What Month will stock Market "Correction" Occur ?

[wwswimming]

Thursday January 14 seemed to be "the day" for breaking news in the mainstream media that came out about a month ago, but hadn't seen mainstream play.

2 news items (low Christmas sales, more layoffs) were in one news articles.

The other news (mortgage delinquencies set "sad record" in 2009, continue to increase) was announced about a month ago, it took a while to get to the front page.

Now that the news is known ... and banks are taking some haircuts, both in terms of stated profits and Obama stepping up and criticizing their practice of taking public money & paying huge bonuses ... when will the stock market react ?

I predict ... not right away.

My Prediction - March 2009, not Feb. 2009.

It seems like the stock market takes time to react, that it has some similarity to a hippie on acid. It likes to skip along, oblivious to the fact that P/E ratios are sky-high by historical standards and GAAP (generally accepted accounting principles), goaded along by the fact that people/ investors INSIST on a profit and aren't willing to let their money earn 1 1/2% in a bank CD.

MY QUESTION -
So, I'm curious WHY does the stock market takes time (months)for news to sink in ?

Most of the financial/ economic news that will be known when the stock market crashes/ "corrects" is known now, yet, the market doesn't crash until it is good and ready.

My guess is, there will be some final piece of bad news, e.g. Citi being nationalized, that will make investors go, "GULP". Wall Street will attempt to patch things up, e.g. removing a broken financial institution for the Dow, putting in a star player ( Google ? Autodesk ? Adobe ?). But, it will be too much.

And although MOST of the news is known NOW, the stock market won't crash until it "bursts with bad news" - like that scene in Monty Python where the guy eats too much and explodes

http://www.youtube.com/watch?v=MlfcF1I5e_g

( The man explodes at 6:00 into the video. )

 

[Craig234]

I vote 'no one knows and this is a lucky guess poll'. No offense.

 

[Zebo]

When you give investment banks virtually unlimited FED money and all they know is pump and dump there is no tellin' could go to 20K. What does it mean though? Bottom line is Gini index grows every year. People are owned lock stock and barrel to banks and IRS for life and jerbs continue to disappear.

 

[Zebo]

PS I forgot to mention.

Rising poverty is a lagging indicator.....

Increasing food stamps is a lagging indicator.....

Decreasing wages is a lagging indicator.....

Rising bankruptcies is a lagging indicator.....

Evaporating tax receipts is a lagging indicator......

Rising foreclosures is a lagging indicator.....

Increasing vacancies is a lagging indictor....

Decreasing sales is a lagging indicator....

Falling rents is a lagging indicator......

Higher defaults is a lagging indicator......


We are just about to recover according to CNBC.

 

[IronWing]

Stock market is a lagging indicator.....


Folks with 401ks tend to react to changes in the market, not the underlying earnings. So as long as the market goes up, folks will keep pouring money in. It has to show a bit a weakness before the 401k folks get spooked and run for the doors. We have met the herd and it is us.

 

[StageLeft]

I said second quarter but the real option I wanted was "I don't know if there will be one or when". Honestly anybody else is just guessing.

 

[LegendKiller]

PE ratios are poor measurements for future prices.

Personally, I don't think any correction needs to be made. Just as much as 7K was too low and 14K was too high, 10K should be fine. Downside fear overcame fundamentals of companies, depressing prices. That has abated and prices have normalized.

My favorite example of doomsday pricing was the car rental companies. They depend on securitization of the fleets and, since they couldn't sell securitization bonds last year, everybody thought they were going BK. Avis/Budget, Dollar-Thrifty, and Hertz, all plummeted. CAR = .34 from 16-20. DTG = .6 from 30. HTZ = 3 from 25.

However, the market opened up with higher yields and more protection. Now CAR = 13. DTG = 28. HTZ = 25.

I made a shit-ton of money on those alone. I large portions of my money in CAR/DTG

Earnings have kept up with expectations thus far, which is what prices are based off of anyway.

 

[blackangst1]

March 2009

 

[bruceb]

I also said 2nd quarter, but I am also predicting that the downturn will not be more than 500 - 700 points and it will be somewhat short lived. Then it should begin a nice slow climb, back to 11,000 or so

 

[blackangst1]

I also said 2nd quarter, but I am also predicting that the downturn will not be more than 500 - 700 points and it will be somewhat short lived. Then it should begin a nice slow climb, back to 11,000 or so

Is a 5% drop really considered a correction though?

