Bill ,

What if a housing crash and a hard landing/recession is already priced into the market ? Would this contribute to the current extended rally we are seeing (in light of neither a housing crash or recession on the immediate horizon) ?

Also I keep hearing that the S&P 500 is undervalued by historic standards based on forward p/e of 15 vs a 20 yr avg. p/e of 24. Based on this assessment, large caps are at bargain prices.

Thank you for all your informative posts.

put put put it right there at 90
http://stockcharts.com/h-sc/ui?c=$spxa50r,uu[m,a]daclyyay[dd][pb50!b200][vc60][iub14!la12,26,9]

A 20-year P/E average (once again, assuming your number is correct), isn't much of a data set. If you look over the last 105 years, the average DJIA P/E is about 16, which makes the case for gains from P/E growth somewhat questionable.

[ref: http://www.crestmontresearch.com/pdfs/Stock%20Truth%20PEs.pdf ]

[also, this shows the graph of P/Es over time, with some annotations showing bull/bear cycles: http://www.crestmontresearch.com/pdfs/Stock%20Secular%20Explained.pdf ]

You can make almost any point if you are allowed to pick your data set... Just keep that in mind.

I have been short crude for two weeks in the form of $60 puts for January 07. The puts have more than doubled to date. I have seen OPEC try to manipulate oil prices in the past, ( "they" say that OPEC will defend $50 oil to the bitter end), but no one can defend against the slowing economic numbers that will come out in the coming weeks or the larger than expected oil inventories that will also be posted. We as individuals without borders have been trained recently not to Sunday drive anymore. That is going to show up tomorrow at 10:30 est. GW

I didn't check if someone already posted this but i thought this blog would be interested. They nailed the top in May Equities , I'm not a subsciber other than a trial and their occassional free email.

http://www.leavittbrothers.com//chartspeak/ChartSpeak_091006.pdf

My opinion as to the targets set by GS, etc. on the price of oil and stocks is that some big money high rollers got stuck at higher prices and they are demanding that the "higher powers" right the ship so that they can close out without their current high losses. GW

Does anyone here believe the fall in oil, gold and rates and the bump up in equities/USD are simple fabrications of the fall elections?

Its pretty rattling to see oils down, gold down, and everything Housing is up!?!? Makes no sense to me at all! The stories claim that we the consumer will slowly buy all the excess inventory at reasonable prices, what a joke!

CEO surveys show their confidence in earnings is down, yet the market pumps that the fed may lower rates and the equity market will be zooming! but in reality i think a fed rate decrease is a sign saying "we give up the recession/Bear is here."

I am still a puppy so can anyone here recommend good reading as to the best places to put money in recessionary conditions?

NYU,
If you have the capital in a margin account to short, look for stocks that you are familiar with that seem to be to high at the time in relation to the sector that they trade in. Read " If it is raining in Brazil, buy starbucks" by Peter Navarro. Try not to trade just to trade. Be a situation trader, long or short, where the odds are unrealisticly in your favor. Of course again, on the stocks that you follow. And trade larger lots than you usually do. Gut feelings tend to be right on your percieved "out of wack" stock price. You will make more money and regularly if you only trade in this fashion. Wait fot the setups to unfold, they will at some point. GW

Anyone knows how to verify how much gold the CBs have sold daily?

This is from 3 days ago, mentioning that CBs may be trying to sell their quotas for the year by Sept. 26. It sure fits what's happenning with gold:

" St. LOUIS (ResourceInvestor.com) -- Gold fell more than 2% last week, plummeting $22 in the last two sessions. Both Peter Grandich, Editor of the Grandich Letter, and analysts from Action Economics alluded to the possibility of last minute gold sales by central banks within the European Gold Agreement (EGA) to hit the quota by the September 26 deadline.

As of September 1, the 15 EGA central banks have reportedly sold roughly 340 tonnes. In order to hit the maximum amount of gold permitted by the agreement, the banks would have to sell about 160 tonnes in just under a month to hit the yearly quota of 500 ounces by the deadline. And the average amount of sales per month has been just 33.1 tonnes so far this year. "

http://www.resourceinvestor.com/pebble.asp?relid=23583

Thank you for your response Bill .

No, I have absolutely NO intention of chasing this market higher . In my post I was simply stating some of the arguments I have come across for a bullish market outlook from various market 'analysts'.

The indices are being pushed higher and today was very bullish. This has made me wonder whether the people pushing the market higher are bullish due to some of the factors I mentioned in my earlier comment.

On another note I notice there is a higher level of bearishness amongst the financial blogger community http://tickersense.typepad.com/ticker_sense/2006/09/september_11th_.html Makes me wonder if this is a contrarian indicator i.e the markets continue moving higher due to the majority of participants being bearish.

NYUgrad said; "but in reality i think a fed rate decrease is a sign saying "we give up the recession/Bear is here."

I am still a puppy so can anyone here recommend good reading as to the best places to put money in recessionary conditions?"

You answered your own question. Bonds. Gold if the printing presses are on full.

Also, I would never recommend a puppy (new trader, I think) trading on margin. Just ask some of the tech traders what happened when the stock market bubble burst. Smart people got hurt because they didn't know what to do - deer in the headlights. Look at what is happening today to those who bought gold stocks on margin, they are getting killed - when they have puked their shares, the rally will begin again.

hope that helps

g034,

Margin is not something I Never plan to do even if I hit the lottery or Ford goes up to $300 with a 150 P/E.

I am in gold now. Mostly speculative gold of the Hugo C variety. As well as some drug stocks; Viagra sells regardless of the market :P

With patience I plan to transfer a win in KRY into GG at these low levels. Keep my pharma.

But need another investment to feel good about some level of diversification. How is military stocks such as LMT or ID?

P/E should not be one and only analysis of your fundamental analysis. It is so overrated and constantly mentioned in financial press. In fact, low P/E strategy works mostly for large caps, small caps are better judged by P/S, P/B. The low P/E argument for the market was often mentioned in earlier bear market. Estimate of forward earnings are usually wrong. They are on average low when earnings increase and high when earnings decrease. People likes linear extrapolations, market does not care. P/E can grow quickly when E goes down. Stock price is slower to adjust. I would not be scared of "low P/E" propaganda.

NYUgrad,

I do not feel good about military stocks. If democrats take control of US Congress, there will be less military spending. I would say that this is a safe bet considering a current excess. I did not analyze your particular stocks, which may move for specific reasons. However, sector should not be up next year. The big questions is: Where is going to be next 2008 bubble after bear market? Biotech? Nanotechnology? What thing is going to change our lives?

ALOHA !!

Look ... even during the Great Depression people got rich. You just have to have timing and recognize a good opportunity when you see it. I will say this. A sure fire way to not survive is to have debt!

That said ... on the impending real estate bubble HARD LANDING ... In the mid 80's I was a private investigator working in the Houston, Texas area for the BIG BANKS via Equifax. I essentially was paid to serve notices on delinquent mortgage loans amoung other unlikable tasks. Most of the notices I served were to empty and heavily damaged homes ... the loan holders had moved out and had a tantrum. Now the real estate dip in the 80's was short lived and I see the upcoming real estate depression will be more lenghty and much more painful financially for the average Joe already up to his eyeballs in debt. What option does one have when your home value is less than your mortgage and nobody wants to buy your home anyway? Clicking a mouse won't do it ...

From my private investigator days I realized about three years ago that when this real estate bubble bursts there will be one hell of a lot of people moving out of 1,500 to 2,500 sq ft places into apartments with nowhere to store their accumulated junk! That insight got me interested in "storage facilities" and "residential foreclosure/rehab construction resellers/rentals" ... Did I lose you or do you get my drift? Based on my experience in the 80's the banks that ended up with these wrecked homes had no intention of getting into the residential fixer-upper business and they quickly dumped these homes for literally pennies on the dollar. We are headed for the exact same scenario only I believe much worse ... in due time.

Long story short three years ago I found a private company that specializes in buying cheap foreclosures in the Southern California area. Since I got onboard they have also moved into building storage facilities. The first one will open in Arizona this month, then they are looking at the Las Vegas area. I believe they have a great anti-real estate bubble strategy working(kind of put options on housing). Since I bought in three years ago I have been getting paid between 8% to 12% annual dividends which by the end of the year will go up to over 25% annual(due to revenues from new storage facility). Seeing the coming real estate downturn they have now decided to go public in December on the Plus Market/AIM in the UK, purely to raise funds. Peter Munk, ex-Barrick CEO advised against such actions(Munk was in real estate prior to Barrick)). Turns out the US IPOs are very restrictive for small companies due to Sarbanes/Oxley, not to mention the BIG BANKS want a 6%-7% fee for taking you public. None of that exists on the AIM/UK ...

Here is the interesting part ... About a year ago execs from the Bank Of China flew out to meet with the CEO of this company and rented a helicopter from one of the CEOs aviation companies to fly around on a guided tour of the company's Arizona land holdings in Lake Havasu and Kingman. Back then and to this day the company has no debt, but they felt an urgency to move on their storage facilities at a faster pace and so needed a $30mil credit line. The Bank Of China came through with the credit line but the CEO ended up turning them down and instead brought onboard a couple deep pocket investors. Problem was the Bank Of China wanted too much property collateral and would only make $30mil available not partial amounts. That to me is not the definition of a "credit line", even though the execs from Bank Of China called it a credit line. I call it a $30mil loan ... Why is Bank Of China trying to get into Arizona real estate? I found it an interesting experience and not surprised they turned out to be a buch of loan husslers ... Will Bank Of China be buying up US real estate with the excess US dollars when real estate tanks? Will Bank Of China end up like Bank Of Japan in the 80's? The Japanese flooded real estate markets in Hawaii and California ... Time will tell for sure!

kaimu said:

"Now the real estate dip in the 80's was short lived and I see the upcoming real estate depression will be more lenghty and much more painful financially..."

The RE market weakness has indeed been well documented in the media. Given my location in SW Florida I see firsthand how property values have declined. The big national homebuilders have been lowering sales/earnings expectations.

Given that backdrop, where does one square that information with the recent investment activities of arguably the greatest investor of our time, Warren Buffett ?

Certainly, one company is not a proxy for the entire housing industry, but there's no denying that USG is a prominent company within the industry.

http://articles.moneycentral.msn.com/Investing/CompanyFocus/BattleOfTheBillionaires.aspx

Many reports in the media mention that the housing collapse is localized to certain US areas, but that overall nationally there is no severe downturn, and prices are not declining significantly on average. Does anyone here have knowledge of the overall narket nationally? Could you comment. Thx.

THeAdonis,
In a commentary in May of this year, John Hussman
wrote this about historical P/E's for forward earnings -
"As Anne Casscells and Cliff Asness pointed out a couple of years ago, it's absurd to compare P/E's based on “forward operating earnings� with a historical average P/E based on “trailing net earnings.� Asness calculated that the historical average P/E on forward operating earnings is closer to 12, and is probably lower since the average includes the late-90's bubble, but excludes valuations prior to the late 1970's (which is the earliest the data is available). Given that my own measure – price/peak earnings – has averaged less than 10 when S&P 500 earnings have been close to the top of their long-term 6% peak-to-peak growth channel, my guess is that the appropriate norm for forward operating P/E ratios is in roughly the same neighborhood."

http://www.hussmanfunds.com/wmc/wmc060530.htm

There will be a correction in housing, but if you look statisticaly, the factor that leads to consistently is unemployment. Not the bs figures that the gov releases, but local unemployment. the southern California housing decline of the 90s occured mainly because of the layoffs of many defense contractors, while in northern California there was no big dip. Obviously interest rates are a factor, but local unemployment is the main driver.

The change in loan structuring to interest only, and no down payment will accelerate any decline as people will walk away sooner.