IS IT IMPOSSIBLE FOR A MEANINGFUL SELL-OFF TO DEVELOP?
From Bloomberg:
Anyone hoping for a “truly meaningful pullback” in stocks that would give them a chance to find bargains is likely to be disappointed, according to Robert Buckland, Citigroup Inc.’s global strategist.
The CHART OF THE DAY compares the advance in MSCI Inc.’s All Country World Index since March 9, when the benchmark fell to a 14-year low, with rallies from bear-market bottoms set in March 2003, October 1998, September 1990, August 1982 and May 1970. Buckland had a similar chart in a report yesterday.
This year’s rebound is the sharpest of the six. The All Country World, tracking developed and emerging markets, climbed 56 percent through yesterday. Earlier gains during the same time period ranged from 11 percent to 33 percent, as the chart shows.
Stocks may keep rising for some time even though Citigroup economists and strategists have identified several risks to the rally, Buckland wrote. The threats include premature tightening of fiscal and monetary policy, weakness in the global financial system, earnings shortfalls and concern that prices may be too high relative to earnings and other criteria.
History suggests that any decline, should one occur, won’t approach the 20 percent threshold often used for a bear market, the report said. Losses in the first two years after recession- driven setbacks have averaged 7.4 percent since 1970, according to Buckland.
The chart uses the MSCI World Index, limited to developed markets, for the 1970 and 1982 rallies. Bloomberg’s data on the All Country gauge begins in 1988.
well at least the theory was developed by the prestigious citigroup.
I understand pragcap not having a clue like the rest of us and a desire to put both sides of the story on, but this is garbage.
As long as well-heeled dip buyers with billions keep coming like they have since March, it does not need any theory to keep going up despite a very challenging mainstreet environment. Will they stop or when?
1.2 million will be out of unemployment benefits by December. What will these people do without another stimulus? 9.7% unemployment going to 10% next month if another 200 thousand plus loss. It is a lagging indicator but most everything else is better than expected. Also 16 to 17 millions underemployed. When will thes printed money create jobs?
People hate to admit that the economy is recovering. People think info like this is useless, but at least this site doesn’t provide a useless biased view like most do.
I dont know though … I am beginning to think that this premise might be true – no big pullback coming. I mean, what is going to take at this point? The employment achilles heal? – doubt it, didnt do it on Friday. I am beginning to think that so long as no major banks decide to fail (aka rumor mill last week) then the market might tread water, but we are not going to get that pullback that I’d like to see. I’ve significantly decreased my equities exposure over the last 2 months, but I am wondering if that was the best move?
Why is it garbage? Because it’s Citigroup?
The fact is they are still influential, being a financial “brand” that presumably hires the brightest minds out of the most vaunted Ivy Leagues schools, and that lots of investors still listen to.
Whether we decide to be prejudiced about Citi’s analysts’ work because it is labelled Citi, is irrelevant when we accept the fact that a few analysts worked and researched their asses off to produce such “garbage.”
Now to answer the question of this blog post?
Yes, there’s a good chance a 15-20% correction may not materialize until S&P hits 1500 or bests 2007′s high?
Why do I believe that? Because the bears are so persistent, and all they have to fall back on are the worrying fundamental cases. Bears are playing short now out of sheer stubborness. At least that’s what I see on blogs. Most blogs, in fact.
Let’s say they throw in the towel at 1200. Then we have the chasers take this thing to circa 1575.
I anticipate a quick crash thereafter, and then a slow multiyear grind to circa 400. Why? Because I don’t see anyone bleat out such a scenario, and I am absolutely tired of comparisons with 90′s Nikkei and Great Depression stock market performance.
Steven (?) Leuthold of Grizzly fund fame came out in March I think? on Bloomberg TV saying S&P was headed to 1000. I thought this guy had a good pair of balls. Either that or he’s a lunatic. He said recently in July or early August he expects funds to begin chasing after summer vacation, but that the RR ratio was somewhat unfavorable to get in now (above 1000).
I like to add that it is not totally unheard of that research reports out of Wall Street prove correct.
The bears are in denial and getting crushed.
Sorry, this chart is meaningless.
Using a horizon of 8 -10+ years to “prove” there won’t be a 20% retracement after a “bottom” 6 months ago is circular reasoning (or data-mining, take your pick). Was the 1929 crash the “bottom”? How about the “bottom” in 1931? Oops!
