Saturday, March 21, 2009

A 'Permabear' Turns Bullish!

A 'Permabear' Turns Bullish: 150% Gains Coming

[ Normxxx Here:  Jeremy Grantham is one of those heavy-hitting gurus I pay a LOT of attention to! While my cyclical studies say that we are not due to exit the current cyclical bear before this Fall, and then only assuming everything goes right, ie, a 'miracle' happens (the exit being most likely to occur next year— when the P/E ratio is also due to bottom— or even 2011), we may have had that 'miracle', with several $trillions heading straight for the economy and stock market in the year ahead. Remember what happened during the ('off' season) summer of 2003, when a much lesser stimulus headed straight for the economy/stock market. Still, this is more like 1936 than the beginning of a next great (cyclical bull in a secular) Bull market (NOT expected before 2018, at the earliest, and more likely several years after that). So, while a HUGE, multiyear stock market rally may lie directly ahead (remember, the 2003— 2007 bull market was only a cyclical bull in the secular Bear and, inflation adjusted, fell short of the peak reached in 2000), lasting a few years, expect retests of the recent lows along the way, and expect the economy to do no better than fair until after 2020 (and, generally, worse).

Be warned that this great stock market boom may come at the expense of a very inflated currency and the lessons of the past (which I will post in future) have shown that average monetary inflation (= loss of wealth) more than makes up for any
average asset inflation (= gain in wealth), a good example being the stock market peak of 2007 which, inflation adjusted, was well below the 2000 peak! But, it keeps the hoi polloi happy.

The market also "exploded" upwards in 1933 (remember it was off by 89% from its 1929 peak by then) and did fairly well until the end of 1937/38. We all know that history repeats, but do we really believe that? If so, I challenge you to look objectively at these charts and ask yourself if maybe history won't repeat again as it did in the 1930s. Time will tell. Also worth pointing out is that the 1930s were as bullish for commodities as stocks, including the metals, so there should be ample opportunities for making money in commodities as well as in stocks in the coming years (i.e., hard assets as well as paper assets).

In 1933, under FDR, the government not only stopped the deflation, but replaced it with inflation— within days! Indeed, by May of 1933, scarcely two months after FDR took office (FDR was inaugurated on March 4, 1933, a late date since changed), the monthly rate of inflation hit an annualized rate of 10%, and even hit a 40%+ plus (annualized) monthly rate by June of 1933. FDR's original
"brain trust" foolishly thought that if they broke the back of monetary deflation, the depression would end. It was not to be. ]

"The Dow averaged 5.3% compounded annually for the 20th century, a record Warren Buffett called "a wonderful century"— when he calculated that to achieve that return again, the index would need to reach nearly 2,000,000 by 2100." Wikipedia

By Dr. Steve Sjuggerud, True Wealth | 24 March 2009

When would you have rather bought the Nasdaq? On March 23, 2000, at 4,940… or yesterday, at 1,512? Back in early 2000, one well-known professional investor turned incredibly bearish….

He's one of the few pros who invested during the last great bull market in the late 1960s. He'd just gotten out of school and he quickly made enough money in the stock market to pay off his debts, buy a BMW, and even a nice house. Then he lost it all… Come 2000, he didn't forget the lesson. He called the top in the markets with more conviction than any other professional investor.

I have a ton of respect for him. He willingly gave up millions in fees from customers to stick with his belief that stocks were heading for a fall. Customers who didn't want to believe him simply took their money and gave it to managers who promised bigger gains. But this investor turned out to be exactly right….

In early 2000, Jeremy Grantham predicted stocks would lose 3.9% per year annualized for the next 10 years. Back then, he said:

"I challenge anyone to tell me with a straight face that I'm using seriously bearish assumptions— because I'm most definitely not. My assumption of a 17.5 P/E is above average. My assumption of a 6% profit margin is way above average. And 4% sales growth is so high— so optimistic— that it's loony. And yet it still only gets me to a total return of a negative 1.9%

"If I assume a 2% sales growth instead, I arrive at an estimated return of a negative 3.9% per year. That's starting to get more like it— closer to reality."

He was predicting the worst 10-year period in history for U.S. stocks, including the Great Depression. We're nine years into his prediction. And he got it exactly right. So what's Grantham saying today? Today, Grantham is predicting the opposite of what he said in 2000. When the Nasdaq was at 5,000 he said sell. Now, with the Nasdaq below 1500, he's saying buy.

He predicts that, over the next seven years, many different types of stocks will return just under 11% a year. (In particular, he says high-quality U.S. stocks, international small-cap stocks, and emerging-market stocks will make these returns.) Grantham expects you could do even better— 13% a year (or more) over seven years in these areas— with active portfolio management. In plain English, you could turn $100,000 into nearly $250,000 in seven years.

In Grantham's most recent article, he talked about this same scenario back in the Depression:

Investors were worried about buying in… They were worried about the banks and about unemployment. [But, l]ong before all the banks had failed and [very long before] unemployment had peaked, the S&P rallied 105% in six months.

The market does not turn when it sees a light at the end of the tunnel.
It turns when all looks black, but just a subtle shade less black than the day before.

