Thursday, May 10, 2007

This Sad Burlesque

Many years ago, when I worked at investment bank Montgomery Securities, there was this technical engineer named Bob that dealt with phones, computers, and communications equipment. Since I worked in a technical part of the company, we saw him quite a bit. My boss couldn't stand him, and he referred to him as "Bob from Hell" (since there was more than one Bob in the business, as you might guess).

The main reason for his distaste for Bob was that Bob always had some lame-ass answer why something wasn't working. One time took the cake, however. I was at a remote location, and we had set up some 14.4 modems (this was 16 years ago, remember). The connection was having serious trouble, and we asked Bob what the problem was. "Well, it's raining outside" - - he said this with a straight face. He was hoping, I suppose, that we would believe him and stop pestering him about the issue, since we couldn't do anything about the rain.

I was reminded of this today by the extremely weak retail sales figures that came out. Since the entire earth - and God knows, the financial media - is overrun by bulls, they had to come up with some lame-ass explanation. Their excuse? They took a page from the Book of Bob........

OK, different subject. Ken Fisher. Now, you've probably heard of Ken Fisher, since he advertises just about everywhere that there is financial information. He is a very well-known investment adviser whose company (cleverly named Fisher Investments) is just a few miles from where I'm sitting right now. His claim to fame is the column he writes on a regular basis for Forbes.

Now, let me preface this by saying that Mr. Fisher is a sharp fellow. His market observations are sensible and usually pan out quite well over time. However, he definitely has a lot more bull blood running through him than bear, and this can sometimes weigh heavily on how he views things.

Let me give you specifics. Take a look at the chart below, and take note of the seven numeric demarcations I've laid out.

Now follow along with me, boys 'n' girls, as we read the essence of his market disposition during each of these seven instances. I have provided hyperlinks to each Forbes column.

1 - posted on 10/18/1999. "Remain 100% in equities"

2 - posted on 2/7/2000. "While still 100% equity...60% in Europe and Japan..40% in the U.S."

3 - posted 3/6/2000.
"I forecast a flat S&P in 2000"

4 - posted 3/19/2001.

"I'm outright bearish for the first time in a decade". (Editor's note: the market actually rose 10% in just a few weeks after his column, although generally speaking he was right, albeit a year late in declaring the bear was here.)

5 - posted 9/6/2002. Described U.S. stocks as "a beautiful market" - he nailed this one, absolutely.

6 - posted 12/8/2003. Predicted it would be "a three-year bull market". He was right, but, umm, aren't those three years over now?

7 - posted 5/7/2007. This inevitable "it's different this time" posting.......Ken declares simply to "Buy good stocks and enjoy the ride".

What do we conclude? I dunno. Maybe that if a bear market does start, Ken will let us know about it a year or so later. Until then, it's buy, buy, buy.

Now, today was a good day.......down a meaty triple digits (for the first time in nearly two months - it's about f*cking time). But a concern I have going into tomorrow (which is a critical day, which both Retail and Inflation reports coming out an hour before the open) is the graph below. Will the $RUT bounce off the trendline I've drawn? Or break it? Those economic indicators will absolutely dictate that.

More than one person has scolded me for not showing some Fibonacci extensions on the markets. Well, let me give it a shot, although I'm not sure how helpful these are. First, here's the Dow 30. According to the extension displayed, we've got a ways to go - the next Fib level is at 14,563, well over 1,000 Dow points above the current level.

Yet if you look at the Russell 2000, we passed that extension a long time ago. I've shaded in the entire area above this extension. I can't really drawn any conclusions from this. I love Fibs for the "in between" bounces, but I'm not so sure how germane these extensions are for these markets.

As for the NASDAQ, it obviously weakened substantially today, pushing away from that major resistance line.

And the $SPX is still above its former resistance line, although technical indicators are definitely giving off sell signals.

I don't typically follow DNDN, but this is a pretty fascinating graph. Just look at all the shares trading hands (on ungodly volume) - - first a massive gap up, then a massive gap down. Can you imagine the zillions of dollars of paper losses holders of this stock have due to that mania? I guess Jim Cramer was vindicated in the end.

Finally, LGBT got walloped today. Again, I don't normally follow this stock, but the graph is cool. It's particularly unusual since its ticker symbol stands for Lesbian Gay Bisexual Transgender, surely the only ticker with such an interesting basis. I know nothing about the site itself, but maybe ericbolling or NewEquity can help us out.

