Research to Think About

8/14/2019 Research to Think About

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Research to think about

1) May 30, 09: what will happen after May? Stocks are too expensive!2) End may 09: correction isnt coming yet3) May 09: US Bank shares being pumped and dumped

4) May 09: on Market Manipulations5) May 09: PE Ratios are too high!6) 1 May 09: Why Rally is unsustainable7) April 09: Explaining Generational Bottoms

http://seekingalpha.com/article/140367-sell-in-may-not-this-time?source=article_sb_picks

With trading in May finished, we can look back at the month in its entirety anddefinitively say the old market adage,Sell in May and Go Away was wrong as could

be. The month of May was the third straight month of positive returns in the U.S.equity indexes, the first such streak since August through October of 2007. The S&P500 finished more than 5% higher for the month, in comparison to the 9.4% gain inApril and the 8.5% gain in March. The rally in equities has indeed been impressive asthe S&P is up more than 25% in the past three months, and an amazing 38% from thelow point in early March.

It was not just stocks that enjoyed May, but crude oil also posted a huge 29% gain inMay, its largest one month gain since 1999. The price of crude finished the month justshy of $67 per barrel, even as OPEC decided that no further supply cuts werenecessary. Oil was not alone either as in general commodities were all propelledhigher by the devaluation of the dollar. The basic materials index (IYM) gained closeto 14% on the month, which outpaced even gold, the traditional hedge againstinflation as SPDR Gold Trust (GLD) was up about 10%. The combination of thedollars rapid decline and the prospect of economic growth on the horizon has

propelled commodities to rebound quite strongly.

The question now is what to expect for the summer months ahead. At Ockham, we arenot market timers and think that it is foolish for anyone to claim they know where themarket is headed in the short term. However, here are some observations that we thinkmay be important to keep in mind over the coming months.

The stock market is no longer cheap. An argument couldve been made that themarket was cheap in Feburary, March, and April, but it is increasingly hard to justifyany longer. Remember, this is very different than saying the market is headed down,

but we believe that the gains of the past few months are still vulnerable. According toBarrons online, the S&P 500 is far more expensive than it was a year ago accordingto a standard price-earnings ratio. A year ago when the S&P 500 was in the high1300s the P/E ratio was about 22x, but given the massive declines in corporateearnings expectations Barrons pegs the P/E at 123x! These numbers are as of May25th so next week could go either way but you get the gist.

Our internal calculation of the S&P 500 valuation is not quite as extreme as Barrons,but it is hovering at about 46 times current earnings. Obviously, our earnings
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expectations have not fallen quite as far as Barrons, but according to our estimateswe are seeing earnings that have declined 79% since the peak in 2007 and 72% fromone year ago.

The fundamentals of equities have not improved in the last few months enough to

justify these gains, in fact most indicators have not improved much at all but theperception is that the worst is behind us and growth will ensue. That may be the case,and we certainly hope it is, but it demonstrates to us that the market is currentlytrading on emotion and psychology rather than based on fundamental improvements.Investor sentiment and consumer confidence have both improved markedly over the

past three months. The hope of better days ahead has been a powerful driver andcould continue until corporate earnings truly do start to rebound. However, if theeconomy hits a bump and fear, uncertainty, and doubt start to creep back into the

picture the recent market rally could very easily turn to dust because it was built onsentiment and not fundamentals.

Both sentiment and fundamentals are a completely legitimate and necessarycomponents to market action, but in comparison to fundamentals, sentiment can beextremely fickle. How long can better than expected be enough to carry the recentgains in the equity indexes? We are of the opinion that the current rally has beenlargely devoid of fundamental improvement, which makes it all the more vulnerable.At Ockham, we quote Ben Graham often, and this seems a very appropriate time toreference his Security Analysis: Stock markets behave like a voting machine in theshort term, while in the long term they act like a weighing machine.

-=-=-=

Telltale Signs That a Significant Correction Isn'tImminent

As has been the case for a while now, in regard to financial stories reported in themedia, a breaking story is reported that is often followed by a completelycontradictory story just several weeks later.

The latest example of this is the following. On May 6, Friedman, Billings, RamseyGroup analyst Paul Miller stated that J.P. Morgan Chase & Co. (JPM) would

probably be the only one of the 12 commercial banks submitting to the stress tests that

wont need more capital. Several weeks later, on June 1st, J.P. Morgan Chase (JPM)announced that it planned to raise $5 billion in a secondary offering.

Other large financial institutions, such as American Express (AXP) and PrudentialFinancial (PRU) also announced respective secondary offerings of $1.25 billion and$500 million.

In my May 12th article, US Bank Shares: The Pump is Almost Over, Get Ready forthe Dump, I noted the urgency of many financial institutions to complete theirsecondary public offerings of stock and debt as soon as possible. However, given

that one of the biggest beneficiaries of this crisis, JP Morgan, has just announced asecondary offering that may not be completed until the end of June, we can now be
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assured that the markets will not experience an extended correction until JP Morganhas completed its secondary offering.

Thus for now, we can expect this US market rally to continue or at least to channel upand down for a little while longer without an extended downturn until JP Morgan and

other large financial institutions have completed their secondary offerings. Whilevolatile trading days over the next couple weeks is not out of the question, and evenlikely, I believe that the volatility will remain range bound in the very short-term.

Since JP Morgan just announced its intentions to raise capital yesterday, it is highlyunlikely that we will see a strong, sustained downward trend in US marketscommence for at least another couple of weeks if not a couple more months.However, other important triggers in the international world outside of the US willdetermine if we see this sustained downward trend in a couple of weeks versus acouple more months.

The US stock market is a vastly different creature from the US economy, and due tomassive government intervention, the US stock market can continue to rise forextended periods of time even while the fundamentals of the economy continue todeteriorate. There is no experienced, diligent observer of US stock market behaviorthat will deny the existence of huge anomalies in market behavior in recent weeks that

point to massive intervention.

Just considerthis video(Dan Schaffer, May 14 2009 at FoxBusiness.com) where thecommentator notes that during one recent trading day, an estimated $10 to $20 billionentered the US markets and traded S&P futures contracts to prop up general USmarket indexes during the last 7 minutes of the trading session. In response to thismassive injection of capital in the last 7 minutes of market trading, the analyststates, Who has that kind of money to move the market? The answer, of course, isthe Plunge Protection Team.

