Bull Market or Sucker's Rally?

[hakrjak]

Where do you think we are today and why? What does your gut tell you?

My gut feel:
I have to say Sucker's Rally... An economy can simply not continue to lose this many jobs each week, and contract in size -- but sustain a bull market rally. The bottom has got to fall out of this thing sooner or later. Also the government being blatant about raising taxes soon is not going to help us come out of this any quicker. If we start to grow jobs again, then I'll probably reverse my view, but until then -- that's the main factor for me to be negative I think...

Your thoughts?

Cheers,

- Hakrjak

 

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[MJ DeMarco]

What impetus is there for capital investments? What in this market is moving it?

I see absolutely nothing. The market might have oversold the risk and now it is fighting back.

This market ain't seeing my $$ unless its for a specific day/swing trade or a company on the stimulus gravy train.

Till then, I remain in fixed income investments, commodities, and non-USD currency.

 

[Edge]

My money has been on this being a sucker's rally, but it hasn't been fun and so far I am the sucker. :smx4:

I'm not changing my view or position yet.

 

[kidgas]

Maybe I should go a little contrarian. With the doom and gloom, who knows? I don't know that I would call it a sucker's rally since I think the bottom has been seen at least for a little while (several years). But, I don't know that a new bull market is upon us. We may end up being somewhat range bound over the next several months until a clear direction has been established.

 

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[hakrjak]

What I want to know is when the job losses will stop... 600,000 jobs a week is a hell of a lot of jobs to be losing... We've got to stop losing them before we can start growing them again....

- Hakrjak

 

[randallg99]

What I want to know is when the job losses will stop... 600,000 jobs a week is a hell of a lot of jobs to be losing... We've got to stop losing them before we can start growing them again....

- Hakrjak

wait until the auto layoff numbers start showing.

 

[ramy98]

Suckers Rally; the fundamentals of the US Economy are bleak at this time.

 

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[randallg99]

I've long maintained that the economy cannot and will not be sustained long term with government intervention. While the gov't rightfully successfully eliminated a systematic bank failure, it is now taking other steps in adding support to the economy over and above what banks normally contribute and this in itself is a recipe for a disaster in the making.

for the many years I have invested, it has never been so clear that not only are we in the midst of a short term bear fake, but we're also in what appears to be a very long winded recessionary period based upon the horrid fundamentals. All of the indicators are absolutely horribly terrifying. The markets should really be trading at much lower levels based on the fundamentals and indicators and this disconnect I've written about before is very dangerous to those who don't understand the markets.

The next shake out will all but eliminate the retail investor, the shock will be too much for the retail investor to undertake. This current rally is very uplifting for those who saw their 08 year end statements and they're yearning to recover their losses but greed is taking over again. The consequences are going to be harsher this time as there is less physical capital to lose on the retail level at this time mainly due to the credit crunch.

we're clearly in a sucker's rally.

 

[kidgas]

randall,
I certainly cannot argue your points about fundamentals and governmental intervention regarding the markets. However, I would like to respectfully disagree as to your comment about lack of physical capital at the retail level. Here are several links that refer to very high levels of cash on the sidelines:

Cash on sidelines now 74% of stocks' value; 18-year high | Money & Company | Los Angeles Times

Interesting chart:
VIX and More: Cash on the Sidelines Headed Back to Stocks?

Chinese reserves are high:
Chinese Reserve Growth Slowing Sharply: Outflows Now Replacing Inflows? | Wall Street Survivor University

Not that I expect them to want to buy US stocks in this environment, but I can see them securing commodity resources for cheaper prices. I read an article about them adding to their gold reserves.

Of course we all know about the increase in the US savings rate which will need to be invested in some fashion.

All this being said, I can't say we are at the beginning of a new bull market. Neither do I state with confidence that this is a sucker's rally. Sure the fundamentals are poor. However, companies that have pared expenses and continue to make profit despite lower revenues will just equilibrate to a new equilibrium. Commerce is still occuring. The gains in the market were likely do to leverage. Once the deleveraging process is over, we should have reverted to the mean. Was the bottom in March an overshoot? I can't say for sure. I am not ready to pick a side.

Bottom line for me is that I don't want to miss any rally but need to be ready for another move downward. Hedge your bets both ways. Keep puts in place. Have some available cash. I am selling more calls on the way up to raise cash and just taking it slow for the most part. The volatility of my account is fairly low. I am just trying to be patient and see what happens.

