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Stocks headed for a fall

MatthewMatthew
edited June 2007 in The Economy
MarketWatch
Stocks are headed for a fall
Wednesday February 21, 10:54 am ET
By Irwin Yamamoto

"The housing industry remains on the verge of a massive collapse. In our estimation, this real estate debacle is only in the top half of the second inning of a nine-inning ballgame."

read this article, its great.




http://tinyurl.com/yuxcq3
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Comments

  • downpaymentdownpayment
    I saw that yesterday and almost moved everything to cash after reading it, but decided to hold out. With Nikkei well above 18000 tonight and my long-term investment philosophy to hang on rather than try and "time the market", I figure I would hang in and weather the storm rather than panicking and making mistakes. Most other sources I've read call for a 10% correction in the next year (or sooner).
  • The_TimThe_Tim
    Much to my surprise, the Seattle Times printed a similar article today:

    Are stocks overdue for a correction?
    Housing is "the quintessential leading indicator of the economy," says Merrill Lynch economist David Rosenberg. ... The worst in housing, Rosenberg says, "is actually still ahead of us."
    ...
    "The market is often insane," says Fred Hickey, editor of the High Tech Strategist. "We saw that insanity in spades in 1999 and 2000," he says, and investors "ignored all the warnings then, too."
  • T, V & Mr. B.T, V & Mr. B.
    That coupled with, and causing the Debt-Market bomb as Jim Jubak states, is a very, very scary thing.
    there will be a quick reduction in the amount of money available to borrow and will force the global economy into a credit queeze. As I said before, Liquidity is what has raised the housing prices and when that is gone,.... poof! and I mean POOOOOOF!
  • synthetiksynthetik
    I think we'll probably see some kind of Black Monday type event here very shortly.

    I really think the implosion in subprime will be the catalyst for the markets to finally tank.

    The last few days have been really exciting...
  • PeckhammerPeckhammer
    synthetik wrote:
    I think we'll probably see some kind of Black Monday type event here very shortly.

    I really think the implosion in subprime will be the catalyst for the markets to finally tank.

    I look forward to the buying opportunity.
  • synthetiksynthetik
    What did you guys buy? I've got puts on FMT, LEND, PMI, WCI, HD, WM, DELL... most purchased prior to this week and Jan 08s, but a few a lot closer in.

    Dow was down almost 540 points at one point today. Wow!
  • EleuaEleua
    On Friday 2/23, synthetik said that a 'black monday' type of event was highly likely.

    On Tuesday 2/27 we came pretty darned close.

    Not bad shooting. Not bad at all...
  • synthetiksynthetik
    Yeah, I suppose for a "Black Monday" we'd have to lose about 2500 points off the DOW?

    Still, a "good" start. LOL

    Burn baby, burn.
  • WandererWanderer
    I got Russel ishares puts at 82 last week. Burn indeed. Its not that I HOPE the bounce today was an aberation... its just that I THINK it is. This isn't over yet.
  • synthetiksynthetik
    Evidently stocks have "normalized" and Cramer has called it a "huge buying opportunity"

    Personally I think this is the beginning of the end. No telling how much Bernanke's comments will "help" to further sustain this insanity.

    My guess is that by next week we'll be seeing more big drops and volatility.
  • T, V & Mr. B.T, V & Mr. B.
    Normally I like Cramer, but he of all people should know not to try and catch a falling knife. I've read his books and he is actually spouting differnt stuff than what he preaches in his books. Don't know what gives with that. and I don't agree with him, unless he is simply stating in future terms as far as buying opportunities are concerned. If course, you still have to be very picky.
  • synthetiksynthetik
    Cramer and CNBC are a bunch of asshats. Cramer was promoting buying tech stocks at the end of Feb. 2000, right before the Tech Crash hit. Things obviously haven't changed and people are still listening, despite his idiocy.

    http://tinyurl.com/yuorly
    "We feel obliged to point out the outrageously wrong forecasts of analyst Jim Cramer. At the 5th Annual Internet and Electronic Commerce Conference in New York on February 29, 2000, Cramer said, "You want my top 10 stocks for who is going to make it in the new world?" Cramer then insisted on listing the entire group as if offering the rarest gems. The list included Ariba, Digital Island, Exodus Communications, Infospace, Inktomi, Mercury Interactive, Verisign, and Veritas. Cramer concluded by claiming he loved his list so much he would rather not own any other stocks. Just eight trading days later the Nasdaq peaked and crashed. Ariba, Infosapce, Digital Island, and Exodus are down more than 90%. The best performer in Cramer's list, Mercury Interactive, has lost 'only' 38%."

