A collapse of the banking system and the insolvency of the FDIC is surely among them.
The Comptroller General advised the Senate Banking Committee that both were likely in April, 1991.
An "unprecedented" worldwide "economic convulsion" -- Newsweek used the quoted language in September, 1998.
A fundamental change in the world's economic condition. Fortune reported on that view in September, 1998.
The worst economic conditions since the Depression. Time made that observation in June, 1970.
Investor "shock felt round the world" was breathlessly reported by Timein November, 1987, complete with a story about a trader who withdrew $100 from his ATM because it gave him "a sense of security."
Pillars of the NYSE crumbling from the onslaught of a huge bear graced the cover of Newsweek in September, 1974.
The triple whammy of "inflation, recession and a frantic bear market" was reported byLife magazine on the cover of its June 5, 1970 issue.
Is the market getting you down? You want it to go up, right? Well, you better settle in and brace yourself for even harder times as an individual investor. That is, if some pundits are correct about the direction of share prices. According to this CNBC page, a Dow of 8,000 is now in play, and gold might be set to strap a rocket on its back and propel itself up to $1,500 per ounce over time. I'm not sure about the gold, but a Dow of 8,000 almost feels like a logical rest stop at this point (but that might be emotion talking). In the end, none of us can tell the future.
I can, however, share with you a wish. And it isn't just my wish. I'm sure there are others out there who have already said this. And, yes, this wish is coming from someone who owns The Walt Disney Corporation (NYSE: DIS), The Coca-Cola Company (NYSE: KO), and General Electric (NYSE: GE). I own them for the long term (except for a separate trading position in GE which completely failed and may turn into another long-term asset), so maybe this wish isn't so mysterious. I want to go back to that "happy" time of October of '87. I want to see the Dow drop over 20% in one day. Preferably, I'd like to see it drop 25%, on Cloverfield-monster-sized volume. How many points would that be? As of this writing, it would be roughly 2,670 points.
What, am I insane? About as insane as the idiots who decided to become risk sponges, I suppose. In all seriousness, we need a crash. We need a reset, a reboot. We need a lot of panic on the street, and a spiking VIX ($VIX.X), to at least begin a bottom formation. If you think we're going to form a bottom without pain, you're wrong. And if you think, at this point, that we can form a bottom without a crash, well then, I won't say you're completely wrong on that count, but I will say that a crash would be better.
Oil declines by $30 from record highs. Other commodity prices moderate. The dollar rallies. The nation records better-than-expected GDP growth in Q2.
All are positive data points that suggest that the U.S. economy, while it's certainly not in the midst of robust growth, has not run totally into a ditch, either.
What do the latest economic data points mean for the Dow Jones Industrial Average, and U.S. stocks, in general, for the next six to nine months? Here's the bullish and bearish cases:
Bullish case: Technical analysts would cite the Dow's close above the 50-day moving average for three consecutive days, the fact that the Dow held support at the 11,000 level, and a series of higher closing highs and higher closing lows in the past two months.
Further, technical analysts would also cite the fact that the Dow has completed the volume-light June-July-August summer season (typically bearish for stocks) during a period of anemic growth (if the U.S. economy isn't already in a recession), without plunging to nerve-wracking lows. True, the Dow fell from about 12,400 in June to 11,000 in July, but technicians would cite the aforementioned positive technicals as an argument that a bottom is in place.
Bearish case: Technical analysts would cite the fact that the Dow, although above the 50-day moving average, nevertheless remains below the 200-day moving average -- the toughest moving average line to break in trading. Also, market 'up days' have lacked sustained buying strength as measured by the MACD Histogram.
Further, and equally important, Dow bears would say that although the Dow has risen from its 11,000 low, the roughly 600-point increase is still well within the range of a correction -- or in this case short-covering -- in a long-term bearish trend. In other words, the Dow's recent rise could be Pyrrhic or false -- a classic example of a 'dead cat bounce.'
Market Analysis: With all due respect to technical analysts and their indicators, the view here argues that investors/ traders should take their cue from the U.S. economy's fundamentals: specifically, corporate profits and job growth. Absent substantial, sustained gains in each, any Dow rally is viewed with skepticism.
**
What's your view of the Dow? Is this stock market rally real? Or is it temporary? Let us know what you think.
As the second half of the year begins, the bear market has nervous investors looking for any sign of a shift in the direction of the market. When the new earnings seasons kicks off Tuesday, Alcoa Inc.'s (NYSE: AA) second-quarter results may offer the first glimpse of what to expect going forward.
Pittsburgh-based Alcoa has missed earnings estimates in just two out of the past five quarters. When the leading aluminum producer reported first-quarter results back in March, its net income of 44 cents per share fell short of the consensus of analysts surveyed by Thomson Financial by four cents, and were down from 79 cents per share in the same quarter of 2007. For this current quarter, analysts expect earnings of 68 cents per share on $7.4 billion in revenue.
Alcoa's long-term earnings per share growth forecast is 21.6%, which is less than the metals and mining industry average but better than the S&P 500. The consensus recommendation from analysts is to buy Alcoa, and has been for more than 90 days. The share price has been falling from a recent high of $44. 77 in mid May, and closed at $32.78 on Friday. Shares are down 10.3% year to date.
Let's just say that if the Dow Jones Industrial Average on Thursday closes down 200 points, we'll call it a moral victory. The Dow Wednesday closed down 166.75 points to 11,215.75.
"What was that famous Bette Davis line about a bumpy night? Well, Thursday could be a bumpy day," economist Peter Dawson told BloggingStocks Wednesday.
Thursday could be very bumpy for the stock market because a series of data points -- all expected to be negative -- are converging at a traditionally difficult time of the year for the market - the start of summer.
Three data points of significance
First up is the European Central Bank's interest rate decision at 7:45 a.m. EDT, at which the bank is expected to increase its key, short-term interest rate, the refinance rate, by a quarter-point to 4.25%. The ECB is trying to check inflation, Dawson said, but it may end up hurting the dollar. If the markets believe the already-weak dollar will fall further, that will increase commodity prices, including oil, "which will not be good news for stocks," he said.
If you believe the Dow Jones Industrial Average is a leading indicator of economic conditions six to nine months ahead, Tuesday's Dow activity is not good news.
The Dow officially entered bear market territory when a Tuesday morning decline drove the world's most followed stock market average beyond the level indicating a bear market -- down 20% from the October 9, 2007 high of 14,165.
What exactly is a 'bear market'?
Technical analysts, economists, and others argue that a 10% decline -- called a correction -- is a normal pull-back or pause in a bull market, a market where most stocks are likely to rise.
However, a 20% or greater decline is not healthy. Technical analysts say it indicates investors and traders are not simply taking short-term profits, but are concerned about the prospect for stocks in the quarters ahead -- three to nine months out -- and are exiting the market, in favor (historically) of bonds and cash.
For the above reason, 20% declines are usually interpreted by market advisors and participants as a sign that stocks are likely to be under pressure in the months ahead.
The Wall Street Journal reports that the stock market finished the second quarter just above Bear market territory. Does that mean everything's great or that things are going to get worse from here? I think the worst is yet to come and that investors should hold onto their stocks unless they and/or the companies they've bought are going bankrupt. And they might look to buy stocks in the coal and fertilizer industries.
The Journal reports that the Dow Jones Industrial Average (DJIA) began its march downward, ending the quarter (including Monday's slim 3.50-point gain) with an overall loss of 912.88 points, or 7.4%, at 11350.01 -- and perilously slightly less than the 20% decline from a recent high that is considered the start of a bear market. It was the third straight quarterly decline and the worst second quarter since 2002.
I think the 20% decline that designates a Bear market is pretty arbitrary. People know that the market has been a disaster. And if earnings matter, it's likely to get worse. The Journal notes that analysts expect earnings at S&P 500 companies to be down 11% for the second period, led by a 60% plunge in financial-sector earnings. Estimates fell sharply as the quarter progressed. On April 1, analysts were expecting a 2% drop in S&P earnings and a 31% decline in the financial sector.
