The Barnard Observer

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Home  Vault  Misc  Contact                                                           c2003-09 Thomas Barnard

I Had to Laugh

On my Google Finance screen a buy recommendation popped up from Zack's on four different stocks.  The one that caught my eye was Whole Foods.  This stock hit a low of 7 back in March, and now it's up to 29 or thereabouts, and it's hit Zack's screens.  I mean, I had to laugh.  Where was Zack's when it was at 7 and about to go up 300%?  Nowhere.  But now that the stock has gone up 300% and proved itself, they're ready to recommend it.  Yes, I understand it probably popped up on many momentum screens by now, but personally, I wouldn't go anywhere near Whole Foods at these prices.  Too rich for my blood.

In the Crosscurrents

On the positive side, we have the government's okay from Bernanke, which is a given.  Buffett's been saying stocks (in general) are cheap, but he was never good at calling the market, and he gave money to Obama's campaign.  So, he's almost quasi-administration.  But I was shocked to read that Soros thought the economy had hit bottom.  That's the one that gave me pause.  He thinks the stimulus package put us over the top.

On the other hand, famous Dow Theorist, Richard Russell still says we're under a sell signal.

I'd like to take his Soros's word for it, but I won't really know where we are until the market tests the bottom.  Will 6500 hold on the bottom, or will it be breached?  I'm thinking that somewhere around October we'll get a better picture on where we are.

Where Are We?

Males, any rate, like a map to give them a sense of direction when they are lost.  One place to start is Value Line, which Hulbert always seems to favor.  Value Line puts the 3-5 year Appreciation Potential at 65%.  When the market was at its low in March, the Appreciation Potential was at a hefty 185%.  When the market was at its top in July of 2007, that number was down to 35%.  My take is that we are much closer to the end of this particular move than the beginning.

You could also look at Investor's Intelligence, advisors bullish is now up to 48%.  Back in March it was down in the thirties.  But even more revealing is that the percentage bearish is now only 23%.  In March, this was at 45%.  My take is that complacency has set in.  Which means very few rungs to climb on that wall of worry.  More chances to slip and fall.

The Economy

We're still losing jobs.  There's still nothing happening in the housing industry.  The auto industry is limping along, with a bit of a blip up due to hit the numbers from the Cash for Clunkers program.  Check the Stats.

My Take

I've been waiting for the bottom of the market.  It's been a great bear market rally, but those bear market rallies can be devastating.  This one could still run up to 10,000, and really sucker a lot of small guys back into the market, which is my expectation.  But if it hit in March, then I missed it.  I've been waiting for the PE ratio to hit single digits, which would be my expectation for an economic decline only equaled by the Great Depression.  PE ratios hit single digits in 1974 when we had another big recession.  PE's are still around 15 or 16.  So, I see a possible risk of a 40% or 50% decline.  Of course, there are always exceptional investments around in all markets, if you can find them. 

I have a few observations on the national health program.  Click here.

Quality Control:  I wish I had at least recommended that March was a good time to take a position for at least the short term.  I didn't.  I hadn't felt the market had touched bottom yet.

August 24, 2009