Tommorrow’s Barron’s cover story has forecasts provided by 12 strategists and investment managers. I would like to highlight their S&P500 earnings forecasts for 2010.
As seen on page 28, the average of the 12 stated forecasts is $75.75.
From what I have seen, this $75 level is very common among forecasters, and as such seems like the predominant forecast for “operating earnings.”
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SPX at 1102.47 as this post is written
Here are two articles on Ben Bernanke that I found interesting. There is much I could comment upon in each. I disagree or otherwise have differing opinions on various statements in these articles; however, I do feel the stories are valuable as they present an in-depth look at Ben Bernanke from a historical and philosophical perspective.
The first is the Time Magazine “Person of the Year” story of December 16:
http://www.time.com/time/specials/packages/article/0,28804,1946375_1947251_1947520-3,00.html
The second is titled “Bernanke’s Philospher” and is found in the December 2009 Reason.com:
http://reason.com/archives/2009/11/17/bernankes-philosopher
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SPX at 1102.47 as this post is written
Here are two interviews that I found interesting. Although I don’t necessarily agree with all of the views voiced by Jim Rogers and Ron Paul, I think both interviews are well worth watching.
Here is the Jim Rogers interview (length 5:20), titled “What Recovery? America’s Problems ‘Getting Worse, Not Better,’ Jim Rogers Says” on Yahoo Tech Ticker December 10, 2009:
Here is the link to the Ron Paul FoxBusiness.com interview (length of 8:56) of December 16, 2009 in which he responds to Ben Bernanke being named Time Magazine’s Person of the Year:
http://www.youtube.com/watch?v=O3q3UUi0IDQ
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SPX at 1102.47 as this post is written
Yesterday The Wall Street Journal had an article titled “Debtor’s Dilemma: Pay the Mortgage or Walk Away.” Here is the link:
http://online.wsj.com/article/SB126100260600594531.html
The article has a variety of statistics and views on the issue of “strategic defaults.” As well, it discusses the legality and consequences of such.
I have previously written numerous blog posts on the issue of “strategic defaults.” (Those posts can be found under the “Real Estate” category listed along the right side of the home page). ”Strategic defaults” is an exceedingly important concept for a variety of reasons. Like many economic issues, it is a very complex topic dependent upon many factors. I find the topic fascinating.
It should be very interesting to see the course of “strategic defaults” as time progresses.
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SPX at 1096.08 as this post is written
Here are two charts that I find notable.
The first is the daily chart of the US Dollar. I have added the 50-day moving average. As one can see, the trend seems to be “up.” This increase, if sustained, will pressure the US Dollar carry trade and that would likely have an outsized negative impact on various markets:
chart courtesy of StockCharts.com
The second daily chart is of the S&P500. The trading range from roughly mid-November until now has created a lessening of the Bollinger Bands, as shown on the chart. The width of these Bollinger Bands is seen below. As those familiar with Technical Analysis are aware, this lessening can often signal that a large directional move lies ahead in the price of the security:
chart courtesy of StockCharts.com
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SPX at 1098.94 as this post is written
In my opinion, the existence of asset price bubbles is of paramount importance.
I have recently written a few posts on the subject. I would now like to comment on a Wall Street Journal article from Monday titled “Economists Warn of Asset-Price Bubbles.” Here is the link:
http://online.wsj.com/article/SB126074172673289729.html
First, I would like to reiterate that I believe there are many bubbles in existence right now. This is in contrast to the commonly held theory that bubbles may form in the future if low interest rates and other stimulative measures are maintained.
Second, from the article, I completely disagree with the following excerpt with regards to “don’t appear to be taking any chances”:
“Although global growth and financial markets are rebounding more quickly than was expected last summer, the Fed and the European Central Bank don’t appear to be taking any chances.”
I base my disagreement on several factors. In my previous writings I have extensively written about the potential perilousness of interventions, moral hazard issues, asset bubbles, etc.
Third, I strongly disagree with this excerpt:
“The usual warning sign of new bubbles, rising inflation…”
Assuming that “inflation” refers to inflation as measured by CPI, I disagree that rising inflation is definitely one, if not the key, warning signs of new bubbles. Without writing extensively about this, I would point out that two of the largest bubbles of the recent past (as well as from a long-term historical context) were created in periods of low (CPI) inflation: the housing bubble and the surrealisticly absurd internet stock “hyperbubble.”
