Stock-market analysis — conservative style

January 5, 2008

I won’t pretend to have any expertise in analyzing the day-to-day ups and downs of the stock market; there are just too many variables to consider. That said, some days are clearly easier to understand than others.

Yesterday, for example, didn’t take an MBA to appreciate. The monthly jobs report was depressing, with the worst monthly numbers in four years. A growing number of economists believe we are approaching a recession, and there were multiple reports in yesterday’s dailies about the White House considering some kind of stimulus package. All of this, coupled by the ongoing costs associated with the mortgage crisis, seems to have caused some unease on Wall Street.

And then there’s Hugh Hewitt, a prominent conservative pundit/blogger, with an alternative explanation.

The market is tanking, allegedly because of the jobs report, with the Dow down 244 and the NASDAQ off 92 (3.5%) at this writing.

How much of the decline is due to the investor class rejecting the idea that any good news comes out of either Obama-McCain or Obama-Huckabee? Neither matches up well against the youthful, “politics-of-hope” Illinois populist with Oprah at his side. Both Senator McCain and Governor Huckabee are identity politicians who leave part of the Reagan-Bush coalition cold without adding any significant new groups to make up for their loss. […]

I will ask Larry Kudlow on today’s program about investors reading the election returns, as well as their likely reaction to Obama/McCain wins on Tuesday in New Hampshire.

Oh my.

It’s worth noting, of course, that Hewitt is an enthusiastic supporter of Mitt Romney’s presidential campaign, so it stands to reason that he’s looking for ways to criticize Huckabee and McCain at almost every opportunity.

But c’mon. The market tanks in response to dreadful employment news, and this is an opportunity to squeeze this into a campaign narrative? Indeed, I’m trying to understand Hewitt’s train of thought here: investors don’t want Obama, Obama can beat Huckabee and McCain, the Iowa results suggest Obama has a real shot, therefore, more than a full year before the next president is inaugurated, investors interpret caucus results as a sign to sell.

And remember, he didn’t appear to be kidding.

Salon’s Alex Koppelman added, “We won’t be taking investing advice from Hewitt anytime soon, but we guess you still have to give him points for trying.”

I’m not so sure.

Read Hewitt’s blog if you want a chuckle – the quote you gave is pretty much par for the course, lately. He’s lost his mind along with any shred of credibility and even his formerly hard-core supporters are lampooning him. The comments section is just a riot.

  • Any analysis of daily market fluctuations, including analysis by “experts,” that doesn’t attribute fluctuations–as opposed to longer term market trends–to irrationality of actors and overreaction to “news” that’s already priced in to the market, is bunk.

    Take, for example, this jobs report. Employment declined throughout 2007 at a pretty steady rate (http://krugman.blogs.nytimes.com/2008/01/04/employment-a-tale-of-two-administrations/). Employment, is not directly related to unemployment and job numbers as calculated and published, but it does correlate pretty well in the long term. Unemployment and new job numbers may fluctuate widely from month to month, but the overall employment picture has been pretty clear for the past year. In other words, declining current employment has already been priced into the market, and what happened on Friday was less savvy investors panicking at bad news that wasn’t really news at all. While the overall market is certainly soft right now, Friday’s fluctuation is fundamentally irrational and will almost certainly be corrected next week when intelligent institutional investors will see stocks that have declining employment figured into their prices at double its actual impact.

  • can’t admit that the market has been artificially bouyed by bush running fantastic deficits – both on and off the books – for the past 7 years, now can we?

    and we can’t even hint that its tanking has anything to do with people waking up to the disastrous economic policies of the bushies, either. what will the investor (and contributor) class say?

  • I saw the referenced Larry Kudlow show.

    1.) None of the serious market analysts thought that this move in the market reflected an anticipation of election returns.

    2.) All of the analysts thought there would be gradual movement in a wide variety of stocks, which will be affected by the shift in political power from Republicans to Democrats.

    If voting and political power matter, then 2.) is a no-brainer. But, I was impressed by how easily the analysts could identify the specific sectors aided by Republican legislation in the last few years, led by Big Pharma and health care stocks.

  • Well, Hugh the Spew Meister doesn’t want to bring out his “big gun” too soon, or it’ll backfire on him. Once the primaries are settled—either at convention or before, if the numbers crunch that way—look to see the beyond-even-imagined-reality members of the far right step up and try to blame the economic meltdown of a Dem-controlled Congress.