Even within the 1970+ data shown, most of those “bottoms” were preceded by another event everyone thought was the “bottom” in the preceding ~2 -4 years.
Even limiting their data set to 1970, why did they omit the 1987 crash? (Because, using hindsight, they set the “bottom” in 1991.) Or the 1997 LTCM wash-out? (Again, a 10+-year horizon enabled them to cherry-picked & use October, 1991…)
In 2015, someone will cherry-pick whatever turns out to be the actual “bottom” in this crash to “prove” something like this again…
Hi TPC, do you think we will have a meaningful sell-off?
The only thing that would cause a meaningful sell-off is it the fear of another financial crisis is going to happen. This analysis is pretty interesting, I’m not exactly sure how real this is:
http://thefundamentalview.blogspot.com/2009/09/china-and-buzz-of-pending-bank-default_03.html
In a nutshell, China has said some state-owned entities may default on their derivatives contracts. If this occurs, then some American firm like GS, or MS could default. This is the cause of the rumors of a default at the beginning of last week. I have no clue how accurate this is, but if China does allow this and a company on the other side of those derivatives contracts goes under, it’s essentially financial war being declared against the US, except I’m not sure what the US could do.
So this type of a scenario where there is financial turmoil could most definitely send the markets down below 600 again, and this time the government has no bullets left to fire.
That being said, if there is no such cataclysmic event, then everyone will buy on the dips and we’ll keep going up.
Hi ejack, thanks for the link and it is another reason I like this site as I have been amazed and frequently wondering and observing the dip buyers- spikes preopen, spikes at close, spikes and follow throughs on no news, good news or bad news to higher highs. Also I truly was surprised by the 9/1 drop on a rumor. How could all the smart people be so dumb on a rumor and unloaded. I was curious.
http://thefundamentalview.blogspot.com/2009/09/china-and-buzz-of-pending-bank-default_03.html is an amazing article on the rumor although ? how true and if it will develop any further as we know the dip buyers came in big time Thursday close and follow through with Friday spikes with a 9.7 unemployment rally coincidentally with ECRI’s forecast of sharp V rebound, almost a precurosr to likely big pops this coming week, typical of how this March rally has worked. Market will go higher highs this week if this behavior repeats. Curiosity says it will top somewhere but where?
I think many pieces in the article are unlikely to happen as there are no precedents. I do agree a real financial banking crisis will be the catalyst for a meaningful sell-off. All the printed/unprinted trillions have not solved the toxic asset problems without marking losses to market, transferring losses to Fed with Fed programs not likely a real solution. Main street has not benefited with continuning job losses and unemployment exhaustion is spiking. Usually a problem does not go away on its own just waiting for a catalyst.
Ejack, about China saying state owned companies are allowed to default—supposedly the reason is because the risks of the complicated contracts were not made clear.
Also what is noteworthy is that China has also taken their gold out of London, which some people are saying is why gold rose last week.
Something is definitely up. I am surprised TPC wrote nothing about this just like the main stream media…even though these stories were on reuters web site. Still gained no traction.
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Anyway…about the major sell off…it can’t happen until people begin thinking it won’t happen or question if it ‘can’ happen. There wouldn’t have been this blog entry 4 months ago so we are on track for there to be one.
> Anyway…about the major sell off…it can’t happen until people begin thinking it won’t happen or question if it ‘can’ happen. There wouldn’t have been this blog entry 4 months ago so we are on track for there to be one.
I don’t buy into that theory. Last summer all the bloggers were also saying the things are bad while MSM was still questioning that whether we are in the recession and putting positive spin on everything. Ths situation seems to be very similar. All blogs are negative, and MSM is trying to spin everything and is talking about the resovery. It seems to me, the bloggers are smaret money and are ahead of the curve, while MSM is behind it.
Not surprisingly a repeat buy on dip, S&P futures up 11.2 to 1025, closing to 10.39. A real correction should happen, when with USD is down… No surprise should people dump dollars and China is buying less. Anyone has some idea if USD should go up other than so bearish?
Dollar Threat: China Selling Yuan Bonds For The First Time, http://www.businessinsider.com/new-dollar-challenge-china-selling-yuan-bonds-for-the-first-time-2009-9. What will save USD or should it be saved?