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Here's What Wall Street Bulls Were Saying In December 2007

Tyler Durden's picture




 

Submitted by David Stockman of Contra Corner blog,

The attached Barron’s article appeared in December 2007 as an outlook for the year ahead, and Wall Street strategists were waxing bullish. Notwithstanding the advanced state of disarray in the housing and mortgage markets, soaring global oil prices and a domestic economic expansion cycle that was faltering and getting long in the tooth, Wall Street strategists were still hitting the “buy” key. In fact, the Great Recession had already started but they didn’t have a clue:

Against this troubling backdrop, it’s no wonder investors are worried that the bull market might end in 2008. But Wall Street’s top equity strategists are quick to dismiss such fears.

 

Indeed, with the S&P 500 at an all-time high of 1460, the dozen top Wall Street prognosticators surveyed by Barron’s anticipated still more index gains during 2008:

….. the dozen seers we’ve surveyed all have penciled in higher stock prices in 2008, although their estimated gains vary widely, from 3% to 18%. On average, the group sees the Standard & Poor’s 500 at 1,640 by the end of next year….

That 12% gain didn’t happen! The market ended 2008 in an altogether different place—–that is, about 45% lower at around 900. And is shown below it still wasn’t done, until the capitulation low was reached in early March 2009 at 675.

 

 

In truth, this Barron’s article needs no time stamp. Every one of the arguments being made today were trotted out in almost identical form then. Front and center was the usual canard that the market is cheap on a forward PE basis. For what was surely the 17th time in as many years, Goldman’s Abby Joseph Cohen claimed the market was trading at well below its long term multiple:

….the S&P 500 trades today at just 15.6 times average 2008 estimated earnings — well below the average P/E of 18.6 times earnings during periods when inflation was at similarly muted levels in the past 57 years, notes Goldman’s Cohen.

There were three big clouds in Cohen’s perennially bullish crystal ball.

First, inflation didn’t stay so benign. During the next year oil soared to $150 per barrel, bringing the CPI up by 2.9%.

Secondly, 2008 earnings did not come in at $100 per share per the Wall Street hockey-stick, but plunged to $55 on a so-called “ex-items” basis (excluding one time or non-recurring expenses which continuously seem to recur anyway). And actual 2008 earnings for the S&P 500 came in at just $15 on a honest GAAP basis as reported to the SEC under penalty of  criminal charges for deliberate misstatement.

But most importantly, Cohen’s 57 years of historical benchmarks were irrelevant. That’s because these historical cycles reflected a reasonably vibrant mechanism of “price discovery” based on traders assessing, weighing and perpetually re-calibrating the in-coming facts from the macro-economy and individual company performance. But by December 2007, price discovery had long ago been destroyed by the Greenspan era policy of financial repression, wealth effects and the Fed’s “put” under the market averages.

Like now, the short-interest had been driven out of the market and, as is evident from the chart above, the fast money crowd had been handsomely rewarded for buying the dips—-confident that the Fed had their backs. Indeed, the bullish case was overwhelming pinned to the expectation that the Fed and other central banks would not let the economy falter, and that a new round of interest rate cuts and other stimulus initiatives would keep the party going:

THE STREET’S BULLISH consensus is particularly impressive considering that all 12 strategists also take a dim view of the U.S. economy’s prospects and expect the Fed to keep cutting interest rates to spur spending.

 

….Although Wall Street was bitterly disappointed by the Fed’s decision Tuesday to cut interest rates by just a fourth of a percentage point instead of a half-point, more rate cuts could be on tap in 2008, both in the U.S. and Europe. In the meantime, the U.S. central bank took a bold step Wednesday to ease the global credit crunch by announcing plans to offer up to $40 billion in special loans to banks in coming days. Central banks in Europe and Canada are planning similar measures.

Meanwhile, the facts on the ground in the financial markets were getting worse by the day.

Stock buybacks and cash M&A deals were at peak historical levels, thereby adding further momentum to a market that was already trading upward on a one-way basis. Likewise, the junk bond market had exploded to new heights, as had issuance of other dodgy late cycle securities like “cov lite” term loans, pay-in-kind junk bonds and collateralized loan obligations (CLOs), which amount to leveraged funds which issue debt against debt.