    The funniest part of all this is that Spewitt invests more time in badmouthing Republicans, while McCauliffe and his Muppetonian Minions play their “mile-high games:”

    http://blogs.tnr.com/tnr/blogs/the_stump/archive/2008/01/04/air-spin-one.aspx

    It’s almost enough to confuse a person; Spew attacks Republicans, and a Dem who was touting Iowa’s pending caucuses as evidence of his candidate’s inevitable victory three months ago now discounts the value of a quarter-million actual votes.

    Funny thing, though—he’ll still push a survey one-tenth the size of the Iowa turnout as “proof” of his candidate’s viability.

    But, I digress. There are some who are saying that we’ve already entered the beginning phases of a recession. Reuters is identifying that the banking system could be vulnerable to another quarter-trillion in “write-downs” this year; much of which could come on by spring.

    And yes, you read that correctly—a quarter trillion dollars. that’s 250 BILLION.

    Housing? Forget it. For every family looking for a house, there are two to three on the market. There’s a house just over on the next road that defaulted early last year, it’s foreclosed on, and the financial institution holding the note can’t even get it sold at sheriff’s sale. It’s a $200,000 house, the minimum bid is $72,000 to cover the debt—and they couldn’t even get THAT. Imagine— a nice house that can’t sell for 36 cents on the dollar. That’s not McCain or Huckabee; that’s a collapsing economy.

    Been to a WalMart lately? The Valentine’s stuff went in the day after Christmas; it’s already discounted, almost 6 weeks before Valentine’s day.

    Check out the grocery ads. 5 grocery lines in our area—Marc’s, Giant Eagle, WalMart, Heinen’s, and Reider’s. Chicken’s on sale; so is pork. Beef prices are beginning to slip. That’s because there’s more meat going to slaughter—because (1) there’s not enough feed and fodder to maintain “flocks-n-stock-herds,” and (2) what feed and fodder there is has too high a price-tag. Imported grocery items, on the other hand, are seeing price increases due to a tail-spinning dollar.

    And by spring, when those meat supplies begin to dwindle, you’ll pay upwards of $3 a pound for a chicken. That’s not McCain and Huckabee; that’s a domestic meat industry that’s teetering on the brink of the abyss.

    Look at the car lots recently? I can find a 2-year old Sedona—best minivan on the market—for 10 grand less than it sold for, brand new, in early 2006. Not through a private owner, but through the biggest Kia dealer in northeast Ohio. Some of the dealers won’t even consider taking SUVs in trade; they can’t give the blasted things away. That’s not McCain and Huckabee; that’s an auto industry that’s headed due south. Think “Antarctic” south.

    Housing? It just isn’t going to happen in ’08, friends. The market is glutted beyond all hope of thinning this year; lumber mills have eliminated excess capacity—not just “mothballed,” but eliminated. They bulldozed the mills to avoid taxes on idled capacity. The remaining shops are running at reduced capacity, and their wholesale prices are comparable to what retail was when KG43 took office. The same thing with brickyards, siding extrusion shops, cabinet manufactures, fixture plants, and shingle-makers. You cannot build houses if the materials can no longer be produced. That is not McCain and Huckabee; it’s a building industry that’s been gutted, sliced, diced, pinched, minced, and julienne-fried.

    Hugh the Spew and his brain-dead ramblings helped make this mess—and now he wants to pretend it’s someone else’s fault? Please. Forget the popcorn—somebody just give Spew a nice thwack across the base of his skull with a crowbar….

  • I have no doubt, upon the official declaration of the eventual Democratic candidate for president as the winner of the 2008 general election, that the markets will react favorably.

  • Man, Steve, that’s one hell of a grim assessment. But I appreciate the great level of detail… now what should I do?!? 😉

    As for Hewitt’s imbecility, two points:

    1) I can easily enough see a scenario in which McCain beats Obama; in fact I think he’s the only Republican who can beat any Democrat, particularly if something happens to swing the discussion back to national security and/or Obama commits a gaffe that suggests his inexperience or unreadiness to lead.

