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TranceAddict Investors Club @ Marketocracy (pg. 155)
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| Joss Weatherby |
| True, I should probably cut my losses on a couple things and get ready to put money into things that I know for sure will go back up once the initial shock of all these 2nd quarter things get tired out. |
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| Krypton |
Lucky me, I sold last Friday. Is today a confirmation of my prediction of a bear market rally? We shall see...
Written May 21, 2009...
| quote: | Do you guys believe we are in a bear market rally? Here is my take...
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For PDF version, go to...
http://finance.com/yahoo_site_admin...1.140124242.pdf
Also check out my website at
http://www.finance.com
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Bear Market Rally?
The stock market has enjoyed a huge rally since March. But is it a bear market rally? Does it look good on paper but in reality bound to end? My answer is yes. This is a bear market rally and it will end. The recession is nowhere near over.
The government has taken unprecedented action with the economy on the principle of Keynesian economics. Keynes wrote in his The General Theory of Employment, Interest and Money that recessions were the result of insufficient aggregate demand. We have witnessed a drastic decline in aggregate demand. Sales in the consumer cyclical sector have done the worst. All you have to do look at the car industry. Who wants to buy a car in this recession? The most unlikely car producer, Toyota, has even incurred its first quarterly loss since 1950. Chrysler has filed for bankruptcy and General Motors is on the brink. The decline in demand is not limited to cyclical products like cars. Aggregate demand has fallen in almost every sector. Even oil demand has fallen drastically. The stock market has appreciated more than 20% since its March low but is this price rise justified? Has aggregate demand recovered? Are people buying more cars? Are people buying more computers? Are people buying houses again? Are banks lending again?
Another aspect of Keynesian economics is the role of government in a recession. Consumption and investment expenditures have fallen off as happens in a recession. Because a recession is caused by a decline in such aggregate expenditures, the only thing which will pull the economy out of recession is the restoration of aggregate demand. Consumers need to consume again. Investors need to invest again. Generally, consumers and investors will not jump back into the economy unless they have an incentive to do so. Government expenditure fills the void left by consumers and investors. This is the purpose of the American Recovery and Reinvestment Act of 2009 worth $787 billion. The government is consuming and investing with the aim of increasing aggregate demand. Only the government is capable of single-handedly stimulating the economy. Such action is demanded by the people who are suffering from the effects of the recession. The government would be in serious trouble if they did nothing.
The role of the Federal Reserve also cannot be discounted. The money supply has been increased by about $2 trillion. The banks have benefited most from this inflation as they were suffering a very serious liquidity crunches. Insolvency was practically inevitable if it were not for the actions of the Federal Reserve. Massive bank runs rivaling that of the Great Depression were in the works. This systemic collapse has been averted. The link between the Federal Reserve and Federal Government in their emergency intervention is the Federal Reserve has financed the $787 billion stimulus package.
All this intervention has finally bared fruit. Most notably, the stock market has recovered a lot of territory since March. But most importantly, confidence in the systemic integrity of the economy has been largely restored. No economic recovery is possible if the very fabric of the economy is ripped apart by bank runs, deflation, and ultra high unemployment. I attribute the rise in the stock market to the actions by the Federal Reserve and the Federal Government. Their stimulus has essentially worked…for now. Such government expenditures are unsustainable and are built upon deficits. The goal was to provide the atmosphere for a restoration of aggregate demand. Has this happened? Are consumers buying again? Are investors investing again?
Consumer expenditures have generally remained flat. Car sales have not recovered. In fact, hundreds of car dealerships are expected to close their doors. Unemployment claims are still rising. Sales in real estate are still flat or negative. A bright spot may be the stock market. Bargain hunters have entered the market en masse. But stock market recoveries need more than just bargain hunters. A bull market needs everyone investing. That has not happened. I expect this bear market rally to finally end initiating flat or declining stock market performance if consumer expenditures do not recover any time soon.