Of course they can. But they can also get much better. While the stock market, as measured by the Dow Jones Industrial Average, has rallied from its lows, can it sustain the gain or will investors take this opportunity to reap smaller losses (who has profits these days?) or step up and buy? Here's what will influence them.
It seems all economic news is bad. "Credit crunch" is more common than Captain Crunch around the breakfast table. Banks are hemorraging from bad loans. They're reluctant to make new ones unless the credit is so good and the loan so small that it would be impossible to lose money on it. Most likely the best terms are for those borrowers who deposit all the money they need in the bank first, then borrow it back, but not all of it. The banks want that extra cushion of safety these days. Don't look for the banks to change lending habits soon. More losses are coming. Until they stop, banks will keep credit tight.
We've been on the phone a lot with investors over the past few weeks. I don't know about you but from where we sit, there is a lot of fear in the market. Investors are worried: worried about what's going to be, how low the markets can go, how the dollar will continue to drop, inflation, etc. There's what to worry about.
But, there is a counter-Chicken Little story setting up behind the backdrop of fear. Bloomberg has an interesting piece out this morning entitled "Buy Signals Abound in U.S. Stocks Shadowed by 1970s". Bloomberg reporters draw comparisons with the almost 20% drop in the S&P 500 (Amex: SPY) we've seen since the October highs.
So, are things any different this time?
Well, for one, Bloomberg claims companies in the S&P 500 are trading at their cheapest levels in more than 18 years to forecasted profits. That means investors believe that forecasted profits are going to fall way short of projections. If the world doesn't come to an end, Bloomberg thinks there may be an opportunity here.
Secondly, valuations versus 10 year Treasuries are also lowest in at least two decades.
Investors don't want to hold stocks. I can't blame them. Anyone who's been trying to pick up some value has probably seen their trades go against them.
Today's markets were foiled with worries of counter-party risks, and even the "denying of rumors" didn't manage to help. You know that headlines of "Oil Nearing $108" isn't a huge help there. On the economic front, we saw some old data on January Wholesale inventories being +0.8%, above a forecast of +0.5%.
New York's Governor Eliot Spitzer has been caught up in a prostitution ring, and even though he is no longer Attorney General this didn't even manage to cheer Wall Street up after years of having Spitzer take down insurance companies, Dick Grasso, and more. Below are the day's unofficial closing prices:
DJIA 11,740.15 (-153.54; -1.29%)
S&P500 1,273.37 (-20.00; -1.55%)
NASDAQ 2,169.34 (-43.15; -1.95%)
10-YR T-Bond 3.438%; -0.1030 (bonds still trading)
There were a few major standout stocks today, mostly to the downside.
"Last January, we forecast that 2007 would be the year of the 'financial flameout'. And while the financial sector is down sharply, we believe this is still just the downpayment on the sector's full decline, which will last at least the next few years.
"From 1980 to 1999, we saw a simulataneous rise in the Dow in terms of dollars (nominal), gold (real) and commodities (purchasing power). This advance signified real gains for investors. The market's topping process started in late 1999 when the Dow peaked in terms of real money and purchasing power.
The Dow's rise since 2002, however, occurred only in dollar terms. The Dow's new nominal high does not represent an increase in purchasing power nor a rise in real money. In fact, it is just the opposite, as the Dow denominated in denominated in each of these assets classes has been crashing.
With Wall Street still digesting the latest round of sub-par economic data even as it braces for potentially more, economists and analysts said investors can look forward to one 'certainty' in the weeks ahead -- market volatility, as the financial community gauges the U.S economy's probable economic path for 2008.
Market bears will cite the housing sector's recession, related mortgage and asset-backed defaults, slumping corporate earnings and consumer spending, high energy prices, and uncertain job growth as reasons the Dow and the broader markets are likely to continue to fall in the weeks ahead.
Market bulls will cite solid corporate earnings from companies in international markets, relatively low inflation, a declining trade deficit, the fair or undervalued price of some U.S. equities, and the U.S economy's ability to adapt as reasons the markets may reverse their slide in early 2008 and head higher.
