Depression Watch Dec. 08 2008

Dow Close (Mon)       8,934.18    +298.76
Oil                     $43.71

On Bloomberg, early today, the rally in the stock market was being called the Obama rally. However, the positive news was only short term. The problem here is identifying drives of rallies in this bear market. There was a discussion of Dow theorists looking at the S&P 500 for the end of this rally. The irony is revealed in [2] (written in just May) calling for continuation of the bull market, with new highs looking forward. Looking back, we even see that the venerable Moody's missed this recession too.  A brief look at the MarketWatch Community top point earners - reveals a pick average of 50%. This means that currently pick a daily (or short term) direction (on average) is no more accurate than flipping a coin.

The question here, if things were going well in May, and there were good technicals - what happened over the summer? The losses that we are now seeing - just appeared (seemingly). Well, let's see Clinton's race in the Democrat primary was at an end, and Obama's nomination was approaching. It was also in this time frame (June to Nov) that he wanted to; 1) Tax the rich ; 2) Share the wealth ; 3) Creat a new "Green" economy.

Supporting Quotes

[1]
The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility. - [http://www.cboe.com/micro/vix/introduction.aspx]

[2]
In a recent interview with Richard Russell, the author of “The Dow Theory Today”, Russell suggested that the January 2008 lows in the US equity markets was not a bear market bottom and that we remain in a bull market that started in the early 1980’s.  Further he thinks that we could accomplish new highs in the major indicies somewhere between 2008 and 2010.  He cites two reasons for this perspective, (a) the incredible amount of liquidity being injected into the world markets, and (b) the trillions of dollars parked in money market funds, sovereign wealth funds, and other non-equity investments.  - [http://www.joergercapital.com/ManagersBlog/ - May 2008]

[3]
Standard and Poor’s is definitely in the short and shallow recession camp.   They continue to see fourth quarter 2007 as the trough in S&P 500 opearting earnings and predict record S&P 500 operating earnings per share of $96 for 2008, yielding a current PE ratio in the 14-15 range.   Definitely reasonable by historic standards.   They have also released a $115 per share operating earnings forecast for 2009 – a whopping 20% gain over their 2008 forecast and a forward PE ratio of 12.   It seems clear that if the market were to accept these forecasts as reasonable, money flows into US equities would be substantial.   So, for the time being, earnings fundamentals and forecasts seem to support the bullish view. - [http://www.joergercapital.com/ManagersBlog/ - May 2008]

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