And this was to say nothing of Wall Street balance sheets which were bloated with giant inventories of sub-prime and other low grade mortgagees waiting to be sliced and diced into CDO’s, CDOs squared and other toxic exotica. All of this financed on the margin with “hot money”—that is, repo and unsecured wholesale credit.

Beyond this, the LBO financing market was totally out of control, sending a tsunami of cash into the stock market to buy out public companies at absurdly high double digit multiples of cash flow. In the Great Deformation, I tracked 30 mega-LBOs during this period which were taken out at a combined market value of about $500 billion, causing $375 billion of fresh cash to flow to stockholders. Like today, the latter was funded with massive new layers of junk bonds, PIK bonds, second lien loans and other bank credit.

Needless to say, the foundation underneath the market was rotten because honest price discovery was no longer operating. The momentum from vast inflows of underpriced debt and dip-buying by hedge funds betting on the Fed’s “put” caused the actual fundamentals to be largely ignored.  For instance, during late 2007 the reported LTM earnings per share for the S&P 500 was about $75. That means the actual PE multiple was 19.5X as the Barron’s year-end revelers talked up the market for the year ahead. It was sitting, therefore, at a dangerously high plateau even by historic standards.

When the market plunged by nearly 50% during the latter months of 2008 and early 2009, the speed and violence of the decline was striking evidence that monetary central planning has doubly destructive effects on the financial markets. In the first instance, it causes bubbles to inflate to exceedingly artificial and excessive levels owning to the inflow of cheap cash and momentum chasing bids from the Fed-following fast money. But in the process it also vaporizes the braking and checking mechanisms—such as short-sellers buying to harvest their gains—that allow markets to correct without collapsing.

A case in point is the Russell 2000, which had climbed a 5-year wall of worry from about 350 to 820 as of late 2007. But when the market broke hard after the Lehman event, nearly the entire 20%/year compound gain was ionized in just 15 violent trading days during the next several months. In short, by turning financial markets into gambling casinos, the central banks have sown the seeds of vast and recurring financial instability. Bubble tops get more and more exaggerated. Bubble collapses become increasingly swift, violent and overdone.

Needless to say, after six years of ZIRP, QE and generally far more extreme monetary expansion than occurred in the run-up to the 2008 financial crisis, every one of the bubble top symptoms described above and completely ignored by the Wall Street bulls cited in the timeless Barron’s piece posted below have reappeared. If anything, the carry trades, vast chains of asset re-hypothecation and momentum based speculation is far more extreme than last time around; and the broad market is  also once again precariously positioned at the tippy top of its historic trading range.

The honest LTM earnings of the S&P 500, for instance, are now about $100 per share, adjusted for a pension accounting change that did not exist in 2007.  So we are right at that very same 19.5X valuation that was posted at the top last time around. But this replay is occurring in a market that is far more precarious—that is, it is faced with interest rate normalization in the years ahead and that will cause earnings to fall. Also, it is a market that reflects profits rates on income and GDP that are off the charts historically, and are far more likely to regress to the mean than stay perched at their current nosebleed levels.

And most of all the business cycle today is already 60 months old, but unlike 2007 it is far weaker and less stable. Indeed, unlike the 2002-2007 credit-fueled recovery, this “peak debt” constrained expansion has not even recovered its previous cyclical high based on economic fundamentals like breadwinner jobs, real capital investment in plant and equipment and real household incomes.

So based on the stock chart below, now might be a good time to re-read the Barron’s piece from late 2007. Its real message, as it turned out, was “look-out below!”

 

By Kopin Tan at Barron’s, December 17, 2007

THE STOCK MARKET HAS JUST EXPERIENCED its most volatile year since the current bull market began. Corporate profits shrank in the third quarter for the first time since early 2002. Record oil prices, housing deflation, rising loan defaults and tighter credit conditions threaten to tip the U.S. economy into recession. And a few weeks ago, it looked as if 2007′s gains might disappear before the first strains of Auld Lang Syne.

 

Against this troubling backdrop, it’s no wonder investors are worried that the bull market might end in 2008. But Wall Street’s top equity strategists are quick to dismiss such fears.

 

Indeed, the dozen seers we’ve surveyed all have penciled in higher stock prices in 2008, although their estimated gains vary widely, from 3% to 18%. On average, the group sees the Standard & Poor’s 500 at 1,640 by the end of next year (editor’s note: actual was 45% lower at 903), or about 10% higher than the recent 1486 with global growth and a benevolent Federal Reserve serving as twin crutches for the aging bull.

 

THE STREET’S BULLISH consensus is particularly impressive considering that all 12 strategists also take a dim view of the U.S. economy’s prospects and expect the Fed to keep cutting interest rates to spur spending. Since September, Fed Chairman Ben Bernanke and his colleagues have lowered the benchmark federal-funds rate three times, to 4.25% from 5.25%, including Tuesday’s quarter-point reduction. Still, none of the leading strategists is forecasting a recession, although one Wall Street economist — Richard Berner of Morgan Stanley — last week predicted a “mild recession,” with no growth for a year.

 

“We expect the U.S. economy to show the strains of the deflating housing market and credit-market disruptions in early 2008,” says Goldman Sachs strategist Abby Joseph Cohen. But “recession likely will be avoided, due to strength in exports and capital spending by corporations and government.”

 

Credit Suisse equity strategist Jonathan Morton agrees. “Conditions for a hard economic landing — like slack in the labor market and weak balance sheets — are still largely absent,” he says……

IF THE CASE FOR U.S. STOCKS is built on global growth and lower interest rates, other factors, too, suggest that the market is heading higher. For one, Washington is determined to avert a financial disaster, particularly in an election year, and already has unveiled a plan to freeze mortgage-rate re-sets on some teaser loans to stem an expected wave of foreclosures among troubled borrowers.

 

Although Wall Street was bitterly disappointed by the Fed’s decision Tuesday to cut interest rates by just a fourth of a percentage point instead of a half-point, more rate cuts could be on tap in 2008, both in the U.S. and Europe. In the meantime, the U.S. central bank took a bold step Wednesday to ease the global credit crunch by announcing plans to offer up to $40 billion in special loans to banks in coming days. Central banks in Europe and Canada are planning similar measures.

 

Another potential plus for stocks: Investment funds controlled by foreign governments are likely to step up their hunt for attractive assets in the U.S., which still is the world’s largest economy. While buying power has been shifting from consumer countries like the U.S. to commodity producers, “some of that wealth is starting to get recycled back to the consumer countries,” says Morgan Stanley’s chief global equity strategist, Abhijit Chakrabortti. “It isn’t going just to traditional investments like Treasuries, but right to the capital-starved parts of the U.S. market that need it most.”

The latest example is Abu Dhabi’s $7.5 billion investment in Citigroup. Merrill Lynch expects so-called sovereign-wealth funds to double or triple their share of riskier global assets by 2010, nudging the tally to $8 trillion by 2011.

 

IN 2007, WORRIED INVESTORS LUNGED for the safety of bonds. Treasuries may hold less appeal next year, the Street’s leading strategists say. Many of those we surveyed see the yield on 10-year Treasuries, now near a three-year low of 4%, increasing in 2008, albeit at a genteel pace that won’t spook the market.

 

The strategists note, as well, that bull markets rarely end when the earnings yield on stocks — now around 6% — is higher than benchmark bond yields.

 

S&P 500 earnings are expected to climb 4%, to an average of $92 a share this year. The Street’s 2008 estimates range from a low of $85.65 to just over $100. Corporate profits are likely to decline in the early part of the year, but face easier comparisons with ’07 results in the second half.

 

While some fear this year’s peak profit margins will wane, Bear Stearns’ Jonathan Golub says “margins will prove sticky at a high level” after years of cost-cutting. A 35% decline in leverage (outside of the financial sector) in the past five to seven years has made for healthier balance sheets, and continued stock buybacks are likely to keep boosting earnings per share.

 

Then there’s the market’s modest valuation. As this year has proven, valuation alone is no reason to buy stocks; a low price/earnings multiple failed to lure buyers frightened by falling profits, surging oil prices and steadily worsening news from the housing and banking sectors. That said, the S&P 500 trades today at just 15.6 times average 2008 estimated earnings — well below the average P/E of 18.6 times earnings during periods when inflation was at similarly muted levels in the past 57 years, notes Goldman’s Cohen.

 

To many strategists, stocks now discount an economic slowdown. Ian Scott, Lehman Brothers’ London-based global equity strategist, says profits conceivably could fall as much as 45% if the U.S. slips into recession. But the stock market likely would fall no more than 10% to 15% from current levels even in this worst-case scenario. Citi’s Levkovich says prices already anticipate earnings growth that is 20% to 25% below the 20-year average. He calls stocks “screamingly cheap relative to bonds.”

 

……Merrill’s Bernstein was among those to forecast this year’s surge in stock-market volatility, and he continues to steer the firm’s clients toward high-quality bonds, defensive sectors in the U.S. and consumer-oriented sectors abroad — essentially a play on the rise of the overseas consumer. He also likes large-cap stocks in the U.S. and smaller stocks abroad, as well as dividends and cash for more risk-averse investors.

 

When Bernstein huddles with money managers these days, the No. 1 question he’s asked is: Are financials cheap? Apparently, he isn’t the only one, and some strategists expect bottom-fishing in financials to become a popular sport in 2008.

 

Its dangers are clear to see. The Financial Select Sector SPDR XLF -0.56% Select Sector SPDR-Financial (XLF), an exchange-traded fund that tracks the financial stocks in the S&P 500, has sunk 20% this year, to the bear-market depths. Financial-services-industry profits are expected to fall further as loan-loss provisions increase, and if home prices — and related mortgage securities — continue to slide. Tighter credit also threatens to choke off the private-equity and merger boom, and a skittish market has discouraged stock offerings, all of which means lesser fees for big brokerage firms.

 

Given the depth of the housing market’s decline, which is hard to calculate even at this point, bottom-fishers must be prepared to swim deeper and stay underwater longer. Chakrabortti expects financial-company earnings to fall 5% to 10% in 2008, a stark contrast with the Street’s consensus call for 16% profit growth. He thinks financials could pull back another 20% before “the downturn in this credit cycle is fully discounted.”

 

Thomas Lee begs to differ, however. “While the first half may look like death, second-half earnings will improve as the rate cuts take effect” and as easier comparisons take hold, says Lee, who became JPMorgan’s main U.S. strategist after Chakrabortti left for Morgan Stanley earlier this year. A year ago, when he was still at JPMorgan, Chakrabortti had advised investors to underweight financials — but Lee now expects the sector to “lead markets higher in 2008, even with the worst of the bad news on structured investment vehicles and write-offs still ahead.”

 

Rate cuts and a steepening yield curve will help. Also, the financial sector swiftly purges itself of bad businesses and excess capacity — one reason the sector has suffered consecutive bad years only once in the past four decades, and why a down year frequently is followed by double-digit gains the next year, Lee says. He thinks a consensus will emerge in 2008 that financial stocks present investors with the most appealing risk-reward profile.

 

WHAT ABOUT OTHER MARKET SECTORS? Deutsche Bank Alex. Brown’s Larry Adam likes technology’s global prospects as the world strides toward wireless transmission of voice, data and video. “All those buildings are being built in China, and the next step is to make them more efficient,” he says. The ongoing push to get the world wired spells technology demand.

 

In addition to benefiting from global growth, technology has no direct exposure to housing. But Bear Stearns’ Golub says that between 20% and 30% of technology spending is tied to the weakening financial sector, and he questions whether that has been considered fully by technology bulls.

 

Credit Suisse’s Jonathan Morton likes pharmaceutical stocks, despite worries about the political risks to industry profits. Among other things, he says, drug companies have plenty of “self-help potential” — that is, the ability to reduce their sales forces relatively easily, cut costs and take on debt. By levering their balance sheets to just half the level of the market norm, they could raise enough cash to buy back 10% of the sector’s shares.

 

Consumer-staples stocks have been a popular refuge in times of market turmoil, but this sector now holds limited appeal for Lehman’s Scott. “Valuations have gotten quite high, and pressures from high raw-material costs may not be as fully considered,” he notes.