I, myself, in carefully monitoring US stock market behavior in recent weeks, haveseen these same massive anomalies indicative of market intervention specifically inthe trading behavior of many large US financial stocks. Though the bottom title in thisvideo states, Is the Rally Over?, there is little doubt and should be little argumentover the fact that the US Federal Reserve and the US government will not allow therally to end until their favored financial institutions have had adequate time to

complete their secondary offerings at artificially propped-up share prices.

Do I still believe a very large correction is inevitable in the future? Of course. Andwhen it happens, it will most likely be a very drastic event. But certainly, the PlungeProtection Team will not allow the downturn to commence until after all large USfinancial institutions have had a chance to complete their secondary offerings.

US Bank Shares - The Pump is Almost Over, Get Ready for the Dump

May 12th, 2009

For the past couple of weeks, bank shares have grown in share price faster than asteroid-induced bicep. There has not been much reported by the media in terms of
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negative news about the US financial industry from Ben Bernanke, bank CEOs, oreven the Federal Reserve, even though the bank stress tests resembled a publicrelations campaign much more than a stress test. Despite the rosy picture painted bythe financial media of the US banking industry and the consensus that the worst is

behind us now by financial executives, the 3-ring circus that is the US Federal

Reserve, the US financial industry, and the US Treasury still cant seem to get theirstories straight.

Consider the following highlights (or lowlights depending on your viewpoint) from astory released by Bloomberg on May 11th:

Bank of New York Mellon Corp., Capital One Financial Corp., U.S. Bancorp andBB&T Corp. will sell shares to repay U.S. aid after stress tests showed they dontneed additional cushion against a deeper recession. BNY Mellon, the worlds largestcustody bank, said today it will sell $1 billion of stock in a public offering and mayuse the funds to repurchase preferred shares sold to the U.S. Treasury under the

Troubled Asset Relief Program. Capital One said it would sell 56 million shares ofcommon stock to raise as much as $1.55 billion, U.S. Bancorp said its sale would totalabout $2.5 billion and BB&T began a public offering of $1.5 billion of stock whilereducing its dividend.

Regulators examining the 19 largest U.S. lenders last week said the four firmswouldnt need more capital to survive a deeper, longer recession. U.S. Bancorp ChiefExecutive Officer Richard Davis and BB&T CEO Kelly King had both said theywanted to repay their $6.6 billion and $3.1 billion in TARP funds as quickly as

possible. BNY Mellon got $3 billion from TARP.

This was something that was really hanging over the group, so a lot of peoplesviewpoint on it is that, Hey, the worst-case scenario got taken out, this groups goingto still be around, said Kevin Fitzsimmons, a Sandler ONeill & Partners LP analyst.

Capital One, the McLean, Virginia-based credit-card lender that received $3.56billion from TARP, said in a statement it would sell shares at $27.75 each, an 11percent discount to the banks $31.34 closing price on May 8. The shares dropped$4.24, or 14 percent, to $27.10 at 4:03 p.m. in New York Stock Exchange compositetrading.

KeyCorp, which the government deemed needed an additional $1.8 billion in capitalafter the stress test, today registered to sell as much as $750 million in commonshares. The bank said it expects to raise about $739.4 million from the offering afterexpenses and commissions.

Cleveland-based KeyCorp, which last month slashed its dividend to 1 cent, said thatbecause of the economic and regulatory environment the company didnt expect toincrease the quarterly dividend for the foreseeable future and could further reduce oreliminate our common shares dividend.

We firmly believe this action is in the long-term best interests of our shareholders

and our company because of the risk and uncertainty associated with being a TARP


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participant, BB&Ts CEO Kelly King said in a statement. King said the decision tocut the dividend was the worst day in my 37-year career.

Banks that accepted TARP money are subject to government oversight andrestrictions on compensation that that they say put them at a disadvantage to

competitors. Banks that want to repay the funds must get approval from thegovernment and show they can sell debt in the public market without federal

backing.

U.S. Bancorp also plans to sell $1 billion of five-year notes without a governmentguarantee as soon as today, according to a person familiar with the offering whodeclined to be identified because terms arent set.

Wells Fargo & Co., which the government said needed $13.7 billion in additionalcapital, raised $8.6 billion selling shares last week, more than planned. GoldmanSachs Group Inc. in April, before stress test results were released, said it would raise

$5 billion to repay federal rescue funds. Principal Financial Group Inc., the DesMoines, Iowa-based life insurer, today said it would offer 42.3 million shares to raisefunds for general corporate purposes.

Morgan Stanley last week raised $8 billion by selling stock and debt. The stress testsfound that New York-based Morgan Stanley needed $1.8 billion in additionalcommon equity as a buffer against potential losses.

So lets analyze the most pertinent points from above:

Bank of New York Mellon Corp., Capital One Financial Corp., U.S. Bancorp andBB&T Corp. will sell shares to repay U.S. aid after stress tests showed they dontneed additional cushion against a deeper recession. If there is a better example of anoxymoron, I dont know one. So if these four financial institutions dont need anymore capital whatsoever, why do they need to execute significant secondary offeringsthat will inevitably massively dilute shareholder value. If they are so well capitalizedas the stress test results indicated, why cant they repay the TARP money fromoperational earnings?

Banks that accepted TARP money are subject to government oversight and restrictionson compensation. BB&Ts CEO Kelly King stated that he was cutting dividends and

diluting shareholder value by offering another $1.5 billion of stock to help paybackTARP money more quickly because it was in the best interests of shareholders. USBancorp is conducting a secondary offering of $2.5 billion of new shares as well as anadditional $1 billion offering of corporate debt and Capital One is offering $1.55

billion of more shares. Since when is slashing dividends and diluting shareholderstock in the best interests of shareholders, unless the shareholders are the executivesthat have used this pump & dump scheme to dump stock at artificially high prices andnow can begin the process of paying back TARP money so they can start raising theircompensation levels to obscene, exorbitant amounts again?

To date, Wells Fargo & Morgan Stanley have moved the quickest of all financial

institutions to use their artificially elevated stock prices to already complete respectivesecondary offerings of stock (& debt) of $8.6 billion and $8 billion.


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Capital One issued a statement regarding a secondary offering of shares at $27.75each, an 11 percent discount to the banks $31.34 closing price on May 8. An 11%discount to market prices at the time of a secondary public offering announcement ishuge and always in the worst interest of current shareholders. It is not rare for well-run companies to issue secondary offerings that are even above market share price in

the interest of protecting their current shareholders. A 2% or 3% discount issometimes understandable, but by offering a huge discount through a massivesecondary offering, executives reveal the belief that their shares are overvalued.

In a pump and dump scheme, there is always a phase II. Note the urgency of manyfinancial institutions to complete their secondary public offerings of stock and debt assoon as possible. This urgency is a classic sign of a pump and dump scheme as itsignifies that the rapid rise in current bank share prices have been built on zerofundamentals and is thus unsustainable. Now that the pump scheme is largely in playalready or in some instances, has even been completed, get ready for phase II - thedump.

Question; If there is a better example of an oxymoron, I dont knowone. So if these four financial institutions dont need any morecapital whatsoever, why do they need to execute significantsecondary offerings that will inevitably massively dilute shareholdervalue. If they are so well capitalized as the stress test resultsindicated, why cant they repay the TARP money from operationalearnings?

Answer; Banks that accepted TARP money are subject to

government oversight and restrictions on compensation that thatthey say put them at a disadvantage to competitors. Banks thatwant to repay the funds must get approval from the government(((((and show they can sell debt in the public market without federalbacking.)))))

Securitized debt was abused now banks have to play nice as theyrepackage debt revenue from idiots like us who love to overspend.The banking industry has two tools, inflate (low interest rates tostimulate false growth) and deflation (job loss to cool downcommodity price). There is no free market.

Manipulation: How Markets Really Workby Stephen LendmanFriday, 29 May 2009

The government's visible hand and insiders control markets and manipulate them upor down for profit - all of them, including stocks, bonds, commodities and currencies.

Wall Street's mantra is that markets move randomly and reflect the collective wisdomof investors. The truth is quite opposite. The government's visible hand and insiders

control markets and manipulate them up or down for profit - all of them, includingstocks, bonds, commodities and currencies.


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It's financial fraud or what former high-level Wall Street insider and former AssistantHUD Secretary Catherine Austin Fitts calls "pump and dump," defined as "artificiallyinflating the price of a stock or other security through promotion, in order to sell at theinflated price," then profit more on the downside by short-selling. "This practice isillegal under securities law, yet it is particularly common," and in today's volatile

markets likely ongoing daily.

Why? Because the profits are enormous, in good and bad times, and when carried toextremes like now, Fitts calls it "pump(ing) and dump(ing) of the entire Americaneconomy," duping the public, fleecing trillions from them, and it's more than just "a

process designed to wipe out the middle class. This is genocide (by other means) - amuch more subtle and lethal version than ever before perpetrated by the scoundrels ofour history texts."

Fitts explains that much more than market manipulation goes on. She describes a"financial coup d'etat, including fraudulent housing (and other bubbles), pump and

dump schemes, naked short selling, precious metals price suppression, and activeintervention in the markets by the government and central bank" along with insiders.It's a government-business partnership for enormous profits through "legislation,contracts, regulation (or lack of it), financing, (and) subsidies." More still overall byrigging the game for the powerful, while at the same time harming the public socleverly that few understand what's happening.

Market Rigging Mechanisms - The Plunge Protection Team

On March 18, 1989, Ronald Reagan's Executive Order 12631 created the WorkingGroup on Financial Markets (WGFM) commonly known as the Plunge ProtectionTeam (PPT). It consisted of the following officials or their designees:

the President;

the Treasury Secretary as chairman;

the Fed chairman;

the SEC chairman; and

the Commodity Futures Trading Commission chairman.

Under Sec. 2, its "Purposes and Functions" were stated as follows:

(2) "Recognizing the goals of enhancing the integrity, efficiency, orderliness, andcompetitiveness of our Nation's financial markets and maintaining investorconfidence, the Working Group shall identify and consider:

1. the major issues raised by the numerous studies on the events(pertaining to the) October 19, 1987 (market crash and consider)recommendations that have the potential to achieve the goals notedabove; and

2. ....governmental (and other) actions under existing laws andregulations....that are appropriate to carry out these recommendations."

In August 2005, Canada-based Sprott Asset Management (SAM) principals JohnEmbry and Andrew Hepburn headlined their report on the US government's


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"surreptitious" market interventions: "Move Over, Adam Smith - The Visible Hand ofUncle Sam" to prevent "destabilizing stock market declines. Comprising keygovernment agencies, stock exchanges and large Wall Street firms," this group "issignificant because the government has never admitted to private-sector membershipin the Working Group," nor is it hinting that manipulation works both ways - to stop

or create panic.

"Current mythology holds that (equity) prices rise and fall on the basis of marketforces alone. Such sentiments appear to be seriously mistaken....And as officialrhetoric continues to toe the free market line, manipulation has become increasinglyapparent....with the active participation of selected investment banks and brokeragehouses" - the Wall Street giants.

In 2004, Texas Hedge Report principals Steven McIntyre and Todd Stein said "Almostevery floor trader on the NYSE, NYMEX, CBOT and CME will admit to having seenthe PPT in action in one form or another over the years" - violating the traditional

notion that markets move randomly and reflect popular sentiment.

Worse still, according to SAM principals Embry and Hepburn, "the government'sunwillingness to disclose its activities has rendered it very difficult to have a debateon the merits of such a policy," if there are any.

Further, "virtually no one ever mentions government intervention publicly....Ourprimary concern is that what apparently started as a stopgap measure may havemorphed into a serious moral hazard situation."

Worst of all, if government and Wall Street collude to pump and dump markets,individuals and small investment firms can get trampled, and that's exactly whathappened in late 2008 and early 2009, with much more to come as the greatesteconomic crisis since the Great Depression plays out over many more months.

That said, the PPT might more aptly be called the PPDT - The PlungeProtection/Destruction Team, depending on which way it moves markets at any time.Investors beware.

Manipulating markets is commonplace and as old as investing. Only the tools aremore sophisticated and amounts involved greater. In her book, "Morgan: American

Financier," Jean Strouse explained his role in the Panic of 1907, the result of stockmarket and real estate speculation that caused a market crash, bank runs, and hysteria.To restore confidence, JP Morgan and the Treasury Secretary organized a group offinanciers to transfer funds to troubled banks and buy stocks. At the time, rumors wererampant that they orchestrated the panic for speculative profits and their main goals:

the 1908 National Monetary Commission to stabilize financial markets as a

precursor to the Federal Reserve; and the 1910 Jekyll Island meeting where powerful financial figures met in secret

for nine days and created the private banking cartel Federal Reserve System,later congressionally established on December 23, 1913 and signed into law

by Woodrow Wilson.


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Morgan died early that year but profited hugely from the 1907 Panic. It let himexpand his steel empire by buying the Tennessee Coal and Iron Company for about$45 million, an asset thought to be worth around $700 million. Today, similarschemes are more than ever common in the wake of the global economic crisiscreating opportunities to buy assets cheap by bankers flush with bailout cash. Aided

by PPT market rigging, it's simpler than ever.

Wharton Professor Itay Goldstein and Said Business School and Lincoln College,Oxford University Professor Alexander Guembel discussed price manipulation intheir paper titled "Manipulation and the Allocational Role of Prices." They showedhow traders effect prices on the downside through "bear raids," and concluded:

"We basically describe a theory of how bear raid manipulation works....What we showhere is that by selling (a stock or more effectively short-selling it), you have a realeffect on the firm. The connection with real value is the new thing....This is the crucialelement," but they claim the process only works on the downside, not driving shares

up.

In fact, high-volume program trading, analyst recommendations, positive or negativemedia reports, and other devices do it both ways.

Also key is that a company's stock price and true worth can be highly divergent. Inother words, healthy or sick firms may be way-over or under-valued depending onmarket and economic conditions and how manipulative traders wish to price them,short or longer term.

The idea that equity prices reflect true value or that markets move randomly (up ordown) is rubbish. They never have and more than ever don't now.

The Exchange Stabilization Fund (ESF)

The 1934 Gold Reserve Act created the US Treasury's ESF. Section 7 of the 1944Bretton Woods Agreements made its operations permanent. As originally established,the Treasury ran the Fund outside of congressional oversight "to keep sharp swings inthe dollar's exchange rate from (disrupting) financial markets" through manipulation.Its operations now include stabilizing foreign currencies, extending credit lines toforeign governments, and last September to guaranteeing money market funds against

losses for up to $50 billion.

In 1995, the Clinton administration used the fund to provide Mexico a $20 billioncredit line to stabilize the peso at a time of economic crisis, and earlieradministrations extended loans or credit lines to China, Brazil, Ecuador, Iceland andLiberia. The Treasury's web site also states that:

"By law, the Secretary has considerable discretion in the use of ESF resources. Thelegal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late1970s....the Secretary (per) approval of the President, may deal in gold, foreignexchange, and other instruments of credit and securities."


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In other words, ESF is a slush fund for whatever purposes the Treasury wishes,including ones it may not wish to disclose, such as manipulating markets, directingfunds to the IMF and providing them with strings to borrowers as the Treasury's siteexplains:

"....Treasury has often linked the availability of ESF financing to a borrower's use ofthe credit facilities of the IMF, both to support the IMF's role and to strengthenassurances that there will be timely repayment of ESF financing."

The Counterparty Risk Management Policy Group (CRMPG)

Established in 1999 in the wake of the Long Term Capital Management (LTCM)crisis, it manipulates markets to benefit giant Wall Street firms and high-levelinsiders. According to one account, it was to curb future crises by:

letting giant financial institutions collude through large-scale program trading

to move markets up or down as they wish; bailing out its members in financial trouble; and

manipulating markets short or longer-term with government approval at the

expense of small investors none the wiser and often getting trampled.

In August 2008, CRMPG III issued a report titled "Containing Systemic Risk: TheRoad to Reform." It was deceptive on its face in stating that CRMPG "was designedto focus its primary attention on the steps that must be taken by the private sector toreduce the frequency and/or severity of future financial shocks while recognizing thatsuch future shocks are inevitable, in part because it is literally impossible to anticipate

the specific timing and triggers of such events."

In fact, the "private sector" creates "financial shocks" to open markets, removecompetition, and consolidate for greater power by buying damaged assets cheap.Financial history has numerous examples of preying on the weak, crushingcompetition, socializing risks, privatizing profits, redistributing wealth upward to afinancial oligarchy, creating "tollbooth economies" in debt bondage according toMichael Hudson, and overall getting a "free lunch" at the public's expense.

CRMPG explains financial excesses and crises this way:

"At the end of the day, (their) root cause....on both the upside and the downside of thecycle is collective human behavior: unbridled optimism on the upside and fear on thedownside, all in a setting in which it is literally impossible to anticipate whenoptimism gives rise to fear or fear gives rise to optimism...."

"What is needed, therefore, is a form of private initiative that will complement officialoversight in encouraging industry-wide practices that will help mitigate systemic risk.The recommendations of the Report have been framed with that objective in mind."

In other words, let foxes guard the henhouse to keep inventing new ways to extractgains (a "free lunch") in increasingly larger amounts - "in the interest of helping to

contain systemic risk factors and promote greater stability."


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Or as Orwell might have said: instability is stability, creating systemic risk iscontaining it, sloping playing fields are level ones, extracting the greatest profit issharing it, and what benefits the few helps everyone.

Michel Chossudovsky explains that: "triggering market collapse(s) can be a very

profitable undertaking. (Evidence suggests) that the Security and ExchangeCommission (SEC) regulators have created an environment which supportsspeculative transactions (through) futures, options, index funds, derivative securities(and short-selling), etc. (that) make money when the stock marketcrumbles....foreknowledge and inside information (create golden profit opportunitiesfor) powerful speculators" able to move markets up or down with the public none thewiser.

As a result, concentrated wealth and "financial power resulting from marketmanipulation is unprecedented" with small investors' savings, IRAs, pensions, 401ks,and futures being decimated from it.

Deconstructing So-Called "Green Shoots"

Daily the corporate media trumpet them to lull the unwary into believing the globaleconomic crisis is ebbing and recovery is on the way. Not according to longtimemarket analyst Bob Chapman who calls green shoots "Poison Ivy" and economist

Nouriel Roubini saying they're "yellow weeds" at a time there's lots more pain ahead.

For many months and in a recent commentary he refers to "the worst financial crisis,economic crisis and recession since the Great Depression....the consensus is now

becoming optimistic again and says that we are going to go from minus 6 percentgrowth to positive growth in the second half of the year....my views are much more

bearish....The problems of the financial system are severe. Many banks are stillinsolvent."

We're "piling public debt on top of private debt to socialize the losses; and at somepoint the back of (the) government('s) balance sheet is going to break, and if thathappens, it's going to be a disaster." Short of that, he, Chapman, and others see therisks going forward as daunting. As for the recent stock market rise, they both call it a"sucker's rally" that will reverse as the US economy keeps contracting and thefinancial system suffers unexpected or manipulated shocks.