    Newman goes on to say proof that the mania has not yet reached its final end can be seen in the way that Cramer is still listened to. In fact, CNBC hired Cramer upon his 'retirement' from actively managing people's money, to provide investment advice to its viewers in prominent formats and round table discussions. Do they even try to get the best people to provide advice and commentary, or just look for 'personalities' and media showmen who can put on the most exciting 'show' for viewers.

    It's interesting that on February 29, 2000 when Cramer was expounding at the Internet and Electronics Conference in NY on the exciting future for Nasdaq stocks, my article warning that the Nasdaq was about to crash to its 200-day m.a., and that we advised selling the Nasdaq short, was being edited for its publication in the March 6, 2000 issue of Barron's. The Nasdaq's plunge began just 3 trading days later.
  • TJ_98370TJ_98370
    An interesting and relevant article in the most recent issue of Time Magazine

    http://www.time.com/time/magazine/artic ... 24,00.html
  • MatthewMatthew
    TJ,

    great article. The first two paragraphs speak volumes about where we are currently at.
  • synthetiksynthetik
    Cramer on Market Manipulation

    Everyone should watch this! Thanks for the link Eleua ;)

    http://www.youtube.com/watch?v=708wDFX28lc
  • JazenJazen
    So what gives with the recent run-up in the stock market? Dow is at an all time high now. Are there lots of short positions?
  • synthetiksynthetik
    I really have no idea but I'm assuming there are a tremendous amount of people trying to cover short positions before expiration on April 21.

    I was really looking forward to this past week being a watershed event, but hopefully next week. The party can't go on forever, that's for sure. My DELL and INTC positions are pretty much toast but I can't see how financials can get away unscathed for another quarter, much less another month. The mounting wave of foreclosures simply cannot be ignored -- but I'm sure they'll try.
  • JazenJazen
    I have read that because we have broken through the 13K barrier, the bull run has just begun and it will continue for 2-3 months. I am not of this opinion, but have read it from quite a few people.
  • MatthewMatthew
    much of the market is psychological. Breaking a barrier may lead to another small run up. However, that just makes for an even harder fall.
  • JazenJazen
    Best run since 1955!
    I have to admit, it befuddles me.
  • EleuaEleua
    I heard that CNBC is saying "the market climbs a wall of worry" every 15 minutes. I don't know, as I try not to watch it when the bull is out in force.

    Given the latest earnings (and they are not good), the economy, housing, and the dollar, it would appear that the market is climbing a wall of stupidity.

    If it is Joe-Blow that is buying this, I can understand that he will be "all in" as the market tops. Standard operating procedure.

    If it is 8000 hedge funds that all think they can hit the exits faster than the next guy, it will be a breathtaking descent.

    There is leverage out-the-ass, and it won't take much for one simple margin call to cause a cascade of margin calls, which will cause an avalanche of margin calls, which will cause a (hmmm, I'm out of destructive, gravity-based, natural phenomena)...

    It is November '99 all over again. That was the last time I felt this helpless and hopeless.

    Watch the consumer and the dollar vs yen.
  • snigletsniglet
    Eleua wrote:
    It is November '99 all over again. That was the last time I felt this helpless and hopeless.

    You can say that again... I am even hearing colleagues start to talk giddily about stock picks, and great returns, in water-cooler chats. I haven't heard this kind of talk since 2000.

    More astoundingly, almost none of my friends (in various parts of the US, Canada, and Europe) seem to be concerned about growing problems in real-estate. Even my relatives in Florida seem to be brushing off the weakness in their local markets as a short-term phenomena. My brother-in-law was just telling me that he thinks things have picked up in Ft Myers this spring.