 

[MrPink]

yes, it is a bully market or a sucker's rally

Here a couple of quotes by some respected investors that may help in your decision making

 

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[Jonleehacker]

What I want to know is when the job losses will stop... 600,000 jobs a week is a hell of a lot of jobs to be losing... We've got to stop losing them before we can start growing them again....

- Hakrjak

Listening to people who study these types of things, apparently the turning point in a recession is when job loss rate is the highest. So if we aren't there yet, it may be soon when the GM situation shakes out.

I think it depends on how far we are looking forward. Even if there is a recovery from this recession and money comes back into the market, this whole thing has *exposed* a lot of fundamental flaws in the use of debt by citizens and government.

In general the longer term path that is drawn by our use of debt is unsustainable so there will never be a real recovery until that issue is addressed, but of course to address that is political suicide so it won't happen until every other option has been exhausted.

 

[randallg99]

kidgas- rep for the links and counterpoints.

1. I really believe there is a newfound optimism in the economy that is being reflected in the markets. Unfortunately, this optimism is based upon the masses wanting to avoid missing any run up regardless of the fundamentals.

and the optimism is based upon speculation that a recovery will begin during year 2010. The problem is that even if a recovery begins at that point, the p/e and price/sales and book value ratios all lag at least 2 quarters, historically speaking.

2. The markets are "forward looking" which in itself is a dilemma for investors. the volume was very low during April's monstrous rise in all of the indices and this is a very telling indicator of buying power. There simply is not enough buying and after so much dilution in the past several months, floats are extremely high leaving more down room... so this begs the question, how far forward are the markets looking?

3. I was glad to see you link Bill Luby's site re: VIX. He posts at a paid investment site I frequent. But my argument is much like a couple of the comments listed in Luby's site. The cash is either gone or already deployed. Savings rates just FINALLY went positive after a decade of negative trends. Due to the excruciating circumstances, any leveraged cash at this point cannot be counted on to be deployed or support the markets.

4. VIX is low now but remember it was also very low before last October.... and anyone with investments in the markets remembers vividly what happened.

I think as the retail investor drives the markets as we've seen by noticably low volume, we will see severe headwinds and downside risks outweighing upside risk.

That said, I am actually only 40% cash now, down from 85-95% but I have completely changed my strategy. This is no longer a buy and hold market, unless you have a few years to wait. It really is a traders market and there is a lot of money to be made with the volatility. Using hedges and stop losses are very, very important tools in this element.

Good luck.

 

[kidgas]

randall,
Thanks for the luck. I agree buy and hold is not the way to go. I, too, and buying and hedging. I should have been selling more calls along the way over the past year, and I would have been better off. Still, I am OK with my positions currently.

Granted volume was anemic. I am wondering if that means that there is less impetus for selling and the available supply was down. I am just trying to point-counterpoint. Honestly, I could see things going up or down just as easily. Might as well flip a coin. Like you said (and I second the motion), buy and hedge.

 

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[hakrjak]

Up almost 200 pts today so far based on some positive housing news that came out. This is why they call it a Sucker's Rally though, because it sucks you in

Cheers,

- Hakrjak

 

[hakrjak]

Check out the chart for unemployment I found online... It's going STRAIGHT UP.... No end in sight, almost like it's rapidly accelerating & getting worse:

Bureau of Labor Statistics Data

 

[Rawr]

IMHO: Fed/MM orchestrated to push prices as high as they can to drop it all very fast very hard. Gov-t has to try and look good and this is working short term.


problem is, EVERYONE knows we are going to pull back, yet it isn't happening.

Being a short is making me a sucker as well. This week should be very interesting

 

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[gofalls]

Check out the chart for unemployment I found online... It's going STRAIGHT UP.... No end in sight, almost like it's rapidly accelerating & getting worse:

Bureau of Labor Statistics Data

That unemployment graph is super scary. When the media reports the unemployment #’s they usually say things like “Better than expected†or “5% less than the previous month†so instead of 600k jobs lost its “only 550k†jobs lost. People may get the wrong idea that things are getting better. I think many of these businesses have squeezed all the inefficiencies out and can no longer layoff people to lighten the load. So if the layoff rate is reduced then it might just mean the business is on the last leg and only have the option to succeed or file for BK.

Good news – We didn’t lay anyone off this month.
Bad news – We only have 1 employee left to run the company and make a profit.