Highly respected market analyst Louise Yamada agrees. As Randall Forsyth reportedin the May 25 issue of Barron's Up and Down Wall Street column:

"It is almost uncanny the degree to which 2002-08 has tracked 1932-38, 'Yamadawrites in her latest note to clients.' " Her "Alternate Hypothesis" compares thisstructural bear market to 1929-42:

"the dot-com collapse parallels the Great Crash and its aftermath,"

followed by the 2003-07 recovery, similar to 1933-37; then the late 2008 - early March 2009 collapse tracks a similar 1937-38

trajectory, after which a strong rally followed much like today;


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then in November 1938, the market dropped 22% followed by a 26%

rise and a series of further ups and downs - down 28%, up 23%, down16%, up 13%, and a final 29% decline ending in 1942;

from the 1938 high ("analogous to where we are now," she says), stock

prices fell 41% to a final bottom.

Are we at one today as market touts claim? No according to Yamada - top-rankedamong her peers in 2001, 2002, 2003 and 2004 when she worked at Citigroup's SmithBarney division. Since 2005, she's headed her own independent research company.

She says structural bear markets typically last 13 - 16 years so this one has a long wayto go before "complet(ing) the repair process." She calls the current rebound "a

bungee jump," very typical of bear markets. Numerous ones occurred during theGreat Depression, 8 alone from 1929 - 1932, some deceptively strong.

Expect market manipulators today to produce similar price action going forward - to

enrich themselves while trampling on the unwary, well-advised to protect their dollarsfrom becoming quarters or dimes.

-=-=-=-=Guys it is always about valuation the P and the E. The valuations are too extremelyhigh.

Current S&P operating earnings consensus forecasts are $43 Top Down, and Bottomsup $54. Based on average of the two forecasts- $48.5 - it is a PE of 20- way way toohigh. Much higher than all historical PE averages (as below).

The reported earnings (the true/actual earnings) top down forecast for 2010 are only$35.6 for a forward PE of 26.5. All these are super bubble PEs.

To get a perspective here are historical PEs (based on actual reported earnings,yearend):S&P PE average 1936-08 - 16S&P PE average 1960-08 - 17.1L10 PE average 1969-08 - 16 (L10 is avg. of last 10 PEs by Shiller)Bear Market PEs 1974-84 - Average: 9.47 (high 12.4, low 7.3)Bear Market PEs 1948-53 - Average: 8.4 (high 11.0, low 5.9)

For a market and economy like this I will attribute a PE of at most 10- a typical bearmarket/recession average. If you are a perma bull you can have a PE of at best 12 that would take you to 12x$48.5 582, so a potential of 38% fall from yesterdays945 close.

Note: All data as compiled and published by Standards & Poors, May 29.

Economy is not doing well (even as per the Fed) - so we should not be expecting anysignificant upward revisions in earnings. Actually earnings forecast have gone downover the last 3 months. (So much for the green shoots).

Chasing technicals and trends always gets you in trouble, fundamentals alwaysprevail. Meanwhile the markets can stay irrational


13/18

-=-=--=

Why This Rally Is Unsustainable (May 1, 2009)http://seekingalpha.com/article/134482-why-this-rally-is-unsustainable

The S&P 500 is now up 31.0% off of its March 6 lows around 666. Europe's DowJones Stoxx 600 Index hasbroken even YTD. But since the announcement of thePublic-Private Investment Program (PPIP)on March 23, the equity market's rally has

been defined by a rising channel on low volume. There have been no high-volumebreakouts, the uptrend's channel's slope is very low, and the market has trendedapproximately sideways since April 9.

Readers may notice I mentioned the possibility of a rally to Dow 9000 back aroundthe PPIP announcement. I mentioned this because if the Fed and Treasury were intenton printing our way out of this starting as soon as possible, their combined price-

inflating powers would be unstoppable. There is no check or balance to the FederalReserve and there has never been an audit of its balance sheet.

However, since the PPIP's announcement, the equity market has not shown traditionalbullish technical movement. A slow ascending channel on low volume indicates asloppy, bleeding market to the upside, nothing more than a setup for big downsideaction. Also, gold went down since the PPIP's announcement, which didn't addconfluence to the price-inflating thesis behind the Dow 9000. This is why I turned

bearish on the market, expecting a drastic sell-off, possibly to March lows and maybebelow.

With such low volume, how is this market continuing its slow, yet upward ascent?Quant fund deleveraging has become the reason of choice to which this marketmovement has been attributed. Quants tend to short stocks with weak fundamentalsand relative weakness versus indices, and quant deleveraging should manifest in weakstocks seeing dramatic share surges as quants scramble to cover shorts to lessenmarket exposure. And that's exactly what's happened. Stocks like XL Capital (XL),American Capital (ACAS), Vornado Realty (VNO), and Liz Claiborne (LIZ)showed massive rallies since March lows, leading the market and far outpacingstronger, more fundamentally-strong stocks, even ones with high beta. Even Crocs(CROX) enjoyed a 50DMA breakout. This is highly indicative of a "short squeeze"

bear bounce, rather than a sustainable bottoming rally, which is characterized by new

market leaders and sectors showing relative strength against previous leaders andbreaking out of tight bases formed over several months.

Even if perennial short candidates are being squeezed, why? Why are quantsdeleveraging so quickly into this rally? It seems like the initial rally igniters caughtquants (and reality in fact) surprised. I am of course talking about the Citigroup (C),Bank of America (BAC), and JPMorganChase (JPM) memos/releases announcingreturns to profitability for the banks. Then came the earnings reports to back them. Asmany of you know by now, these announcements were all a load of hot air, as illegalAIG (AIG) wholesale portfolio unwinds financed the one-time "fixed-incometrading" revenues that boosted all of the earnings and FASB accounting gimmickryallowed writedowns to take a minimal cut from positive surprises.
http://seekingalpha.com/article/134482-why-this-rally-is-unsustainablehttp://www.bloomberg.com/apps/news?pid=20601087&sid=awwpMiT6kK.w&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=awwpMiT6kK.w&refer=homehttp://online.wsj.com/article/SB123776536222709061.htmlhttp://online.wsj.com/article/SB123776536222709061.htmlhttp://seekingalpha.com/symbol/xlhttp://seekingalpha.com/symbol/acashttp://seekingalpha.com/symbol/vnohttp://seekingalpha.com/symbol/lizhttp://seekingalpha.com/symbol/croxhttp://seekingalpha.com/symbol/chttp://seekingalpha.com/symbol/bachttp://seekingalpha.com/symbol/jpmhttp://seekingalpha.com/symbol/aighttp://seekingalpha.com/article/131325-jpmorgan-new-day-new-bank-same-storyhttp://seekingalpha.com/article/131325-jpmorgan-new-day-new-bank-same-storyhttp://seekingalpha.com/article/134482-why-this-rally-is-unsustainablehttp://www.bloomberg.com/apps/news?pid=20601087&sid=awwpMiT6kK.w&refer=homehttp://online.wsj.com/article/SB123776536222709061.htmlhttp://seekingalpha.com/symbol/xlhttp://seekingalpha.com/symbol/acashttp://seekingalpha.com/symbol/vnohttp://seekingalpha.com/symbol/lizhttp://seekingalpha.com/symbol/croxhttp://seekingalpha.com/symbol/chttp://seekingalpha.com/symbol/bachttp://seekingalpha.com/symbol/jpmhttp://seekingalpha.com/symbol/aighttp://seekingalpha.com/article/131325-jpmorgan-new-day-new-bank-same-storyhttp://seekingalpha.com/article/131325-jpmorgan-new-day-new-bank-same-story


