My friend Helene (a well regarded technician) had an interesting quote yesterday on pundits:
Clearly, the recession that hasn’t begun yet is over. At least, that’s
what all the folks who never saw the recession coming, then decided we
were going to have one, and who now say it’s over, believe. I know
because I heard them say so on TV, time and again.
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Nicely stated, Helene. The only thing you may have missed is that therecessionthathasn’tbegunyetisover is already priced into the market.
You may now return to your originally scheduled inanity . . .
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Source:
The Case for Higher Interest Rates
Helene Meisler
RealMoney.com 4/3/2008 8:37 AM EDT
http://www.thestreet.com/p/_rms/rmoney/technicalanalysis/10410487.html
As Mark Haines anchor of CNBC’s “Squawk on the Street said two days ago on MSNBC, it’s time to look across the valley and start concentrating on the recovery.
that’s just awesome.
It’s true, and she’d be the one to say it. Am I the only one who started reading Helene (ten years ago) at the TheStreet.com for the charts but kept reading her for the words?
Ah, it is one thing to look across the slough of despond only to find out the name on your driver’s license reads SISYPHUS.
Complacent Bear Fund:
All that money the Fed is pumping into the system has to go somewhere since the banks aren’t lending.
Mr. Complacent Bear
In all seriousness, I’m interested in hearing the fundamental reason why the SPX should rise and keep any material gains over the next 3-12 months (material meaning up 5-15% form here and, more importantly, maintain it). What EPS and PE are you estimating that lead the SPX to gain and sustain in value from here? I always want to hear both sides of the story and see which is more convincing. Thanks in advance.
I guess if next month’s unemployment rate jumps to 5.5% we can expect the Dow Jones to jump to 14,000. It’s simply wondrous how the stock market can magically see thru the unknowable future 6 to 18 months and see the pot of gold at the end of the rainbow.
“Fairy tales can come true, it can happen to you, if you believe what your stock brokers tells you.”
Eventually, the optimists will be correct. But we may have to get to S&P 1150 first.
It is obvious that you (B.R.) and your Helen do not get it.
THERE IS NO RECESSION!
P.S. There is no two back to back quarters of negative growth.
Don’t you luv it when the technician’s start talking about fundamentals such as the economy? The WSJ wrote an interesting article the other day that the market’s biggest gains are usually made during the last two months of a recession.
Funny watching Bill Gross talk out of both sides of his mouth right now. What a clown!
Larry, how can you seriously state the recession has already been priced into the market? During the last recession the S&P had lost half of it’s value, we are now down what 13/14%? with a situation that everyone considers as worst than the early 2000’s. I usually found your blog so instructive and reason driven that I was amazed at reading this!
Richard,
You need to compare apples to apples.
In the 2000’s S&P 500 P/E was above 30.
When we started this recent 2007 hysteria driven market selloff, S&P 500 P/E was 17.
I hope it helps
To me, the commentary on the recession is reminiscent of when “subprime” reared its head.
During Feb 2007, “subprime” became the new buzz word and everyone started spazzing out. After the initial market gyrations, the markets started to recover and all of the talking heads on CNBC et al declared the subprime issue to be history. I remember hosts rolling their eyes when a guest would want to discuss the housing market. The would usually follow with “Subprime?! That’s old news. Over! Done with! Finito!! Let’s move on.”
Nobody seemed to take the issue seriously until the credit markets started to freeze up in July.
It feels like deja vu to me!
Focus on the consumer:
1. $2 trillion in home equity withdrawls in 5 years now NOT GONNA HAPPEN AGAIN.
2. Real wages REALLY ARE DOWN. Inflation REALLY is up.
3. Home prices are going down and that really does matter to the average consumer.
4. Jobs are disappearing and government is only now just STARTING to cut-hard to cut dem gubbmit jobs as tax revneues really are declining and BILLIONS in property taxes that local governments counted on are not gonna come in-yeah, they spent it forward and now are going to have to cut what they never should have spent-typical!
The last two major economic cycles were driven by productivity gains due to the internet and then housingcredit bubbles. Riddle me this, what will this one be driven by? Exports to China? Auto sales? Return of manufacturing jobs? Healthcare jobs? Ipods? Help me out here someone….
Oh yeah, those stimulus checks, I forgot..what is that like .0005% of GDP.
Sorry, I am just not convinced. The CNBC talking heads are simply being too clever with no substance to their claims.
Somebody please give me some hard facts on this recovery thing.
exactly right bearish idiot. starting valuation matters a ton. last correction we were at extremely high LTM PE ratios, this correction we started at much lower PE ratios. That said, we didn’t get anywhere near the normal lows of bear market PE ratios (about 8x LTM PE), …will we get there this time? Not sure, but remember the last great bull market started in the early 1980’s and the SPX was trading under 10x LTM PE.