Ladies and Gentlemen: the Blue Man Group:


Dennis said...

To show you how the market will humble anyone, just as I was thinking that the market will interpret any piece of negative data positvely, the bulls finally get a piece of data they cannot spin(although they tried). Is this finally the beginning of an end or just one of those headfakes? I think we will know in a few days. It is very important for the bears to follow through on the downside. The last thing they need is a market the opens down and closes up.
Position (none but getting anxious to short)

Gustav said...

I loaded some puts today.
If we are still in a bull market, there should be a major correction to 13.000 in the dow, at least.
Quick and severe as bull market corrections are.

The VIX also looks promising on a major downturn.

All the scepticism about having a major correction right now, also on your side, tim (in your post you are really stressing the support in the russel2000) as well as on comments here are signs to me it will happen now.


Locster said...

I must admit I'm still trying to get my head around whether Ken Fisher's bull logic regarding the gap between stock and bond yields actually makes sense. I think there are some gaping holes in his logic somewhere.

Besides which the Russell 2000 is trading on a P/E ratio of 40, well over other indices. So in that corner of the markets his logic holds no water at all (there is no difference between the bond and stock yields). A p/e of 40 is equivalent to 2.5%, and the actual dividend yield I think is something like 1.5%.

So, err, you earn 1.5% on something that could easily devalue by 50% in no time at all (and still be expensive from an historical perspective), and! and! at a time when inflation is going up! So that you're 1.5% is effectively 0 (or less!). Where exactly is the incentive to buy into that?! :)

Bulls, I don't know when but some time in the not too distant future you're going to get burned. It's now just a case of whoever gets to the fire exits first gets burnt the least. And if you're slow you're gonna get trampled. ok ok perhaps I took the analogy one step too far there :)


Please move towards the exits in a calm and orderly... hey who's pushing [splat]

Gemma Star said...

I have made good money buying companies Ken Fisher has recommended.

It may be that he's a better stock picker than a market prognosticator. Also, because he looks for companies that will enjoy an appreciation of their stock prices, his bias (whether he realizes it or not) is bullish.

Having sinned in the same way, I both understand and am sympathetic.

"Let he who has not sinned cast the first stone...." and all that.

Tim Knight said...

"I have made good money buying companies Ken Fisher has recommended."

I'm not surprised. If you look at his specific picks, a lot of them have been fantastic.

b.healed said...

sometimes I feel like that last blue man

Tim Knight said...

Check out China's exciting entry into capitalism and its results!

sami said...

Ken Fisher's claim to fame is that he made the Forbes 400 list starting from scratch.
his investing record and that of his client accounts speak for themselves.

J. Francis Lehman said...


That is some scary-ass water, right there.

plunger said...

LGBT, that is one limp looking stock,
new equity has probably had plenty of "calls" on that stock, maybe a "put" once in awhile

dk said...

Good post. I must say I thought of you several times today and was glad that your portfolio caught some relief.

Your Ken Fisher story points to the vulnerabilities inherent in making market "predictions". As a dedicated "follow-the-ball" guy, I try and avoid making predictions altogether. Buying and selling securities completely satisfies my desire to make predictions - lol.

In the Fisher tradition, another great prediction OOPS! story was Bill Gross in Sep 2002 contending that the Dow would fall to 5000. As fate would have it, his pronouncement marked the bottom of the Dow. Of course, Gross is brilliant, but he never retracted his prediction or admited his mistake (never admitting mistakes is an essential part of making predictions and of being President of the United States, but that's another story).

Now, Gross has been pounding the table about "at least 3 Fed cuts" in 2007 (do you think he's long US Treasuries?) I think about "Dow 5000" every time I hear him dreamily chatting up 2007 rate cuts on Prediction Central: CNBC.

Of course, it goes without saying that Grand Dame of Soothsaying is AJC. In a a recent post, I used her story as an example of the pitfalls of not following the ball (it's at the bottom).

Anyway, congrats again on today. You may get some more tomorrow,, dk

Leisa said...

If there ever were a Prognosticators Anonymous, it's membership would be quite large.

Anonymous said...

Asian markets down tonight. China stock bubble only now a concern (*rolls eyes*). Many are saying the Fed "mailed it in" with their last announcement and that they have lost control of the credit/debit situation.

