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Predictions for stocks before New Year is done.

Joined
11/19/08
Messages
11
Points
11
I believe the value of stocks will decrease slightly in the coming days and rally before december 12-15th.

NOTE: I do not think stocks will rebound in the true sense of the word.
 
how much money are you willing to put behind that idea?
 
I believe the value of stocks will decrease slightly in the coming days and rally before december 12-15th.

NOTE: I do not think stocks will rebound in the true sense of the word.

What's your reasoning?
 
Ignore the Stock Market Until February
The Wall Street Journal, November 21
by Andy Kessler
Down in the morning, up in the afternoon. Or is it the other way around? The topsy-turvy stock market is tough to read.

In the last year, the Dow Jones Industrial Average has briefly been over 13,000 and below 8,000. The past month has felt like the Cyclone roller coaster on Brooklyn's Coney Island -- lots of ups and downs, the whole rickety thing feeling like it's going to crash at any minute.

Great investors are taught to listen to the market. Each tick of the tape has something to say about expectations for growth, inflation, policy changes and looming recessions. The stock market is like a giant mass of pulsing plasma doing price discovery and a game of hot potato, getting stocks into the correct hands with the right risk profile. It's way too big for any one person to manipulate, let alone touch directly. Instead, millions of us provide input with our buying and selling decisions.

When it's at its most efficient, with buyers and sellers neatly matched up at the right price, it's a pretty good predictor. The Crash of 1929 announced a recession, and the wake-up call unheeded might have caused many of the bad policies leading to the Great Depression. The Crash of 1987? Not so much.

You see, the market is a great manipulator. In September, the Dow dropped 700 points intraday after the House of Representatives voted down the Treasury's TARP bank-rescue bill. Spooked, the House passed the bill the next week. Or how about this? The Dow was up 300 points on Election Day applauding an Obama victory and then down 1,600 points since.

The market can also be a bold-faced liar. On Jan. 22, the Fed announced an emergency 75-basis-point rate cut in response to huge drops in European markets. A few days later, it came out that a rogue trader at Société Générale lost them $7 billion and the bank was unwinding his positions. Oops.

So which is it now: an efficient mechanism or a manipulating liar? Should you listen to it warning of doom or anticipating renewal? I'd say stick wax in your ears and don't listen to the market until February.

Don't get me wrong. The freezing of the credit markets is wreaking havoc on the world economy. Corporate profits are dropping. Central banks are fighting off deflation and may not turn off the spigots fast enough -- which could ignite runaway inflation. But because of the credit mess, I am convinced the stock market is at its least efficient today. Don't read too much into any move. Here are the five biggest dislocations taking place:

- Tax-loss selling: Whenever you have a loss in a stock -- and who doesn't -- it's always tax smart to sell it, take a tax loss and either buy something similar or wait 30 days and buy the original one back. December can be an ugly month of indiscriminate selling. The December effect will be huge this year.

- Mutual-fund redemptions: Mutual funds are also dumped for tax losses. When the stock market is down in the morning, it's usually because of mutual-fund redemptions.

Fidelity's giant Magellan fund, down 56%, is one of many in the $6 trillion stock-fund business having an awful year. As investors call or click to get out of these funds, Fidelity and the others have to unload shares the next morning to raise cash. This forced-selling overwhelms the system. New York Stock Exchange specialists, who are supposed to maintain an orderly market, stop buying and back away. You get huge drops, which can unnerve even more investors and cause them to redeem.

- Mutual fund cap-gain distributions: To make matters worse, in December mutual funds do capital-gains distributions. In a down year like 2008, you would think there are no taxes to pay. Think again. Legg Mason's Value Trust, run by Bill Miller, outperformed the market for 15 years by buying many "unvalue" names like Amazon. As investors redeem, he is forced to sell many of these stocks originally purchased at very low prices, triggering huge capital gains in a year his fund is down 62%. You can almost guarantee investors also will sell more of these funds to pay their unexpected tax bill.

- Hedge-fund redemptions: Instead of overnight selling like mutual funds, hedge funds typically require 45 days' notice for investors to get out of a fund. They've been furiously selling since September to raise cash to pay investors. This usually shows up as a set of stocks that just go down and down and down with no obvious explanation.

Rubbing salt in hedge-fund wounds is the fact that Lehman Brothers was a prime broker to many hedge funds, holding their shares. While Lehman's bankruptcy was not a problem in the U.S., in England the policy is to freeze accounts until the mess can be sorted out. There are billions in assets locked in this bankruptcy, and hedge funds are forced to sell positions in the U.S. and elsewhere to raise cash, exacerbating the downside here.

