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@theMarket: Welcome to the Fourth QuarterBy Bill Schmick
iBerkshires Columnist
10:21AM / Saturday, October 03, 2009
 | | Bill Schmick |
More than leaves are falling on this, the first week of October. As if a starter gun were fired as the third quarter came to a close, stock markets around the world declined simultaneously. I warned last week that a pullback was in the offing and I for one would use this as an opportunity to add to positions in stocks.
But the devil is always in the details. When to buy, what to buy, how much to buy — these are always vexing questions but let's start with the first one, when to buy. Well, that depends on how deep a pullback we will have. Technically, it was a good sign on Friday morning that the S&P 500 index opened down 10 points but then bounced off the 2019 level. If luck is riding with the bulls then we have already hit the low of this pullback and, after a few days of back and forth action, we could be headed for 1100 once again.
But what if Miss Luck has deserted her bovine buddy? Then expect the bears to take the S&P lower, possibly into the 965-975 range. That would be about a 10 percent correction. Remember, too, that third quarter earnings results begin next week. It may once again be the key to the market's fortunes. I would like to see a further decline, although no one (especially me) likes to lose money. But the markets really do need to work off these overbought conditions. It is similar to a fighter, legs trembling, muscles cramping, yet continuing to battle on pure testosterone. At some point, he will collapse if he doesn't get out of the ring for a break.
The markets have been pushing upwards for weeks now. Like the boxer, sooner or later the markets will need to correct. Previously, I have pointed out that we've had three corrections of less than 7 percent in this rally since March. This could simply be another shallow 5 percent pullback, or something more. Unfortunately, we will just have to wait and see how it plays out.
While we wait (patience is a virtue in money management) I have been fielding a number of questions concerning the recovery. Clients and readers, after fretting over whether we were still in a recession or in recovery seemed to have recently accepted recovery was now in the cards. However, their concern has now switched to questioning whether we will fall back into recession once the government's stimulus efforts have abated. Friday's Wall Street Journal echoed those sentiments and concluded that the data was inconclusive.
I'm sure Ben Bernanke of the Federal Reserve added to these worries when he told the House Financial Services Committee that consumers may have a tough go of it if unemployment remains high and incomes fail to grow. Friday's higher than expected unemployment number gave the bears all the ammunition they needed to drive the markets lower. Of course, it was just one of many economic data points this week. The numbers are giving off mixed signals.
Auto sales, for example, were down in August after the "Cash for Clunkers" program was suspended. That rattled the markets. Common sense would indicate that decline should have been expected. The same reasoning would expect housing numbers will be down after the government's $8,000 tax credit for new home buyers is discontinued next month. But sometimes the markets are long on sentiment and short on common sense.
Over the summer, I've written columns on why I don’t think we will have a "W" shaped recovery in the economy (Aug. 20 "The Recession is Over") and why I do think that employment in this country will not come back quickly (July 10 "What's up with the Stimulus Plan"). If you missed those columns you can find them up on my blog: www.afewdollorsmore.com.
Whether we have a short, shallow pullback or a deeper 10 to 15 percent correction, I still maintain it is a buying opportunity for those who have the risk tolerance to hang in there.
Listen to Bill's "@theMarket" show here.
Bill Schmick is a registered investment adviser and portfolio manager with Berkshire Money Management (BMM), managing over $180 million for Americans in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at     1-888-232-6072 (toll free) or at wschmick@berkshiremm.com. Visit www.afewdollarsmore.com for more of Bill’s insights.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. |
Your Comments
iBerkshires.com welcomes critical, respectful dialogue. Name-calling, personal attacks, libel, slander or foul language is not allowed. All comments are reviewed before posting and will be deleted or edited as necessary. Comments are closed for this article. If you would like to contribute information on this article, e-mail us at info@iBerkshires.com |
Regarding the constant attention the W-shaped recovery theory gets, it is disproportionate to occurrences.
The concern of such a double-dip (as in the two low points of a "W" shape) recession grabs serious media attention. A simple "Google" search of the phrase "W shape" (no mention of the recovery or the economy in the search), yields nearly 100 million results. (An admittedly less than statistically relevant sample suggests that they are nearly all economic concerns.)
