Investing strategies and secular bear markets

[winner69]

Hoop .... you don't reallt want to read this, esp the latter half where S&P earnings are forecast to be $40 which means the S&P500 could go anywhere

http://www.investorsinsight.com/blog...-schedule.aspx



P/Es and Stock Prices

Our forecasts imply S&P 500 operating earnings of $40 per share in 2009, down 35% from our $62 estimate for this year. That may sound extreme, but not for the most severe worldwide financial crisis and deepest global recession since the 1930s. At stock market bottoms, the S&P 500 P/E tends to be in the 10-12 range. But low interest rates normally push up P/Es and 10-year Treasury now yield 2.66%, and will probably be even lower later while 30-year Treasury bonds are now at 3.0%, our long-held target, and also a low in recent decades, but may drop further.

So a P/E of 15 at the stock bottom sounds reasonable, but would put the S&P 500 index at 600 then, down 32% from here and 61% below its record close on Oct. 9, 2007. Wow! Earlier, we warned of the number 777, not the Boeing airliner model but the low on the S&P 500 in 2002. If it were breached, we noted, then the bear market that started in early 2000 would still be intact, and all of the rally from the 777 low in October 2002 to the peak five years later would merely be a rally in a bear market. Last month, the S&P 500 fell below 777. It has since bounced, but probably not for long as new lows lie ahead.

There are other reasons to expect considerable further weakness in stocks. High dividends can support stocks at least to a degree, and dividend yields in Europe are meaningful, averaging 5.2%. But not in the U.S. where the S&P 500 yield is a miserly 2.5%. And dividend cuts are coming fast and furious. In the U.K., dividends are constrained for financial institutions getting government bailouts, while in the U.S., the financial sector is slashing dividends.

Some 36 of the S&P 500 have cut dividends 46 times this year, axing $33.8 billion, with $30.8 billion coming from financials. Among those S&P 500 firms, about 20% of dividends this year are from financials, down from 34% in 2007. Elsewhere, REITs are cutting payouts, and GM eliminated its dividend. Only 202 S&P 500 companies have initiated or raised dividends 218 times this year, representing payments of $18 billion, with only $2.4 billion being from financials. In 2007, 298 did so and only 12 reduced or suspended dividend payments.

In troubled times, investors tend to withdraw from foreign markets to concentrate on the home scene they know best. That's why bear markets tend to be uniform. U.S. investors sold a net $92 billion in foreign stocks and bonds in the July-September period, a record flight from overseas investments, while foreign investors pulled over $100 billion from stocks in Japan, South Korea and India so far this year. U.S. stocks are actually falling less than most foreign markets.

[Hoop]

Hi Winner

Confusing times we are in... click on any well respected site and you get all sorts of answers and prophesies.
Even my Zurich Axioms chart pinned on my wall says beware of history.

It was said that nothing works at the bottom of a bear market cycle, and it results in frustration...how very true that statement is.

However it seems from History that bear market cycles follow a pattern and this 2008 bear is no different...all the old economic theories still work (that is why they are called theories) and all the signals associated with past observations have also worked with past bears...What is different about this this bear ...nothing!...therefore if people stick to the theories and signals associated with the bear market event and act accordingly they will be better off than following the herd down an emotional maze of ifs and buts.

Winner I may come across as being an optimist at the moment (remember I was labeled a pessimist a year ago ) but I'm neither really.. I'm a realist, trying very hard to dissociate myself away from commentator emotional noise so not to bias myself by being emotional and become torn apart with doubt & confusion due to opposing scenarios that all have plausable explainations but only one has the opportunity of happening.

To be an individualist at the moment, be alert... watch for signals and apply my knowledge and theories that I have learn't over the years is much more constructive to me in my decision-making. I do acknowledge all I read and hear so not to have my head buried in the sand but as all the different opposing scenarios and arguments seem equally logical.. I must therefore take the view that it is all illogical and all must be doubted because every scenario can not be correct at the same time. Something along the lines of lies ..damned lies ..and statistics.

Winner... sure.. there is a chance that we are still in the grips of a bear market and another c wave (capitulation) is heading our way, but I think there is an equal chance that we are already in phase 1 of a Bull market which will see the bottom tested or new bottoms marginally lower than now created over the next 6 months or so.


That reminds me ...At varsity (when dinosaurs still ruled the earth Stage 1 economics, we learnt the basic simple theories and applied them.

Remember that Economic Clock.


What time is it now? 7 O'clock ??? if it is, the clock told you that you should've at 6.30 had increased your share allocation and reduce cash

Have a look at 8 o'clock





Many people say the economic clock doesn't work...a criticism which happens when people tend to over-complicate things.
Economic clock is simplistic and works off simple theories and gives only a basic understanding of the economic cycle which most people tend to forget about in times of panic and stress.

To understand the clock remember that the time on this clock is not a constant...so it is possible for time for example from 1 oclock to 5 oclock to go very slowly and 6 oclock to 12 oclock time to spin around very fast and go from end of recession back to slump very quickly...the pessimistic group of the well respected are assuming this.

Often market intervention buggers up the economic clock such as engineered high interest rates which seizes the clock at "half past 12" causing both chronic rising property values and an extended equity bull market together.