Side note -
I heard a commentator say Phoenix is the first to hit a 50% depreciation rate for SFH’s. Then he said homes will need to appreciate 10% per year for 5 years to recover to previous highs.

Well that’s not so bad??

I think a lot of people think this way. Do the math

100k home, Drops 50% = 50k Market Value
50K + 10% for 5 years is = 80k compounded appreciation (not 100k)
50k +10% for 7.5 years is 100k
50k +5% for 14 years is 100k (5% is more realistic, might even be way to optimistic)

If it drops 50% and then increases 50% you are still well short of your original amount.

Suckers rally for sure.

 

[kidgas]

Bull's market or sucker's rally? Don't know if a decision has been made but some money can be made regardless.

 

[MJ DeMarco]

Companies have lowered their earnings estimates so low that its hard not to beat them. I still believe that this is a suckers rally. Declining unemployment numbers is the confirmation I need, not more government spending and a continual dollar devaluation. In world dollars, the rally has been offset by the dollar devaluation.

 

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[DiceMan]

Hopefully it is a sucker's rally for me. I like buying stock for cheap at such a young age right now.

 

[hakrjak]

I gambled and threw my 401k into Stocks 100% from about Dow 8000 to about 8800, when I bailed out and went into cash..... I'm on a hot streak... I called the Bond market rally right before that also, and made good profits

Where do we go from here? I'm guessing atleast back to 8500 in the near future... Can't believe Tech is leading us out of this thing considering that TECH has been in a recession since 2001!!!! What the hell? The talking heads on CNBC don't know anything about Tech, but they are pumping it like crazy right now... The layoffs seriously have not stopped in tech since 2001... Apple looks so damn expensive right now, but everybody is pumping that stock also... There is no future in hardware -- Nobody makes any money off of selling hardware.... The only big profits being made right now is on services, and in some of the big companies like IBM & HP -- that's the only division even profitable in the company! That will drop off dramatically as soon as the recession is over -- Services always sell big time during downtimes.... Outsourcing is hot in a recession, but not popular in a growing GDP world...

Cheers,

- Hakrjak

 

[randallg99]

I think it's a good idea to go into cash after reaping a nice return (that was a fast jump from 8000 to 8800, and IMO probably unsustainable)

this is absolutely the craziest market. Keep in mind current earnings are blowing away streets' estimates and they're not blowing away previous yoy or qoq numbers.

matter of fact, S&P earnings are approx 35% less than last years!

the expectations for public companies trading are set very low.

corporations have done an excellent job cutting the fat and eliminating jobs to offset downturn in revenues. but in the end, inflation, US$ and debt levels just may be the nails that drive the markets 6 feet under.

I am 70%+ invested now and cannot believe the rate of return I am getting on stock selections. It really is unreal and I haven't had returns like this since 2000.

But I know it's a numbers game and there's simply a lot of bad accounting practices among the media, gov't and public companies so I am still extremely cautious despite getting all giddy when I look at my ports.

 

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[hakrjak]

this is absolutely the craziest market.

This is so true! It goes down, and then it stalls for a few days where you can tell it is trying to go down, but the upward pressure holds it up... Then it rallies huge -- And we're back to another point where it has gone sideways for a few days, and you can tell there is some downward pressure... So I'm guessing down again for awhile until it stalls again.... This is just like playing the tables in Vegas and spotting those trends -- haha Table was hot for the last week or so, but has it just gone cold? Stay tuned...

- Hakrjak

 

[randallg99]

I am keeping invested because think we're still in the thick of earnings season. We'll need some really bad numbers to start coming in before we take a breather (me thinks) ... but thus far, the media and markets are taking them very positively (I'll never know why, but hey... don't fight the tape)

that said, most of my holdings can be sold with one click but I am still holding pink sheets and foreign stocks and these are the ones that are hardest to sell, but have really rebounded.

I am using AReits to park cash and making average 20% yields on cost basis.... these companies are simply printing money thanks to the gov't backing the Freddies and Fannies bonds.... but I might pull the sell trigger once G-Mae starts publicizing more of their problems

 

[hakrjak]

Man, looks like this has been proven to be a bull market at this point.... And it's been going up so much every single day that it hasn't given anybody a chance to get into it! haha... Would be just my luck to jump in, and then have the bottom fall out. Nice work staying investd

-Hakrjak

 

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[MJ DeMarco]

My inflation buys are doing well! And yes, the dollar has slowly devalued.