Thursday, June 19, 2008

Quotabale quotes on market direction.

It's always interesting to know what the smart money is saying. These have been culled from my readings over the last 7-10 days. Warning: Most of the commentators sounded bearish to me!

  • Rob Arnott: Stocks are likely to move lower in the next six months and will be in hibernation for years. For the long-term investor, stocks will offer single-digit returns over the next 10 to 20 years, though individual years could be far better or worse.

  • Michael Kahn: Technical analysis can be compared to a court of law where there is not one definitive proof that the trend has changed but a preponderance of evidence to say so. No bell has rung, but there is also no denying what is happening before our eyes. And until the evidence starts to pile up on the other side of the battle, we must act as if this is a bear market.

  • Jeff Saut (paraphrasing Ken Dupre): The market is cheap at a 16x P/E multiple (vs. 19 P/E a year ago) on depressed financial earnings, and there is a lot of cash on the sidelines. To me, this suggests a slow, rising, more volatile market. I am also a seasonal man and believe there are always bargains to be found in September/October, so having some cash today, or raising some this summer in rallies, should be useful this fall.

  • Prieur du Plessis: I would like to stress again that the emphasis at this juncture should be on the return of capital rather than the return on capital.

  • Nassim Taleb: “America is the greatest financial risk you can think of.”

    “Governments and policy makers don’t understand the world in which we live, so if somebody is going to destroy the world, it is the Bank of England saving Northern Rock. The biggest danger to human society comes from civil servants in an environment like this. In their attempt to control the ecology, they don’t understand that the link between action and consequences can be more vicious. Civil servants say they need to make forecasts, but it’s totally irresponsible to make people rely on you without telling them you’re incompetent.”

  • Larry McMillan: We have no buy signals from our indicators. However, we do have oversold conditions. Thus a short-lived and potentially powerful rally could spring up at any time. We think any such rallies should be sold.We think that this new down leg is strong enough that it will have to be resolved with a typical capitulation low -- involving a spike peak in $VIX and put-call ratio buy signals near the top of their charts. By the time all that happens, it would not be surprising to see $SPX in the neighborhood of the March lows. If so, it will be interesting to see whether or not a "retest" holds.

  • Eoin Treacy (Fullermoney): US government bonds in long-term bear market. Yields took 22-years to fall from their accelerated peak and may yet take as long again before they reach the highs of this secular move.
    This is a long-term cycle, and it will not be the same as the last bond bear market, but it will give context to almost every other asset class over the coming decades.

  • John Hussman: The prospect of 10-year total returns of just 4% in Treasury bonds is not particularly compelling on an investment basis, so the primary driver of bond returns will be speculation about economic weakness and a ‘flight to safety’ from credit concerns.

    Presently, deteriorating stock market internals suggest fresh skittishness among investors, which coupled with still-rich valuations (on the basis of normalized earnings) often results in particularly negative outcomes for stocks.

  • Richard Russell: The implications of the Lowry’s statement is clear enough. If there is no case of Lowry’s Buying Power making new lows many weeks after an important market bottom – then the fact that Lowry’s Buying Power is now making new lows indicates that the stock market has NOT yet put in an important bottom. In other words, we have not yet seen a bottom so far in 2008. If this is true, then the major averages and many, if not most, stocks are fated to break to new lows.

  • Brett Steenbarger: From housing to the dollar, banking to commodities, national debt to soaring Medicare and Social Security obligations: it's difficult to see the period since 2002 as anything other than one of profligacy and utter fiscal mismanagement. I am not a bear by nature, but when you consider the average debt of the average household and the concentration of household assets in housing, it's difficult to see happy retirements for many baby boomers.

  • David Rosenberg: The euphoria in the equity market has been breathtaking in the past few months. Are we believers that this is sustainable? The answer is no.

  • Gary Shilling: We think the unemployment would be going to 7.2% in the second quarter of next year, which we think would be the bottom of the recession. Brushing it aside is Fed's assertion that inflation is a concern not economic growth, but we don't agree with him. We are looking for the biggest decline in consumer spending of any recession since the 1930s.
    To make a bold prediction, I think towards the end of the year we'd be back to worrying about deflation and not inflation. We are long the Dollar against the Euro currency.