    The bullishness everywhere is quite astounding, it's as if most of the bears have gone into hibernation. Picking the top of the market is a thankless, and near impossible, job. But that doesn't mean it isn't obvious (to those who want to see the facts) when things are over-extended. There were a number of people predicting a stock crash in 1999 who were EVENTUALLY correct, even though the Nasdaq doubled in value before it finally crashed. We may see a similar phenomena again. Who knows how high the Dow might go before the collective mood shifts, and people know the meaning of "fear" again.
  • JazenJazen
    I believe the run-up will have a downfall. I also believe the recent run-up has a lot to do with the fact that there is really no other place to put your money, no more real estate to speculate. Sell in May and go away. Keep your money in cash, get a CD and wait for the housing to fall. Then, take your pick.
  • JazenJazen
    Also, I don't think we will feel the pinch of the housing crash into the rest of the economy until later this year, so you might have some wiggle room if you have some balls and extra cash. Just don't get greedy, take your gains as you make them.
  • financefinance
    The key difference currently for the stock market valuation is that the P/E ratio for the S&P500 is about 17.5 or the avg over the past 20 years...so overall the market is about fair market value. Thus it is not significantly overvalued, if at all.

    BTW: bought 600 shares of JSDA (Jones Soda in Dec)...best decision I have made in a long frickin time!!!

    One thing I have noticed is that companies in the Seattle region have recently had signficant stock price appreciation...thus people have more cash to spend (burn) in the housing market. Just a thought to why the Seattle market is still going up (as I do believe it is slowing, or at least the rate of increase will moderate).

    Companies with great appreciation over the past year
    Boeing
    MSFT
    JSDA
    CRAY
    Microvision
    SBUX ?
    Amazon
    Paccar
    AT&T
    Safeco
    Vulcan (but spending a but-load of cash in Seattle)
    and many others I cant think about off the top of my head!
  • deejayohdeejayoh
    Companies with great appreciation over the past year
    Vulcan (but spending a but-load of cash in Seattle)

    Last time I checked, Vulcan had one shareholder and I am pretty sure it isn't you - so I'm not sure how you know about their "Great" appreciation.

    They do spend tons of money. mostly on 2+2=5 dumb investments. Talk to anyone who has worked there. They don't call Paul Allen the "accidental billionaire" for nothing.
  • financefinance
    Deejoyoh - I totally agree with you about Paul Allen and the "accidental billionare" statement. Almost anything he touches is barely profitable at best. I have heard that the only investments that really succeed are the ones that he barely has a say in (like the Seahawks).

    I mainly put that statment about Vulcan due to their massive investments in Seattle...at least they are building cool stuff, lol. If its profitable for them or not does not concern the market, just their bank account.

    As for the other companies in the Seattle region, stock appreciation has given many people making $50,000 a year a $10k or $20k bump in bonuses and stock investments...some of that is bound to make its way into Real Estate.

    As for Microsoft, I believe the stock is undervalued to where they are moving towards in their strategy. A year from now their stock could rebound (especially if they aquire YAHOO)...I have fundamental reasons backin it up but wont go into detail. (I also do not currently own MSFT).
  • Denny RetrogradeDenny Retrograde
    Oddest News of the Day, from Bloomberg: 'Chicken' Investors Buy Home Depot, Masco Shares Ahead of Housing Rebound.
    "It's safe to assume things are stabilizing," said Sovereign Asset Management's Sarah Henry.

    http://tinyurl.com/37rt6k
  • JazenJazen
    See my last post for this thread, couple of good articles by Jim Jubak regarding the reason (or lack thereof) for the recent market run-up.
    http://seattlebubble.com/forum/viewtopic.php?t=260
  • perplexdperplexd
    finance wrote:
    The key difference currently for the stock market valuation is that the P/E ratio for the S&P500 is about 17.5 or the avg over the past 20 years...so overall the market is about fair market value. Thus it is not significantly overvalued, if at all.

    The bottom part -- the /E -- is earnings, which have been growing at double digit rates for many many quarters now. Of course, since the inflation number lies lead to GDP number lies, the recession hasn't been called yet, even though it's been with us for awhile.

    When those earnings go down to reflect the real state of the economy, what happens to the P/E?

    That's what I worry about here -- if earnings get killed by slower spending and the Fed fails to accept their hyperinflationary fate and cut rates ... Feels like 1987 to me.

    Even more so now that the second Shanghai stock hiccup went off without taking a dump on the rest of the world, which just bolsters a bull even more. Buying opportunity indeed. Be in cash: the real buying opportunity should be right around the corner.
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