A reader asks Roger,what are the fundamentals that you believe have to occur, perhaps as late as 2008 from what you wrote, to get the bull up running?
This is a follow-up to a post that I wrote the other day that opined the US stock market could be in for a good year sometime before the decade ends.
Well my original post and thought process has more to do with typical market behavior as opposed to building a fundamental case for 2008. Recessions and bear markets, on average, don't last as long as expansions and bull markets. The possibility of a recession has been on my mind for a long time. I have not tried to narrowly predict the timing of a recession but the yield curve has been warning of a slowing for a while and the average duration of an expansion is only so long before the cycle usually ends.
Someone can check my math but I believe the average expansion runs about 4 years and the average recession runs about 12-18 months. If Dr. Roubini's timing is correct and the recession is normal and when you factor in that the stock market usually turns up about six months before the economy you may see 2008 be a good year, or maybe 2009.
Here we are looking at how markets and cycles usually work, that's all. Dr. Roubini thinks the recession will be severe so maybe that pushes out a recovery by a year or so. Another aspect is that, as mentioned in the other post, most decades have two or three great years (as defined by up 20% or more). This decade has only had one great year.
This means little today. It creates a frame of mind for the future. If, big if, we have a normal recession starting 1q of 2007 and the BusinessWeek forecast for 2008 (which will run in mid December 2007) is very dire, by consensus, I would probably take the over and expect a very good year.
Clearly, there are a lot of things that will happen between now and then that could crystallize this scenario or render it useless. This is really meant as just thinking aloud.
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7 comments:
....and...it's just that simple!
Average expansion. Elliot waves. Rabbini somebody.
AND the sky IS really falling.
Everybody KNOWS the market is going down. So it will.
Right?
fair point. that is the right question.
for now this is a starting point for me to think about the future.
http://bigcharts.marketwatch.com/intchart/frames/frames.asp?symb=dyi&time=&freq=
Roger, GE is an old gorilla that fits into the repeated and repeated spin that large caps will have their day. In 2003 I allocated a full position to GE thinking that it is like a mutual fund I can hold long term. Great diversity in its divisions with forward looking technology in health, energy, airplane engines, and the ability to be one stop shop for finanacial infrastructure for those developing countries on the move. Problem is wall st has not bought their pitch.Ge is just a finance company and a proxy on the health of our economy. Yet, today, it made a move larger than the mkt. News that China will give it a license, given only to a limited number of institutions to ...well I'm not sure ..but something to do with access to china's currency. One day, one news story does not make a turning point. Having said that, is GE getting closer to improving its image on the street?
This is off topic...but an overriding point to make at this time, I think.
Sometimes, we fail to see the big picture. For capitalist markets to work, a strong national defense must be present (somewhere) to provide stability. This has fallen upon the United States in the 20th century to the present. We are now in danger of loosing this necessity as a result of a well-financed far left cabal that is as short sighted as were the minions identified with such men as Lindbergh and Chamberlain in the 1930s. World wars are begun, generally, as a result of one side being perceived as weak by a zealot or zealots. We are now at that brink. History has shown that neither gold,land,financial gurus, money in a mattress or the UN are the answer. Nor is fear. A steadfastness to preserve our economic democracy and world capitalist enterprise should be the number one priority of each and every investor, and that means supporting a strong military and the use of power to retain and enhance the one best economic sytem for improving the lot of the common man.This is pontificating, but in the sea of daily statistics and babble in the world of investing, the ultimate insurance policy mentioned above is rarely mentioned, and often deliberately ignored.
Other than Larry Kudlow, are there any bulls left? Hard avoid being some sort of contrarian.
I kind of like the "rolling bear" theory. A lot of tech, healthcare, retail, hombuilders of course, have had their bear market (if bear means down 20%). Energy, metals, and emerging cratered in May but have bounced back some. Does that mean the S&P still has to go down 20%?
Treading water . . . more defensive than I was 6 months ago but I've avoided major blow ups. (Other than "defensive" MDT lol).
re S&P decline, yes, fwiw, I'm expecting a non tech decline. Roger warns about big bets, but the degree of potential decline and the apparent pattern among sectors..ie rolling bear...i'm very defensive. Everyday I wonder if I should be raising more cash. With all this pessimism should it not be time to be bullish? I just don't know if all these bears have actually been selling.
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