I will be commenting further upon bubbles as time progresses…
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SPX at 1107.93 as this post is written
In his December 7 speech, Ben Bernanke made the following comments with regard to the role of The Federal Reserve. For now, I will post an excerpt I found notable, and may comment upon it at a later date:
“In all of these efforts, our objective has not been to support specific financial institutions or markets for their own sake. Rather, recognizing that a healthy economy requires well-functioning financial markets, we have moved always with the single aim of promoting economic recovery and economic opportunity. In that respect, our means and goals have been fully consistent with the traditional functions of a central bank and with the mandate given to the Federal Reserve by the Congress to promote price stability and maximum employment.”
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SPX at 1113.69 as this post is written
I would like to briefly comment on Ben Bernanke’s December 7 speech, that can be found at this link:
http://www.federalreserve.gov/newsevents/speech/bernanke20091207a.htm
Here is one excerpt that I found notable:
“Economic forecasts are subject to great uncertainty, but my best guess at this point is that we will continue to see modest economic growth next year–sufficient to bring down the unemployment rate, but at a pace slower than we would like.”
I found this notable as he is reiterating his opinion that economic forecasting is inherently uncertain. In his May 22 speech, which I commented upon in a June 17 post, he had spoken at length on this issue.
I think that this inherent uncertainty in economic forecasting is a very important point. I have written about the topic, and have extensively detailed how accurate economic forecasting, especially since 2007 has proven incredibly difficult. This issue doesn’t seem to gather much attention. However, among other issues, it seems as if it should call into question the potential accuracy of current economic forecasts.
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SPX at 1112.25 as this post is written
The following chart shows a Weekly Log Chart of the S&P500 from 2007. I have drawn a trendline from the October 2007 highs as well as a retracement indicator from the March 2009 bottom of ~666. (Please note that the trendline and retracement both might be off by a “hair,” but this is relatively immaterial to the main message)
Chart courtesy of StockCharts.com
The trendline is significant as it represents the downtrend line from the October 2007 highs. As one can see, the current S&P500 price of 1110 is very close to that downtrend line.
As well, the current price is very close to the 50% retracement of the move from the S&P500 October 2007 high to the March 2009 low. This 50% retracement is shown in gray and is at 1121.44.
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SPX at 1109.58 as this post is written
In this post I would like to respond to a question that was raised in response to the final post (November 6) of my “Danger In The Markets?” series.
The question raised was “What would have to occur before you considered moving bullish?”
I will answer this question in the context of the general stock market (S&P500). As readers of this blog know, I have repeatedly expressed doubts as to the sustainability of this stock market rally. I continue to view it as a bear market rally, albeit a strong one. If this indeed proves to be a bear market rally, by definition it will go below the 666 March low. There are a variety of technical, fundamental, general economic, and “behavioral” characteristics of this stock market rally that cause me to draw such conclusions.
Additionally, as I have previously stated there are a lot of factors and conditions in various other markets (outside the stock market) that cause me to be very concerned. Posts explaining these concerns can be found under the “Investor” category on the right-hand side of the home page.
Another concern that I have is that, as stated in yesterday’s post, I view many asset classes as being in bubbles now. This is a very serious condition. Investing in bubbles can be extremely profitable on the way up; however, for the “long” investor they can produce huge losses if one doesn’t time the exit appropriately. While I view some bubbles as being bigger than others, if the markets enter a “general liquidation” phase like they did in 2008 and most asset classes prove to be tightly correlated, as they were in 2008′s decline, there would be widespread severe losses throughout most asset classes.
A few years ago I ran across a quote that I found most valuable. In essence, it said that the last place you want to invest is in an asset class whose bubble has popped.
To conclude, before I would change my overall stock market stance to “bullish,” I would want to see an overall market environment considerably different than that currently existent. While I can’t exactly specify the parameters of this change, because so many factors are involved, I think a change to “bullishness” will be plain to see, if not explicitly stated, in the blog posts.
One other thought…bear markets can last for years and can make many turns. Assuming we are in a bear market, the ultimate low could be years away.
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SPX at 1111.62 as this post is written