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On top of that, however, ZeroHedge pointed out the significant role Goldman Sachs(GS)'s program trading arm is having during this rally. With 1 billion shares principaltraded becoming a weekly regular for Goldman and its principal/customerfacilitation+agency maintaining a ratio above 5x, Goldman has been massivelyincreasing its participation (in its principal trading, at that) while other quants and

program trading arms are quickly deleveraging. The conspiracy theorist in me wantsto say the Fed/PPT is throwing kool-aid capital at the market through administrationgirlfriend Goldman Sachs to drive up the market and force short covering. Of course,this is timed perfectly, as banks offer BS earnings reports financed by illegal AIGtransactions aided and abetted by the Fed and Treasury. But of course, only theconspiracy theorist in me would ever dare make such an assertion.

So how does this all come together? The rally starts primarily with the AIG unwinds.AIG wasbailed out by the Federal Reserve in September 2008 as bankruptcy wasdeemed a systemic risk because of AIG's massive counterparty obligations in the CDSarena. The liquidity extended by the Fed to AIG was meant to allow CDS settlements

to counterparties at significant haircuts, but with enough payment to prevent asystemic crisis. But were haircuts taken or were these trades settled at 100% facevalue with massive profits to counterparty banks? Former New York Attorney GeneralElliot Spitzer clearly seems to think not, as he wrote in his terrific articleThe Real

AIG Scandal. All of the hooplah has led TARP's inspector general Neil Barofsky tolaunch an investigationinto the extent of contract settlement repayments. Bank ofNew York Mellon (BK)missed earnings estimates by $0.10 in the middle of amazingQ1 numbers from the other big banks. Such is the result when you aren't eligible forAIG counterparty money. Especially interesting is Goldman Sachs's counterpartyrelationship to AIG (from which it received$12.9B), an issue delved into as early aslast September itself in theNY Times.

But I digress. The AIG CDS unwind trades were allowed by new trade protocolsgiven by the ISDA, the only regulator of the OTC CDS market. In turn, these massiveunwinds (financed by the taxpayer, who paid for the initial AIG bailout and all creditlines extended since) yielded huge one-time profits for banks, who flaunted them likeno tomorrow. After releasing "leaked" memos (the first of which was from Citi onMarch 10, the rally's first day) asserting first-quarter profitability, banks saw hugerallies in their stocks. At this point off of the lows, the rally was merely an oversold

bounce and its sustainability was very much in question. And in fact, looking backnow, any sideline capital that was infused into financials on the news of these memos

was misallocated, as the memos presented one-time illegal gains as indicators ofsustainable turnarounds in bank earnings.

The market rallied on the news and started selling off around S&P 800, at Januarycycle lows and index 50DMAs. This is where I expected the rally to end, as previoussupport (January lows) tends to offer resistance once broken and important movingaverages like the 50DMA offer important buy/sell points, depending on the market.

Then came news of the PPIP and the market once again soared. Since then, the markethas rallied just over 6% on very low volume. This is where the quant dislocationcomes into play. Quants, who make market-neutral high-frequency scalp trades on

leverage to produce returns, were caught short in a strong rally. Again, the rally itselfwas initially catalyzed by bank announcements that attempted to present
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unsustainable profits as sustainable, so the rally in effect of the news would also bejust that-- unsustainable. But the quants were forced to deleverage into the rally astheir models were getting whipsawed by the unusual market activity. As theydeleveraged and covered short positions in weak stocks and were forced to hedgetheir delta by taking bullish positions, this added fuel to the rally, which caused more

deleveraging, and so on. This is evidenced by Renaissance's recent underperformanceagainst the S&P by 17%, as well as a possible reason for thepossible unwinding ofMorgan Stanley (MS)'s PDT arm. Arecent WSJarticle even claims quants are"brewing trouble" over at Morgan Stanley.

So where is the breaking point? A look into the why instead of how of this rally canoffer some insight. This whole rally is essentially a scam to pass off asset depreciationin struggling financials to the taxpayer. The AIG counterparty profits were alltaxpayer-financed. The PPIP's leverage is taxpayer-financed. But the real issue is theequity raises in this rally. Goldman announced an equity sale with its earnings a dayafter pre-announcing earnings. This is $5 billion of Goldman equity being traded for

$5 billion of the public's cash on misconceived presuppositions of sustainableprofitability. On top of that, Goldman sold $2 billion in bonds on April 29, just daysahead of stress test results. Though the stress test results, made public on May 4 but

pre-released to the banks April 24th, are most likely going to be passes for all 19banks, the details of the results as well as government-suggested capital raises will bethe real issue looking forward. REITs have been offering shares all over the place, andconspiracies of their own have developed between the connection of JPMorganChaseand Merrill Lynch/Bank of American analysts and the REIT secondaries these bankshave been underwriting.

Also, the recent surge in Goldman principal program trading starts to take somecontext here. If Goldman's program trading arm has been feeding into the rally andforcing quant deleveraging, then this explains why-- so it can raise cash by sellingstock. Which Ipredicted and which indeed occurred. It'd be interesting to know howmuch of Goldman's $5B has been raised at these scam-inflated prices ($123/share I

believe was the going price for the secondary). As soon as it's "finished," I fullyexpect GS's 5x principal/customer facilitation+agency ratio to fall off a cliff. In aterrific article entitledGoldman's Offering and Recent Rally: Coincidence?, Ben El-Baz states "although there is no hard evidence that Goldman intentionally hyped upthe market rally and the financial sector to get a better price on its offering, it would

be very nave to assume that they passively let the market determine the price of

this massive dilution." This principal trading participation is the circumstantialevidence I'm sure he would love to see to back up his thesis.