Yet, the empirical evidence is such that W-shaped recoveries (both domestically and internationally) are extremely rare.
So why such heavy emphasis on this particular alphabetical description?
My guess (and it is only a guess) is that we all far too well remember the 1980 & 1982 double-dip recessions and thus transfer that mental scar into our emotionally-driven (i.e. fear-based) prognostications.
So what will it be? Not a W, or an L, or a V, or even a U. I believe that it will be a cross between a square-root sign and a saucer-shape.
What is your view?
Regards,
Allen Harris
Berkshire Money Management
BerkshireMM.com
| | from: Allen Harris | on: 10-03-2009 12:00AM
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As to the stock market, Berkshire Money Management wrote a report a few months ago titled "It Feels Like 1974" where it identified significant similarities between the last couple years and the 1974-1975 period.
We used that historical evidence to suggest that if the similarities continued, then you could reasonably expect a 2.5 month, 11% correction would start sometime in September.
From the September 18th high, that would drop the S&P 500 down to Bill's similar level of 965 points (a level we both reached independently, so it is nice to have some level of affirmation as to potential downside risks.)
(An excerpt of that white paper and all of the appropriate legal disclaimers can be found in the October 10th edition of the Eagle as a newsletter insert - please be sure to check it out.)
To be certain, the more specific you get regarding forecasts, the more error that is then made possible. But it's our job to make such forecasts and then to apply them toward investment strategies for each client's particular goals. (And, hey, as John Maynard Keynes once said, if the information changes, we change our minds.)
My legal department wouldn't allow me to get more detailed without adequate disclosures, but if you are interested in receiving a full and complimentary copy of that report then please feel free to contact Bill (no brokers or other money managers, please) with your relevant contact information.
Regards,
Allen Harris
Berkshire Money Management
BerkshireMM.com | | from: Allen Harris | on: 10-03-2009 12:00AM
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| so your "forecast" for the market are as follows: the correction could be over and the market is going to 1100 OR the correction is not over and it is going to 945. is this helpful? the market might go up, but if it doesnt, it might go down. this doesnt seem as specific as all the great market calls of the past. | | from: | on: 10-04-2009 12:00AM
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Dear No-Name:
I am unsure from where you are deriving your comment/question.
Please allow me to make it much simpler (or at least less nuanced).
My forecast (not necessarily Bill's) is that the capital markets (including stocks) are in the midst of a "monster rally", and one that will remain intact (despite non-linear setbacks).
For how long will the "monster rally" remain intact? Using the 1974-1975 period as an example of a reasonable expectation, the S&P 500 could get to about 1,150 points.
But let's put that detail into context. Berkshire Money Management began to go short the stock market in June 2007 (just a little) and then much more heavily in November 2007.
Then we began to move back into the capital markets on March 17, 2009 (a week after the big crash).
So we are not really too worried about the a few percentage points here or there - and by "a few percentage points" I mean a correction.
After all, on average there are 3.5 five-percent pullbacks in the stock market from an intermediate top per calendar year. And there is at least one ten-percent pullback, on average, every fourteen months.
But as I said earlier, if the information changes, I change my mind.
No-name, you asked a question "how does this help?". If you are unsure as to how to use this information, I suggest that you buy me a delicious chicken salad sandwich from Roots Cafe at 44 West Street and I'll be glad to further assist you.
Regards,
Allen Harris
Berkshire Money Management
BerkshireMM.com
FireYourStockBroker.net
| | from: Allen Harris | on: 10-04-2009 12:00AM
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I am confident that my legal team would like me to remind all readers to go to BerkshireMM.com to read all of the requisite disclosures regarding opinions and/or forecasts.
Here's a quick link to be sure that you do so before taking any actions based upon any comments made:
http://www.berkshiremm.com/information.asp#spdow
Enjoy your week.
Regards,
Allen Harris
Berkshire Money Management
BerkshireMM.com
FireYourStockBroker.net | | from: Allen Harris | on: 10-04-2009 12:00AM
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