Like ertrader, I am a former schoney and I play both sides, but damn it sure feels heavy now. As far as fundamentals, yeah they look really shitty too, but I am not overloading shorts just yet for a few reasons: 1. As far as CC debt, default as a % of accounts is poor, but in actual $'s it is much less than we think due to all of the low limit riskier accounts they have added over the past decade. Back in the 70's and 80's, not every h.s. grad took out a credit card, bought a 0% financed car and bought a low interest mortgaged condo like we have now. These low limit players with low default $'s that took out cards and ran them up are the big percentage of defaults and these guys did not exist a few years ago. Also, by the time numbers like this hit the popular press, the story is almost surely over. 2. The fed does NOT have to raise rates any time soon. Of course they can't go much lower but let's look at our eastern friends in Japan who have had negligible real rates for decades now. And how many people refinanced mortgages at 8 or 9% and thought , "wow, rates can't get much lower than this" only to do it again at 7, 6, and now 5%? 3. I have a little bit of a conspiracy theorist in me and I think that the "Bin Laden Pop" will occur, and I am almost sure it will be in August or September when Bush falls way behind and needs it to bolster his rating leading up to the general election. Oh yeah, oil prices will temporarily drop here also as we release some newly found reserves right before election time. (please don't flame me too badly on this one, I know it's a bit of a reach but I can't help it!) 4. There is so much negative sentiment that I just can't load up with the majority - that's a surefire losing strategy every time! So while it still feels really heavy, I'll continue to trade both sides and hope with my heart (but not my dollars) we are all wrong. That is all. BigMike
Good observations. I agree with you about the Bin Laden rally... and I know it will cause the market do have a decent rally.. I will definately be scaling short into that rally. Will be interesting to see how it will effect the market.. I dont think there is so much negative sentiment. Most newsletters and investors are still bullish and think this is just another blip in the bull markets run .. just put on CNBC and listen... I like to consider some of the people on ET as the smart money.
"Waggie I just layed out a very detailed bearish fundemental argument.. and I hope you wont go around ET saying that I have never provided some type of thesis behind my bearishness. If you do.. I will refer them to this thread. Just keep on buying the dips until the cows come home." Sorry Trend Fader, but I don't trade based on Yahoo news reports and fundamentals . . . Instead, I choose to trade based on technicals such as the major fibonacci support that I gave yesterday at SPX 1087 or the strong technical action of electronics defense contractor, LLL, which I also recommended yesterday. As for the market tanking when interest rates head back up, if you were a market historian you would know that that is not necessarily the case. On many occassions, the market has rallied in the face of Greenspan's rate increases . . . A quarter point at a time is not gonna kill a Bull Market.
The leaders of this rally are financials and homebuilders which are pure interest rate plays. Therefore any increase in rates will stem the bull market. You are missing the point that this rally we had was purely based on the fact that rates were low... it was a consumer debt driven bubble.. You are failing to recognize the essence of why the market rallied. You believe that every bull market is the same so u can apply historical preference and modeling into your bullish bias. The truth is that everything that happens everyday is different and inque. We will see how your 1087 fib crap holds up. --MIKE
But you once again you have proven just how little you understand financial markets and monetary policy . . . The fact of the matter is that all Bull Markets are born out of a tremendous infusion of money into the system, thus they can be easily viewed in a historical perspective that also allows one to identify consistent statistical parameters as far as price and duration are concerned. Any Dow Theory technician, from Richard Russel to Victor Sperandeo will tell you that. Take a look at the M3 figures last year, especially at the beginning of the Summer and please tell us what you see. Secondly, your obsession with only looking at interest rates precludes you from looking at earnings power and the valuation that comes from that earnings power. You speak about the market being in some sort of overvalued "bubble" that was engineered by low interest rates, yet you fail to acknowledge the tremendous increase in earnings and profitably by the companies that are in the major indexes. Just because the Homebuilders have "doubled" as you say does not necessarily mean that they are great shorts. In fact, that is a total "rookie" play that invites novice shorts to the Bull Party. The fact of the matter is that there is a tremendous demand for housing, even aside from interest rates. Moreover, the Homebuilders have extremely strong balance sheets, generate a ton of cash flow and have kept costs under control, putting them in a position to buy growth through acquisitions if the market slows. The major Homebuilders have watched their market share grow from 10 to 20% in 10 years. Will the group sell-off initially on an interest rate hike? Of course they will. That is the "traditional" Wall Street reaction. Have they been great shorts this year?" Of course not, and if you tried to fade their move you would have gotten killed! As usual, you fail to take these "other" valuation and earnings drivers into account when looking at what produces earnings. You also fail to identify the historical range of P/E's for the housing group, let alone how they trade in valuation relative to the S&P 500. Right now they are merely trading at 10 times earnings. You might think that the Homebuilders are merely an interest rate play, but I would argue that they are more than that, AND that you have no idea what you are talking about because your posts have never highlighted any sort of specifics regarding Valuation. For example, the average top homebuilder is selling at a "price-to-expected" 2004 earnings ratio of 8.8%. Meanwhile, the average stock in the S&P 500 trades at 17.8 As a result, I would hardly argue that they are over-valued by any stretch of the means.
Trend Fader states that the only underpinning of this Bull Market is low interest rates, hence "the leaders of this rally being the financials and homebuilders which are pure interest rate plays. Therefore any increase in rates will stem the bull market. Now that's a pretty bizarre statement given the fact that the market leadership in this bull move has been spread out over cyclical stocks, defense stocks, biotech, oil and oil drilling issues, natural resource stocks, paper, chemical, and building material stocks, etc.[/b[ And of course lets not forget the initial leg up that featured the hi-tech sector with semiconductor issues and semiconductor equipment manufacturers, telecom, and computer issues leading the way. The hallmark of a Bull Market is ROTATION. Trend Fader continues to miss this key point.
Trend Fader says that this market rally has been based "purely on the fact that rates were low . . . it was a consumer debt driven bubble." Funny how he only talks about one aspect of the equation, low rates, and then goes on to mix apples and oranges in his final conclusion when talking about debt. This is the typical "Gloom & Doom" argument by shorts that have lost a ton of money to the Bull and are trying to rationalize that they are still right. It's all about what they only wish to see, rather than identifying what is actually happening. Last time I checked, low rates lead to economic expansion that created strong earnings for companies. Perhaps I should repeat that last part about EARNINGS!!! This market has earnings power and you obviously fail to realize that. Moreover, should expansion continue at a brisk pace and rates start to move up, a quarter point hike in the Fed Funds rate or Discount Rate isn't gonna derail the economy our most of corporate America's earnings power. Take a look at 1988 for a great example of that. My very first boss on Wall Street, Victor Sperandeo has made a lot of money following the trend by following this one major motto: "Observe what is happening, and assume that it will continue."
Perhaps you might also want to tell the CFO of Applied Materials that he has no idea what he is talking about . . . Perhaps they might want to change their minds about authorizing a repurchase of up to $3 billion of common shares over the next thress years when they hear how bearish you are about the economy: http://biz.yahoo.com/rc/040324/tech_appliedmaterials_meeting_1.html See, I can "cut and paste" just like you!
Waggs.. only time will tell how things pan out. We might be due for a little rally here markets are oversold... but I will be shorting this rally yet again.