Stockmarkets in very foreign territory
On August 6th, a Post was published on this Blog with the title of This is going to end in tears!
It was prompted by an article by Karl Denninger and a footnote piece from Dave Rosenberg of Gluskin Sheff.
Also included were the US and UK prices for 4th August (about 7am MT) more for my own curiosity than anything else. They were:
Dow Jones 9295, S&P 500 1,001, NASDAQ 2002, FTSE 100 (now closed) 4671.
By comparison, here are the figures for these markets (all closed at time of writing) for the 18th September.
Dow Jones 9820, S&P 500 1,068, NASDAQ 2133, FTSE 100 5173.
Well another fascinating muse from Mr Rosenberg was in this morning’s inbox and important extracts are below:
WAY TOO MUCH RISK IN THE EQUITY MARKET
Never before has the S&P 500 rallied 60% from a low in such a short time frame as six months. And never before have we seen the S&P 500 rally 60% over an interval in which there were 2.5 million job losses. What is normal is that we see more than two million jobs being created during a rally as large as this.
In fact, what is normal is for the market to rally 20% from the trough to the time the recession ends. By the time we are up 60%, the economy is typically well into the third year of recovery; we are not usually engaged in a debate as to what month the recession ended. In other words, we are witnessing a market event that is outside the distribution curve.
While some pundits will boil it down to abundant liquidity, a term they can seldom adequately defined. If it’s a case of an endless stream of cheap money, we are reminded of Japan where rates were microscopic for years and the Nikkei certainly did enjoy no fewer than four 50% rallies and over 420,000 rally points in a market that is still more than 70% lower today than it was two decades ago. Liquidity and technicals can certainly touch off whippy tradable rallies, but they don’t take you all the way to a sustainable bull market. Only positive economic and balance sheet fundamentals can do that.
Complimentary access to regular reports from Gluskin Sheff may be arranged here.
By Paul Handover
Learning from Dogs 
After the horrible fright of the most liberal, socialist president ever, incoming as a black nightmare, has been revealed the most intoxicating dream of the most right wing pro-plutocratic president ever, with the most Wall Streety discourse ever held, but in such a turn of speech that the left, apparently thoroughly confused by a touch of skin color, has understood nothing and happily bleats its approval.
What is there not to love in this stunning reversal of fortune?
Patrice Ayme
http://patriceayme.wordpress.com/
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I wholeheartedly agree that fundamentals drive stock values and sustainable growth. But we have to keep in mind that the stock prices and returns represent the market’s consensus opinion of the present value of a stream of future discounted cash flows: think profits over the next ten years or more in the numerator, and risk-adjusted interest rates in the denominator.
The value of this ratio can swing up or down with changes in forecast profits, or risks, or both. Over the last 80-90 years, that S&P 500 has had a mean return of about 12%, but has varied from that mean by some 70% in either direction. So the level of change in the S&P 500 is nothing new.
But Mr. Rosenberg is careful to say that it is not just the magnitude of the change in the market, but its speed and the fact that it is associated with such low levels of employment.
My guess is that these are not new either, but since I haven’t researched this point I must defer to Mr. Rosenberg. I must point out that he seems to be relying on past cycles to distinguish our current one as unique, when we should keep in mind that no two business cycles are ever alike.
Again, very interesting reading!
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