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Phases/Focus to go through before this stock downturn is over
Old 10-15-2008, 08:11 AM   #1
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Phases/Focus to go through before this stock downturn is over

Here is my guess on the negative stock cycles that we must go through. There is some overlap on these.
The month at the end is when I think it will be through the cycle and no longer an issue - it may seem early because the stock market looks forward.

1. Macro Economic - 75% complete - the credit crunch being addressed - Nov/Dec
2. Macro Economic - 60% complete - Non US credit crunch - Dec/Jan
3. Lower Consumer spending - 10% - complete - Dec
4. Presidential Election - 75% complete - assumes Obama wins - Nov
5. Make up of the Congress - 0% complete - if majority Dems - negative for stocks - Nov
6. Decreased company earnings - 10% complete - Nov
7. Higher heating costs - 0% complete - Nov/Dec
8. Higher unemployment - 10% complete - Feb/Mar

I'm guessing the next dip to buy is Nov - after the election.

January up? with a higher low into the summer? then up from there?
until inflation fears begin?

Did I miss any?
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Old 10-15-2008, 08:35 AM   #2
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Besides worrying about things you are missing, you might also wish to worry about assumptions that are not quite right. For example, my impression was that a Democratic congress has been historically good for stocks.
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Old 10-15-2008, 08:56 AM   #3
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Can I just stay in bed with the covers over my head until after Christmas?

Very thoughtprovoking, Dex--do you think heating costs will go back up from what they've come down to at this point?
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Old 10-15-2008, 10:20 AM   #4
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I figure I'll still have a job for the next three months. If I get laid off, I'll give my other ideas a serious go before looking for a new job.
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Old 10-15-2008, 10:31 AM   #5
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I think we're going to be getting a lot more bad news before things get better. If we hadn't gone through the 9/15/08 to 10/15/08 credit freeze and almost global financial collapse, I would have said end of this year was a good time to invest in anticipation of economic recovery (early) next year.

But that single month has hit non-financial US (and global) companies hard and I think CEOs are going to turn much more cautious. This has scared everybody bad, and business activity tends to contract under those circumstances.

I really don't know how quickly the markets will price in an economic rebound which I don't personally see happening until late '09/early '10. And we have a huge overhang - lower housing prices, deleveraging, oodles of bad paper, to work though, so IMO economic activity going forward will be much less robust than we saw 2003-2006.

I suppose if anything, this year and decade has convinced me of the validity of the secular bull/secular bear cycles thesis, and if we are only 9 years into an 18 year secular bear, we can expect a trading range with potentially more big selloffs through 2017 or thereabouts.

So, I remain cautious. Seems to me that even if you wait until late 2009, you might still have a decent investment opportunity.

Whatever my forecast, however, I'm just doing the normal allocation/rebalance type investment management, because my ability to predict the future is not reliable. And if we are going to be in a trading range for many more years, rebalancing a portfolio is a good way to take advantage of the volatility.

Audrey

P.S. Can you believe Audrey is this bearish? Maybe I'm a contrarian indicator.
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Old 10-15-2008, 10:38 AM   #6
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Originally Posted by audreyh1 View Post
P.S. Can you believe Audrey is this bearish? Maybe I'm a contrarian indicator.
Looks like we'll have to start tracking the ACES indicator: the "Audrey Contrarian Economic Sentiment" indicator.
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Old 10-15-2008, 10:39 AM   #7
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Originally Posted by LOL! View Post
Besides worrying about things you are missing, you might also wish to worry about assumptions that are not quite right. For example, my impression was that a Democratic congress has been historically good for stocks.
It isn't just a Demo congress it is the combination of a Demo Congress and President. The stock market likes a split - it fears uncertainty of what a free hand will bring and extremes.
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Old 10-15-2008, 10:42 AM   #8
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Can I just stay in bed with the covers over my head until after Christmas?

