May 8, 2008

One Bull, One Bear

“As prices normalize, gains and losses among sectors can be offsetting, scrambling the popular averages.” “…even though longer data sets are indicating we are in the base phase of the largest/longest advance in the 31 year history of this Report.”

“You don’t hear much about the normalization process in tabloid media because it does not fit presumptions.  There are many examples: homebuilder index is up 24% since the November inflection point while popular averages are negative, GE goes down 11% while making $4 billion, next day Citigroup goes up 11% losing $5 billion.  These are normal rectification movements with the overall process in its infancy.” 

“It is important to recognize the condition is not common.  It is historic.”

                                                            Robert Drach 5/2/08

“Investors really have no sense of market dynamics if they believe that a recession-linked bear market comprises a single decline of less than 20% followed by a “V” shaped rebound into a new bull market. While I don't expect the market's losses to be nearly as severe as they were in the 2000-2002 bear market, the simple fact is that if the recent market low was indeed a final bear market trough, it occurred at the highest valuation level of any prior bear market trough in history.
I don't want to convey the impression that the market cannot advance further as a result of speculative pressures, but at present, the S&P 500 remains priced to deliver probable total returns of about 2-4% annually over the coming decade (a decade ago, using the same methodology, the projected return was in the range of 0-2%, which is about what we've observed). I do not hope for a steep market decline, but it is effectively the only way for stocks to be priced to deliver meaningful long-term returns.”
                                                            John Hussman 5/4/08

A Greeting From Jim...

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