 

Consumer Discretionary Select SPDR XLY  is down 15% from its July peak. But consumer-discretionary stocks rise and fall with oil prices and the Fed’s benchmark interest rate. As both retreat next year, the sector will enjoy a “double boom,” ISI’s Trahan says.

 

“The consumer is not dead!” declares Citi’s Levkovich. While the decline in home sales and home values has been pernicious, household net worth increased some $18.5 trillion in the past five years, with just $4.4 trillion coming from real-estate gains. What’s more, the richest 20% of Americans drive 40% of the country’s consumer spending, and their outlays are less restrained by rising gasoline prices and higher mortgage rates.

 

Compared with the average American, the rich also have a smaller portion of their net worth tied up in homes — and more of it invested in the financial markets…..

 

Yet if Wall Street’s strategists are right about the market, the rich will get richer in 2008, along with most other equity investors. Chances are, the ride won’t be smooth and the direction won’t always be clear — but by now we’re used to that.

 

 

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Mon, 07/28/2014 - 15:21 | 5013953 Belrev
Belrev's picture

LUGANSK EASTERN UKRAINE TODAY WAS AGAIN SHELLED BY UKRAINIAN ARMY

WHAT WESTERN MEDIA REFUSES TO SHOW YOU

http://www.youtube.com/watch?v=c7fC_Yt4PXo#t=1m39s

WHO IS LYING.

Mon, 07/28/2014 - 16:33 | 5014365 Cattender
Cattender's picture

it's Different this time...

Mon, 07/28/2014 - 18:06 | 5014787 max2205
max2205's picture

It's never the same

 

That chart needs to be moar steeper and aapl at 250 next week and then we got sumptin to talk about

Mon, 07/28/2014 - 15:21 | 5013956 quasimodo
quasimodo's picture

Day za voo?

Can't help but think maybe so.

Mon, 07/28/2014 - 15:25 | 5013983 orangegeek
orangegeek's picture

yes, but some fat old bag named yellen wasn't cranking the printer on max in 2007

 

let's see if this cow shuts the damn thing off - in face of such a robust economy LMFAO!!!!!

Mon, 07/28/2014 - 15:36 | 5014054 Dr. Engali
Dr. Engali's picture

That's a terrible way to talk about grandma. Here have a cookie, and soon you'll feel right as rain.

Mon, 07/28/2014 - 17:09 | 5014531 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Why did I take the red pill? I want the blue pill and live like rest of the sheeples!!!

Mon, 07/28/2014 - 16:15 | 5014273 midtowng
midtowng's picture

It's always time to buy.

However, in December 2007 the credit markets had already shut down (in early August).

Today the credit markets are still wide open.

Mon, 07/28/2014 - 15:26 | 5013984 NoDebt
NoDebt's picture

We've traded the business cycle for the Fed's monetary cycle.  What's so hard to understand about that?  Every so often the Fed tries to prove to itself that it's not in a liquidity trap, and they tighten.  A year later everything goes to hell in a handbasket and they throw the taps open again.  

You can argue whether tapering QE is "tightening" (it is) but for sure, if they start to raise interest rates in 2015, as widely expected, it'll definitely be past time to get out.

 

Mon, 07/28/2014 - 15:35 | 5014014 Dr. Engali
Dr. Engali's picture

Raise rates.... Lol. It's going go be a bitch when fed funds are 1% and the ten year is at 1%.

Mon, 07/28/2014 - 15:38 | 5014066 NoDebt
NoDebt's picture

I never thought I'd see a Fed funds rate sit at zero for years on end, either.  Nothing would surprise me any more.  Treasuries seem well bid, even with the Fed tapering QE.

You remember when the Fed funds rate used to be for LAST RESORT bank borrowing and was designed to be PUNITIVE to those who used it?  I.e. it has higher than inter-bank lending rates most of the time.

Yeah, me neither any more.  The old memories fade quick, especially when you know there's damned little reason to remember how things worked before 2008 because it'll never be like that again.  Like trying to remember how to work an old Sony Walkman.  What would even be the point in remebering?

