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Strategies & Market Trends : Longer-Term Market Trends -- Ignore unavailable to you. Want to Upgrade?

To: AllansAlias who wrote (1868)	10/7/2008 11:54:44 AM
From: Perspective	2 Recommendations Read Replies (1) \| Respond to of 3209

In that spirit, you may wish to see my musings to Chancels. Not terribly technical, but certainly long-term in nature. Message 25037004 That's a nice, thought-provoking post. Thank you. It may be the kick in the rear I need to pick up some hedging. I would agree with you if I were simply looking at index charts, and if I thought this was a 1987 or 1990 or even 2001 bear event. However, an index is composed of individual stocks, and when I look at individual stocks, the picture is one of an incomplete bear. Just looking at the 30 DJIA components, I would say the probability that any individual stock has found bottom falls into the following bins (just my gut impressions): LIKELY (>50%): AA MRK POSSIBLE (50%): BA DD UNLIKELY (<50%): CAT GE GM HON JNJ MMM UTX XOM VERY UNLIKELY (<25%): DIS HPQ IBM KO MCD PG The cyclicals have been murdered. They might be there. There's a reason they're called "early" cyclicals. However, the general impression I'm left with is that there are entire sectors that haven't had their turn yet. Those include a lot of tech, and - oddly enough - many consumer issues which I would have expected to be first off the cliff in this bear. In the interests of full disclosure, I believe what we're dealing with here is a major, generational bear. 1987 was a magnitude 6.0. 1998 was barely a 5.0. 2001 might have approached a 7.0 event. What is going on now is the bursting of THE credit bubble, and the biggest global asset bubble in decades, perhaps forever. This is the magnitude 8.0 event, on the level of the 1930s or 1970s bears. If you think that is true, then I'm probably being generous in the DJIA bottom probabilities I posted. This is the kind of bear that ends not with a bang, but a whimper. I expect stocks to simply become ignored. Trust in Wall Street is shattered, and asset prices must come to reflect that. Wall Street has ceased to add value, and has become a net negative for society. The other critical shift that has occurred that makes this substantially different from the prior cyclical bears is the dramatic jump in real interest rates. The financial "innovations" that made <5% borrowing possible for so many economic participants are gone. Those are what enabled the >20PE multiples of the past decade. Unlike 1987, 1990, 1998, and 2001, you can't just lower interest rates and have corporate interest rates go back to 5%. And that means competition for investment dollars is now going to come closer to 10%. I see many stocks that don't reflect even a hint of that tectonic shift, let alone the potential that the income streams of yesteryear could be gone for a long time to come. If something magical happens and corporate borrowing rates somehow plunge back below 5%, I'll revisit this view, but I don't think even the Fed or Treasury can make that happen. We simply can't forestall forever the market pressure to price the entire universe of corporate risk appropriately. EDIT: I would note that the global recession is on. That means a lot of the heavy exporters are in trouble. But, I think the recession will end much more quickly in emerging economies such as China and Russia. Still not so sure about the heavily commodity-dependent ones. Brazil and India look to have a lot more trouble to work through yet to my eye. I'll be perusing the NDX to get an impression of those component stocks as well. Letcha know what I think. `BC