Birchtree's Account Talk

[Birchtree]

Re: Birchtree's account talk

"The declines of the type that the market has seen over the last month have resulted in some commentators bringing the crash adjective off the shelf. While that may be too severe (at least for what's happening in the equity markets), we would note that the current declines off the October 2007 highs is the fifth fastest decline of 15% or more from an all-time high in the S&P's history".

http://bespokeinvest.typepad.com/bespoke/2008/02/a-crash-or-a--1.html

 

[Bullitt]

Re: Birchtree's account talk

This weekend I've planned a solo insertion into the bowels of the Homebuilding Sector's rubble in search of survivors. Hope you'll be there on standby in the AC-130 if I get into any trouble.

 

[alevin]

Re: Birchtree's account talk

This weekend I've planned a solo insertion into the bowels of the Homebuilding Sector's rubble in search of survivors. Hope you'll be there on standby in the AC-130 if I get into any trouble.

C-130 (aka "Flying Winnebago" standing by in holding pattern! Sorry, couldn't resist, I've travelled in one!

 

[Reactive1]

Re: Birchtree's account talk

Based on those charts, it seems to me the wait time to jump back in, if one were out when this happened, would be AT LEAST 2 months, and as many as 5. Would that be correct?:blink:

"The declines of the type that the market has seen over the last month have resulted in some commentators bringing the crash adjective off the shelf. While that may be too severe (at least for what's happening in the equity markets), we would note that the current declines off the October 2007 highs is the fifth fastest decline of 15% or more from an all-time high in the S&P's history".

http://bespokeinvest.typepad.com/bespoke/2008/02/a-crash-or-a--1.html

 

[Birchtree]

Re: Birchtree's account talk

I think the AC-130 Bullitt is referencing is Puff The Magic Dragon. I've seen it in action and the tracers look like a lightening bolt running continously. Talk about fire power.

 

[Birchtree]

Re: Birchtree's account talk

Reactive 1,

May I direct your attention to the graph of July 1998 - February 1999. Click on the graph to enlarge. We could potentially rock-n-roll any day now.

 

[presskh]

Re: Birchtree's account talk

Based on those charts, it seems to me the wait time to jump back in, if one were out when this happened, would be AT LEAST 2 months, and as many as 5. Would that be correct?:blink:

To me, at least, this downturn "feels" more like the 1990-91 downturn. Moreover, this one does not "feel" like the 2000-2003 one, which was caused primarily by deflation of the internet bubble and unreasonably high P/E valuations, which subsequently came back down to normal levels. Current valuations are historically reasonable and even valuations at the July and October '07 peaks were not abnormally high. Based on these charts, one might expect the "bottom" to occur in the next couple of months, although the trip back "up" might be a rather slow one, particularly if we don't get some relief from high energy costs.

Any other comments or comparisons?

 

[Birchtree]

Re: Birchtree's account talk

In many ways, today's situation is reminiscent of the recession of 1990-91, which featured a housing bust and piles of bad loans, which hurt banks. The Federal Reserve started cutting interest rates even before the recession began. The economic downturn was no day at the park, but it was fairly easy on stocks, which rose during the recession and managed to avoid a bear market. Of course, market downturns come in great variety. The 1990-91 recessioin resulted in an S&P decline of less than 20%, similar to our current episode. If this turns out to be a brief and mild recession or a midcycle slowdown which I prefer, then the S&P's recent bottom of Jan. 22, which represented an 18.5% tumble from its peak, might have been the worst of it. I'm staying in and plan more bottom fishing this week.

http://online.wsj.com/public/us

 

[presskh]

Re: Birchtree's account talk

Looking back at the 1990 recession, the S&P went from a closing price of 369 on July 16, 1990, to 295 on October 11, 1990, a drop of right at 20%. It recovered to it's former peak of 369 on Feb.13, 1991. So, although we may not yet be at the absolute bottom, we are close, if this downturn is similar to that one.

 

[Birchtree]

Re: Birchtree's account talk

In the 1990-91 benign scenario, market performance is ugliest before and in the early days of a recession as investors panic about the effects of a downturn on earnings. In the three recessions between 1980 and 1991, stocks turned positive before the recession ended, leading to runaway gains in the months after the downturn. Stocks on the whole rose modestly during those recessions. The stock market is a powerful discounting mechanism, so by the time it becomes clear to everybody we're in a recession, the market has factored in the ensuing recovery. For the fiscal year ended Feb. 1, Wal-Mart's U.S. same store sales rose just 1.4% - the lowest increase since the company began releasing such data nearly 30 years ago. Nevertheless, shares of many retailers rose significantly the other day as investors put money in a sector that historiucally has been among the first to rise when the economy recovers.

http://online.wsj.com/public/us

 

[Birchtree]

Re: Birchtree's account talk

Looking at the declining tops line of the last year comes in at around the +100 level for the NYSE breadth MCSUM. We are only 150 data points away from the zero line. A good breadth plurality day tomorrow should generate some good overall numbers in the NYA index. I'm waiting on the scale of a 3 to 1 to the good so that should be enough to create another near term trending sequence to the upside into the week and should last for several weeks before any real turn down. And will probably reach a price objective of the 9400 level. If that happens then 10,000 is just around the corner. I will continue to focus on the direction of the various MCSUMs as my guide, and they remain up. I still think we are experiencing a correction in a powerful long term bull market - holding my ground.

