Nothing to Bet On

I don't remember the last time the market was up five days in a row. However, it was on declining volume and we're still in the previous churning range. Nothing to bet on yet.

The Bottom?

This is a chart of the Dow from 1982 to the present. It's a bit hard to read, but the important take away is that the Dow bounced right on the 50% retracement of the super-bull (the bull market that started in 1982.) The Fed has shown that it is willing to print as much money as it takes to keep the economy afloat. I guess this is good. It's possible that the government (the taxpayers) will end up making a ton of money in the long run for all the investments being made.

In the meantime, the Dow and the S&P are back in the October trading range. As for today and Friday, I don't put much weight on what happens during these two days (unless there is some big news.)

I hope everyone has a nice Thanksgiving. And, if you're not celebrating Thanksgiving then enjoy the day-off from the US markets.

Time to Be Bullish?

From Bloomberg:

Societe Generale SA strategist James Montier said he’s never been so bullish after the financial crisis dragged down prices for stocks, corporate bonds and inflation-protected government debt.

The Standard & Poor’s 500 Index is “distinctly cheap” because it trades for 15.4 times the 10-year moving average of its companies’ profits, compared with an average of 18 for the U.S. market since 1881, London-based Montier wrote in a research note today. Fifteen stocks in the U.S. index, from Chevron Corp. to Gap Inc., pass his test for “deep value,” while a tenth of shares in Europe and a fifth in Asia qualify.

House Prices in Florida

I grew up on the west coast of Florida and am visiting family here for Thanksgiving. I've seen many boom and bust periods here. This chart shows what has happened to prices in this area.

Auto Industry Reality

Peter Klein writes about the thriving auto industry in the US:

The proposed bailout of GM, Ford, and Chrysler overlooks an important fact. The US has one of the most vibrant, dynamic, and efficient automobile industries in the world. It produces several million cars, trucks, and SUVs per year, employing (in 2006) 402,800 Americans at an average salary of $63,358. That’s vehicle assembly alone; the rest of the supply chain employs even more people and generates more income. It’s an industry to be proud of. Its products are among the best in the world. Their names are Toyota, Honda, Nissan, BMW, Mercedes, Hyundai, Mazda, Mitsubishi, and Subaru.

Just Barely in the Range

The S&P is just barely back in the October range. I wont have much faith in this until the market closes above 900. Otherwise, the 2002 lows could easily be challenged again.

The Big Bailout

Here's a good (scary) summary of the money the government has spent or pledged to date.

Mortgage Market Recovery?

Businessweek reports on new subprime lending.

The local newspaper here in Florida had an article this morning on the recovery of the mortgage market (see Businessweek article.)

In Sarasota County, 402 homes sold in October, compared with 354 in September. Some were all-cash deals, but most were mortgage-backed. In Manatee County, 200 home sales closed in October, compared with 128 a year earlier.

"There's plenty of money after Fannie and Freddie became liquid again, and the Federal Housing Administration loans have always been a stalwart," said Flood, who recently established a Covenant Mortgage Corp. branch on Main Street.

Someone with the less-than-stellar credit score of 580 and a decent job will likely qualify for an FHA loan on a single-family home in this region for up to $442,500, Flood said.

Taking on Ben Stein

I was pleased to read Felix Salmon's take on Ben Stein. After showing that he had no clue about evolution he now comes clean in his misunderstanding of economics.

Thanksgiving Week

This week, I'm in Florida for Thanksgiving and time with my family. I will continue to follow the market and report but less frequently than usual.

The Morning Report

The market continues to like Geithner, which represents Obama taking charge, and all the money thrown at Citigroup. The futures are all up nicely in the pre-market.

However, as I repeat myself again, the Dow and the S&P500 did pierce their October trading range and challenged the 2002 lows, but recovered somewhat but are not yet firmly back in the range. The above chart is of the S&P at Friday's close.

The Market Likes Geithner

The market turned on its heels when it was announced that Tim Geithner would be Obama's Secretary of the Treasury. I think it's good for three reasons: 1) Geithner is already involved in the crisis and will hit the ground running; 2) At the NY Fed he can continue to work on issues before January 20th; and 3) The market just likes to know who is in charge.

The weekend question: Will the market follow through on Monday or is this just another one day wonder?

Is This the Best Time Ever for the US to Borrow Trillions?

Interest rates on US Treasuries are so low the government should be stockpiling borrowed cash. Also, read here.

Capitulation?

The stock market was ugly but it didn't seem uglier than other uglier days in terms of move and volume. However, it did seem that there was panic in the credit markets and this market is being driven by credit.

I've been writing that this market is oversold and it appears that it is bouncing this morning in the pre-market. For now, it is just a bounce in a bear market.

Compounding Harm

Let's do some S&P math (using round numbers):

For 2007 the S&P finished with earning of about $70 and a P/E of 21 for a index price of about 1470.

If the estimated earnings for 2009 are $50 ( a number I've been seeing lately) and the P/E remained at 20 then the index would be around 1000. However, P/E has been falling and 10 does not seem like an unreasonable number, that would reduce the S&P to 500. This brings us back to 1995, the year the slope of the index line increased its slope (see the above chart.) If both earnings and P/E fall by half their high then the S&P will sit around 350, a 75% fall.