Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Stock Market is Now Fairly Valued But Watch Out Below

Stock-Markets / Stock Market Valuations Mar 06, 2009 - 08:46 AM GMT

By: Mike_Stathis

Stock-Markets Diamond Rated - Best Financial Markets Analysis ArticleThe stock market (the DJIA) is now very close to fair value based on my forecasts made in 2006. But fair value doesn't mean the market won't go any lower. It's likely to fall considerably lower. I'll explain below. I decided to do a Q&A format so I can cover more material in less time.


  • How much lower could the Dow fall? Virtually no level below 6000 would shock me other than below 3000.
  • What is most likely? Who knows? Things change daily. Right now, in a best-case scenario I see Dow 5800. The most likely scenario would be 4800-5600. I'm trying to be optimistic, but I fear we will see Dow 4000s, maybe lower. Remember, reversion to the mean almost always includes overshooting the mean. In other words, the stock market is likely to head considerably lower.
  • When will the market bottom? Who knows? If you want my guess, I would say sometime in 2010, maybe 2011. The point is that I would not expect a bottom to be made in 2009, unless we see massive sell-offs from current levels (unlikely right now).
  • How much lower could the S&P fall? The S&P 500 still has a way to fall before it reaches fair value in my opinion. Based upon my forecasts for earnings, I would say 550 is fair value. Assuming it overshoots, I would expect to see 450-500.
  • What should you do? If you are a long-term investor, you should gradually start buying into the market in small increments. Only the best names, companies with little or no debt and market leadership; companies that pay cash dividends; dividends that are relatively safe (check free cash flows, debt levels for starters). That means buy slowly with small amounts with no rush. If you are already fully or majority invested, save your cash for a day when the last thing you want to do is buy stocks. That will be the day to spend your last dime buying. We certainly have been gaining steam towards that end. The problem is that a continued 2-4% sell off each day doesn't by itself instill the kind of fear that brings the big money it. I'd like to see a 6-9% loss day from here. If you see it, chances are it will be a big day to buy.
  • What is a long-term investor? Someone with an investment horizon of at least 15 years, preferably 20.
  • If I think it's going lower, why am I telling you to start buying? If you try to pinpoint the bottom, you will miss everything.
  • Will we see a rally? Of course. When? I would say a rally could come soon. But once again, no one knows. Anyone who claims to know is a fool. You have to take things day by day. I'd expect such a rally to be triggered by some relatively trivial news or data set. Wall Street will make a big deal over it looking for an excuse to rally. The forces in play are setting up for a rally. Focus on market psychology and don't waste time on this VXN and VIX rubbish…..they are coincident indicators. Technical analysis is fairly useless right now.
  • What happens if you start making money soon after you buy, say if a rally occurs? Sell, sit back and be patient. Let more bad news come in and see how the market reacts.
  • What about investors already stuck in the market with investment horizons less than 15 years? All you can do now is pray. You should have securities that pay nice dividends. Remember, if a stock doesn't pay dividends, it's only worth what someone is willing to pay for it. It's similar to artwork. I don't care what anyone says. Dividend payouts provide a real return on investment. Despite the terrible price paid for Wyeth, I still like Pfizer at these levels. I'm pretty upset at management's selection of Wyeth and I got stuck at $15. Until it moves I'll sit back and collect the dividends. Once I get out I don't plan to buy PFE back until I see some real results. I also like Unitedhealth (although there's no real dividend). Those who bought it after I kept recommending it several months ago hopefully took profits by now. If so, you should consider reloading. There are several others as well like Alcoa and Dow Chemical. If these pop, take profits and take a wait-and-see approach. I do not foresee these two getting much worse. Debt levels appear to be manageable. DOW might be on the hook for a big breakup from the ROH deal but I'd say that's factored into the price. However, anything can happen. Have a look at the financials and you decide. Throughout your “bargain-hunting” binge, keep this in mind. As I warned several months ago, we are going to see several big name companies join the list of hundreds of other that will file for bankruptcy. Things are worse than even I predicted, so be careful.
  • What's a big name that no one has talked about that seems to be in deep trouble? You all know I recommended shorting the banks, mortgage and homebuilders over 2 years ago. I also warned about GE and GM two years ago. And I reiterated that all throughout last year. Those guys are old news now. The smart money won't touch them either short or long because there's too much uncertainty. But has anyone said anything about CAT? Have a look at its financials. Over $35B in debt, with more than 75% of its business overseas, CAT is going to face some REALLY big problems, especially when the commercial real estate market fully collapses. I expect that market to tank worse than residential.
  • What about the oil trusts? I still like them but as you can appreciate, they too face potential problems.
