|
PureBytes Links
Trading Reference Links
|
John - Here is what I am thinking. The replies are in caps following
your questions.
John Stevenson wrote:
>
> I refer to the Jerry Favors analysis as stated last friday (5 June) on
> CNBC. I think I heard him say that the mkt needed a week of big volume, and
> needed to set new highs above the mid-May intraday high of 9312 or else. .
> .that mid-May high would represent the "final top" of the astounding Bull
> mkt we've witnessed for the past 2-3 years, and that a plunge would occur
> within 107 +/- 5 calendar days from that top. I think it's safe to say that
> the rally isn't happening.
>
> I think it's high time that ALL investors pull their noses out of their
> charts for a time, and take a REAL GOOD look at some fundamental questions:
THE CHARTS WOULD PROBABLY AGREE WITH MR. FAVORS. ANYBODY THOUGH WHO IS
FOOLISH ENUF TO IGNORE THE CHARTS, IS LOSING TOUCH WITH REALITY BECAUSE
THE CHARTS ARE WHAT THE MARKET IS FEELING. THE FUNDAMENTALS OF COURSE
DRIVE THESE CHARTS, SO ONE MUST USE BOTH OR HE/SHE WILL BE VERY SORRY.
THOUGH WE HAVE NOT MADE NEW HIGHS, I STILL THINK THERE COULD BE (SHOULD
BE) A MINOR NEW PEAK, BUT IN GENERAL, I WOULD BE SELLING RALLIES IN
STOCKS AS I DO EXPECT A DROP OF 38-62% OVER THE NEXT FEW YEARS IN THE
DOW. JUST NOT FOR ANOTHER FEW MONTHS.
>
> 1. Do you believe in the so-called "New Paradigm"?
> (If you do I think you're probably beyond help at this point, but how can
> you justify a New Paradigm, and engage in technical anaysis based on models
> generated from the "Old Paradigm(s)"?)
AS FOR THE NEW PARADIGM, THAT IS A VERY MISUNDERSTOOD TERM. THERE IS NO
NEW PARADIGM. WE HAVE HAD LOW INFLATION AND STRONG GROWTH BEFORE.
WITNESS THE 50S AND 60S. STOCKS THOUGH DID NOT DO THIS WELL.
PRODUCTIVITY I THINK,IS UNDER MEASURED, NOT OVER ESTIMATED TOO. I AM
HUGELY MORE PRODUCTIVE WITH THE NET, EMAIL ETC THAN I WAS YEARS AGO. SO
THIS IS NO NEW PARADIGM.
AS FOR TECHNICAL ANALYSIS NOT BEING USEFUL IF THERE IS A NEW PARADIGM, I
WOULD SUGGEST THAT YOU ARE MIXING APPLES AND ORANGES. TECHNICAL ANALYSIS
IS BASED ON CROWD THEORY AND HUMAN BEHAVIOR AND THAT HAS NOT CHANGED.
THE NEW PARADIGM SAYS NOTHING ABOUT THIS (AND AGAIN, I DO NOT BELIEVE
THERE IS A NEW PARADIGM AND I ALSO THINK THE STOCK MARKET IS AT OR NEAR
A TOP ANYWAY, SO I AM NOT DISAGREEING WITH YOU IN THAT PART OF YOUR
ANALYSIS.)
>
> 2. What happens, based on historical empiricism, when prices rise, and
> earnings fall?
STOCK PRICES MUST EVENTUALLY FALL. NOTE THOUGH THAT IF THE MARKET
ADJUSTS TO LOWER INTEREST RATES IF THAT IS WHAT YOU BELIEVE, THAN PRICES
CAN RISE FURTHER. FOR EXAMPLE, BASED ON THE DIVIDEND DISCOUNT MODEL, THE
PRICE OF A STOCK IS DISCOUNTED BY THE SUM OF ITS EXPECTED DIVIDENDS
DISCOUNTS BY (1+Y)^N WHERE Y IS YIELD AND N APPROACHES INFINITY. LOWER
YIELDS RESULT IN HIGHER FAIR PRICES. STILL, THAT IS LARGELY DISCOUNTED
PROBABLY ALREADY, SO STOCK PRICES SHOULD FALL FAIRLY SOON. AND THAT IS
WHAT I EXPECT.
>
> 3. If the "fundamentals" of the Economy can be reduced to "a low rate of
> inflation" (as Bulls want us to believe), what about the other
> "fundamentals" that tell a radically different story? (ie: balance of
> trade, mkt internals, shrinking profits, chaos in foreign mkts, blazing GDP
> growth. . .etc.)
