Monday, August 31, 2009

Bear Failure

More bear failure today. China was down 7%, oil was down over 5% at one point, copper down several percent and we couldn't break through 1015. Like I said yesterday, 1015 was a key level. We hit it and bounced along it several times but could not break it. Has to be viewed as yet another total bear failure. We may break it tomorrow but it is frustrating.

Fundamentals are still irrelevant. When the market caps combined of AIG, Citigroup, Freddie Mac, Fannie Mae, and Bank of America equal over 200 billion you know you are living in another paradigm. What does that $200 billion represent. It represents "value" to shareholders. What is intrinsic value? It is the present value of all the cash flow a company produces, returned to its owners. The idea that the present value (or any value for that matter) of those five companies will be anything other than a very small fraction of $200 billion is ridiculous.

What will break this market? I can explain the fundamentals until I am blue in the face, that a 130x PE multiple and 22X multiple on operating earnings is absurd, that the credit problems are not behind us, but until the market breaks it won't matter. Incredible.

New month tomorrow and we may break but at least for today, bulls win again.


Anonymous said...

looking for a top or a bottom is the hardest task on earth. You can lose a lot either way waiting to happen. I was not short since 3 quarter last year but neither I was long since march despite low prices because I was and I am afraid that many companies wont get through next years, too much debt for too little cash flow. Through 2006 and part of 07 gold was stalling despite really bad news from USA but suddenly it exploded, ok FED and other central banks started to lower rates but the trigger was that it was a global crisis not only an american one. Valuations are expensive no doubt about it, complacency is reigning again.Although this time the trigger is CHina , the second trigger will be once the markets realized that not only private risk is coming back but also government one as deficits will be soaring and monetizing debt will be normal.

Market Seer said...

Well said and agreed on all counts.

I wrote in my year end letter than my biggest fear was that solvency fear would spread from banks to governments. That is coming but it could be a ways out.

I probably give the impression I am trading and the truth is I have almost done nothing for about 3 months as I try to wait this thing out.

You can buy into it but if I don't believe it I have very weak hands. I have some shorts that I believe are 0s (none mentioned on this blog) that have moved against me massively. I can withstand the pain bc I feel like there is no way they are not 0s. Owning something to trend follow long is not something I am good at and so don't try to do it.

Hence I am left watching for signs of the top. I still think we are close.

Anonymous said...

I think just like the period 01/07 (reflation) there is only one trade here and it is dollar vs the rest of financial assets, you can see all days repeating the pattern. No matter which trade one chooses, the negative correlation between dollar and the rest really really holds and it is a headache to me for the time being, I am not so patient like you. Dont know when the market will get sincere, all I know that governments have bought time and the next bailouts will be more expensive and harder to be effective. My trade is to be long gold and short stock market and I think timing is close, first acting as a hedge and then profiting from gold raising and stock market going down again.