Mon, 07/28/2014 - 15:55 | 5014173 Dr. Engali
Dr. Engali's picture

"You remember when the Fed funds rate used to be for LAST RESORT bank borrowing and was designed to be PUNITIVE to those who used it?"

 

Yes, and I also remember how they hammered Greenspeak for keeping the fed funds too low for too long.....  and yet here we are.

Mon, 07/28/2014 - 15:42 | 5014101 Rainman
Rainman's picture

agree ... there is no evidence in recorded history that a ponzi scheme can be successfuly tapered.

Mon, 07/28/2014 - 15:47 | 5014127 NoDebt
NoDebt's picture

Also agree.  Just relaize the Fed doesn't think it's a ponzi.  That makes them twice as dangerous as they would be if they at least admitted it to themselves.

Mon, 07/28/2014 - 16:12 | 5014253 The Most Intere...
The Most Interesting Frog in the World's picture

But Madoff, as an example, did not get to confiscate (legally) investor funds.  In the case of the Fed, banks and US government working in concert, they pretty much have carte blanche to do whatever the hell they want. 

Mon, 07/28/2014 - 15:35 | 5014046 nosoeawe
nosoeawe's picture

"tightening" that dumb bitch isn't tightening. the cunt is using Euroclear Bank / belgium to buy fed paper. somehow belgium is the 3rd largest holder of fed toilet paper.

the two faced lying bitch should have been aborted by a hanger

Mon, 07/28/2014 - 15:44 | 5014105 NoDebt
NoDebt's picture

If people believe it's tightening and behave as if it's tightening, then it's tightening.  Ponzi schemes are delicate things.  You don't know what's going to bring one down.  Madoff NEVER recorded a losing month, not even though the 08-09 financial crisis.  Yet he was hit with a mountain of redemptions anyway that exposed the ponzi.  

Mon, 07/28/2014 - 16:09 | 5014235 The Most Intere...
The Most Interesting Frog in the World's picture

They might just lock everything down at that point.  Why do all of this work, prop things up, zero rates, to let it all go to shit...again?    

Mon, 07/28/2014 - 15:28 | 5014001 youngman
youngman's picture

History repeats ..until it doesnt...

Mon, 07/28/2014 - 15:54 | 5014161 TheRideNeverEnds
TheRideNeverEnds's picture

yup, this tme is different.

Mon, 07/28/2014 - 15:36 | 5014024 alexcojones
alexcojones's picture

Brilliant, Tylers.

One again, effing Brilliant.

You guys have provided an inValuable service.

History repeats AND rhymes.

 

Mon, 07/28/2014 - 15:34 | 5014033 khakuda
khakuda's picture

He is right.  Wall Street is always bullish.  If the S&P doubled next week, they would still say there is 10 - 12% left.  There is NO ability to perceive anything other than a 5-10% correction at worst.

Mon, 07/28/2014 - 15:35 | 5014048 NOTaREALmerican
NOTaREALmerican's picture

Which makes sense.  Like Real-Estate agents:  pathological optimists.  What else could they be to survive to the job?

Mon, 07/28/2014 - 16:53 | 5014097 khakuda
khakuda's picture

So true.  I have not seen one write something along the lines of, "Well, the market has had a HUGE run since 2009's bottom that has outstipped fundamentals.  The Fed has suppressed volatility for a long time and history tells us that periods like this eventually end with a violent return of volatility and decline in the markets.  With the cold war heating up as a weak US president is bent over by Putin and China, full valuations, a still sluggish consumer and a Fed that may have to stop ignoring all of the benchmarks for tightening that have now been met and raise rates sooner than expected, it is probably time to get more defensive or, at the very least, less bullish."

But, no.

Mon, 07/28/2014 - 15:34 | 5014036 NOTaREALmerican
NOTaREALmerican's picture

I tend to agree with the two article posted last week...    The Market price "of things" is now representing the expected future ability of The Fed to keep the prices inflated.     I don't see anything weakening The Fed's ability yet.

Mon, 07/28/2014 - 15:41 | 5014043 ebworthen
ebworthen's picture

Circa 2005 - "Bernanke:  There's No Housing Bubble To Go Bust":  http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html

Mon, 07/28/2014 - 15:36 | 5014055 undercover brother
undercover brother's picture

Great Article. Thanks for posting. However, the primary difference between today and 2008 is that the Fed is now intimately involved in propping up stocks directly or through proxies on an almost daily basis. And, when QE finally ends, they will be much more proactive and aggressive in stopping downside momentum from building.

