More Worried About Markets Now Than Any Time Since 2009

[CaliforniaMan]

Birinyi More Worried About Markets Now Than Any Time Since 2009 - Bloomberg Business

So when he was the most worried last time was when we should have all been buying like crazy. Is this the buy signal we have been waiting for?

“While we maintain a positive bias, we are more concerned today than at any other point since 2009 and dispute most forecasts because the issues are not limited to the economic/financial factors which the market can comprehend,”

I have no idea if the market is going up, down or sideways, but sometimes I really enjoy reading the business news

 

[34rlsa]

The article also sated:

The lack of confidence is a departure for Birinyi, whose bullish market predictions over the last seven years have virtually all come true.

Birinyi said:
“Thus, two of the major pressures on stock prices are beyond investors’ and the market’s usual metrics and indicators,” Birinyi wrote. “We would therefore treat market forecasts as ‘best guesses’ and only that.”

I didn't read the article as a prediction... only that he is concerned with the lack of usual market metrics.

 

[Travelwanted]

The crazy action on oil prices is causing the fundamentals to be off with the market. Fear is an easy sell to the public. Throw in a dash of China worries and boom, you have a correction. Our economy is not on the verge of a recession.

I can't see into the future so I am slowing buying into this. I'm watching oil prices as a gauge. Wouldn't normally do that as it is timing, but if oil finds a bottom I think things will stabilize.

Stay the course and don't panic. It always comes back eventually.

 

[LOL!]

I'm amused because he should have been more worried in October 2007.

I am pretty sure that 2009 was a great year in the stock market ... let me check. Yep, the total stock market index was UP almost 29% in 2009.

 

[CaliforniaMan]

The article also sated:

The lack of confidence is a departure for Birinyi, whose bullish market predictions over the last seven years have virtually all come true.

Birinyi said:
“Thus, two of the major pressures on stock prices are beyond investors’ and the market’s usual metrics and indicators,” Birinyi wrote. “We would therefore treat market forecasts as ‘best guesses’ and only that.”

I didn't read the article as a prediction... only that he is concerned with the lack of usual market metrics.

Now I haven't actually gone back to see what his predictions over the past seven years have been (the article stated they "have virtually all come true", whatever that means), but one of the interesting things about articles like this is that whatever happens he will have forecasted it.

After all if markets rise, he can say "we maintained a positive bias," and if they fall, well he can talk about his worry. There are very few really perma-bears or perma-bulls, most couch their predictions, forecasts, warnings, whatever in language like his.

I too can say that over my entire investing career I have had a positive bias but was always more concerned today than at any other point in the past. It's meaningless weasel talk.

 

[Options]

Is this the buy signal we have been waiting for?...

No, it's click bait.

 

[marko]

IIRC 2009 was a heck of a positive year! 2008 OTOH turned out to be a great buying opportunity; just didn't feel like it at the time.

 

[DrRoy]

I generally agree that the point of maximum bearishness is a good time to buy, you can't go by any one person. Birinyi may have been exactly wrong the last time, but that's no guarantee that he hit it perfectly this time.

 

[Lsbcal]

First, is the Chineese economy really relevant to the US stock market? I don't think so but would like to see some correlation information. Of course, correlations are time variable.

Second, the Chineese are said to be going for a "soft landing". Is that possible? Seems the Fed hasn't been able to do it when it wanted to. I don't think the Japaneese were very good at it. But I don't really have data to back up this.

 

[Travelwanted]

First, is the Chineese economy really relevant to the US stock market? I don't think so but would like to see some correlation information. Of course, correlations are time variable.

Second, the Chineese are said to be going for a "soft landing". Is that possible? Seems the Fed hasn't been able to do it when it wanted to. I don't think the Japaneese were very good at it. But I don't really have data to back up this.

Looking at a 10 year chart of the s&p 500 against FXI-China large cap shows a similar trend. The spikes are much greater with FXI but the trend is similar.

Not sure that helps but I thought I'd toss it in.

 

[Lsbcal]

I don't see the correlation. Yes some similar wiggles but different outcomes over intermediate periods.

Interesting that both ended up in the same place though very different paths.

 

[DrRoy]

First, is the Chinese economy really relevant to the US stock market? I don't think so but would like to see some correlation information. Of course, correlations are time variable.

Second, the Chinese are said to be going for a "soft landing". Is that possible? Seems the Fed hasn't been able to do it when it wanted to. I don't think the Japaneese were very good at it. But I don't really have data to back up this.

I don't think that it is a direct correlation. However, the Chinese economy is so large now, and drives so much economic activity, that if China is weaker than expected then it is a reflection of how much business is going on in the world. If overall world economic activity is lower, then even US companies will have lower profits and that is bad for US equities. A large portion of US earnings are derived overseas. The soft landing is probably doable, but not certain, and markets also just don't like uncertainty.

 

[target2019]

A question comes to mind. Is it possible that correlation is coming into play in the last year or so? Perhaps a weak correlation is growing stronger?

 

[Lsbcal]

I don't think that it is a direct correlation. However, the Chinese economy is so large now, and drives so much economic activity, that if China is weaker than expected then it is a reflection of how much business is going on in the world. If overall world economic activity is lower, then even US companies will have lower profits and that is bad for US equities. A large portion of US earnings are derived overseas. The soft landing is probably doable, but not certain, and markets also just don't like uncertainty.

