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SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 02:07 PM   #1
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SP500: Possible 30% decline. According to Merill Lynch

Another soothsayer? I wonder what's the motive behind this one?

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Mortgage malaise may bring recession: Merrill
Thu Mar 15, 2007 2:41 PM GMT

NEW YORK (Reuters) - House prices could tumble 10 percent this year and force the United States into recession if a credit crunch taking shape in the mortgage market gathers steam, Merrill Lynch said in research notes this week.

If correct, the prospects of this scenario will prove troubling for equities investors, who could face a stock market decline of 30 percent or more as measured by the S&P 500 index <.SPX >, the brokerage said.

Merrill said the biggest concern is that tighter lending standards in the mortgage market, even if confined to lower-quality borrowers, will constrain overall housing demand and hamper recovery in the struggling housing market.

"It is not inconceivable (given what is happening now to mortgage originations) that we end up with something closer to a 10 percent decline in home prices this year," Merrill Lynch said.

Merrill said this alone would slow the economic expansion to a rate of about 1.5 percent to 1.75 percent this year, which it termed a "growth recession."

The traditional definition of a recession is two consecutive quarters of declining gross domestic product.

However, if the inflation-fighting Federal Reserve were to keep rates unchanged to contain price growth -- instead of cutting by 1 percentage point in the second half of 2007 as Merrill expects -- then this would put the probability of an outright recession in the second half at "very close to 100 percent."

In the past, moves by financial markets to price in some risk of a recession, without actually experiencing one, has led to an average drop in the S&P 500 of 16 percent in sell-offs lasting 13 weeks.

"But if we do end up seeing a recession, then it's game over: the historical record shows that the average decline in the S&P 500 is 34 percent and the average duration is 37 weeks - more than double the magnitude and triple the duration of classic non-recessionary correction," Merrill added.

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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 02:23 PM   #2
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Re: SP500: Possible 30% decline. According to Merill Lynch

The Vanguard web site every time I view my account basically states in black and white that there is a possible 21% decline for my particular asset allocation. It also states that in 26% of the previous 46 years a portfolio like mine declined in value.

So according to Vanguard, ML is mostly correct.
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 02:29 PM   #3
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Re: SP500: Possible 30% decline. According to Merill Lynch

Quote:
"It is not inconceivable (given what is happening now to mortgage originations) that we end up with something closer to a 10 percent decline in home prices this year," Merrill Lynch said.
... are we talking about what is conceivable? or likely?
Quote:
it termed a "growth recession."
... it's either a recession or it's not ...
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 02:41 PM   #4
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Re: SP500: Possible 30% decline. According to Merill Lynch

Well just about every year this comes up. One of these years they are bound to be right. As a long term investor I frankly dont care.
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 02:55 PM   #5
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Re: SP500: Possible 30% decline. According to Merill Lynch

And in other breaking (month old) news, "Merrill Lynch said it raised its S&P 500 12-month target to 1,553 from a target of 1,531 last month, because of the index's advance in January. We continue to believe that 2007 will ultimately be a year of PE
expansion," it said in a statement. "Higher quality stocks have outperformed
during every period of PE expansion in the past 20 years."
http://tinyurl.com/2qegff

So the S&P 500 is either going to go up 11.6% or go down 34% or...

In other words, ML (like the rest of us) has no clue as to which way the market is going. Financial porn at its best...

I predict it will go up. And then down. And then up. Not necessarily in that order. Could be a double digit percentage move.
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 03:17 PM   #6
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Re: SP500: Possible 30% decline. According to Merill Lynch

< J.P. Morgan on the stock market>

At a time when there was much public confusion over the stock market, J.P. Morgan was asked where he thought the market was heading. To which he answered in a timesless manner, "It will fluctuate."


Therefore that's my prediction of the stock market into the new year...

It will fluctuate !
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 03:41 PM   #7
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Re: SP500: Possible 30% decline. According to Merill Lynch

Come on baby!! Decline 30%...I'll have a lot of cash shortly...
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 03:48 PM   #8
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Re: SP500: Possible 30% decline. According to Merill Lynch

Newsflash: Piglet Sodomizers Spotted At Merrill Lynch
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 03:50 PM   #9
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Re: SP500: Possible 30% decline. According to Merill Lynch

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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 03:54 PM   #10
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Re: SP500: Possible 30% decline. According to Merill Lynch

Piglet Sodomizers and CFB's avatar, I think this qualifies as financial porn.
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 04:09 PM   #11
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Re: SP500: Possible 30% decline. According to Merill Lynch

Quote:
Originally Posted by brewer12345
Newsflash: Piglet Sodomizers Spotted At Merrill Lynch
Does that mean someone has seen more than one piglet sodomizer at a Merrill Lynch facility ?

Or does it mean that if you are a piglet sodomizer then you can get custom spots put on at Merrill Lynch ?

Or does it mean that if you are a piglet sodomizer then you can get free (They spot you) $10 bills at Merrill Lynch ?

- It's all so confusing ?
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Re: SP500: Possible 30% decline. According to Merill Lynch
Old 03-15-2007, 04:21 PM   #12
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Re: SP500: Possible 30% decline. According to Merill Lynch

I think their just Jawboning the Fed. But with their record of predicting 10 of the last 3 recessions I could be wrong.
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