The man who called the 2000 peak with more conviction than any other professional investor is now calling the bottom… The man who willingly gave up millions in potential fees from customers to stick to his principles is now finally optimistic on stocks. We should listen.

A Dramatic Turn for the Better… Time to Buy Stocks
The True Wealth script for Economic Recovery
• Investment-grade corporate bonds rally first,
• then stocks rally. Around the same time,
• the price of copper recovers.
• The CILI (aka "Silly") Recession End-icator goes up for three months. This is a ratio of "coincident economic indicators" to "lagging economic indicators." Dennis Gartman, one of my favorite newsletter writers, pointed out this indicator has called the end of recessions with remarkable accuracy for 40 years.
• The recession ends.
• Consumer confidence indexes rise.
• Housing begins its recovery.

An Unbelievable Opportunity Is Arriving Quicker Than I Imagined
You're not going to believe this… But U.S. residential real estate is now more affordable than it's been since 1973.

[ Normxxx Here:  But, at this point, while it may make some sense to pick up some great LT holdings such as XOM or GE (if you're willing to risk the baggage) just in case this bull has legs, let's take it one (intermediate to long-term) rally at a time!  ]

Good investing,



Why You Shouldn't Worry You've Missed The Bottom

By Jeff Clark | 24 March 2009

There's nothing like a couple trillion dollars to goose the market higher. Wall Street celebrated the introduction of the Geithner banking plan yesterday by running the S&P 500 up 7%. Stocks opened strong and gained even more strength throughout the day. In fact, the Dow was up 300 points heading into the last hour... and it gained 200 points more.

My only question is, "Who buys stocks in the final minutes of trading when they're already up 6% on the day?" What's the rush? After such a large move, wouldn't it make more sense to wait and see how stocks opened the next morning before jumping into the game? That's my thought process.

But based on a handful of e-mails and a couple of voicemails from friends yesterday, it seems the 'public' is once more afraid it has missed the bottom. Stocks are running up, and folks who sold in a panic a few weeks ago are desperate to jump back on board. They shouldn't be.

Wall Street is experiencing a strong, intermediate-term rally in the midst of a strong bear market. We knew this was going to happen. Stocks had fallen too hard for too long, so a bounce was inevitable. And we told you to expect it. [[All of the Intermediate to Long-Term indicators were (and, for the most part still are) oversold to record degrees!: normxxx]]

While this intermediate-term rally has farther to run, it doesn't change the overall, bigger bearish picture— not even close. Here's an updated look at our favorite road map…

This is a monthly chart of the S&P 500 plotted against its 20-month exponential moving average. Stocks are in a bull market when the index is trading above the blue line. They're in a bear market below it.

Stocks are [so far still] in a long-term bear market. Nothing that has happened over the past two weeks changes that. While the bear has shredded much of the market's value already, there's [likely] more damage to come. In fact, I expect the S&P 500 will trade below 600 before the beast is ready to hibernate.

But stocks don't go down in a straight line forever. Bear markets typically unfold in three distinct down legs separated by two strong intermediate-term rallies. [[And, since the first good rally, retracing about 50% of the fall usually takes place within months of that first gastly downdraft, we are well overdue, and it looks like the bear is timing itself from the September/October/November downdraft and ignoring(?) what happened in early 2008.: normxxx]] The bear market from 2000-2003 provides a good example of this.

The bear market that started in November 2007 has given us just one really strong down leg. And we're just now experiencing the first strong intermediate-term rally [[historically about a 50% retrace: normxxx]]. If history is any sort of a guide, then we have a couple more down legs to endure.

Short Sellers Are About To Get Wiped Out: Why Shorting Stocks Is Particularly Dangerous Right Now

Although stocks should back off a bit in the short-term, if only to relieve the short term overbought conditions, this rally ought to carry the S&P up close to around 1,000 or so. But after that, the bear should return and take another swipe at stock prices. [[Say, in the April/May/June and or August/September/October/November windows.: normxxx]]

So, if you're worried about missing the bottom, don't be. It hasn't arrived yet.

Best regards and good trading,

Jeff Clark


How To Tell If Inflation Is Becoming A Problem

Our gold stock "rebound trade" is up 60% since our December write-up… and the inflation hounds are raising their heads in suspicion…

As we mentioned a few months ago, gold stocks rise when investors bid up "real assets" that retain value when governments abuse the paper-money system… when the currencies folks use to plan financial decisions are debased and distorted. That's why we call the gold stock ETF an inflation hound.

You can think of the market as an old man sitting on his porch with a few grizzled hound dogs at his side. This old-timer has seen a lot. Back in the '70s, he saw his neighborhood get robbed blind by a high-tax, high-spend government and its silent accomplice, inflation.

That accomplice is silent, but he sure does stink. And when he gets close to the property, the hounds start barking. They can smell him from a hundred yards.

So… how long will it take for the government's crazy back-to-the-'70s plan of massive social spending, costly wars, and "throwing money from a helicopter" to cause significant inflation? We're guessing it will be at least a year or two. But we'll defer to old man market and his hounds on this one. One of his hounds (GDX) just reached a new six-month high… and a move above $40 means it smells inflation.



The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.

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