On calling a bottom
A lot of people have been talking about a bottom lately. Barry Ritholtz over at The Big Picture has actually been seen making the occasional bullish call. Jon Taplin started buying back in to GE and CVX. Now I like both of those stocks a lot for the long term. But less than 10 days after the big 8% rally in GE that Jon was excited about, GE broke its 52-week low and looked like it was flirting with dropping below $16 a share today. Now GE with a P/E under 8 is a fantastic deal. There is no question about that.
However we are not at the bottom. There has been no (zero) good economic news coming out of any part of the world right now. US consumers are tapped out just as we’re about to enter the most important month of our economic year. There are lots and lots of companies who have to have a really positive Christmas to stay in business. That isn’t going to happen. Walmart may pull out a positive Christmas. Everyone is probably fucked. That means fewer jobs, a nasty kick-in-the-balls to the GDP, and the entire world drifting further down the recessionary spiral. Think that is priced in? I severely doubt it. No one is sure how bad it is going to get and while you can look at historic models, the old adage that “past performance is no indication of future returns” applies here in spades. This is not the Great Depression or the crash of the Internet bubble. This is new and different.
I want to come back to this in more depth later, because I don’t have the time to do this justice right now. But to put it simply, there are no reasons for stocks to go up now, except that they are underpriced with regards to traditional models of value. But right now those traditional models don’t apply. Which means there are not any good reasons for stocks to move positively right now. So why buy?
November 23rd, 2008 at 8:56 pm
Right on! Logical fallacy applied to the market. The market has historically gone up. Well in the long run yes. But in the long run we’re also all dead, so we may not live to see the movement upward anytime soon.
November 29th, 2008 at 3:14 am
The market will go up in my lifetime, and most likely yours, unless you are commenting on this post from the side of your grave. While a global recession is upon us and here to stay, this is not a permanent condition. The economy will recover and many of the advantages the US had before this crash will remain during the recovery. That is not a guarantee that the US will retain economic hegemony, but it does still hold the upper hand in financial dealings and there are no indications that any nation or collection of nations is immediately ready to wrest that crown from us. So the US stock market will certainly eventually recover and I think will do so and then some in the next three to five years.
Even removing the fake imaginary money that has been added to the world economy recently, the overall growth of the world economy in the last fifty years is staggering. Assuming we do not destroy the earth completely, the next fifty years will be insane. Exponential. We’re standing poised on the brink of a future that none of us are really capable of seeing or predicting. There is enough computing power in the world right now that the most complicated problem is figuring out the right questions to ask. There is enough crazy science going on that no one can actually being to comprehend it. Just too much knowledge (to quote William Shatner out of context). The world economy will soar. Assuming, again, we do not destroy ourselves first.