The US exports to China are not that high. But yes, China is showing the effects of a global slow growth situation from news accounts. The thing is that the problems have been hidden from the press by China's authoritarian leadership. So we can speculate but not know for sure.

It just seems to me that there are a lot of leaks in the China boat but it's underwater stuff. Most likely their leadership has been covering up a lot of unfortunate economic/political issues. The tip of the iceberg may just be those ghost cities. One or more of these issues (debt?) might blow up on them when they experience a growth slowdown. It is possible for a major economy to experience problems that are not exported to us.

 

[Lsbcal]

A question comes to mind. Is it possible that correlation is coming into play in the last year or so? Perhaps a weak correlation is growing stronger?

Maybe the correlation is since the start of January? Too short a time to draw that conclusion I think. We know that some declines get correlated worldwide for awhile. Correlation seemed to be happening for a few months in late 2011 but then the trend did not persist.

Here is a view of the last year of that previous FXI and SP500 chart:

What can confuse the issue is all the publicity around the Shanghai composite index. Looking it up, the index had a market cap of US 5.5 trillion as of May 2015. Seems to be where a lot of speculation happened. Here is a plot of the drama in the last year for that index:

There is certainly no correlation there with the US.

 

[target2019]

I'm not familiar with how correlation is measured, but isn't it a statistical formula, rather than a chart?

 

[Lsbcal]

I'm not familiar with how correlation is measured, but isn't it a statistical formula, rather than a chart?

I personally am using the term correlation loosely here. It's easy to do a correlation analysis using the Excel function CORREL. One just gets the monthly data from Yahoo and runs the function.

By why do a formal correlation? You can see from the charts and performance data that these are not highly correlated markets. Yes there is some mild correlation but nothing like > 0.90. In the crash of 2008 the correlation went up. Is another one coming? Who knows.

 

[34rlsa]

Regarding China...

What is a "soft landing" vs. a "hard landing"?

 

[Lsbcal]

Regarding China...

What is a "soft landing" vs. a "hard landing"?

Here is what one source says:

A soft landing in the business cycle is the process of an economy shifting from growth to slow-growth to potentially flat, as it approaches but avoids a recession. It is usually caused by government attempts to slow down inflation.

A hard landing in the business cycle or economic cycle, is an economy rapidly shifting from growth to slow-growth to flat as it approaches a recession, usually caused by government attempts to slow down inflation.

For China, I think they were trying to avoid stock market and real estate bubbles.

 

[34rlsa]

Here is what one source says:

For China, I think they were trying to avoid stock market and real estate bubbles.

Since inflation is not currently a problem in China... the conventional definition of a soft or hard landing doesn't appear to fit the Chinese economy.

I guess its just semantics...

bubbles bursting

bear/bull market

hard/soft landing

fear/greed

down/up

 

[Gumby]

Not really on point, but I just had to share this headline from CNBC today.

The recent market slide may have made stocks less expensive than they have been recently.

Ya don't say.

 

[audreyh1]

Here is an article I think gives a good perspective on how to look at markets. It is a far more nuanced view than that pushed by the traditional panting finance media, and IMO far more accurate.
What Does the Market Know? by Howard Marks of Oaktree

 

[Gone4Good]

Here is an article I think gives a good perspective on how to look at markets. It is a far more nuanced view than that pushed by the traditional panting finance media, and IMO far more accurate.
What Does the Market Know? by Howard Marks of Oaktree

I wanted to like this article and agree that we shouldn't allow ourselves to invest emotionally, but it seems his premise is empirically incorrect. Markets do not represent the "the average IQ of the participants." If they did, professional money managers would routinely trounce the indexes. We know that they don't. We also know that betting markets across industries and disciplines have proven to be better forecasters than highly trained specialists. So there is some wisdom in crowds.

I also disagree with his peculiar history of the 2008 banking crisis and insinuation that the panic was broken by a mere ban on shortselling. The panic was broken by an unprecedented government intervention that included guarantees of commercial paper, money market funds and other instruments through multiple Fed programs; bailouts of the weakest large players (AIG, etc) and the forced recapitalization of other large banks with direct injections of taxpayer dollars.

Had that all not happened, and it wasn't clear at the time that it would or that even if it did it would work, selling JP Morgan at $10 would have been a very good trade.

 

[CaliforniaMan]

That article is too long and complex for me. I think the buying and selling which produces the resulting market price boils down to predicting what others are predicting you are predicting what they are predicting you will do. And and then of course you must anticipate his action and do it just before he does. Simple as that.

Edit: Well, of course unless he has already predicted you are doing just that.

 

[harley]

I wanted to like this article and agree that we shouldn't allow ourselves to invest emotionally, but it seems his premise is empirically incorrect. Markets do not represent the "the average IQ of the participants." If they did, professional money managers would routinely trounce the indexes. We know that they don't.

I don't agree, because I don't accept the premise that the professional money managers have a higher IQ than the average investor. I suspect that the average buy and holder has at least as high an IQ as a person who convinces himself he/she can beat the market regularly.