Posted on 06/23/2009 5:28:59 AM PDT by SeekAndFind
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Scenario No. 1: The Sideways Correction (Probability of 40%)
I have previously suggested that a sideways correction remains the most likely market outcome this summer. As a metaphor, consider the market as a big bathtub with little new water (hedge fund and mutual fund inflows) being added into it. The bathtub market's water level remains stable, but the water swishes around from side to side as the bather moves. Industry rotation is the hallmark condition. The market, however, does not take a bath as, over the short term, extended sectors such as industrials, materials and energy will likely correct as more defensive sectors improve in their relative performance. A sideways correction would be intermediate-term healthy in the sense of correcting an overbought from the March lows and will likely presage a move higher in the autumn.
Scenario No. 2: The Deep Correction (Probability of 25%)
Fundamentally, a continued weakness in retail spending could precipitate lost confidence and a deeper dive. So could weakness in business spending (as a byproduct of ever lower capacity utilization rates). Technically, a reversal in the Coppock Curve indicator -- it gave a technical buy at the end of May and is now in a sell mode -- and weakening Lowry's buying power augur for a plunge. It is important to recognize that a deep correction, similar the sideways correction, would also be healthy for the market's back-end-of-the-year market prospects.
Scenario No. 3: The Continued Rally (Probability of 35%)
While giving the scenario only slightly better than a one-third chance, a new up leg is not out of the question. If the replenishment of depleted corporate inventories begins to occur in July, evidence of an impending production boom could be interpreted by market participants as a sustainable economic leg higher (an outcome with which I happen to disagree), which will carry expectations of improving corporate profits. With the appearance that the domestic economy is moving from "less worse" to "better," fixed-income yields would then rise. (The yield on the U.S. 10-year note could as high as 4.25% or 4.50%.) And, as I have emphasized, a large pension fund reallocation out of fixed income into equities could serve as a catalyst to energize stocks and take the averages through the upside of their recent trading range.
Looking beyond the near term, I would emphasize that I view the two correction scenarios as bolstering the market outlook during the fall-winter period. Both scenarios would serve to build up skepticism, shake up complacency and make it difficult for many investors to get back in. A sideways correction would frustrate the most and wear many investors out. A deep correction would again increase the fear of being "in" compared to the recent fear of being "out." A subsequent rally out of these two scenarios would be fueled by investors chasing strength as even in bear market rallies (1938-1939) there is typically more than one leg higher.
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Wow! The market might go up, down or stay the same!!?! THANKS for the insight!!!
The stock market will not recover so long as socialists continue to nationalize the economy. It will recover only when the socialist trend is reversed.
Well, at least he gives probabilities to each scenario and seems to conclude that a deep correction is unlikely. That’s what I garner from the article.
Doug Kass called the bottmo in March when the whole thing looked like it was going over the cliff.
He called it a “Generational low”
Kass has credibility
Yeah, all with about a 33% probability. Who knew?!
:)
Kass says that the probability of the market trading sideways or higher is 75%.
He pegs the probability of a deep correction at just 25%.
Well, I wouldn't want a weatherman giving me this kind of 'report' in order to navigate a ship in open water.
I say that the market is now nothing but a big
“pump and dump” game with computer programed trading and big manipulators like Soros.
I do not see any fundamentals that would drive a normal market anything but down.
when investing, its up to you to gather as much relevant info from sources you respect. Next, you interpret it.
Then, you have to make your decision.
You no longer want someone else to simply tell you what to do.
Kass is a good perspective.
From what I’ve read, I agree with Kass. Most investment CEO’s see the market ticking up through the end of the year, even though unemployment is lagging and may lag well into 2010. Many predict another leg up to S & P 1000.
I’m not all in yet, but might be soon once I see this correction leveling out.
You’re right. You have to read and watch a lot, then make your own decisions.
If you totally swallow the doom and gloom scenario, you’re going to miss out on some great opportunities.
Scenario #4: Sucker rally ends. The sucker rally caused by businesses seling off inventory while not spending on resupply of goods or manpower ends. Those businesses will neither have enough money nor be able to borrow to refill the supply chain. Further, anti-business policies by the obama administration continue to ravage the small business sector. In late fall or early winter, these forces collide, and unemployment skyrockets further as GDP collapses. The stock market crashes. Meanwhile, the resulting massive deflationary pressure runs headlong into massive inflationary pressure from monetary policies and trillion dollar plus deficit spending. The two do not cancel out but rather cause wild swings in the value of the dollar and all other fiat currencies, rending those currencies meaningless. The Great Depression looks like the good old days, all in time for Christmas or maybe a bit later...
And obama and the donks get the mother of all “crisisses not to be wasted,” as planned.
The bear market rally is now over. Looking for the 2009 market lows to bottom out in Oct / Nov. It isn’t going to be pretty.
I agree. The market will, in fact, do something. Hedging a predictive bet by saying that probabilites are equal in every direction is useless. If he has any guts he should pick a lane and stand on his choice. That’s what we have to do when we invest.
NY Times blames it all on Bush.
Financial writers are useless now. Someone in hindsight will guess right, sure.
The concept that anyone with the best info can make the best prediction is no longer true.
The random interferences from the government and foreign manipulators drown out the functional market signals.
It’s like trying to play poker when someone has a 15000 lb backhoe clawing up the pot on the table.
It’s complete nonsense out there.
I’d put the odds at...20%, 78% and 2%. In that order.
I read recently that company owners, CEO's and other insiders are selling their company stock eight times more than they're buying it.
That's saying something about the expected state of business doesn't it?
The economy will not recover so long as socialists continue to nationalize every sector. The economy can only improve by restoring businesses and business sectors to private enterprise.
True to an extent, esp. for number crunchers. However certain facts and their consequences are true to the point of being economic laws. (1) This level of deficit spending is not sustainable. (2) An economy is which small business is being slaughtered is not sustainable. (3) A centrally planned/socialist economy is moribund compared to a self-directed free market one.
So, that tells us where we are headed...
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