Mon, 07/28/2014 - 16:06 | 5014225 The Most Intere...
The Most Interesting Frog in the World's picture

Lock ups and confiscations will take care of any needs in the future.  And do we even need a market at this point?  

Mon, 07/28/2014 - 15:36 | 5014057 NOTaREALmerican
NOTaREALmerican's picture

Re: Yet if Wall Street’s strategists are right about the market, the rich will get richer in 2008, along with most other equity investors. Chances are, the ride won’t be smooth and the direction won’t always be clear — but by now we’re used to that.

Well, they sure nailed THAT one.   Which is all that matters.

Mon, 07/28/2014 - 15:37 | 5014061 devo
devo's picture

And they were right. Stocks are up since then.

Mon, 07/28/2014 - 15:37 | 5014062 LawsofPhysics
LawsofPhysics's picture

It's different this time...

 

really it is, there is no market for true price discovery, period.  The numbers will be whatever the central planners want them to be.

Mon, 07/28/2014 - 15:40 | 5014068 ebworthen
ebworthen's picture

From 2007 article:  "Credit Suisse equity strategist Jonathan Morton agrees. 'Conditions for a hard economic landing — like slack in the labor market and weak balance sheets — are still largely absent,' he says……"

Right, and when labor statistics are bullshit and balance sheets are fudged...

(Joe Bologna says 7% Q2 GDP, BTFATH!)

Mon, 07/28/2014 - 15:38 | 5014071 HUGE_Gamma
HUGE_Gamma's picture

and the bulls were right.. 7 years later and we're higher

Mon, 07/28/2014 - 16:12 | 5014248 agstacks
agstacks's picture

nominally, yes..

Mon, 07/28/2014 - 15:45 | 5014115 Bill of Rights
Bill of Rights's picture

Former Goldman Options Trader Becomes Argentina Taxi King - Bloomberg

>

After 23 years trading stock options at Goldman Sachs Group Inc., Merrill Lynch & Co. and his own hedge fund, Russell Abrams is piling into his most exotic gamble yet: as a Buenos Aires taxi impresario.

Abrams, 48, plans to invest as much as $100 million of his own money to build a fleet of Buenos Aires cabs, undaunted by the prospects for Argentina’s second default in 13 years, the fallout from the peso’s devaluation in January, inflation of about 40 percent and the economy’s first quarterly contraction since 2012.

Mon, 07/28/2014 - 15:54 | 5014167 Dr. Engali
Dr. Engali's picture

"You remember when the Fed funds rate used to be for LAST RESORT bank borrowing and was designed to be PUNITIVE to those who used it?"

 

Yes, and I also remember how they hammered Greenspeak for keeping the fed funds too low for too long.....  and yet here we are.

Mon, 07/28/2014 - 15:57 | 5014179 The Most Intere...
The Most Interesting Frog in the World's picture

How far off the rails we have gone....

Mon, 07/28/2014 - 15:59 | 5014195 khakuda
khakuda's picture

Seriously, don't you feel like we are in bizarro world?  All the same dumb stuff everyone ignored during the last bubble is back.  After the last crash, everyone stood around saying how come they didn't see it.

Well, they don't see it again.

The Fed has basically kept money free for enough years to force stupidity again, hoping that this time ends better, because their takeaway was that the issue in 2008 wasn't free and easy credit, it was the end of free and easy credit that was the problem.  SO, they FIXED it.

Mon, 07/28/2014 - 15:58 | 5014175 The Most Intere...
The Most Interesting Frog in the World's picture

Everybody is expecting the Fed to continue money printing to prop up the market. Or re-start if things get bad. Not so sure that is the case. IMHO I believe they are concerned about reserve status and are no longer willing to trash the dollar. This will be coordinated with Europe and is why you see them making the same preparations. Losing reserve status would be far worse than any other alternative. Bail outs and inflation were used the last time, and are no longer an option. Bail ins coming to a friendly bank near you.

