IS THIS A REPEAT OF 1999?
Jeff Saut, of Raymond James, has deja vu. In his latest daily missive Saut points out some remarkable and eerie similarities between today’s market and the 1998-99 environment. In 1998 Russia defaulted on their debt, the Hong Kong Monetary authority was forced to intervene in the HK market, the Yen surged during the Asian currency crisis and LTCM imploded here in the U.S.A. Global markets got crushed, but were quickly revived by a record sized Fed induced liquidity injection and one of the original bailouts of a “too big to fail firm”.
At the time, most investors remained risk averse heading into 1999 and the market took off in a Fed induced liquidity craze. It was one of the greatest divergences between small investors and professional investors in the history of the market and towards the end of 1999 the small investor threw in the towel and rushed into the market. We all know what happened next. The Fed induced recovery proved to be entirely fake and the market rolled over in 2000 in dramatic fashion. Sound familiar?
Saut believes we could potentially experience the same thing here towards the end of 2009. Much like 1999, Saut believes investors will chase the best performing names or high beta assets. What are some of his favorites? Laz-Boy, BEXP, RF Micro,TNS, Rads, Dine Equity, Hugh, Clarient.
Whether this move turns out to be a total head fake like the 1999 market is another story all together. Is this in fact a 1999 repeat all over again? If so, you might want to be a renter of equities….
And yet, just 2 days before Mr. Saut said this was a bull market headed to 1300. So, which is it, Mr. Saut ? A bear market rally, as you suggest here ? Or, a bull market headed to normal valuations at 1300.
His daily shifting opinions are meaningless. If he throws enough of them out there over a short period of time, he will have covered enough of the possible outcomes, so that he claim being prescient, because he thinks no one will take the time to check the facts.
Someone forgot to tell him there’s an internet now. We can look these things up.
Touchet! Mike, just the other day I read a missive by saut stating that the bears are nuts, this is a new bull market. And now this missive. Its very easy to be right when straddle both sides of the market.
Mike,
The two views from Saut don’t necessarily need to be different. If this were like 1998-1999, then Oct 98 to Oct 99 might equal say March 09 to March 10. That would still leave room for a run up into next summer to say 1,300 before the market tops, goes sideways and rolls over into another sharp downturn testing or maybe even breaking the lows of March 2009, especially if interest rates rise dramatically, i.e. those that the Fed doesn’t control, say long-term rates rise to 8% due to lack of demand for more and more government bonds. That would about half the accepted P/E.
While 1,300 might be a fair value with earnings coming back and interest rates assumed to say close to zero on the short end and near 4% on the long-end, if interest rates were double that or more, then fair value would drop just like it did in the inflationary 70s and early 80s. That is unless investors assumed that the rise in rates would be just temporary, but investors frequently seem to project that the future will follow the trend from the past. Critical turnig points seem to always be a shock with extreme volatility.
Rob Reply:
October 23rd, 2009 at 6:40 AM
The point is that maybe the bull has much further to run and with a rise about 1,250 the S&P500 would no longer be down more than 20% from the 2007 peak. (End to the secular bear in nominal dollar terms, although far from an end in real dollar terms). The small investor is still afraid to invest (same as 1998) and by the time the market gets to 1,250 the small investor may rush back in, just in time to see the market roll over and make a slow motion crash (again).
like denis gartman he knows how to play the media for attention while talking from both sides of the street.
yes, pay no attention to the man behind the …..
Yow Reply:
October 23rd, 2009 at 9:58 AM
as long as you don’t put a time line out there you can impress all the folks, some of the time. Or some of the folks, all of the time.
Look at me, I’m a pundit
The market will one day go down
The market will one day go up
As long as I’m vague and don’t put time lines James can claim I’m really smart.
Yow Reply:
October 23rd, 2009 at 9:59 AM
sorry I meant Rob not James.
TPC Reply:
October 23rd, 2009 at 10:08 AM
Saut is really clear about his near term bullish call. Id on’t know how you’re misreading that….
Investors are too snake-bit to get back into the market, and even if they do, they won’t be buying junk stocks most of them have never even heard of before.
James Reply:
October 23rd, 2009 at 7:55 AM
I agree. You are not going to see the small investor come rushing in like the past rallies. They are way too uncertain and too risk averse after supposedly the world coming to and end last year and the extreme volatility,
TPC Reply:
October 23rd, 2009 at 7:57 AM
Never underestimate greed.
van Reply:
October 23rd, 2009 at 8:14 AM
I liked your ‘you’ve got to know when to fold em call’, if you’re not having second thoughts about selling, you’re not selling right. Note the BKX, XBD and TRN today after ‘blowout EPS news’; by the way the latest ECRI looks flat:
http://www.businesscycle.com/news/press/1602/
TPC Reply:
October 23rd, 2009 at 8:30 AM
Just trying to be prudent. I never expect to catch all the right moves, but I do hope to miss the catastrophic downside ones. Thus far I’ve been fortunate in my career.
Thanks for the ECRI update.
Henry Reply:
October 23rd, 2009 at 8:23 AM
Look like the bears are out in force.
MSFT earning is good: check
AMZN earning is good: check
existing home sales up: check
now let sell
Very dangerous time to be long
I still wonder if short blood is going to be used as fuel to propel this market to 1200 S&P. Everytime you throw a short a bone a herd runs and mauls each other to get it…A little too eager for that bone and it is amazing there is such a huge herd left. I am bearish myself, but haven’t we seen this set up happen almost everytime…The fuel for the rally is decreasing but that doesn’t mean the rally is done yet.
Great! He now has his a$$ covered either way – either up or crash! And TPC can come and cheer him for his great call. Yippee!
TPC Reply:
October 23rd, 2009 at 10:00 AM
His near-term call is VERY clear. He is bullish into the end of the year. When we get to the new year we’ll re-evaluate his stance. I don’t know where the confusion is regarding his stance.
I think we’re seeing a change in investor focus and expectations. My guess is that we’ve seen most or all of the bounce from the current earnings season and that investor focus will change from earnings to economic news. With a positive GDP on 10/29, I’m guessing expectations have largely changed from “less bad” to “better” – i.e., investors will be looking for confirmation that the rebound in the economy is continuing, which to me implies improving retail sails, housing starts and new home sales and sustained or perhaps improving positve new sales in the manufacturing ISM. I’m guessing that’s where the risk lies now – i.e., a lack of “better” in the indicators.
Re. a new low next year, I think a double dip would be very painful, possibly leading to a new low. It seems likely to me that: consumer spending has been supported by a dramatic improvement in equities and consumers would cut back again if the market falls; if consumer spending pulls back there will be a new round of layoffs; investors will switch from long to short exacerbating the decline. In other words, the negative feedback loop could be reignited.
I have no idea if we’ll see a double dip next year. For the long term, I think, as some have suggested, that there can’t be sustained growth without consumer income growth. There could be a new asset bubble temporarily inflating consumer wealth or yet another surge in consumer debt, but neither seems very likely to me. I think it’s all about jobs. The challenge to income growth – high unemployment and global competition are putting pressure on wages and real income. Low or no real income growth probably translates to low or no real growth in the economy (at least in “the long run”).
Of course, making money in the market is all about timing, and being correct in “the long run” is generally not all that helpful. So, for now I’ll be looking for confirmation from the economic indicators that the expansion is “expanding” or atleast continuing at a steady pace (i.e., slowing growth is probably not a good thing).
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