 

[bruceb]

I think so and so does my broker. That is what he is expecting. The trick is to be diversified.
Some bonds, some preferred stocks, some oil / energy (BP / PBR / ED), some retailers (costco), drugs,defense (think LMT / HON / GD), conglomerates (like UTX), techs (APPL / GOOG), chemicals (DD), rails (CSX), foods (KFT / PEP / MCD), banks or credit cards (like MA or V)

 

[StageLeft]

I think so and so does my broker. That is what he is expecting. The trick is to be diversified.
Some bonds, some preferred stocks, some oil / energy (BP / PBR / ED), some retailers (costco), drugs,defense (think LMT / HON / GD), conglomerates (like UTX), techs (APPL / GOOG), chemicals (DD), rails (CSX), foods (KFT / PEP / MCD), banks or credit cards (like MA or V)

Heck, with that amount of diversification why not just have an index fund?

 

[Zebo]

PE ratios are poor measurements for future prices.

Personally, I don't think any correction needs to be made. Just as much as 7K was too low and 14K was too high, 10K should be fine. Downside fear overcame fundamentals of companies, depressing prices. That has abated and prices have normalized.

My favorite example of doomsday pricing was the car rental companies. They depend on securitization of the fleets and, since they couldn't sell securitization bonds last year, everybody thought they were going BK. Avis/Budget, Dollar-Thrifty, and Hertz, all plummeted. CAR = .34 from 16-20. DTG = .6 from 30. HTZ = 3 from 25.

However, the market opened up with higher yields and more protection. Now CAR = 13. DTG = 28. HTZ = 25.

I made a shit-ton of money on those alone. I large portions of my money in CAR/DTG

Earnings have kept up with expectations thus far, which is what prices are based off of anyway.

I always like these retroactive posts. Common' Legend, what's a hot deal now. But in all fairness you did predict a summer bounce as things were looking pretty sorry about March.

 

[LegendKiller]

I always like these retroactive posts. Common' Legend, what's a hot deal now. But in all fairness you did predict a summer bounce as things were looking pretty sorry about March.

What do I like now? Personally I am in EK and IMN, both illiquid and out-of-favor stocks, but I like the fundamentals. EK has a shit-ton of patents out there bringing in fees and some favorable lawsuits going on with digital photos. I am also favorable towards RMBS, largely due to posts in OT (not my find).

I still like some financials, like WFC and USB. However, they are getting played out.

I do still enjoy the bumpy ride the rental car companies keep having, I've ridden that one quite a bit.

Personally, I still think GOOG is underpriced, same with AAPL, albeit, those are risky plays considering the multiples they are trading at. Some unfavorable news can send them into the basement quickly. I picked up AAPL at 180 but haven't sold despite several nice exit-ops. I bought GOOG at 268 also for my wife's account, I just can't get her to ride the rollercoaster, she wants to buy/hold (frustrating).

I am still long on GE, I think it's still being punished unfairly, although that isn't a huge conviction and a small play.

I would stay away from some of the metals, except for some stocks like Uranium miners, or copper (FCX is always favored). I think gold is over-played.

 

[PJABBER]

While I am generally bearish at the moment and expecting a flat to declining market going forward barring unforseen events, I am actually betting a short term bullish play with the election of Brown in Massachusetts.

Don't have a lot of time to stay online today, so check out Cramer's commentary from Friday which pretty much lays out the thinking for short term trading action next week.

Here's his monologue from Friday evening:

"The number you need to watch is the number that Scott Brown racks up against Martha Coakley in this amazing Massachusetts Senate race...Even a few weeks ago it was a lock for Democrat Coakley. But now everything's up in the air, and a Brown win would be devastating for the president's agenda...particularly on health care reform, because Republican Brown has said he will definitely vote against the plan.

Brown in the Senate? That wrecks the 60-vote supermajority the Democrats have been counting on. It could spell the end for this almost year-long nightmare of a piece of health care legislation.

What does a Brown election mean...? Well, first you're going to get a knee-jerk rally in all the so-called penalized stocks -- the HMOs, the drugs, the medical device-makers. I call it "knee-jerk," though, because these stocks have been on fire for months...It's been clear as a bell that the health care reform wasn't going to affect most health care stocks. That's versus what we thought last year.

More important, though, I think that investors who are nervous about the dictatorship of the Pelosi proletariat will feel at ease, and we could have a gigantic rally off a Coakley loss and a Brown win. It will be a signal that a more pro-business, less pro-labor government could be in front of us...How about a little bit less like the old Soviet Union? Yeah, that would be a bit more like it. Pelosi politburo emasculation!