Also remember the clock only spins one way.. clockwise

I think.. market intervention by the Global Powers at the moment to free up the tight money supply (frozen/stuck are better words) will make sure that this clock will not stall at 5 to 6 o'clock area..hence my belief that odds on chance the Equity bear market is ending or ended but we are still to experience the painful part of the recession (or no growth event) with an uneven hestant recovery.


Interesting article Winner (didn't mind reading it at all, rather enlightening in fact).. re: S&P earnings dip and lower dividends (expected though)...however assuming share price drop resulting from those events may not happen of course..especially if interest rates fall faster than stock yields....but as you said the S&P could go anywhere.

[Footsie]

Hoop

Don't try and be a hero and go for the exact bottom.

None of Russell Napiers indicator's a flagging a buy yet and Charts definitely are signalling a LT buy. So just be patient.

You've done so well staying out this year, wont hurt to wait for confirmation of a bottom (in case it doesnt occur)

IMHO the investment clock is just after 3pm... Commodities have just collapsed. Oil is still falling.

Don't go for the top of the bottom, just try and capture the "fat", the 80% in the middle.

PS last yr you were using charts to indicate the top,.... so tell me what are your charts telling you now? I bet the say wait

[duncan macgregor]

I have found that the one and only thing to worry about in this investing world is your level of common sense. Without that you are nothing. The market is manipulated by greed and fear where fundamentals count for less than nothing.
You cant read books to find common sense, you either have it or you dont. My rules for investing in the market are very simple.
If in doubt get out. Always have a stop loss. Never buy a downtrending share. Always check the commodoty price chart first, the company comes second. Only invest in a rising sector. Never pick bottoms you only get covered in crap. Keep your finger hovering over the sell button in over the top steep uptrends.
Dont waste your time worrying about the rights or wrongs in company business, they are only there to make you money. The companies to avoid are the companies with the highest debt levels, they get hit the hardest in downturns.
I have been out the market this year and fully expect to be out in 2009 this market is not a place that i want to be in right now. I expect next year to really get bad with the whole world economy reduced to tatters. Material things that hold their material value is what to buy, money after all is only a bit of paper with promise to pay stampted on it. Macdunk

[Mick100]

Your a bloody legend macdunk

This sharetrader forum wouldn't be the same without your input

Merry christmas

[Aussie]

. . . I expect next year to really get bad with the whole world economy reduced to tatters. Material things that hold their material value is what to buy, money after all is only a bit of paper with promise to pay stampted on it. Macdunk

Ain't that the truth . . . some good advice there.

I'm a just a "johnny come lately" . . . but I think 2009 will be a huge year for the precious metals complex.

[Hoop]

UpDate
No need to draw trendlines. the chartlines speak for themselves.
Relying on these indicators the equity bear lives on


Mick100quote.. Hoop, Napier states that copper prices will stabilize and begin to increase from record low inventories. Unfortunately copper inventories have been increasing in recent months. So, IMO, copper is no where near indicating a bottom yet

[Hoop]

Footsie Quote PS last yr you were using charts to indicate the top,.... so tell me what are your charts telling you now? I bet the say wait.

Could also be saying short term opportunity to play into another possible (sucker?) rally perhaps.. Indicators showing a possible rally creation in progress.

No long term sign of a trend change..still wavering down in its downtrend channel.

[winner69]

Latest estimation for the 2008 earnings for the S&P500is about $48 ,,, which puts the S&P500 currently at at a PE of nearly 19 on estimated past earnings

Projected 2009 earnings are $42 ..... so the S&P500 on a PE of 21 forward earnings (and earnings estimates are notoriously optimisitic)

Hardly the territory for the end (bottom) of a secular bear market is it. even though this is the S&P500 one still needs to assume that generally the situation is much the same in this part of the world (ANZ) .... so we should expect any decent long term returns from the market either.

As said early on in this thread it does come down to stock selection and managing the downsides, ie strict stop losses.

However as Hoop has pointed out several times there are bull rallies in a secular bear market.

The ANZ market are looking a little more positive. On weekly closes the ASX200 is up nearly 10% from a low (weekly) on Nov 21st ... and the chart is pointing to a confirmed uptrend ... esp if we can get a weekly close above 3582 and not any disasterous weeks to put us back to square one again

as Kenny Rogers said in The Gambler -

You got to know when to hold 'em
know when to fold 'em
Know when to walk away
and know when to run.

You never count your money
when you're sittin' at the table.

There'll be time enough for countin'
when the dealings done

This quote was the basis of an argument in this article 'Setting the Bull Trap"
http://www.investorsinsight.com/blog...bull-trap.aspx

[Hoop]

* Commodities Count. The end of commodity price declines also marked all 4 major equity lows, with copper playing a prominent role as it preceded or coincided with every equity rebound. Russell Napier



I don't expect copper to go below $1.25, so price may not go much lower but inventories need to fall and copper prices increase before we can say that copper is giving a "sharemarket bottom signal". Mick100




It seems spot copper may be trying to find a bottom..short term uptrend not confirmed yet and Warehouse stock levels are still rising...so all bets are still off.


This is tentatively encouraging news for Global Equity markets (touch wood), but time is needed to confirm.