Will This Rally Stick?
Gary Kaltbaum is an investment adviser with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show “Investors Edge” on over 50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”… a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary’s Daily Market Alerts click here or call 888.484.8220 ext. 1.
I gather in the next couple of months, GM and other auto companies will be on the receiving end of more government largesse. I am still trying to figure out how this will help. GM is sitting with approximately $44 billion in debt with interest costs close to $3 billion/year. How can adding more debt to the equation make this company better?
Our government has just given CITIPUKE another $20 billion on top of the first $25 billion and guaranteed their bad bets to the tune of just over $300 billion. Did you read that? Read it again. What the heck is going on here? How is this happening? Why aren’t the masses yelling and screaming? Why isn’t Barney Frank and why isn’t Henry Waxman making the chieftains of this company line up single file into Capitol Hill for a grilling?
After all, this same company broke every securities violation known to man…and to my knowledge…have not heard of any investigation into their hiding of losses, the lack of disclosure of these losses, false statements and that’s just a start. I guess this is what happens when you have a Treasury Secretary from Goldman Sachs and an overpaid ex-Treasury Secretary from you guessed it…Goldman Sachs…who was part of the decision making at this company for the years this nonsense took place.
I found it comedic that this ex-Treasury Secretary is out trying to absolve himself of any blame. Hear no evil…see no evil…speak no evil…but pay me $15-20 million/year. Love this guy! Bottom line, one worked in a Republican administration…one worked in a Democratic administration…so expect nothing from politicians here as they would have to embarrass their own. This sucks.
Well…one month to go in this very eventful year. As I write this, the market has experienced another “big” bounce off of fresh bear market lows. At the lows, the S&P actually took out the 2000-2003 bear market and amazingly, bested the 73-74 bear market…an amazing occurrence. I have studied the 73-74 time period and never thought we would ever get anything that resembled…but in this decade, we have received two bear markets of that kind.
I also made note that in just two months to the recent low, the small cap indices dropped 50%…IN JUST TWO MONTHS. No…that is not a typo…just an amazingly destructive market. To make matters worse, some of the great mutual funds that I have followed for years…are down 50-70% this year as they all piled into financial stocks as they went lower and lower…looking to find the cheap and looking to find the value…only to find some of these financial names going to zero.
How tough has this market been to navigate recently? Over the last 50 trading days, the average absolute daily percentage change of the S&P 500 has been 3.82%! That means the S&P 500 is averaging a daily move of up or down nearly 4%. In the history of the S&P 500, there has never been a more volatile period. Back in February of last year, the 50-day average absolute change was just 0.33%. There have been days where we have seen 5-10% swings. That is a year’s gains or losses. Just take a look at the following chart.
I have been asked more than once…ok…about a thousand times: what do I think 2009 holds for the market? Well, let me be clear about a couple of things. First, you will be inundated with predictions for ’09. The average prediction for ’08 was for the S&P 500 to be up between 7-10%. Yes…these predictions come from the highly paid pundits. I do not make this stuff up. As far as I am concerned, I don’t know what 2009 holds. I do know that from my studies of longer term range markets, we should expect large rallies every now and then. How they come and when they come? Don’t know. Is the recent low market the start of one of these bigger rallies? Maybe!
The only thing I can guarantee is that we continue to be in a longer term range market…a la 1965-1982. What do I mean by longer term range markets? From 1965 to 1982, the market went nowhere. During that time, “buy and hold” investors were left with little or nothing to show for the period…unless they had a keen enough eye and were able to trade around the bull and bear cycles within that longer secular bear market.
In 2001, I mentioned that I believed 2000 marked the start of another one of these “secular” bear market cycles to work off the previous bullish 18 years…and so far, the market has not proven me wrong. It was uncanny that the S&P hit 1576 at the recent high last year…just 23 points higher than the 1553 high from 2000…making the top of the range. On another uncanny occurrence, the S&P just hit a low at 741…just 27 points lower than 768 bear market low in 2002. There is now a case that those lows could be the bottom of the range…but time will tell. I say this because in 1974, the bottom took place when major averages undercut the previous bear low…and then reversed and never looked back. Of course, it took another 8 years before the market broke out above the highs again.
More importantly, if you can identify the bull and bear cycles during the long term range, you can do well. I got the first part right as I have sidestepped the bear. Hopefully, next up is the bull. It is significant to point out that during the 1965-82 period, the cyclical bull markets were +51%, +77%, +78% and +64%… I must admit that the final 64% was very tough to play as there were two nasty selloffs in 1978 and 1980 which did drop the S&P to 20% each time. Based on these statistics, I have my eyes wide open…so stay tuned.
The news is all bad…in fact, very bad…most are now sick of markets as most now know major averages have done nothing for a decade…but markets are a discounter of future events…not past. Hopefully, markets have discounted the worst…but again, time will tell. Since the low of last week, markets have rallied on decreasing volume in a holiday shortened-week. I am open to all outcomes here but you need to know that volume will have to come in for this nascent rally to continue…keeping fingers crossed as we are in the seasonally strong November-April period. It doesn’t hurt in the short term that our banana republic government has printed several trillion dollars to help things out. Remember, the one goal right now is to inflate asset prices.
For those who want a better understanding of what I am talking about, get hold of a longer term chart of the markets…and you will see these longer term fear and greed cycles… The past 8 years are playing out almost like the first 8 years from the 1965-82 market…about as uncanny as one can find.
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