Business balance sheets, outside of the financial and housing sectors, appear to be in much better shape than they were at the beginning of the 2001 recession, and that may mean that lower rates will encourage businesses to increase borrowing and investing more quickly than usual. More important, whenever the Fed cuts rates, there are predictions from some that its actions will be to little effect, like pushing on a string. So far, those predictions have always been wrong.

 

[Show-me]

Re: Birchtree's account talk

Don't forget 2/3 consumer driven economy! Consumers must consume, consume, consume.

 

[Show-me]

Re: Birchtree's account talk

"Averaging down in a bear market is tantamount to taking a seat on the down escalator at Macy's." - Richard Russel (Dow Theory Letters, 1984) :nuts:

 

[Birchtree]

Re: Birchtree's account talk

Sorry, there has been no visible sign of a bear market yet. A correction with attitude, certainly. Don't fight the Fed.

 

[robo]

Re: Birchtree's account talk

Sorry, there has been no visible sign of a bear market yet. A correction with attitude, certainly. Don't fight the Fed.

The bottoming process is almost over. Adding another 150k long!

 

[robo]

Re: Birchtree's account talk

"Averaging down in a bear market is tantamount to taking a seat on the down escalator at Macy's." - Richard Russel (Dow Theory Letters, 1984) :nuts:

Show-me,

Very true. However, if you did take a seat on the down escalator at Macy's and you have been riding it down, no reason to jump-off close to the bottom. Now, we could head lower, and maybe we are not close to the bottom, but I'm in the camp that this is a normal bottoming process and we are close to the lows.

I'm adding longs and it's not easy buying here, but I am. Good trading to you my friend.... I'm around 400k long again. Not much compared to the big Birchtree, but I think buying here is the right thing to do. Still have some dry powder in my brokerage acounts to buy some tech.

Take Care!

Typing from my room in Norman. It's a 3 day printer course.

 

[Birchtree]

Re: Birchtree's account talk

"Tom Gallagher, an analyst at brokerage firm ISIU Group, notes that in previous recessions, the federal-funds rate, adjusted for inflation, has fallen to zero and has been a full percentage point below long-term bond yields. Today, that would translate into a funds rate of 2.25%, a level not seen since the end of 2004. Mr. Gallagher expects the Fed to get rates down to that level to get ahead of market expectations and to get short-term rates sufficiently below long-term rates so that banks' profits swell. Banks make their money on the difference between their short-term funds and the return on longer-term loans.

The Fed is in catch-up mode, trying to avoid a negative spiral of collapsing financial, business and consumer confidence. More than usual, the markets are going to drive what the Fed is doing. At least in the short term, the Fed is out to avoid this collapse in confidence and so to that extent it's hard for them to disappoint market expectations.

If the economy doesn't go into a recession - and he doesn't expect one - and inflation remains above the Fed's preferred range, the Fed faces the prospect of having to move rates back up again quickly. That will threaten the expansion. He expects the Fed to bring rates down to the high twos and then stop.

Some Fed officials may worry about taking rates so low, given the now-widespread criticism that the Fed, by slashing rates to 1% this decade to prevent debilitating deflation, ultimately stoked speculation and a housing bubble. That concern is unlikely to keep the Fed from cutting rates if it thinks the economy needs it, but officials may be more alert to the need to take back cuts once risks have abated."

http://online.wsj.com/public/us

 

[Birchtree]

Re: Birchtree's account talk

As a matter of fairness and political correctness please be warned before reading any further...

"The decline into the 4-year cycle is alive and well. The Dow Theory primary trend change that occurred in November is still alive and well. The ongoing rate cut cycle is also still alive and well. Lowering rates in this environment will not save the equity markets."

http://www.safehaven.com/article-9435.htm

 

[Show-me]

Re: Birchtree's account talk

Robo,

LOL I thought you were to old a salty dog to go to Norman any more. I get it, you need a little time away from the grind. Have fun, I'm going in July for HVAC.

I'm look'n to buy some TSP longs if we can breach 1300. I'm probably being a bit greedy, but I'm young.

Birch,

I'm just poke'n my stick at ya a little bit, you know that. Bear market is defined as a fall of 15% to 20% in stock or multiple indices price. S&P was -19.4% from high, DowInd was -18.1% from high, Nasdaq was -24.4 from its high. Granted we are off of those lows but there is nothing to confirm that it is over.

 

[robo]

Re: Birchtree's account talk

Robo,

LOL I thought you were to old a salty dog to go to Norman any more. I get it, you need a little time away from the grind. Have fun, I'm going in July for HVAC.

I'm look'n to buy some TSP longs if we can breach 1300. I'm probably being a bit greedy, but I'm young.

Birch,

I'm just poke'n my stick at ya a little bit, you know that. Bear market is defined as a fall of 15% to 20% in stock or multiple indices price. S&P was -19.4% from high, DowInd was -18.1% from high, Nasdaq was -24.4 from its high. Granted we are off of those lows but there is nothing to confirm that it is over.

Show-me,

First time in 5 years, but I couldn't pass up a 3 day course. When I return I'm taking 3 weeks of leave.

Take Care!