By the way, when hedge funds are down for the year, they work practically for free until they make up the loss. We'll see hedge funds close and stocks liquidated as -- no surprise -- hedge-fund managers like to get paid.

- Margin calls: Whenever stocks go down sharply, you quickly find who owns them with debt. We have seen spectacular margin calls, a requirement for more capital to cover share losses. Chesapeake Energy CEO Aubrey McClendon unloaded 33 million shares to cover losses. Viacom CEO Sumner Redstone had a forced sale of $400 million in Viacom and CBS shares because of a margin call on other stocks. You can bet many not-so-public margin calls are behind many huge price drops. These usually take place in the last 30 minutes of trading.

So won't January be alright once these dislocations weighing on the market are lifted? The January effect is supposed to be positive.

Well, often money managers are fired at the end of disastrous years. A new manager comes in, looks at the existing positions and dumps them all and remakes the portfolio with new stocks that he likes, thus generating more selling. My favorite Wall Street adage suggests that the stock market trades to inflict the maximum amount of pain. Remember, you can only ignore the stock market for so long. Once everyone thinks it can only go down . . . it might go up.
 
What's your reasoning?

Is there any reasoning in a market like this? I am basically gambling. But I am not going in for the long. I will take my money out once a rally is over. I specifically invested in stocks that always increase when there is a rally such as apple, microsoft and office depot.
 
This list is getting a little tired. What every such analysis is missing is "order of magnitude". There is no real consideration of the dynamics of the market as they make lists of all the sellers (but there are lots of buyers as well!). Obviously, there is no omniscient player, which makes this nearly impossible. However, is anyone doing simulations of how these dynamics play out if they did know everything? I think you'll find it doesn't take much of an imbalance for crazy dynamics to take over.

As Galbraith said in "The Great Crash", on the highest volume day in 1929, 12,000,000 shares were sold; exactly as many were purchased. Who is absorbing all the volume?

Ignore the Stock Market Until February
The Wall Street Journal, November 21
by Andy Kessler
 
There are still buyers on the markets. As an example short sellers who have to cover their positions to fix profits or raise cash to make redemptions.

Of course, nobody knows where market will be tomorrow or in a month, but this article makes some good points.

If I had cash to invest now, I wouldn't invest a single dollar, because daily market moves make no sense for me whatsoever. Even sharks like Warren Buffet cannot figure out what is going on. Exactly 2 months ago he invested $5B in Goldman at strike of $115 per share. Friday GS closed at $53 per share. And I really doubt that Goldman will go to $115 at near future.
 
The fact of the matter is the stock market is no longer a represntation of anything. It is a bunch of people gambling and selling and people leaving. The DOW went up 500 points because Obama announced a treasury secretary, he didn't even do anything. How can anyone say the stock market is a real representation anymore?
 
So Citi is getting a bail out. Will there be a large rally tomorrow or not? What do you all think? I think there is a pretty good chance of there being one.
 
Yes, there is a large rally today!
 
More predictions...

Will there be an auto maker bail out? If there is, GM and especially Ford will increase exponentially. The CEO's of the big three are heading back to Washington on December 2nd.

The government will probably definitely give the automakers a bail out.

Then I think for next year, gold will be a gainer. The U.S. cannot afford all this.
 
Great deal:
In exchange for $27 billion in Citi preferred stock, the government will inject $20 billion of capital in the struggling firm and guarantee $306 billion in troubled mortgage assets.

If this logic stays the same for a while, then automakers bailout will be as fallows: every American taxpayer gets a free car produced by Big Three and fully paid by government. As a result, automakers will have to produce 200 million cars. This will keep factories busy for years to come. All unions will get their pay and execs will fly their private jets.

The cost of this "rescue" plan? 200 M (population) by $20,000 (price for average car) will equal only $4 Trillion. Not that much considering current government debt.

Who is next? Airlines? Every American resident gets free one vacation per year in a very distant location...

etc.
 
Who is next? Airlines? Every American resident gets free one vacation per year in a very distant location...

etc.

I think a lot of the banks are done for...shadows of their former selves.

These bailout have come to the point of being stupid. This time next year, inflation will have hit the minds of everyone once again.
 
So now we have a situation tomorrow where information about GDP growth, how many banks the FDIC is watching and housing figures are being posted. All of these things are thought to be bad. So, the question is, what is it that an investor should do?

Should they short the market?
Should they buy gold?

The market will probably decrease. Gold may or may not increase. It may decrease due to another flight to dollars (but as the government spends more and more I think this will be less of a fact) or it may increase because people move into the historic safe haven-gold.

Does anyone have any ideas what may happen?
 
I wonder whether the yield on the 1-month T-Bill will go negative or even down to 0 in the near future. Last I checked, it was sitting at a mere 0.041%.
 
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