm already in the camp of an extended correction and far lower prices ahead. Todays big bounce was another head fake.
Tech and Nine, here is part of a recent piece done by Brian Wesbury and Bob Stein of First Trust. Hopefully they have it right.
>>>As we have said before, anxiety has reached such
dramatic levels that economic-hypochondria has taken over the punditry and many investors. This is unfortunate.
History shows Great Depressions are very rare things. Believing that one is happening again, and buying gold or sitting in cash is a risky strategy.
Yes, tax rates are scheduled to go higher. We get it. But, they won’t move up until next year at the earliest, and the actual size of the tax hike may be affected dramatically
by the election in November.
Moreover, tax rates were
much higher in the past and the US did not collapse. And, yes, government is growing like crazy and deficits are huge (unbelievably huge). But this does not guarantee
The US still has $150 trillion in assets and more
than $15 trillion in annual output. A company of that size could easily afford to carry $10 trillion in debt.
Don’t get us wrong. We think government is too big and
too intrusive and it will harm the economy over time. But, it will not kill the economy today, or even next year.
Productivity is booming. New technology is lifting wealth,
and living standards are rising – despite government growth.
Some might say that it is not the Great Depression we
should worry about, but the 1970s all over again. This, we can agree with. However, during certain periods of that decade, particularly during 1975-76, the economy and the stock market both boomed. That’s what we are experiencing right now – a boom amidst an uncertain future.<<<
Thanks rummy. I'm under no misconceptions about the economy and esp the size (and potential impact) of govt. My only point is that from a technical perspective the market "appears" headed back down to test some prior lows. Will it? Who knows. My crystal ball is collecting dust in the attic. Summer months aren't particularly strong for stocks, and while earnings have improved (exponentially in some cases), future earnings are going to take a hit as a result of disappearing stimulus dollars and now, to a greater extent, the impact of a weakened euro on global companies. Ideally I would want to own companies whose costs are denominated in euros and sales in dollars (i.e. SAP). But even SAP has been consistently lower recently.
I posted only a contrarian argument. It was an extreme opinion I don't share. I do however believe we are headed lower over the coming months. One piece of good news can change everything but the last time that FUD hit the markets like this, the buying didn't start until PE's were in the sub-13 range. We're around 20 now. Plenty of room for additional correction. I'm being prudent and protecting against the downside. I prefer to lose my premiums and see a market recovery. Lots of overhead resistance now though.
like I said, everyone has an opinion. What I see however, is corporate profits doubling, even trebling from the dregs of last year. I read about how the market is overpriced based upon CURRENT eps. Let's wait until the next quarter.
I'm not buying any worst case scenarios, but if you think the global economy won't take the market down to test the July 2009 lows by the end of this year, I recommend you reconsider. This market is automated to start selling off on a break of key technical levels which has taken out 3 months worth of gains in three weeks. Its extremely weak, the S&P couldn't even poke through its 3 day high on this mornings bounce. If you choose to stick your head in the sand and refuse to believe it can happen, thats up to you. Markets don't care whether its justified or not. Its about capital preservation and when the market is being propped up on smoke and mirrors, you should pay attention. I'm not our resident 'charts don't lie' idiot. But technicals tell a story that says you better keep some tight stops in place if you want to keep your money. I don't need any shelters... I'm well protected. GL!