Technically, the rally should end when quant deleveraging catches up with the rest ofthe market. That is, when the slow-money directional trend-setters deleverage theirlong buy-and-hold positions into the rally at a higher pace than the fast-moneyliquidity-providing quants do. This should occur at important inflection points wherelots of supply is offered, otherwise known as resistance levels. I have been pointingout S&P 875 as a significant resistance level that might mark the rally's top and so farit hasn't been able to breach that level past a few points on no volume.

The selling/deleveraging into the rally has already started and should start picking upon volume soon. According to Washington Service, NYSE listed company insiders
http://online.wsj.com/article/SB124053759917451185.htmlhttp://online.wsj.com/article/SB124053759917451185.htmlhttp://seekingalpha.com/symbol/mshttp://online.wsj.com/article/SB124103947970470201.html?mod=mktwhttp://online.wsj.com/article/SB124103947970470201.html?mod=mktwhttp://online.wsj.com/article/SB124103947970470201.html?mod=mktwhttp://online.wsj.com/article/SB124103947970470201.html?mod=mktwhttp://www.forbes.com/2009/04/14/tarp-grainger-earnings-buffett-personal-finance-investing-ideas-goldman-sachs.htmlhttp://www.ft.com/cms/s/0/ac2ad492-3516-11de-940a-00144feabdc0.htmlhttp://www.ft.com/cms/s/0/ac2ad492-3516-11de-940a-00144feabdc0.htmlhttp://zerohedge.blogspot.com/2009/04/open-lettter-to-sec-regarding-wall.htmlhttp://www.naufalsanaullah.com/2009/04/imminent-equity-implosion.htmlhttp://seekingalpha.com/article/131207-goldman-s-offering-and-the-recent-rally-coincidencehttp://seekingalpha.com/article/131207-goldman-s-offering-and-the-recent-rally-coincidencehttp://www.bloomberg.com/apps/news?pid=20601213&sid=arl3VgxA0FAA&refer=homehttp://online.wsj.com/article/SB124053759917451185.htmlhttp://online.wsj.com/article/SB124053759917451185.htmlhttp://seekingalpha.com/symbol/mshttp://online.wsj.com/article/SB124103947970470201.html?mod=mktwhttp://www.forbes.com/2009/04/14/tarp-grainger-earnings-buffett-personal-finance-investing-ideas-goldman-sachs.htmlhttp://www.ft.com/cms/s/0/ac2ad492-3516-11de-940a-00144feabdc0.htmlhttp://zerohedge.blogspot.com/2009/04/open-lettter-to-sec-regarding-wall.htmlhttp://www.naufalsanaullah.com/2009/04/imminent-equity-implosion.htmlhttp://seekingalpha.com/article/131207-goldman-s-offering-and-the-recent-rally-coincidencehttp://www.bloomberg.com/apps/news?pid=20601213&sid=arl3VgxA0FAA&refer=home


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have been selling into this rally at the fastest rate since October 2007. Insiders soldover $8 for each dollar they purchased of stock in the first three weeks of April. Togive that some context, theS&P topped out on October 11, 2007 and declined 57%before hitting March 2009 lows. If everything is so peachy-keen in the market andeconomy, why aren't insiders buying or at least holding stakes in their own

companies? Possibly because they recognize that the "green shoots" are just weeds.

When it does end slower money participants will be selling into a highly illiquidmarket, due to the deleveraging quants (liquidity providers) have had to face in thelast several weeks. This will cause a spike in volatility and failed trade executions andwhipsaws galore. Reality will quickly return to the market and the AIG CDS unwindstory may gain more exposure, especially through the work of Barofsky and Spitzer.This would damage the investment thesis of all those who bought banks on theirmemos or earnings announcements, which would erase a big part of their recent hugegains.

So who loses in this rally? The taxpayer of course. As bank equity is sold to the publicinto a rally financed by illegal and unethical uses of taxpayer funding. This is clearlyall done with the full aiding and abetting of the Treasury and Federal Reserve, whichhas come under recent attack because of itsalleged involvement in forcingBofA CEOKen Lewis to buy Merrill Lynch and hide the distressed bank's true dismal state ofaffairs from BAC shareholders. If Goldman's principal trading increase is indicativeof PPT activity, that also is taxpayer money being funnelled into an unsustainablerally, this time through the intermediary of Goldman's program trading arm.

The memos, the earnings, the statements all say the same thing-- banks made moneyQ1 2009. They don't mention why-- because of AIG portfolio unwinds and accountinggimmicks. Clearly causing an unsustainable hype in the soundness of American bankswill lead to an unsustainable rally in equities. And that's what is happening.

The United States GDP contracted over 6% in Q1 2009, well worse than estimates. Aflu outbreak characterized as animminent pandemicby the WHO is spreading acrossthe world, with early targets at worst case scenario losses estimated around $3 trillion.General Motors (GM) announced its debt restructuring plan this week, met withsharp criticism and adrastically different counterofferfrom bondholders, suggestingChapter 11 is in order for the struggling automaker. Chrysler is expected to announceits own bankruptcy any day. Even government stress tests, whose worst-case

scenarios are tangentially worse than current economic conditions, suggest at leastsixof the 19 banks tested need to raise more capital. The selling catalysts are all over theplace, while the buying catalysts were one-time unsustainable profits.

After announcing $1.2 trillion of arranged agency and Treasury purchases in midMarch, the Federal Reserve didn't announce anymore quantitative easing today, whilekeeping rates at all-time lows. Once markets sell-off and liquidity once againcontracts, the Fed will have much more political capital left to be able to monetizemuch more of this ludicrous spending. Expect rates to rise from here (TBTis a good

play for that) until the next wave of deflationary deleveraging and equity sellingallows the Fed justification for another big round of QE, again capping rates and