Cramer, a supporter of President Obama, has become increasingly critical of him on the occasions when he has ventured into political conversation.

Cramer: Politics Trump Earnings Next Week

Published: Friday, 15 Jan 2010 | 8:14 PM EST

By: Tom Brennan
Web Editor, Mad Money

Earnings season may be in full swing, but company numbers aren’t the biggest potential catalyst next week. That honor goes to the Massachusetts Senate race, once thought to be a lock for Democrat Martha Coakley but now a legitimate tossup between her and Republican Scott Brown.

“A Brown win would be devastating for the president’s agenda,” Cramer said, “particularly on health-care reform.”

And it could also boost the stock market.

If State Senator Brown beats State Attorney General Coakley, the Democrats will lose their 60-vote supermajority in the Senate. That would make it incredibly difficult for Obama to push through reform, Cramer said, and it may put a halt to House Speaker Nancy Pelosi’s seemingly anti-business agenda.

A Republican win would cause a “knee-jerk rally” in the health-care stocks, Cramer said, specifically the HMOs, drug companies and medical-device makers. He said knee-jerk because these companies, WellPoint and UnitedHealth specifically, have been pushing higher ever since the most potentially damaging parts of the legislation were removed.

More importantly, though, investors should react positively to a red victory in a blue state because it would signal a more business-friendly attitude in Washington. In fact, Cramer said a Coakley loss could spark a “gigantic rally” as everything from the banks to the oils face a less hostile government.

 

[First]

Google and Apple are overpriced now but probably have ridiculously good value going forward whether it's in their combination of search, mobile phone hardware/OS, mobile laptop hardware/OS, etc. Honestly, anyone as deeply penetrated into mobile as Apple and Google (less so) has to have a pretty bright future.

In terms of this thread, since PEs aren't historically overpriced and since PEG looks good for most companies and we actually gained jobs two months ago, it's hard to say any upcoming correction is going to matter in anything but the very immediate, very short-term. I said in summer 08 we were clearly already in a recession and that we would bounce back and start the next boom in late 09/early 2010. That the dollar wouldn't collapse, gold would be a red herring, and any inflation wouldn't be likely to significantly stunt growth. 18 months later it's pretty clear the fundamentals show that's exactly what's happened, some bad paper on the FHA's books be damned.

 

[First]

While I am generally bearish at the moment and expecting a flat to declining market going forward barring unforseen events, I am actually betting a short term bullish play with the election of Brown in Massachusetts.

rofl!

 

[LegendKiller]

Google and Apple are overpriced now but probably have ridiculously good value going forward whether it's in their combination of search, mobile phone hardware/OS, mobile laptop hardware/OS, etc. Honestly, anyone as deeply penetrated into mobile as Apple and Google (less so) has to have a pretty bright future.

In terms of this thread, since PEs aren't historically overpriced and since PEG looks good for most companies and we actually gained jobs two months ago, it's hard to say any upcoming correction is going to matter in anything but the very immediate, very short-term. I said in summer 08 we were clearly already in a recession and that we would bounce back and start the next boom in late 09/early 2010. That the dollar wouldn't collapse, gold would be a red herring, and any inflation wouldn't be likely to significantly stunt growth. 18 months later it's pretty clear the fundamentals show that's exactly what's happened, some bad paper on the FHA's books be damned.

I agree they may be technically a bit overpriced compared to current revenue/assets, the high multiple of several metrics show that. However, they aren't high compared to prospective revenue, as you mentioned. However, the multiples expose them to significant "bad news" declines. I've got room on both stocks, so any decline shouldn't hurt too much, significant margin of safety on GOOG, less so on AAPL.

As with anything, just a personal opinion, nothing official and you win/lose some.

 

[First]

^ Apple in particular has surprised me and probably everyone with their multiple comebacks from the dead, particularly considering their dominating app development on iPhone which I believe triples the next closest hardware. They haven't penetrated business the way RIM has but they have laid the groundwork for it. At this point I have to see how their tablet works out before I become a firm believer but I'm nearly there anyway. GOOG at $580 isn't nearly as overpriced as it used to be at $770+ or whatever it was.

 

[Carmen813]

Could we define what "major correction" means? Is this like 25%? Or like 10?

 

[PJABBER]

rofl!

Trading play only. The best kind.