  • Where is oil headed? I'm surprised oil is holding the 40s. I would say most likely in the mid-20s, but don't count out the mid-teens. Of course, oil is near impossible to call due to the manipulation on the futures market and OPEC. If oil does fall to the mid-teens, you won't find many oil trusts that will be able to pay dividends. These trusts should be focusing on paying off debt. After speaking with the IR of one of the oil trusts, I was shocked at their lack of understanding of what is going on. They only follow the futures market, which is a myopic approach. Still, as a group, in my opinion the oil trusts are still one of the best risk-adjusted investments in the market right now. Once again, they are for investors who want a long-term source of income (not guaranteed). Those who have held them the longest know this, as their cost basis is likely to be 0.
  • What else is noteworthy? The UK is in deep trouble and might even have to declare bankruptcy before this depression ends. Eastern Europe is in even worse shape. Meanwhile, the IMF won't be able to help much without some type of recapitalization, probably from the USA . That means all of Europe is in trouble. But we cannot forget Russia either. As bad as things are in America , as long as the dollar remains the universal currency, things won't get as bad as in Europe . I still believe the dollar has not made its lows yet, but it won't face the kind of butchering as the Euro and Pound. If it did, I would expect America to go to war. The dollar might hold strength for a while, but once the dust starts to settle in a few years, the inflation bug is likely to smash it. Keep in mind that I don't deal with short-term currency forecasts. I only look at trends to help me forecast global equities and bond markets. Of course the problem is that the further out your forecasts are, the higher chance they will be wrong.
  • What's the future of the Euro? I'm sure many of you will disagree, but I have always felt it won't last due to the problems with destruction of individual sovereignty of each member. The global depression has magnified these effects. I would be surprised if the Euro was still around with all current members after 2020. If either Germany or France defects, it won't last.
  • As discussed many times, I still like Brazil and China down the road (in that order). When signs of recovery begin, America is likely to demonstrate a fictitious recovery (unless it is the aftermaths of a war). The recovery in Brazil and China will be real. Certain nations in the Middle East will be the least affected by the global depression but I certainly wouldn't invest there. Be patient. There is much more bad news to come. When the US seems to be on the road to recovery, I'd be looking to Brazil and China .
  • You should note that in the past I have been extremely accurate calling market sell-offs. My record is online. You should also note that this is the first time in over three years I have issued a market buy. But once again, you should only consider buying if you are a really good trader or your investment horizon is long. And you shouldn't rush in. Buy in gradually as the market makes new lows. Maximizing liquidity is essential, so you are best positioned if you trade short-term.
  • When will we see capitulation? This market is not likely to show a typical capitulation, triggering the next bull market. The next bull market is likely to come over the next 12-24 months due to what will end up being much more government money pumped into the economy. However, this potential bull run will be short and will likely have a large correction. When you see signs of the rally, jump on board for the ride. But remember it won't last so look for signs when to bail. I'm really going out on a limb here, because it's so far off and it relies on many more stimulus and bailout packages, as well as the timing of thousands of events. One thing you can be sure of; there WILL be many more bailout packages and stimulus plans as I first predicted in the summer of 2008.

Coming in a week (hopefully) is my new website, www.avaresearch.com. Be sure to bookmark it. I will be opening up subscriptions for non-professional investors on a limited, first-come basis.

2

By Mike Stathis
mike@apexva.com

Copyright © 2009. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher. These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.

Requests to the Publisher for permission or further information should be sent to info@apexva.com

Books Published
"America's Financial Apocalypse" (Condensed Version)  http://www.amazon.com/...

"Cashing in on the Real Estate Bubble"  http://www.amazon.com/...

"The Startup Company Bible for Entrepreneurs"   http://www.amazon.com...

Disclaimer: All investment commentaries and recommendations herein have been presented for educational purposes, are generic and not meant to serve as individual investment advice, and should not be taken as such. Readers should consult their registered financial representative to determine the suitability of all investment strategies discussed. Without a consideration of each investor's financial profile. The investment strategies herein do not apply to 401(k), IRA or any other tax-deferred retirement accounts due to the limitations of these investment vehicles.

Mike Stathis Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

on
04 Nov 09, 09:01
right ?

looks like you were right on with this article. Dow 4800 in 2010 then a slow recovery from there- ha!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules