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The stock market and a crystal ball - Dec 3

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Hussman Sees 80% Chance That Stock Market Will Plunge in 2010

Elizabeth Stanton, Bloomberg
U.S. stocks are likely to plunge again next year as more debt delinquencies cause the equity market to reverse the steepest rally since the Great Depression, investor John P. Hussman said.

The Standard & Poor’s 500 Index has jumped 64 percent since March, when it sank to a 12-year low in March and completed a 57 percent retreat from its October 2007 record. While equities rose after the global recession eased, the Federal Deposit Insurance Corp. said 4.94 percent of loans and leases were overdue at the end of the third quarter, the highest proportion in 26 years that insured institutions have reported data.

“There is still close to an 80 percent probability that a second market plunge and economic downturn will unfold during the coming year,” Hussman wrote on his Web site in a posting dated yesterday. Bank earnings and capital ratios “have enjoyed a reprieve in the past couple of quarters, but delinquencies have not, and all evidence points to an acceleration as we move into 2010”...
(23 Nov 2009)

Reckless Myopia

John Hussman, Hussman Funds
I was wrong.

Not about the implosion of the credit markets, which I urgently warned about in 2007 and early 2008. Not about the recession, which we shifted to anticipating in November 2007. Not about the plunge in the stock market, which erased the entire 2002-2007 market gain, which was no surprise. Not about the “ebb and flow” of short-term data, which I frequently noted could produce a powerful (though perhaps abruptly terminated) market advance even in the face of dangerous longer-term cross-currents. I expect not even about the “surprising” second wave of credit distress that we can expect as we move into 2010.

From a long-term perspective, my record is very comfortable. But clearly, I was wrong about the extent to which Wall Street would respond to the ebb-and-flow in the economic data – particularly the obvious and temporary lull in the mortgage reset schedule between March and November 2009 – and drive stocks to the point where they are not only overvalued again, but strikingly dependent on a sustained economic recovery and the achievement and maintenance of record profit margins in the years ahead...
(30 Nov 2009)
related: Hussman Sees 80% Chance That Stock Market Will Plunge in 2010

Growth Industries

ilargi, The Automatic Earth
It is nice for the United Arab Emirates’ central bank to say they stand behind the country's banks, but it's doubtful that the story ends there. Many if not most of the losses that are beseeching Dubai are there to stay. It’s about solvency, not liquidity, you might say. And who in Abu Dhabi (which is where the money will have to come from) is willing to throw their cash into a bottomless pit? Another aspect of the problems in what until recently was known as the "land of nothing but sand and flies", one that is easily overlooked, is that the "poor" folks who've bought property in "la-la land in the desert" have already seen the "value" of their purchases plunge by 50%. Even before the current trouble started. Think those prices will rebound anytime soon? That's many thousands of people who lost half a million, a million, that sort of money. Poof, gone. Forever.

We’ll see in the days to come how the markets react to both the debt and the Abu Dhabi "guarantees". The smarter investor will have felt an oops upside the head, scratched her/him self behind the ears a time or two and resolved to get the heebeejeesus out of there. Christmas will soon be here and the uncertainty just ain't worth the pain. Try to collect what bonus you can and lay low until at the earliest the new year. There's an avalanche of earnings numbers, losses and writedowns coming soon and they promise a very substantial risk of very substantial pain. Dubai is but an itch compared to that. Banks in the EU and the US need to raise hundreds of billions of dollars 2010, much more than Dubai could ever lose, while their governments need many trillions.

To see how things really stand, look no further than the other side of the poor folk spectrum, where the real people live. Today, one in four US children get at least part of their nutrition from food stamps. Food banks and pantries report a 30% increase in demand. And sure, there will always be a plethora of voices who proudly proclaim that only the lazy will ask for food for their children. None of these voices need to. Nor have they ever had to declare bankruptcy because of their medical bills, another one of America's few remaining proud growth industries.

Even if you "believe" in a recovery, don’t you think the people who presently hold the power would prepare for the unfortunate eventuality that maybe that recovery will not succeed? What do you think they would do to keep their hands on the wheel regardless? Bob Chapman thinks he knows what the next steps will be, and claims to have insider information to support his assertions. Cut commercial lending, abolish both the FDIC and the US dollar in a years' time, and leave no government guarantees in place other than bonds. Chapman is a bit strange perhaps, but he's also a lifelong broker and trader and not a complete fool. Chapman advises to get out of life insurance policies and annuities, since they are invested 80% in stocks and 20% in bonds. And I agree there. Your fund managers expect to turn profits in the stock markets? Supported by what? Yes, there's the herding instinct that's kept them in until now. But that same instinct can drive them out real fast too. As in any day now...
(29 Nov 2009)

Editorial Notes: Photo credit: flickr/Frogman

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