    But Romney? NO SHOT. I don’t think Romney could beat any of the Democrats; he’d have a very slight chance if the media decided to go Gore-2000 on her. (They’d certainly do that in a McCain-Clinton race, but my sense is they hate Mitt as much as they hate her.)

    2) The historical data suggests the markets do considerably better under Democratic presidents–something the touts understand. Since Bill Clinton embraced fiscal responsibility and governed on budgetary issues like an Eisenhower Republican–not a criticism in my book, btw–this is probably an even stronger trend now.

    Hewitt really should STFU.

  • I make a living in the stock market.

    Can I explain something.

    First of all, no one has a clue why the market does what it does.

    Second of all, we had a bad day on Friday. It wasn’t a terrible day. It was just a bad day. It happens.

    So, let’s assume it is all because the result in Iowa sucked.

    OK, the market went down a few percent.

    When did the market go down? If it really was the result in Iowa then you need a couple of facts.

    First of all, was the Iowa result really unexpected? If it was basically what was expected then the market should already have priced in the results.

    Second of all, if it was the result of Iowa then the futures markets should have tanked sometime Thursday night as the unexpected results happened.

    Well, guess what.

    It didn’t happen that way.

    The market tanked on the news of the jobs report and even then it didn’t go down that much.

    So in conclusion

    The jobs market news was partially responsible for the market drop and the outcome in Iowa had virtually no affect at all

  • Obviously the neocons are worried that gasoline might sell at 1.00 a gallon like in those atrocious Clinton years. And that 600B surplus was un-American.

  • The beauty of the markets is that they are immune to politics. The market is always right, any way you look at it. As an investor, I can tell you that the recession is already here. What comes next may qualify as a depression. 70% of the market is already in a bear market. Those areas are only getting worse. It has been my belief and continues to be my belief that there is a lot more to come. The highest probability is for new market lows in 2008 as the bear cycle continues to unfold. We will start 2008 with an expanding housing bust, rising oil prices, tighter credit, and sinking consumer confidence, all of which will most likely lead to a sharp decline in corporate profits in the first half of 2008. The analysts are already cutting 2007 earnings estimates, and will be lowering 2008 Q1 estimates as well. The volatility will increase next year, as the global economy slows and earnings disappoint, in addition to the expanding credit tightness in both the U.S. and global markets. I know this sounds pessimistic, but hope is not a strategy for dealing with what’s coming. Pay off your outstanding debt, hold on to your cash, and sit tight. When things look like they just can’t get any worse, they won’t. That will be the time to start over again.

  • The market isn’t always immune to politics, like when idiot congressmen start introducing bills to attack the Federal Reserve. But President is definitely correct about markets always being right. At the end of the day, they always self correct themselves and influence other institutions.

    As to explain the strange decline Friday, it’s “irrational exuberance” in the words of Greenspan. Some inexperienced investors see the Iowa results, believe that it’s bad for the stock market, and then sell their stock. More experienced investors see the employment results and unload their stock, to be safe. When others see stocks being sold quickly, they panic and sell too. It’s a chain reaction of doom, yet the TV networks and newspapers get an election story out of it

  • Hewitt knows this is ridiculous, but he doesn’t care. Anytime he can use as a verbal club, he will. He saw a weapon to use on his usual target, so he picked it up and took a whack. It’s what he does.

    It’s a waste of time to argue that Hewitt is spewing BS. You may as well criticize manure for stinking – it’s what it does.

  • The high level of market volatility is the direct result of Bushian policies and the overall trend to less government regulation and fewer consumer protections. The whole credit crisis is the outcome of a lending industry gone stupid whose only smart move was selling off their insanely bad loans so that way we all own chunks of this bad debt and will all lose money as the result of their bad decisions.

    To add to Steve’s observations, I just heard ads from two car dealerships advertising to people who are up to $10,000 upside down on their car loans. Upside down on car loans! What the hell happened to this nation. How do you buy a car for $30K and wind up owing $40K on it later after making years of payments?

    The war is screwing up oil prices, Bush never gave a damn about the economy and it’s showing and now rich people have a market full of indebted poor people who are running out of credit to buy their cheap goods imported from China.

    The next president will have have a huge sh*tpile to clean up after the Bushies leave town.

  • The “Investor class” are concerned about the future President?

