09/25/09 Baltimore, Maryland
Doubt is starting to permeate the stock markets. Kicked-started by Fed announcements Wednesday and yesterday morning, the S&P is down 2.3% over the last two days, and opened down 0.3% today — partly thanks to this:
Orders for durable goods fell 2.4% in August, way worse than the Street anticipated and the biggest decline since January. And we hasten to add that nasty decline includes half of the “cash for clunkers” program — regardless of your opinion, not exactly an organic source of durable goods sales. Auto orders were only able to increase 0.4%… says a lot about the near-term viability of the U.S. auto industry.
“We are in one of the most overbought markets in history,” opines Dan Amoss. “The bulls are coming up with ever more ridiculous reasons why this rally will continue in uninterrupted fashion. Most of these reasons relate to the ‘greater fool’ theory — rather than fundamental analysis and a professional, sober assessment of the economy’s health. Corporate profit margins will remain weak for years, so the stock market is much more expensive than you’d expect, given its discount from the 2007 peak.
“The casino that is AIG stock is a case in point — it’s up 250% since August. Desperate money managers are trading a stock that is bankrupt several times over, in the hopes that a bigger moron will buy it from him at a premium.
“Many who are buying or day trading these stocks at today’s valuations are speculating, not investing. They are, by definition, weak hands that will hit the sell button at the first sign of a turn in the market. The question then becomes who will be there to buy? How much lower will those bids be?
“Valuations are stretched by any measure, and this is not 2003, when the market rallied strongly ahead of much tangible evidence that profits had recovered.”
Ian Mathias
Ian Mathias is the managing editor of Agora Financial’s Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report – Agora Financial’s flagship income investing advisory.
Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He’s also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he’s not at work, you’ll probably find Ian on a bicycle, racing up and down the “mountains” of Baltimore County. Ian has a BA from Loyola University in Maryland.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
This is a trader’s market, plain and simple…not for investing…..
The Greater Fool?
Of course, you know him as Uncle Sam!
Don’t you know, he’s underpinning Goldman Sachs… and therefore the entire Derivatives market…
…until of course that Ponzi scheme ( the derivatives market ) becomes too big for even Uncle Sam to liquify.
Did the Chinese buy that 400 tons of IMF gold? That might be the signal that Uncle Sam is close to is limits.
The market is damaged. Perhaps for several years if not a decade. The dollar is beyond weak it is on its death bed. Uncle Sam? China? Gold? Money comes and it goes. Everyone knows that extinction makes way for a new breed. My thought…be a patient patient.