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Equities might not have even started to go up yet
- Thread starter ralph00
- Start date
Quote from ralph00:
A 50% move off the March lows might just be chump change to what is ahead. For all the bears running around screaming "bubble" again, things have been pretty orderly. What happens when the great tech IPO machine cranks up? Short sellers or buyers of long dated treasuries might want to save what little money they have left and consider it.
We're up about 68%, not 50%.
Anyone who has been shorting the ES or buying long bonds continually for the last 9 months with no stop is unlikely to listen to advice now.
Quote from ralph00:
^^^ You've got to be kidding.
El-erian's prediction #1 is that stocks will suffer a 10% drop at some point, though he's not saying when.
Prediction #2 is that unemployment will be above 8% a year from now.
That's really out-on-a-limb stuff there.
Compared to your gems of wisdom, which are what? That the markets are going higher with no end in sight?
That is not what I said at all. The point of the original post was that its possible that we haven't even started to see a booming stock market yet. What happens in 2010 if the IPO machine gets cranking? I couldn't care less about twitter, yelp or any of those other worthless companies. That doesn't mean they couldn't raise 10s of billions in spectacular IPOs and ignite another huge leg to this rally. I mean Shittybank, with a negative net worth of hundreds of billions, just raised billions. Why can't Twitter.
As for the El-erian interview, those predictions bordered on the silly - unemployment to remain above 8% over the next 12 months. I have to believe he was misquoted because he's too smart to say something as empty as that.
As for the El-erian interview, those predictions bordered on the silly - unemployment to remain above 8% over the next 12 months. I have to believe he was misquoted because he's too smart to say something as empty as that.
Quote from ralph00:
That is not what I said at all. The point of the original post was that its possible that we haven't even started to see a booming stock market yet. What happens in 2010 if the IPO machine gets cranking? I couldn't care less about twitter, yelp or any of those other worthless companies. That doesn't mean they couldn't raise 10s of billions in spectacular IPOs and ignite another huge leg to this rally. I mean Shittybank, with a negative net worth of hundreds of billions, just raised billions. Why can't Twitter.
As for the El-erian interview, those predictions bordered on the silly - unemployment to remain above 8% over the next 12 months. I have to believe he was misquoted because he's too smart to say something as empty as that.
I didn't find that quote of his to be interesting, I found some of the other color of the rational somewhat interesting.
Yes, if your point is that any ridiculous thing can happen, then yeah, markets are irrational, and there are plenty of powerful interests who need things to remain Good(TM).
That said, Shittybank has the force of the US Government as a major shareholder. Yelp and Twitter, not so much.
I'll see your optimism, and raise you my pessimism.
Good luck either way with your trading. There are smart ways to hedge with the wide variety of instruments that are available. Not everything has to be a directional bet.
Quote from ralph00:
That is not what I said at all. The point of the original post was that its possible that we haven't even started to see a booming stock market yet.
Recoveries from big bear markets are usually front-loaded. Years 2 and 3 generally see the markets treading water with a slight upward bias and at least one meaningful correction. E.g. 1933-35, 1975-77, 2003-2005, emerging markets from 1999-2001 and so on.
Bear in mind that the biggest rally in the US was 1932 and that was after an 89% bear market. This time we had a 58% decline and have had a 70% rally. I doubt we are going to have a gain as big as the 1932-33 rally. That means a likely top significantly before we approach 1932-33 in magnitude. Here are some levels:
1200 = 80% rally
1300 = 95% rally
1400 = 110% rally
I really doubt we are going to have a rally close to the one off the 1932 lows. I suspect something like 1200-1250 is a likely maximum upside for the current rally. That is also far enough (7-10%) to incorporate a bit of "crazy" speculation coming in too.
To get even close to the returns from the mid to late 90s, we would have to take out the 2007 highs some time in 2010 or 2011. When was the last bubble where the bubble high was breached within 2 years of the bear market low? It has never happened. In order for the pattern of prior crashes and recoveries to maintain, this rally would peter out significantly below the bubble top of 1576.
Your analogy year of 1995 was also 5-6 years after the top of the prior credit boom, and 3 years after the bear market low, whereas 2010 is only 3 years after the top and 1 year after the low. 3 years after prior major bear lows we have 1935, 1977, 2005/06. Stock returns weren't bad but they weren't great either, nothing like the late 1990s.