    If you mean that the Ultra Rich are concerned that the “Bush economy” is going to end than I might have to agree. The Bush economy has been nothing but the biggest rip-off of the middle class that our country has ever experienced. And the Ultra Rich have done extremely well.

    But then again, any economy that needs two billion dollars a day from China is insane. And the “Bush economy” is all a house of cards that was going to implode once it had sucked all of the available wealth and credit from the middle class. We’re going to watch trillions of dollars just disappear in the “market” while the CEOs continue to get hundreds of millions of dollars in performance bonuses for doing a good job. Protecting shareholder value my a$$.

  • Petorado, that would be the “Buy-Here/Pay-Here” program that a lot of dealers adopted several years ago. They work almost identically to the “subprime” mortgage loans in the real estate market.

    To begin with, you have a dealer who gets his stock almost exclusively through interstate/out-of-state auctions. Let’s say, for example, they buy a ’99 Ford. It’s rough around the edges, the oilpan and head-gasket are leaking, it needs a tune-up, and the interior is “kinda-sorta” torn up. They get the thing for, say, $1,500.

    Now, this particular dealer will send a group of 4 or 5 people to this auction in a crew-cab pickup or a van that’s got a set of “dolly-wheels” hooked to the rear bumper. They’ll pick up several cars, with each driving one back, and the main driver takes the truck/van back with an additional car hitched to the rear.

    Once they get the cars back to their site, they’ll roll them inside, one at a time, and make the needed repairs—usually with salvaged parts from the local junkyard. In the end, that one $1,500 car has an additional $500 in it, plus the raw costs of getting it back from the auction and a day’s labor apiece from a team of three or four “patch-job” guys—let’s say the car now represents a $2,500 investment for the “dealer.”

    The car goes into the lot; it’s been buffed out, the bodywork’s ben done with “Bondo,” and the oil-leaks can be covered most of the time by over-torquing the nuts. It looks pretty good to the poor schmuck who needs a car, doesn’t have good credit, and lacks a sizeable down payment. He can get that car for $500 down and $75 a week—and that’s the kind of glitz that camouflages the fact that this $2,500 car now has a $6,000 price-tag and is “financed” (by a finance-company that’s really the ownership-entity of the dealership itself) at a rate of about 25% percent annual (it’s not uncommon for some of these “finance companies” to play out an interest rate exceeding 30%). The payment package is also set up so that the buyer is paying all of the interest up front; he can be 3 years into a 5-year financing agreement, and he’s only paid maybe $1,000 against the principal on the car.

    But that’s not the worst of it….

    If that buyer misses a payment, the finance company will either jack the interest rate a notch or two, or they’ll add a penalty payment—usually in the form of a “balloon” payment—to the end of the note. This is usually acceptable to the buyer as an alternative to immediate repossession, but every time a payment gets missed, they do it again—and if the car does wind up getting reposessed, they keep doing it until the car either re-sells or is peddled off at some future auction.

    So here’s your example—the $1,500 dollar car that winds up costing the “dealer” $2,500, that he sells for $6,000, with an interest tag of about another $4,000, nets him $5,000 after 36 months. The buyer misses a few payments (these dealers tend to target low-income people—just like the sub-prime housing market types), and the $5,000 balance owed on the car gets tagged with $350 in late-payment penalties, an interest-rate increase that adds another $300 to the balance, and a balloon penalty at the end of the contract equal to those three missed payments—that’s an additional $225, at $75 per payment. The buyer has been paying for 3 years on a $6,000 principal—and still owes $5,875 on a car that’s now only worth about $900 on the actual market. If it does get repossessed, you can add another $2,500-to-$3,000 to the buyer’s nightmare.

    Extrapolate that to your $30,000 car, and yes—it’s quite easy to see an “upside-down” of $10,000….

  • Steve – impressive. That’s the sport of point-by-point analysis, with concrete examples, that ought to run on the crawler at screen bottom while the Invertebrate-In-Chief is delivering yet another of his Strong Economy/Strong America speeches for the dribbling proletariat. It’d be even better if an outsize hammer, with “Lying Dickhead” written in blaze-orange letters up the handle, came down from offstage in mid-speech and squashed him.

  • Because of inheritance and such I am a newcomer to the market, but have tried to do my homework.

    I wish someone could tell me, because I really wonder about this, how much of the market is controlled/influenced by savvy folk, and how much is by folks that just run with the pack?

