Today’s tests with new lows on the DJIA are certainly not encouraging and most likely signal some lower lows in the near future (6000?). Some recent realistic (‘bearish’) articles detailing our current sad economic state:
From Jon Markman, he says we’re Stuck in a Not-So-Good Depression and has the following price targets:
The next phase of concern, and potential for new leg lower, will be despair over poor first-quarter 2009 profits, which ought to kick in around the third week of March. If you want to play it safe until bulls prove their case and any stimulus money kicks in — and trust me, there are plenty of major investors doing just that — keep your investment portfolios at an allocation of 20% diversified big-cap stocks and 80% high-quality Treasury, muni and corporate bonds, or simply wait this out in cash. Conservative investors will add to stocks only on a sustained move above the 870, 940 and 1,125 levels of the S&P 500, and cut stock allocation to zero on sustained moves below 800.
In short, there will be plenty of time to take advantage of the next bull market soon after it begins, so unless you’re a seasoned, nimble risk taker, there’s still no need to be a hero and jump the gun.
Secondly, from Bennet Sedacca, a not-so-bright assessment of our economy:
I wish I could actually sit here and BELIEVE that any of the trillion dollar bandaids will actually do any good. Unfortunately, it seems that the pain will need to be endured longer and longer. Think for a moment what happens if half of your money disappears a few years before retirement and your advisor/consultant just says to you, “buy and hold.” Do they give any consideration to how much money you must earn to get back to square one, let alone to keep earning to attain your goals? I think not, which is why I continue to believe that, despite the amount of pain that has been afflicted, more pain lies ahead.
The longer term picture however is bleak and a move, as I have been talking about for over a
year to S & P 450-550 that should not be ruled out. After all, we expect earnings for the S & P
500 to be no greater than $35-40 per share in 2009, and given a P/E of 10-15 yields a target
in the 500 area
family:arial;font-size:100%;">family:arial;">Even based on 2010 “E” estimates ($40) stocks in the S&P 500 are trading at 21 times earnings.
family:arial;font-size:100%;">family:arial;">Despite the decline, the market is still not cheap. Sorry, we are not likely to embark onto the new secular bull market anytime soon. History and data suggest that the choppy markets that we have seen since 2000 will likely continue. Owning a broad market index will not pave a road to prosperity. It comes down to not just owning stocks but owning the right stocks.
family:arial;font-size:100%;">family:arial;">P.S. As a side note I believe significant earnings write-offs will continue well into next year as financial stocks will pass their write-off torch to companies in energy, materials and industrial sectors – stuff stocks – that will be writing off the investments they’ve made over the last five years.
family:arial;font-size:100%;">family:arial;">By the time, I finished putting these thoughts together, which on and off took about two weeks, 2008, 2009 and 2010 estimates were taken down by about 20-25%.