Mon, 07/28/2014 - 16:26 | 5014333 I woke up
I woke up's picture

I agree, outside factors are shutting the spigot off otherwise they would keep doing it

Mon, 07/28/2014 - 16:14 | 5014270 TabakLover
TabakLover's picture

Wuck Fall Street!

Mon, 07/28/2014 - 16:16 | 5014279 starman
starman's picture

fart! 

Mon, 07/28/2014 - 16:27 | 5014336 Burticus
Burticus's picture

Just check out a chart of the Weimar stock market in the early 1920s to see how high "price" can go when measured in a hyper-debased currency.  Of course, that one ended very badly...except for the bellhop who bought the hotel where he used to work for a one-ounce gold coin given to him by a temporarily-wealthy stock investor as a tip.

As an example for the mathematically-challenged, cut a foot-long ruler in half, re-number it 1 through 12 and measure your pecker.  Then, ask your wife/girlfriend to confirm that, NO, your pecker did NOT mysteriously grow to 12 inches long all of a sudden!

Mon, 07/28/2014 - 16:27 | 5014340 Keltner Channel Surf
Keltner Channel Surf's picture

Here’s what I was saying in December 2007:  “Oh, SHIT !!”  

. . . because I had just been laid off at what turned out to be the worst time, nearly a full year before Lehman.  After years of unemployment, and years of staring at goddamn charts, it appears I may have just become a professional day-trader.  Go figure.   (Forge your own path, long-term forecasts in this postmodern age are useless.) 

Mon, 07/28/2014 - 16:37 | 5014377 NOZZLE
NOZZLE's picture

Both of those charts make me sick to my stomach, 

Mon, 07/28/2014 - 17:11 | 5014539 Againstthelie
Againstthelie's picture

For what was surely the 17th time in as many years, Goldman’s Abby Joseph Cohen claimed the market was trading at well below its long term multiple:

….the S&P 500 trades today at just 15.6 times average 2008 estimated earnings — well below the average P/E of 18.6 times earnings during periods when inflation was at similarly muted levels in the past 57 years, notes Goldman’s Cohen.

 

Problem: The measurement of CPI has been changed.

Can anyone imagine an engineer measuring something several years ago, then changing the method of measurement and after a new measurement, which ofcourse delivers different numbers, simply compares the numbers and ignores the change in the methodology?

 

Economists. Absolutely incredible. That these idiots get paid for their monstrous stupidity and that this pseudo science is allowed to hold the real economy hostage to this day, is remarkable.

Mon, 07/28/2014 - 18:14 | 5014821 The Phallic Crusader
The Phallic Crusader's picture

People always overlook, or frequently overlook the roleof hedge funds in the 2007/2008 quasi-collapse.

Consequently, no one noticed some interesting papers on the interesting role of fudged weighted average maturity (using interest rate reset dates 'as' the maturity dates which apparently wasn't "illegal" but seems to have obviously been one of the single biggest problems in the funds that collapsed - I mean if you looked at TRUE WAM, there was a very nice correlation in how badly they did as the chickens came home.

Punchline - someone with time on their hands, look and see if any large funds, fine print in a prospectus or something - use interest rate reset dates in calculating maturity.

I mean, from what I can see, nothing was really fixed or resolved, and the economists have been doubling down on the bad ideas from their facile Keynesian paradigm, so, in that sense, I'd bet on the same shit happening.

So - if you find a fund where the published average maturity of the portfolio is way shorter than the actual, 'unadulterated' actual WAM, and really you can probably do a spot sample of the individual positions... good chance it will bleed value early and catastrophically....  

Mon, 07/28/2014 - 18:40 | 5014934 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

The show must go on. Pessisism is "bad for business", I suppose.

Mon, 07/28/2014 - 18:45 | 5014955 CHX
CHX's picture

How high is the mountain, how deep the abyss yonder ?

Tue, 07/29/2014 - 00:35 | 5016306 hedgiex
hedgiex's picture

That WS houses do not even bother to cull their own analysts is because there is no loner any need to maintain credibility with their muppets.

Good article in particular quoting Deutsche Bank, the best in class when it comes to BS.

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