Very thoughtprovoking, Dex--do you think heating costs will go back up from what they've come down to at this point?
I think it is a factor of higher heating cost + layoffs
EIA - Short-Term Energy Outlook
Average household expenditures for all space-heating fuels are projected to be $1,137 this winter (October 1 to March 31), a 15-percent increase over the estimated $986 spent last winter. The largest increases will be in households using heating oil and natural gas. The projected increases primarily reflect higher prices, although colder weather than last winter will also contribute to higher fuel use in many areas.
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Old 10-15-2008, 10:46 AM   #9
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Originally Posted by dex View Post
It isn't just a Demo congress it is the combination of a Demo Congress and President. The stock market likes a split - it fears uncertainty of what a free hand will bring and extremes.
I think we'd have to say that if this is true AND if recent history is any indication, it prefers a Democratic President and a Republican Congress over the reverse scenario.
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Old 10-15-2008, 10:56 AM   #10
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Quote:
Originally Posted by dex View Post
Here is my guess on the negative stock cycles that we must go through. There is some overlap on these.
The month at the end is when I think it will be through the cycle and no longer an issue - it may seem early because the stock market looks forward.

1. Macro Economic - 75% complete - the credit crunch being addressed - Nov/Dec
2. Macro Economic - 60% complete - Non US credit crunch - Dec/Jan
3. Lower Consumer spending - 10% - complete - Dec
4. Presidential Election - 75% complete - assumes Obama wins - Nov
5. Make up of the Congress - 0% complete - if majority Dems - negative for stocks - Nov
6. Decreased company earnings - 10% complete - Nov
7. Higher heating costs - 0% complete - Nov/Dec
8. Higher unemployment - 10% complete - Feb/Mar

I'm guessing the next dip to buy is Nov - after the election.

January up? with a higher low into the summer? then up from there?
until inflation fears begin?

Did I miss any?
Confidence crises, first stage complete....move to recession fears;

Capitulation, 80% complete;

Bargain buying, 20% complete;

Greed to boom, 0% complete;
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Old 10-15-2008, 10:35 PM   #11
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Quote:
Originally Posted by dex View Post
Here is my guess on the negative stock cycles that we must go through. There is some overlap on these.
The month at the end is when I think it will be through the cycle and no longer an issue - it may seem early because the stock market looks forward.

1. Macro Economic - 75% complete - the credit crunch being addressed - Nov/Dec
2. Macro Economic - 60% complete - Non US credit crunch - Dec/Jan
3. Lower Consumer spending - 10% - complete - Dec
4. Presidential Election - 75% complete - assumes Obama wins - Nov
5. Make up of the Congress - 0% complete - if majority Dems - negative for stocks - Nov
6. Decreased company earnings - 10% complete - Nov
7. Higher heating costs - 0% complete - Nov/Dec
8. Higher unemployment - 10% complete - Feb/Mar

I'm guessing the next dip to buy is Nov - after the election.

January up? with a higher low into the summer? then up from there?
until inflation fears begin?

Did I miss any?
I'm much more negative on lower consumer spending. Given the debt level of American households combined with future job losses and general malaise (plus "wealth" destruction from the housing drop), I think spending will be down for quite a while longer than just the end of this year. This country is in need of a serious retrenchment and the 70% consumer driven economy is going to feel the effects.

I'm of the opinion that we're looking at a long recession here, although I don't have specific stats to back that up.
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Old 10-15-2008, 10:42 PM   #12
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I think we'd have to say that if this is true AND if recent history is any indication, it prefers a Democratic President and a Republican Congress over the reverse scenario.
Alright, that's settled then.. Obama, you're in. Everyone else, out of the pool! Maybe I'll change my planned voting to accommodate a swifter economic recovery.
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Old 10-15-2008, 10:47 PM   #13
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Alright, that's settled then.. Obama, you're in. Everyone else, out of the pool! Maybe I'll change my planned voting to accommodate a swifter economic recovery.
Totally--we need to rebalance our PA (party allocation)!
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Old 10-15-2008, 11:05 PM   #14
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I think it is a factor of higher heating cost + layoffs
EIA - Short-Term Energy Outlook
Average household expenditures for all space-heating fuels are projected to be $1,137 this winter (October 1 to March 31), a 15-percent increase over the estimated $986 spent last winter. The largest increases will be in households using heating oil and natural gas. The projected increases primarily reflect higher prices, although colder weather than last winter will also contribute to higher fuel use in many areas.
Heating oil prices are currently lower than last year in the North East. Don't know how long this will last but oil is still dropping. A severe winter may increase prices somewhat.
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