Daily Investment Interpretations

February 13, 2009

2009-2-13:  After moving up and down all day, the markets finally closed somewhat lower. After the close, Congress passed the current stimulus bill, readying it for the President's signature.
    The markets fell today and then rallied sharply in the last hour of trading upon rumors that the administration is floating a means-testing mortgage relief plan.. The NASDAQ Composite increased 7.35 (-0.48%) to 1534, the Dow dwindled 82.35 points (-1.04%) to end at 7,850 and the S&P 500 rose 8.35 points (-1.00%) to close at 827. Oil jumped $3.00 to $37.51, while gold dropped $7.00 to $942.20 The VIX hopped to about 43.00.  
    Paul Krugman has written Permanent Link to Ownership society watch, in which he cites the just-published statistic that U. S. family net worth, adjusted for inflation, is less than it was in 2001. He continues, "You may remember that a few years ago there was a lot of talk about how only bubbleheads paid attention to our low, low savings rate, because the truth was that Americans were getting steadily wealthier thanks to rising asset values." 
    The stock market continues to trade in a fairly narrow range between 800 and 900. It's clear that the markets registered a major bottom last November 20th. At the time, mention was made of the fact that a couple of 9-to-1 up days would be required before a bottom could be confirmed. I don't know whether that ever happened and I just didn't see it, or whether it failed to happen. If you can read anything meaningful into market action, then it would appear that professional investors are on the fence regarding whether the stock market is going to go down again or is going to go back up. If the November 20th close was a cyclical bear market bottom and is to be followed by a two-to-three year bull market, then the economy should hit bottom sometime between late May and late August. Also, the economy, while still deteriorating, should be deteriorating slower and slower--and in some ways, that's what's happening. But it's also worth observing that (1) sentiment is too bullish for a bull market advance, (2) As Mark Hulbert points out tonight, P/E ratio making a comeback, the trailing 10-year average P/E ratio stands right now at 14 compared to an average long-term P/E ratio of about 16. By contrast, in the 1973-74 bear market, the 10-year trailing average P/E ratio stood at 8.3, suggesting that we have a way to go before the current market hits bottom (like S&P 500 = 500?).