s berg, I have stated a number of time that we possibly have ahead of us a multi year period of sharp rises and declines in the market, so LTBH is not for that period, and on this point we agree. I have also stated that getting above the all time high in the naz will take a very long time as well, and since secular bull markets are characterized by the markets getting to new all time highs, we agree on that point as well. We even agree on the point of 6000 on the Dow (and not just one trip but possibly two more such swoon down in the next few years). So it seems we disagree more on the prospects for the 3 to 6 quarters.
1. The recession, it is not as worldwide as it seems, but it is wide spread (China and former east block countries are not in the current malaise). But if the US pulls out (and we'll see what could pull it out), it may pull out the rest of the world with it. Let's assume that the turnips model is "right" and we have another test of the September lows, that would imply the current recession ending at the beginning of the third quarter next year, that will be four quarters of negative GDP. That is a long recession by post WWII standards, I don't have the numbers in front of me, but if memory serves, only one recession in the 66/82 stretch was longer.
2. The current recession is related to "cap ex", and I don't think we disagree with that (that is what I called corporate rather than consumer led recession). It is even more than just cap-ex, it is an excess capacity recession accompanied by massive misinvestments that will need to be written off, as well as excess inventories that need to be written off). We are well in the drastic process of doing that with a full 600 Naz companies having been delisted, so far. Inventories have been largely "corrected" (yes, few still have some hard work on that like MU, SSTI and SNDK, but CSCO massive write offs, took a bunch of that inventory out of the equation), an a lot of "misinvestments written off as well (take just $50 B from JDSU, or just this one, .5% of GDP)
3. I have no disagreement about your point 3, it is actually one of the reasons I have a "double dip" recession coming. But right now, we must face the fact that that a very large stimulus has been put to work, it has five prongs:
A. direct pumping by the feds
B. post disaster government and insurance companies disbursements
C. tax rebates and impending tax cuts
D. impact of low interest rates
E. a 30% cut in crude costs.
These five elements together have a $300 to 350 Billions impact on the economy, that is 3% to 3.5% of GDP on an annualized basis. My guestimate maybe quite low, since I have $50 B for A, $100 B for B, $100 B for C (including the $30 B already disbursed), 80 B for D and $100 B for E (I am not using the whole $430 B in my guestimate, because D and E may not be there for a whole year). Thus even if "in the natural course" of events, the economy was to decline by 2.5% for the next four quarters, these injections will end up compensating for that sometime next year. What comes after this injection has been dissipated? Another adjustment down, just as I have been suggesting for quite some time. I don't know the timing right now because I have no idea what the tax situation will be, how long crude is going to hover around $20/barrel, and how fast our balance of payments are going to balloon again (in our effort to help the rest of the world to come out of the current malaise).
4. Sharp rallies indeed do not end bear markets (we had an even sharper rally from the April lows, yet I suggested then "wait till the October lows"). So what is the difference? The extreme technical readings in sentiments we had at the September lows, not only did we have a long string of more than seven sessions (three before 9/11 and four after) of extreme readings in various sentiment indicators, but we have an excessive pessimism as indicated by the Naz registering more than 900 new lows (mind you, on top of the 400 would have been new lows of all those 600 companies that were delisted since the December/ early January lows). This coupled with the fundamental stimulus being reigned on the economy as per "3", make me quite optimistic relative to the market over the intermediate term (the next three to six quarters).
5. Our last "secular" bull market denouement took 16 years, with some very healthy bull markets in between. I doubt it will take that long this time, but it will take few bear markets until we get back to "traditional" valuations.
Zeev |