If we want to get another nice bull market one has to believe that PE ratios will expand materially from here, or earnings growth will be materially higher for the next several years, or a combination of those two things.
I don’t find those things highly likely given the fundamental macro-economic conditions that probably persist for the next 1-2 yrs. Not saying I think we get a major crash either, rather I think a sideways market with several 10-20% moves up and down (but no lasting gains) for a couple years is plausible. Just my two cents worth. invest accordingly.
Some good snark there from Helene (with a nice addition from BR but then the idea of markets predicting anything was always risible).
The thing that I’ve been struggling with is that while I believe the “muddle through” hypothesis presented by John Mauldin (e.g., http://tinyurl.com/5s6x3m)and others remains the most probable course of market and world economic events — I’ve commented elsewhere that working this market feels like having my face pushed through oatmeal; there are no hard boundaries and it’s getting harder to breath too! — it still seems to me that on one side there is this really thin tail that says “no recession, don’t worry be happy” and there is this fat tail on the other side that just says “Armageddon” (with a subtitle: “Lasciate ogne speranza, voi ch’intrate”).
With each convulsive financial spasm and central bank response I can’t help thinking, is this going to be “the one?”
Pearlstein (at the Washington Post) made an insightful observation – that the stock markets disconnect from the economy at the moment is what you would predict from “moral hazard” – the notion that the Fed will provide a security blanket blocking any downward move. Since Pearlstein supported the bailout of Bear Stearns, this disturbs him. He thinks that the Fed should do something to signal that it won’t be the ultimate sucker in a financial daisy chain. Myself, I don’t think you can have it both ways. The Fed can’t be both the stern parent and the parent that allows its kid to steal cars and go out on hit and run expeditions. As it says in gospels, no man can serve two masters.
It will be a month or more before it kicks in on Wall Street that, although the oligarchs in the government would like to direct all tax receipts directly into the profit columns of banks and hedge funds, they are rather limited by law. Their hands are tied by the pesky electorate – can you imagine?
At the moment, though, just dreaming of another shot of point medicine from the Fed has to bring out the bull in the market.
WABI,
The thing that you should remember is that over the last century, the average S&P P/E ratio is right around the 16 range. The ratio of 30 was exceptionally abnormal!
I believe that the forward-looking S&P earnings estimate for 2008 is around 67 which would indicate that the S&P is running at around a P/E of 20 right now which is still a relatively high number. Remember as well that the earnings view is based on the assumption of 2nd half rebound in the economy. If this fails to materialize, the market still remains over-priced.
Craig,
Excellent points all. My 2 cents is that we are entering a period of rapidly rising wage increases and that is a margin killer for many corporations. I know others will argue that the circumstances are different this time but cycles take a LONG time to play out.
Stupid to predict but I will. Overall inflation will peak 8 to 10 years from now in the mid to high teens and profit margins will be cut in half. Taxes will be high and regulations will be stifling. Stocks will on average trade at 8 to 10X and the death of the stock market will make the cover of some MSM.
Some son of Volker/Thacher will rise up with political will and all will be right with the world again.
I think the British disease of the 60’s and 70’s needs to be studied. Not an exact parallel but close enough.
Talk to me bearish idiot. tell me why the elephant in the room doesn’t matter. Do I really need to go down the list of negtive shit that effect growth and profits? Hysteria market sell off my ass. Gross was just on saying how we had to bailout homeowners or we we screwed? Did you see that whipped puppy Schwartz yesterday? Just hysteria right.
I suppose people really could afford these homes and buyers spooked by the hysertia backed away from the market. Nothing to do with flat wages and out of wack rent to own ratios. Speculation out of control, No way. Just hysteria? That’s what they said about the housing downturn but I guess it turned out to be something else, Huh.
The fact is, I look at when no name trolls begin to infiltrate blogs with contrarian conjecture that the shit’s about to hit the fan.
Here is what you have against you:
No savings and flat wages.
Declining housing(collapsing)
No easy money.
high energy and food
falling dollar
“THERE IS NO RECESSION!”
Where do you get your drugs. I want some.
I think the pundits have learned an important lesson when visiting the outhouse:
“This sh*t won’t drop. Never. And it’s already contained…in me!”
Just moving to the top of the upper channel on that nice little chart you posted below… the long downward trend will continue and the drop back to the bottom of the channel looks to be soonish.
Ride is not yet over, we are just at the top of a curve at the moment. Get ready to scream again….