INFLATION DISCUSSED ABOVE. BALANCE OF TRADE IS QUESTIONABLE SINCE A
LARGE PART OF IT IS ASIA AND MUCH OF THAT IMBALANCE IS US FIRMS RE
EXPORTING FINAL PRODUCTS THAT THEY SHIPPED THE RAW MATERIALS TO ASIA IN
THE FIRST PLACE (NIKE, INTEL). THE TRADE BALANCE WITH CHINA, ETC IS MUCH
LESS OF AN IMBALANCE THAN REALLY APPEARS. IF TRADE IS DETERIORATING WITH
EUROPE, JAPAN, LATIN AMERICA, THAT IS MORE OF A CONCERN. AS FOR MARKET
INTERNALS, THEY ARE STILL OKAY, IF YOU MEAN SUPPLY OF EQUITY (FALLING
WITH CONSOLIDATIONS AND MERGERS). SHRINKING PROFITS ALREADY DISCUSSED
AND BAD. CHAOS IN FGN MARKETS ALSO BAD AND GDP GROWTH NOT A PROB IF DOES
NOT LEAD TO IMBALANCES CAUSED BY INFLATION AND THEN ULTIMATELY LEADING
TO AN OVERLY RESTRICTIVE FED AND THEN A RECESSION OR WORSE. BUT AGAIN, I
THINK WE ARE SET UP FOR BIG TROUBLE TO START IN THE NEXT FEW MONTHS AS
THE BALANCE OF THESE FACTORS ARE CLEARLY NEGATIVE FOR THE MARKET.
>
> 4. Does laying off 1000's of workers really constitute an "increase in
> productivity", or merely a short term boost to the bottom line (and the
> stock price), to be inevitably followed at some indeterminate time by an
> erosion of product and/or service quality? Is erosion of quality deferred
> inflation?
LAYING OFF IS AN INCREASE IN PRODUCTIVITY IF OUTPUT GROWS PER DOLLAR
SPENT PRODUCING. WE HAVE NOT YET SEEN EROSION. IF IT DOES SHOW UP, THEN
YES, IT IS INFLATION. MAYBE THAT WILL SHOW UP AND MAKE THE 38-62% DROP
THAT I EXPECT, 62-90%, BUT I DOUBT IT IS THAT BAD.
>
> 5. Do the PPI and CPI really measure inflation (defining same as: an
> erosion of purchasing power due to an expansion of the money supply), or
> have they become easily manipulated tickets to popularity for politicians,
> and sales tools for Mutual Funds?
NO IDEA. I TEND TO THINK THAT PPI/CPI UNDER REPORT INFLATION NOT OVER
REPORT AS THE BOSKIN COMMISSION WOULD HAVE US THINK. BUT, REMEMBER THIS.
WE TEND TO REMEMBER BAD THINGS LIKE PRICE INCREASES, MORE THAN WE
REMEMBER PRICE CUTS. HOW MUCH CHEAPER IS THE COMPUTER U SENT THIS
MESSAGE ON NOW THAN IT WAS SIX MONTHS AGO (MINE IS DOWN 40-70%). AND
THINK ABOUT THE REALTIME DATA DISCUSSION WE'VE BEEN HAVING. IT IS HUGELY
CHEAPER NOW THAN A FEW YEARS AGO!!!
JOHN - BASICALLY I AGREE WITH THE IDEA THAT THE MARKETS ARE DUE FOR BIG
TROUBLE (STOCKS ESPECIALLY). THE BASIC REASON IS THEY ARE OVER VALUED
BASED ON ANY REASONABLE MEASURE AS U SUGGESTED. WHERE I DISAGREE IS
SIMPLY ON BLAMING IT ON MISINTERPRETATION OF INFLATION DATA, THE
SO-CALLED NEW PARADIGM, OR USING CHART ANALYSIS. GOOD WORK. CANNOT WAIT
TO SEE OTHER RESPONSES.
>
> I would like to stimulate some discussion of these potentially
> earth-shaking matters in lieu of the usual formulae tweaking comments that
> are of interest in the micro arena, but may lead to tunnel vision in the
> macro arena.
>
> Anyone care to wade in. . .?
>
> A scientist un-accustomed to seeing Natural Law (if same is present in Mkts
> at all) re-written by ravingly optimistic ad copy. . .
>
> John D.Stevenson
|