perfect double bottom - no more hedge fund call?

Discussion in 'Economics' started by scriabinop23, Mar 11, 2008.

  1. Correct me if I'm wrong, but we're already priced for earnings recession, and the fed just eliminated the margin call pressure. (prime brokers, thus hedge funds, have no incentive now to reduce credit)

    Am I the only one who thinks this thing actually has some upside here?

    Bears, go for it.
  2. Short term?

    I don't know.

    Someone just made a very lucid point the other day about how we just witnessed the formation of a longer term, perfect double top, though, and the chart they attached was quite illustrative.

  3. Here's an analysis I did a while back. If we are to have a recession, and not a *depression*, we most -definitely- are priced in fully:

    Notice the early 80s recession and the '01 recession. The S&P price is anchored by 10 yr treasury yields. At 3.5% 10 yr yield, add a 2% yield to factor in risk premium expected by stock market investors, and you arrive to a 5.5% earnings yield target, or believe it or not an 18.18 forward PE.

    That gives us a $72 earnings target for S&P at 1325 for 2008. Last year's earnings were $87 something. That is a 17% y/y decline in earnings, much sharper and more generous than anything that has occurred in the last 50 years.

    So I repeat my point: we are priced in for a recession already a year out deeper than anything we've had in recent living history.

    If we are to have a depression, with another 17% decline in earnings for 2010 (giving us $60), and yields remain constant, then 1100 is your new S&P target.

    And if the worst happens: treasuries get dumped amid dollar fear - lets say we end up with 15% interest rates. Your new S&P price target sits at a forward PE of 8 or so (replicating 1981's situation). That, of course, gives us an S&P target of 480 points.

    The only way that happens in my eyes is Iran/OPEC/etc put the squeeze on oil with a *real* conflict, sending it to $300/barrel. Of course, demand destruction's writing will be on the wall at that point, meaning the period should be very short lived/transient.

    Nothing a few hundred nuclear power plants and few million companion electric cars can't fix.

    Then I agree, its not priced in.
    But thats not the story - yet.
  4. scriabinop23,
    Nice job on your blog. I'm going to go with recession (90 style correction).

    deja vu?