    I mean, it is like a tinkerbell situation, the more folk that believe one thing or another the better or worse things get, but that is because they don’t really “invest”, they see it as a big casino. I hope and pray that the savvy folk are in large numbers and can actually evaluate value.

    I have a sneaking suspicion that the “don’t knows” are in the majority….and then it is just a crapshoot.

  • Market declined because of economic reasons as well as basic market mechanics. Many folks on Wall Street believe in the “seasonality effect” and were in the market hoping the markets would rise again in the first few days of the new year. Instead, the market fell on the first day and barely stayed flat on the second day. But they had hope that somehow, on the third day, the unemployment report would trigger a rally. When that report came in disappointing and market turned negative, traders who were counting on a new year’s rally were forced to abandon their hope and cut their losses. That is what disciplined traders do — they make bets, give the market some leeway, but when it starts to speak decisively, they cut their losses and wait for a better time.

    I don’t think it has anything to do with Iowa’s primary. After all, the futures were UP overnight after the primary and they turned DOWN after the jobs report.

  • Dear All,

    Your blog is nice and informative. We think our post will be quite useful and informative for your visitors. Now we have seen that market is going up and up and at every rise it is coming down.
    So we suggest one need to be very careful at every rise.Right now Reliance Power IPO is coming which is looking very attractive and is really not be missed type of IPO.
    DO apply for it and in coming days we can see Reliance group flying in the Indian Stock Market.

    Regards

    Sharetipsinfo team

  • True, it tough to tell what causes daily fluctuations because there are many factors. But most important is supply and demand so it still doesnt look well. The momentum is down so we are in a bear market, but foreign investors are liking these prices at the moment and are coming in with some money flow. Thats all that matters — supply demand.

  • Markets are likely to open and trade weak for next several days. But I expect Sensex to hit 18,500 by September – October. Investors can buy Vakrangee Software 237, Reliance Capital 1500, Marg Ltd. 275, Petronet LNG 79 and Parsvanath at 225. BSEIndia
    If you are looking for accurate and best Day Trading Tips India for trading , then you are at the right place. With great team of experienced Trading Gurus, our performance has been the best as Indian Share Tips provider in the country.

  • Dear visitors,
    This blog is really nice and informative. We are pleased to know this blog is really helping people. Its our pleasure to post informative content on this useful blog created by webmaster.
    We all know that Indian stock market has become volatile now a days. One day its going up and another day its coming down. So we all should like to know what is the reason for it. Well We say its the game of FII how they direct the market. They have huge money with them they can direct any share as per there needs and requirement. Now its a alarming time. We suggest you to be very much beware now as year closing of FII is on the cards. There year closing is based on year to year basis. So many will try to invest more money and rest will try to take there profit back home. In this scenario its best to follow market trend and work with small quantity. Just wait and watch.

    Visit our website http://www.shareinfoline.com

  • shareinfoline.com is India’s leading and most comprehensive business and financial information website. The site provides quality information and analysis to its viewers.

    We Provide Recommendations on Indian Shares (BSE, NSE & F&O) & Commodities. Our Share Tips are given with a view of 8-10 days and we are able to provide 80% result. Our Calls are given based on cash prices. you can take position in Cash as well as F&O. All Share Tips are given via sms and updations are made on website.

    We invite you to become our member and get benefits from our exclusive Stock Market Tips. You can check our past performance to check our results.

    No Website in India gives complete result of their share tips as “Past Performance” – But we provide complete “Past Performance” of our share calls which you can see in our Past Performance Page.

  • This blog is quite nice and informative , we had a pleasure to post a comment on this usefull blog created by the webmaster

    Tomorrow i.e. 31st July’08 the day when the Inflation data will come.Inflation from the past successive weeks is keep on increasing,this has now become a major factor deciding the following days movement of Indian Stock Market.RBI and the government is taking steps to control it.Inflation has to be kept under control for the interest of the economy, Indian Stock Market is governed by lots of factors one including them is Inflation that has also to be kept in mind always

    Sectors giving good return over period of time includes:

    1.INFRASTRUCTURE
    2.PHARMA

    Have a Query ?

    Feel free to contact us

    Happy Trading

    Regards

    Team
    KnowYourProfit
    +91-9871142419

    • Comments are closed.