[The Nasdaq closed down 98.03 points to 2,504.65, the S&P 500 closed down 35.53 points to 1,411.63. Oil fell $1.27 to $97.21, gold declined $3.40 to $865.70, and the 10-year U.S. Treasury closed at 3.85%.]
Obviously, Wall Street's current consensus - - its chief culprit - - is the December 2007 job report, announced by the U.S. Labor Department, which indicated that the U.S. economy created just 18,000 new jobs - - a whopping 52,000 shy of the 70,000-job estimate.
Now that the Dow has fallen 10% from its October 2007 peak of 14,164 to 12,743 -- i.e. now that it officially qualifies as a correction, it's a good time to summarize the investment landscape, fundamental and technically.
Although numerous fundamentals (high energy prices, subprime mortgage defaults and subprime-asset losses, housing sector slump, slowing U.S. consumer spending) suggest U.S. economic growth will slow up ahead, and hence that more selling is ahead for the Dow, that, in fact, may not be the case.
If limited to roughly 10%, the Dow's decline constitutes solely a correction. Keep in mind also that the Dow is a lead indicator that always points to economic conditions 6-9 months ahead. Hence, investors, if they believe that measures being taken are addressing important concerns, could conclude that economic conditions will improve and hence send the Dow rising very soon.
The market bears are looking for cover and one of their leading superstars, Jim Melcher, who runs the Balestra Capital Partners hedge fund, told The New York Sun today that he believes we are heading for the worst recession since the 1930s and thinks the Dow will fall to between 9,100 and 10,400 - another 20% to 30%.
He told the Sun, "I've never seen the market with more risk and what's significant is that the risk is not yet priced in." He believes an investor's stock portfolio should be half what it is now. He expects unemployment to grow dramatically as consumption slows. And, he things the housing market collapse has a long way to go. He told the Sun that with the "burdens of rising energy and food costs, and combined deterioration of the credit markets" average homeowners will not be able to withstand this recession he sees.
So where's he putting his hedge fund's money? He says it's pretty much devoid of stocks except for two ETFs - the Oil Services Holders Trust (AMEX: OIH) and the StreetTRACKS Gold Trust ETF (NYSE: GLD). The rest of his fund management strategy is shorting stocks and certain bonds - mortgage-backed junk bonds. He's using derivatives, put options and credit default swaps. He is also short ABEX, which is an index of residential mortgage-backed securities.
Another key strategy he is employing is foreign currency trading. His favorite currencies are the Swiss franc and the Japanese yen.
Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to Foreign Currency Trading" and "Trading for Dummies."
Let's see if I can touch on your worst fears:
Is the market getting you down? You want it to go up, right? Well, you better settle in and brace yourself for even harder times as an individual investor. That is, if some pundits are correct about the direction of share prices. According to 
All are positive data points that suggest that the U.S. economy, while it's certainly not in the midst of robust growth, has not run totally into a ditch, either. 
As the second half of the year begins, the bear market has nervous investors looking for any sign of a shift in the direction of the market. When the new earnings seasons kicks off Tuesday, 
Let's just say that if the 
The 
Ted Allrich is the founder of 
We've been on the phone a lot with investors over the past few weeks. I don't know about you but from where we sit, there is a lot of fear in the market. Investors are worried: worried about what's going to be, how low the markets can go, how the dollar will continue to drop, inflation, etc. There's what to worry about.
With Wall Street still digesting the latest round of sub-par economic data even as it braces for potentially more, economists and analysts said investors can look forward to one 'certainty' in the weeks ahead -- market volatility, as the financial community gauges the U.S economy's probable economic path for 2008. 
The market bears are looking for cover and one of their leading superstars, Jim Melcher, who runs the Balestra Capital Partners hedge fund, told The New York Sun today that he believes we are heading for the 
Analyst sees oil dropping to $50 on global economic slowdown
Lehman screws workers out of severance payments
No Cramer, now is not the time to panic!
