In the prior post, Options Trouble Punishing Tech, EdE in comments said "that’s a lot of data mining" — taking one market call out of context.
Fair enough accusation. Let’s put this into some perspective as to the prior market calls and our positioning that whole year.
We flipped Bearish in January 2004 (Market Flashes Yellow Caution Light) saying, "For those of you who are short: let ‘em ride." That was a major market call — and a good one (no false modesty here).
There were several well timed trading calls after that — buy the March lows,
April sells, May buys, June sells. The next major buy was in July — what I consider my worst call of the year. It was wrong. A solid 2 weeks
too soon, we came within a hair of being stopped out. But the market rallied and saved what would have otherwise been a big whack. Lucky is better than smart.
From that nerve-racking Bullish position, we rode through the election — but overall, the timing in 2004
was darned good.
The major Buy Tech call after the January Sell ’em was memorialized in the WSJ early August (see a pdf here Placing a Wager On the Chip Sector Strategist Sees Tax-Incentives Sunset Picking Up Semiconductors). From August to December, the Semis (SMH) gained a little over 10%.
As late as early December, I was still writing bullish columns. It wasn’t until mid-December that FASB rules, which many believed wouldn’t pass — got my attention.
On 12/16/04, I posted this:
"Stock options are no longer off balance sheet — they are an expense
that must be fully and transparently accounted for . . . and that may
leave a mark on quite a few balance sheets.
If you have been looking for an excuse to dump your Nasdaq issues, the new FASB rules on Stock options is it.
Regardless of your views on this rule, it now makes a slew of
equities much much more pricey. All of your favorite former high flyers
from the 1990s — it turns out that they were never really all that
profitible — assuming they have to expense stock options like they are
supposed to . . ." –FASB: Stock Options Must be Deducted
I even updated that post in March 2005, asking:
UPDATE: March 17,
20042005 9:41 AM
Is it just me, or has no one really grokked the significance of this to tech firms?
That puts the December "Look Out Below" into some perspective — it was coming from a bullish tech posture in August, 8 months after a major avoid.
These calls were far from perfect. But they were not the typical groupthink, and I’d like to think they were better than most.
Note: All the calls are on the blog, for those of you with the
patience to sift through everything. I added alot of the the tags as
time went on, so the trading or markets category may not go back far enough.
You can go to any month on the blog with this link:
And substitute for any date the 4 digit year and 2 digit month where the letters YEAR & MO are.
December 2004 is: http://bigpicture.typepad.com/comments/2004/12/index.html
A ‘look out below’ of a similar sort…
“The US economy is driven by consumer spending financed with debt. When consumers can no longer afford their credit card payments, they apply for a new credit card. When they cannot get any more credit cards they refinance their homes. The latter only works while home prices are rising and home prices are not rising any more. That means the only people that still have equity left in their homes are the ones who did not refinance recently. Those who did refinance may soon find that their mortgages are more than their homes are worth.
During the first quarter of this year, when home refinancing were still going strong, mortgage debt grew by $250 billion. The total increase in money supply as measured by M3 (yes, you can still calculate it) was only $194 billion during the first quarter. Now if you consider that an increase in M3 mainly reflects an increase in debt, you can see how significant the real estate market is to the US economy.
According to the Bureau of Economic Analysis, 70% of the US gross domestic product comes from consumer spending. Given that more than 100% of the increase in money supply during the first quarter came from an increase in mortgage debt, I don’t think I am sticking my neck out too far when I say that real estate is currently the single most important driver of consumer spending.
When mortgage debt stops rising at such a rapid pace, I expect consumer spending to slow down as well. That, in turn, will erode corporate revenues and collapse earnings. What will stock prices do?
Paul van Eeden
July 22, 2006”
What will stock prices do…? One of the best things that has happened to me in the last 2 weeks was that I found this site. This is a place where reason prevails… Real eastate is also a huge employer which has provided many with the ability to service debt and consume… It’s not just a debt, equity or value issue, it’s also an income issue.
Is there another side to this coin…? I would really love to hear some bullish arguments, if for nothing else, just so that I can do a reallity check.
See this: The Bull Case
The main issue in obtaining a loan unless you have like an 820 credit score is your income. No good income no loan.