Basically, the historical record doesn't support the idea of subsequent years having amazing upside. More likely is a little bit more upside, maybe to 1200-1250, and then a decent correction or wide long trading range. Looking at the eras mentioned should give an idea of what is more likely to happen IMO.
One last point - if something like a Twitter IPO coincides with a significant rally to 1200 or beyond, then that would be a classic timing factor to exit longs and start playing the short side in a signfiicant way. I would wager ready money that the market top occurs within a few weeks or even days if that IPO happens after a further rally from here. It would be the classic sucker play to go long after a 80%+ rally because a gogo company on a huge multiple does an IPO, and I will almost certainly short if and when that happens.
Quote from ralph00:
The point is that we could be in 1995 all over again. Folks then thought that the piper still had not been paid for the excesses of the 80s and that the multi-year rally in stocks was due for a major setback.
One wild and unfounded guess is as good as another.
I've just completed a book that has been discussed on this site - The Great Depression, A Diary, by B. Roth. Its was incredibly illuminating. Among many other things ...
And there is probably enough other books to cover the spectrum of wild guesses. Whichever one is accidentally right will be heralded and trumpeted several years from now...
The point is that we could be in 1995 all over again. Folks then thought that the piper still had not been paid for the excesses of the 80s and that the multi-year rally in stocks was due for a major setback.
One wild and unfounded guess is as good as another.
I've just completed a book that has been discussed on this site - The Great Depression, A Diary, by B. Roth. Its was incredibly illuminating. Among many other things ...
And there is probably enough other books to cover the spectrum of wild guesses. Whichever one is accidentally right will be heralded and trumpeted several years from now...
Yeah... he's been saying that since July:
Mohamed El-Erian: July Rally Was A "Sugar High"
http://www.businessinsider.com/mohamed-el-erian-july-rally-was-a-sugar-high-2009-7
Mohamed El-Erian: July Rally Was A "Sugar High"
http://www.businessinsider.com/mohamed-el-erian-july-rally-was-a-sugar-high-2009-7
Quote from psytrade:
biggest money manager in the world- pimco disagrees..
http://finance.yahoo.com/news/Stock...5.html?x=0&sec=topStories&pos=5&asset=&ccode=
I don't believe in the tech IPO thesis the OP posted at all. But I do think that oil and resource firms are going to, in the next few years, be considered 'non-cyclicals', as opposed to the traditional definition of oil and resources being cyclical.
Thus, non-cyclical valuations will be placed upon such stocks.
Oil profits over the past couple of years have barely even fallen, and $80 seems to be the new floor -- not the $10 of the past. Get a good economy, and there's spectacular upside available.
Basically, as time goes on -- the Fed will be looking for more asset classes to monetize, as they eventually chew through the entire outstanding mortgage issuance, trying to fight deflation. The oil and gas industry is mostly unencumbered by debt at this point, so is ripe for monetization. With the taps of cheap Fed credit open, it would make perfect sense for, say, XOM, to borrow its entire market cap, and pay the current market price of every share. The non-financial sector of the economy is way under-leveraged anyways relative to historic norms.
My bizarre scenario aside...I think the fact that is greatly under-appreciated is that there are plenty of solid businesses out there making great sales, which have unprecedented and extraordinary access to low-cost credit in this environment, which, at an opportune time, could be used to ramp up dividends.
Thus, non-cyclical valuations will be placed upon such stocks.
Oil profits over the past couple of years have barely even fallen, and $80 seems to be the new floor -- not the $10 of the past. Get a good economy, and there's spectacular upside available.
Basically, as time goes on -- the Fed will be looking for more asset classes to monetize, as they eventually chew through the entire outstanding mortgage issuance, trying to fight deflation. The oil and gas industry is mostly unencumbered by debt at this point, so is ripe for monetization. With the taps of cheap Fed credit open, it would make perfect sense for, say, XOM, to borrow its entire market cap, and pay the current market price of every share. The non-financial sector of the economy is way under-leveraged anyways relative to historic norms.
My bizarre scenario aside...I think the fact that is greatly under-appreciated is that there are plenty of solid businesses out there making great sales, which have unprecedented and extraordinary access to low-cost credit in this environment, which, at an opportune time, could be used to ramp up dividends.