“It is obvious that you (B.R.) and your Helen do not get it.
THERE IS NO RECESSION!
P.S. There is no two back to back quarters of negative growth.”
LOL!!!
P.S.S. Two consecutive qtrs. of negative GDP is NOT the official NBER definition of a recession. But I wouldn’t expect bullish morons to understand that concept.
The interest rates going up is one big headwind for the market…. but I expect that jobs will get to Negative 200K+ and people will realize that there are no more cuts comming, that is when the trouble will start.
Normaly at the “stock market recovery” phase of the short recession, we have 3-4 more bullets in the gun, instead of being in negative real rates. cutting till employment starts rising.
Other thing, that should stop the run when it occures is credit crunch number 3.
“Pearlstein (at the Washington Post) made an insightful observation – that the stock markets disconnect from the economy at the moment is what you would predict from “moral hazard” – the notion that the Fed will provide a security blanket blocking any downward move.”
The 64 trillion dollars question is: Will it work the next time?
What if it doesn’t?
Then what?
in the rhymes with Eventies camp. There was tremendous damage from the late 60’s to the early 70’s to the currency. This may not be quite that bad.
I’d expect with some prudent measures the inflation will get under-control in 3-5 years… which will be when the market can recover. Assuming we don’t do what the other Talking Heads/morons on CNBC say “Print Money”….
Heavy money printing, That will take the Dow to 24,000 and the SPX goes to 3,000.
unfortunately we could have that $50 value meal and McDonald’s. Indexes double, cost of living Quadruples…. How Bullish
Booooyaaaaa.
but I hear it’s better than the fear of deflation.
The good move by the fed, could be to tell the market straight out that they are going to leave the fed rate unchanged for 1 year.
Then do everything they can to keep things from blowing up.
I mean… soon the legislative branch will figure out what they really need to do is bail out the “developers”. They have this shit all figured out…..
as we heard yesterday, the important thing to them is that their 401K doesn’t’ go down.
We have such ass backwards priorities in this country.
One Dollar One vote.
What’ real interesting to me is the Gross types talk as if the collateral is even par and that it won’t effect the deficit? What a load of crap.
Eric, Francois,
I agree. I also thing there is alot of double down to cover losses with taxpayer money no doubt. That would certainly throw a wrench into any technical reads, but I’m no expert?
The comments of Barry and Helen were meant to be ironic, as in nudge, nudge, wink, wink, what recession? The media operates on its own internal clock. Stories must have a beginning, a middle and a end. They’ve been on this recession story for what to them seems like years, but really has only been maybe three months. Now it’s time to rap it up and move on, but there is only one problem: This story has legs and is going to unwind for two more years at least. It’s enough to make a little Anchor’s talking head hurt.
Would the Schumer and Frank get a wake up call, if Joe Sixpack increased his W4 dependents to 8, in lieu of no more HE loans, and then en masse in 2009, none file ? It could be quite cathartic.
The back and forth between bulls and bears concerning recession is rather meaningless when you look at the systemic problems we face as a nation. Do any of you really think $30 Billion in backstop to JPM is the bottom? We are talking Trillion folks at a minimum. There are $515 Trillion in Derivatives which are said to be notional, but we all know that’s nothing more than blowing smoke up the arse. When your counterparty can’t make the bell to pay you on the bet, you are toast. When your lines are cut off, you are toast. When your equity is wiped out by depreciating assets and writeoffs, you are toast. We all best pray that a recession is all we get. I won’t go into the $60 Trillion Dollars in unfunded liabilities we face, the tax receipts of states and cities which have gone into the shitter and on and on. Recession, LOL!
While I have heard it once or twice, I don’t think “the recession is over” is really the “official” mainstream spin (at least not yet). Seems to me that the new, designated talking point for the shills is now “it looks like a mild recession”.
Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” – Winston Churchill
invest accordingly.
I heard a great one the other day. One of these talking head tv pundits said, first ‘the market is forward looking’ (true enough) then went on to say ‘the recession is the future, and that’s the past’!
Oh, uh, okay. Now I get that what he means is that the market has already priced in a recession, but really if the market is so infallible that we can start having rebounds to events that haven’t happened yet well, wouldn’t that kind of be pretty darn omniscient? I mean if we are going to start pricing in reactions to events that haven’t happened yet, hell lets just price ‘all encompassing victory’ take the dow straight to 36,000 and be done with it. Why all this fussing around?
“Apparently there was no recession, but somehow, even without the recession, the pundits are expecting a V-shaped recovery. Let’s see, if there was no recession –
then why should anything need to recover?” – ML Chief Economist David Rosenberg May 2, 2008 (page 4 of 10)