It seems to me that the VW incident was a microcosm of what is going on in this market. As a whole, we cannot be short for any substantial time because the government/banking industry won’t allow it. McDonalds had a bad quarter and the stock went down. Why? Because few were short. Few believed that McDonalds would have a lousy quarter. Then there was UPS. Many knew they had a lousy quarter and that their forecast would be dismal. Many got short and wham…the stock goes up. It seems all too clear that this is what is happening. Anyone else have an opinion on this?

Happy going long,
RMP

I’ve given up on trying to figure out who has what motives. But I won’t be fooled into thinking that I should ignore this massive weight of evidence that says we’ve got a long slog ahead of us before the global economy, and certainly ours, is ready for healthy, strong and sustainable growth with an accompanying secular bull.

There are two major differences between 1982 and the present.

1. 1982 bottomed at a much lower valuation. (In part due to the inflationary environment, but that doesn’t seem to account for the entire difference in trough valuation since interest rates and inflation were expected to fall.) Falling interest rates led to a expansion in the PE multiple. (Today, interest rates would seem to have no where to go but up which should limit multiple expansion and decrease the multiple when interest rates evenutally rise.)

2. Real GDP growth was very strong following the 1982 recession.

The peak to through decline in real GDP was about -2.8% in 1982. The blue chip concensus for the current recession is about -3.6%. But following the 1982 recession, 4 quarter real GDP growth was almost +8%. Lending was strong and interest rates were starting to fall from very high levels. Real GDP was higher than the previous peak within 4 quarters.

http://2.bp.blogspot.com/_pMscxxELHEg/Sms3utpubAI/AAAAAAAAF5g/OWAOe4tRNXQ/s1600-h/Altig.jpg

This time around the blue chip concensus is that 4 quarter growth following the recession trough will be somewhere from 1 to 3% with the concensus at about 2%. Real GDP will likely take more than a year to just reach the previous peak again. If there is a relapse it will take longer.

The projected growth following the current recession sounds much more like 2001-2002 than 1982.

Without a boom in lending and falling interest rates it is hard to imagine strong growth following the current recession. (Interest rates are as low as they can go and credit is still tightning rather than increasing.)

In 2001, the peak to trough decline in GDP was only about -0.4%. Not much of a recession, but the 4 quarter growth following the trough was only about 2%. For most people it didn’t feel like the recession had ended. Unemployment while remaining relatively low, continued to rise. (The so-called jobless recovery). The Fed was lowering interest rates. Interest rates had not already hit bottom prior to the end of the recession as they did this time. The housing market was starting to really boom. Cash out refinancing was increasing as ARM mortgage rates fell together with the Fed funds rate. The effects of cheap financing and equity extraction seemed to cancel out the effect of moderately rising unemployment. Retail sales were flat but never really fell much. Asia had their big crisis in 1998 and by 2002 was really booming. The Federal budget was balanced before the recession so Bush could cut taxes to help stimulate demand.

I remember the rebound year of 2002 as being worse than the recession year of 2001. Actually, until 9/11 the year 2001 was a pretty good year. I don’t remember the recession as such, just the NASDAQ falling. Yet the recession ended a few months after 9/11.

Now the fiscal deficit is huge. Tax cuts seem out of the question. Targeted tax increases are the order of the day. The increase in public debt will ultimately be a drag on the economy, the decrease in private leverage will also be a drag on the economy. (Part of the magic of the 1990s boom was a decreasing public debt burden and increase in private leverage). Interest rates can hardly be cut further. Credit is tightning. We seem to be in a liquidity trap. (Well not so trapped, it seems it has found its way into commodity speculation and the worlds stock markets). Residential and commerical real estate prices are falling and a large percent of homeowners in the boom areas in the West and Florida are underwater on their mortgages, in some cases by very large amounts. Equity extraction is no longer a preferred (or in many cases possible) option to make up for lost income. U6 Unemployment is at 16.5% and rising. It is increasingly common that employed people are being furloughed for several days each month to cut cost and avoid layoffs. (I have seen estimates the reduction in paid hours due to furloughs would be the equivalent of another 2% to 3% added to the unemployment rate if the hours were reduced via job cuts instead of furloughs). This recession is largely worldwide. It is hard to imagine the US exporting itself out of the recession. The reduction of imports will help increase reported GDP, but will not feel like growth. The necessary increase in private savings has barely begun. The increase reported in May has been attributed to the

With the current situation, a 1982 type recovery with strong GDP growth is very hard to imagine.

I’m a regular reader and know you’ve nailed the recent rally on better than expected earnings.

If people are unclear it’s likely because they don’t read the comments and/or get confused by the bearish take on economic data (and neglect that economic data and market direction do not have to constantly travel in lockstep).

Of course we’d all like you to have a special section devoted to your short-term market outlook. Bolded, highlighted, in hot pink at the top right of the page — because you’ve been quite right thus far (as a previous commentor mentioned), and (I feel it comes across through your site) there is a REASON in your reasoning process.

But do whatever you want to do. Post outlooks in the comments, don’t post them at all when you don’t have a good feel. You’re doing this for free on your time, so I’m not going to look a gift horse in the mouth. If I don’t want to miss anything, it’s on me to read the comments, or whatever/wherever else.

Keep up the great work.

I find the amount of time & energy focused on this discussion quite ridiculous.

1. Short-term calls (< 1 month) in this environment are pure speculation. Things change and move so quickly that using blog postings to convey sentiment will likely come across as conflicted (as I believe is the case with TPC over the past several weeks)

2. Anyone with half a brain will hedge their commentary in favor of positive interpretation (that includes Cramer & Nostradamus & yes, even TPC)

3. I agree with E that the only way to eliminate confusion by readers is to have a constant (daily) short/inter/long sentiment measure posted which is updated per your sentiment shift. A historical log would also be appropriate. If you’re not interested in doing this, then refer to comment#2.

4. For all the back-and-forth, I have no idea of TPC’s current outlook/duration/targets. Are we going to +1060 on the S&P500? Next month or next year?

EV = Mar Cap + Debt – Cash eq. At this juncture, can one really calculate the value MV of debt?

Again marketcap/gdp around .7 -> looks cheaper.

I believe that growth in GDP going to be way lower going forward. This is the real economy.

growth in Market Cap is a reflection of sentiment. If one observes the recent euphoria’s, I am feeling that growth in Market Cap is going to be higher. (Even 9k to 10k on Dow is like a 11% growth). This ratio compares sentiment with true economy. Keeping in perspective that economy could contract in the near future, I have a feeling that current ratio is expensive even at .7

Cmoing to PE trend earnings, I dont beleive in any of the earnings that are being reported on a fundamental basis. If one adjusts all the reported earnings for one timers, and the perception of accounting manipulation that is involved, the earnings may be lower and the PE may be higher.

I would like to know the sensitivities of these ratios to each of the parameters.

TPC, what does trend earnings mean?

At the risk of wading into this fray I will say that even though I am a daily reader I was not aware of your actual call to be long coming of the 880 level. I was under the impression that you were in a neutral stance there even though you saw potential for positive reaction to earnings beats (i.e. bullish). You have to admit that you’re actual statement that you were long was in a comment, not a post.

If you’re going to make these market calls and emphasize them as you have, then you really should make them more clear and easy to find rather than buried in the comments, etc. That’s all. Realize that the reason we ask for that is that you’ve proven to be very prescient and we value your guidance. Take it as a compliment.

No big deal. We all have to make our own decisions. Thanks