I believe the 10-Year Treasury bond yield is too high. I see this as an indicator of an overvalued market. This reinforced my belief we are in a bear market rally. I believe the yield should be below 3.23% and preferably believe 3%. That is where I believe the yield should be. It is currently above that and I expect to see the yield fall once again when the bear market rally ends.
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| saluyamo |
| Just wondering, is it possible to short sell in marketocracy or do you have to endure corrections? |
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| Krypton |
| quote: | Originally posted by saluyamo
Just wondering, is it possible to short sell in marketocracy or do you have to endure corrections? |
You can't short stocks but there are ways to get around it. You can buy inverse ETFs which short whatever is their underlying index. Here are a few...
http://tradermike.net/2007/03/list_...short_bear_etfs |
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| saluyamo |
I really need to learn more about ETFs |
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| Moongoose |
BTW Krypton, i just remembered today something that ive been meaning to tell you for some time now and i just remembered today after looking up something on your site...just because you can show your buy/sell stock pics as a bmp file doesnt mean you should ;) Not that much of a problem when viewing the page on the computer, buy if you're checking the site on a mobile phone its damn annoying :) Anyway thats about it.
I finally have some time again to work on my marketocracy funds, ive left them alone for more than a month and it shows...i was beating the market while actively trading, but when left alone ive been constantly in the red. |
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| Capitalizt |
| I feel a correction coming in my bones.. The market has been too complacent lately...moving steadily up up up..too much optimism IMO. "Something" is going to happen soon that sends stocks down a quick 15%. We have gone too long without any 'incidents'..I think we are overdue for one..just a hunch. |
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| atbell |
Companies I'm liking right now:
Lexmark + Caterpiller
Why?
Both companies are weathering the financial storm (can someone who knows more about company evaluation confirm this?); both produce quality products that have few rivals world wide (ie near monopoly); both companies make things that the whole world wants.
Caterpiller is possibly better than lexmark. I like the fact that they produce thier machines in the US and export world wide. They should do even better if my thoughts on US$ value decreasing are right because the products will be even cheaper for other countries to import.
I might add John Deer to the list but I don't know how much they export. Definately another American company that could be in demand all around the world and that makes solid, high quality products.
These are probably longer term buys if that.
As always, do more research on these things. I'm an opinion guy who sees possible opertunities, not an investor who's risking his house on things (yet ;) ) |
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| atbell |
| quote: | Originally posted by Capitalizt
I feel a correction coming in my bones.. The market has been too complacent lately...moving steadily up up up..too much optimism IMO. "Something" is going to happen soon that sends stocks down a quick 15%. We have gone too long without any 'incidents'..I think we are overdue for one..just a hunch. |
Can I go back to my prediction of a 'summer bummer' :)
I'm with you, nothing has really changed, state taxes are due to increse significantly, the US debt has not decreased significantly (I want to double check this with the most recent Z1 report though), companies are still on the verge (six flags goes down), and the only thing that has really been positive is consumer confidence / investor confidence.
For timming, July hasn't traditionally seen much correction has it? My first calcuation put late July as the significant date but this kept getting pushed back as time wore on. I updated the calculation I was doing and it indicated late July too. Late August is my gut feeling though. That's when the housing market drops off and people get back from holidays to re-evaluate things. I know of a handful of traders who are taking August off because of those reasons (might even get to join them in the hamptons for a couple of weeks!)
My nerves are definately on edge but I think there is at least a month to go. Who can be negative with such great weather??? |
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| atbell |
| quote: | Originally posted by saluyamo
I really need to learn more about ETFs |
I'm a huge fan (who has no capital ;) ).
ETFs are right up my ally for the skill set that I have which is macro level and DEFINATELY not company analysis.
If I get a chance and remember, I'll see if I can get some of the ETFs the traders I know play around with. I think they've got a good set of oil ETFs and comodity ETFs. |
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