inflating the Treasury bubble. Mortgage rates are at Greenspan levels. Clearly thepowers that be are reflating a reflated bubble. From dot-coms to houses and now to
http://www.bloomberg.com/apps/news?pid=20601213&sid=arl3VgxA0FAA&refer=homehttp://www.slate.com/id/2215911/http://online.wsj.com/article_email/SB124078909572557575-lMyQjAxMDI5NDIwNzcyODc5Wj.htmlhttp://online.wsj.com/article_email/SB124078909572557575-lMyQjAxMDI5NDIwNzcyODc5Wj.htmlhttp://online.wsj.com/article_email/SB124078909572557575-lMyQjAxMDI5NDIwNzcyODc5Wj.htmlhttp://www.marketwatch.com/news/story/GDP-falls-61-record-drop/story.aspx?guid={F4F6A5E6-B2F9-43B4-876E-57D2DBC107F5}http://www.bloomberg.com/apps/news?pid=20601087&sid=apn2W3VyUbrI&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=apn2W3VyUbrI&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=apn2W3VyUbrI&refer=homehttp://www.guardian.co.uk/business/2009/apr/28/swine-flu-economic-impact-pandemic-gdphttp://www.guardian.co.uk/business/2009/apr/28/swine-flu-economic-impact-pandemic-gdphttp://seekingalpha.com/symbol/gmhttp://online.wsj.com/article/SB124105121817871157.htmlhttp://online.wsj.com/article/SB124105121817871157.htmlhttp://www.bloomberg.com/apps/news?pid=20601087&sid=axs5Oz4fZ.wQ&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=axs5Oz4fZ.wQ&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=aiz06xRmmeOQ&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=aiz06xRmmeOQ&refer=homehttp://www.federalreserve.gov/newsevents/press/monetary/20090318a.htmhttp://seekingalpha.com/symbol/tbthttp://seekingalpha.com/symbol/tbthttp://www.bloomberg.com/apps/news?pid=20601213&sid=arl3VgxA0FAA&refer=homehttp://www.slate.com/id/2215911/http://online.wsj.com/article_email/SB124078909572557575-lMyQjAxMDI5NDIwNzcyODc5Wj.htmlhttp://www.marketwatch.com/news/story/GDP-falls-61-record-drop/story.aspx?guid={F4F6A5E6-B2F9-43B4-876E-57D2DBC107F5}http://www.bloomberg.com/apps/news?pid=20601087&sid=apn2W3VyUbrI&refer=homehttp://www.guardian.co.uk/business/2009/apr/28/swine-flu-economic-impact-pandemic-gdphttp://seekingalpha.com/symbol/gmhttp://online.wsj.com/article/SB124105121817871157.htmlhttp://www.bloomberg.com/apps/news?pid=20601087&sid=axs5Oz4fZ.wQ&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=axs5Oz4fZ.wQ&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=aiz06xRmmeOQ&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=aiz06xRmmeOQ&refer=homehttp://www.federalreserve.gov/newsevents/press/monetary/20090318a.htmhttp://seekingalpha.com/symbol/tbt


17/18

Treasuries. What is all of this? Passing off asset depreciation to the taxpayer in theform of currency depreciation. Wait for the black swan in Treasuries to implode the

bubble (which is currently inflating), rates to rise, and rampant inflation.

But I yet again digress. Looking at the market right now, it is approaching the apex

between important resistance at S&P 875 and the support trendline of its ascendingchannel. After breaking its shorter term rising wedge, it has formed a bear flag, and isapproaching a break of its channel trendline, which should send the market falling.Other indices show similar bearish patterns, with the Nasdaq approaching massivesupply at its 200DMA. Several oscillators have indicated divergences lately,suggesting the market is ready for its next wave down.

A breakout of 875 on big volume would change things, possibly indicating the BSrally found a way to incite slow money to buy into the rally, perhaps bringing enough

buying power in to confirm a sustained bull trend (assuming the Treasury continues tospend and the Fed continues to print to stave off the real losses that will occur once

loans reset and we witness widespread defaults). Irrational exuberance has beenevident in the markets before but the deciding factor that allows it to drive sustainable(at least for the 1-2 year time horizon) bull markets is the inclusion of slow-liquiditysidelined institutional directional trend-setting capital in the rally. Bull markets havevolume to direct the equity prices' ascent. That simply doesn't exist right now and

premarket gaps up are responsible for a big part of the rally. For the rally to continue,even in the face of complete irrationality, it needs sidelined cash to come pummelinginto equities. It needs large volume accumulation to drive directional trends. A lowvolume rally floating higher is not indicative of any of that. Especially if this rallygets parabolic soon, which would lead to disastrous liquidity issues.

I want to say here that I understand there is no arguing with the market. It is never"wrong" as only price pays. I share the opinion that the only "fair" price of a stock (oranything in the world) is its current price in the open market-- the intersection ofsupply and demand. However, that does not mean price trends that appear sustainableare sustainable. That does not mean market participants are always right in their tradesor that their investment theses are "right." My point is that this current rally isunsustainable and the higher we go, the harder and more volatile the fall will be. Thecatalysts behind the rally were all BS and there is clear government-bank collusion to

pass off losses to the taxpayer.-=-=-=

Generational Bottom?

Saturday, April 18, 2009 6:04 am

Doug Kass was on Kudlow and again mentioned a generational bottom. He seemed tobe neutral if not subdued about the next five years essentially subscribing to JohnMauldins muddle through theory. If that is the case then there can be nogenerational bottom. In my recent podcast, I talked about the two components to bearmarkets and corrections- time and price.

The bottom in terms of price can occur well ahead of the bottom in terms of time. TheGreat Depression bear bottomed in terms of price in 1932, though the market didnt
http://trendsman.com/2009/04/18/generational-bottom/http://www.thefinancialtube.com/video/2864/040809-Trendsman-Podcast-1http://trendsman.com/2009/04/18/generational-bottom/http://www.thefinancialtube.com/video/2864/040809-Trendsman-Podcast-1


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begin a new bull until 1942. The price bottom during the 1966-1982 bear occurred in1974 but the next bull market didnt begin until 1982. You get the point. The bearmarket doesnt end until the next bull begins. If a market is in a trading range, it isstill in a bear market. 1942 and 1982 were generational bottoms- not 1932 and 1974.

Could the S&P mark at 666 be the price bottom? Very likely not. Major bottomsoccur when the market trades at eight times earnings. S&P earnings in 2009 are goingto be closer to $40 than $50, which means the market would need to go below 400.Perhaps David Tices call of 320, is derived from $40 in EPS with a PE of eight? Inany event, expect the recent bottom to be retested, though probably not until 2010.And if you are calling for a generational bottom, then you should be expecting a bullmarket to begin immediately thereafter.
http://zerohedge.blogspot.com/2009/04/david-tice-says-s-may-plunge-62-to-325.htmlhttp://zerohedge.blogspot.com/2009/04/david-tice-says-s-may-plunge-62-to-325.html

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