Anonymous said...

Consumer credit jumping 13.5B and now retail sales notching in a nice drop...

Its one number, not a trend. We'll need to see it build off the next time chain store sales and consumer credit numbers are released to see if there is a trend...

I could imagine the consumer credit swelling to a new high as home prices have plateau'd its harder for consumers to pay down that credit card debt with a home loan...


ericbolling said...
This comment has been removed by the author.
ericbolling said...

"Besides which the Russell 2000 is trading on a P/E ratio of 40, well over other indices. So in that corner of the markets his logic holds no water at all (there is no difference between the bond and stock yields). A p/e of 40 is equivalent to 2.5%, and the actual dividend yield I think is something like 1.5%."

Are you serious? the p/e is more like 18 and you need to do some serious DD before posting absurd statements like this one Locster. I hope you are more knowledgeable than your writing shows. Keep loading up with puts and get ready to lose your a$$.

Tim Knight said...

"Keep loading up with puts and get ready to lose your a$$."

There's that ass reference again. Must be an after-effect of LGBT.

Tim Knight said...

I had no idea what the P/E of the Russell 2000 was, so I checked the official site. According to them, it is currently over 23 (EXCLUDING any companies with losses, which seems a bit disingenuous to me....)

So it isn't 40, but it also isn't "more like 18".

Edwardo said...

Great minds think alike. I said the same think on Jim Kunstler's site today. Weather? Bwahahahaha

Locster said...

Regarding the Russell 2000 p/e. Having myself trawled the web for an official figure I've never actually found one. BUT! as Tim says there is a PE ex negative earnign figure at

That figure is 20.49.

Now the true figure can only be abobe that, so certainly not 18. Under the circumstances the best way I know of getting an idea of the true PE is to use the divident yield, which (from the same link) is 1.15%).

Take a look at the ratio between the divi yield and the equivalent PE yield for other known indices and you'll see where I'm coming from.

Oh and I also came across a couple of reports, one from 12 months ago giving a figure of 35, and one more recent one givinga figure of 40 - which happened to be amsot spot on my own estimate from the above calc.

So yes I should have attached some clauses to that number. But I really don't think it's far away from the truth.

If someone has an official figure I'd be very interested to learn it.



John said...

While not exactly the Russell 2000, S&P publishes the P/E for their 600 along with growth estimates. For 2007 earnings P/E is estimated to be 19.05 and 2006, (trailing?) P/E is 20.23. Growth for 2007 is estimated to be 10%.

For the 500 the 2007 P/E is 15.72% and growth 7%. 2006 P/E 16.17

50 Day volatility for the S&P is 10% and 16% for the Russell.

Guess that explains why the 500 is outperforming.


Prometheus said...

Can somebody explain why slower economy with reduced earnings and a lower interest rate is accelerating the growth of stock prices? If earnings are going to be less, why should people continue to buy in at such high prices?

beanie11111 said...

Yesterday was a bear trap!

Watch the market soar next week!!!!

beanie11111 said...

At best, permabears got 1.5 months to slaughter the bulls; but after that, you have no idea what the bulls are gonna do to the bears.

good luck...

ericbolling said...

Where is the idiot who was buying up double short inverse yesterday near the bottom? Bragging about how he called the top of a bull market. Take those positions and hold for the ride to new highs you moron.

4profit said...

"beanie11111 said...
Yesterday was a bear trap!

Watch the market soar next week!!!! "

You have it wrong. Today is a bull trap.

You're going to need the luck.

AssetStrategists said...

Bull Trap. Bear Trap. Smuck Trap!

Overall, my positions went up in value yesterday and today also! Some of them are bullish and others bearish. When you make the right picks, they increase in value in spite of the overall market. It is fun to watch picks defy the market as a whole and follow their individual trend lines! Not all picks are lemmings.

JakeGint said...

Oy vey! It's "schmuck" not "smuck" unless you are purchasing jelly.


Market Speculator... consumer credit at $13.5 bn? If that number is correct I have one comment:

"Big deal!"

WTF? That's like one tenth of one percent of our GNP. Who the fark cares? Do you realize how much credit is out there? If you want to search for bogeymen, check the derivatives market.

But you might faint, given your worries about 13 bn. (and yes, I don't give a scheiss if it's a monthly number either).