5 worries on Wall Street

[Anonymous]

Specifically, when a bank writes off a loan (an asset to the bank), it reduces its capital (bad loan reserve and equity). And, given our fractional reserve system, a reduction in capital can markedly reduce its ability to make future loans: if a bank did not adequately reserve for bad loans, and has to start digging into equity, it could end up having to call in loans to get back into compliance with reserve requirements.

Kind of like a margin call.

We moved to La Jolla for school, too: we have a daughter at Bishops, with a son there next year, too (coming from Evans). Which school are your kids at?

[masayako]

Nobody say stock is not a risky business. Looking past at 2000-2002, if you hold the big caps (KO, GE, MMM, PG etc), the drop is really not that bad. It return and pass the bottom eventually.

I think of the market this way… if you hold cash, you get killed by inflation (rip off by government by default); if you invest in quality companies with the long term horizon (10 years+), you are looking for growth, price appreciation, not speculation. That’s what I’m trying to do. I, as well as many, am not day trader, stock speculator, I just want to invest in great companies that can grow in value over a long period of time. Cash in USD definitely do not fit the requirement.

If there’s one thing I believe, I believe in the long term trend of the stock/bond market. It can drop BIG, real BIG, but at the end, it returns 10% annually. Unless you chicken out after 25,30% drop (buy high, sell low), if one is persistent, value oriented, I believe stock market is where people should invest. Basically, hunt for quality companies and ONLY buy at reasonable price.

Masayako

[masayako]

Nobody say stock is not a risky business. Looking past at 2000-2002, if you hold the big caps (KO, GE, MMM, PG etc), the drop is really not that bad. It return and pass the bottom eventually.

I think of the market this way… if you hold cash, you get killed by inflation (rip off by government by default); if you invest in quality companies with the long term horizon (10 years+), you are looking for growth, price appreciation, not speculation. That’s what I’m trying to do. I, as well as many, am not day trader, stock speculator, I just want to invest in great companies that can grow in value over a long period of time. Cash in USD definitely do not fit the requirement.

If there’s one thing I believe, I believe in the long term trend of the stock/bond market. It can drop BIG, real BIG, but at the end, it returns 10% annually. Unless you chicken out after 25,30% drop (buy high, sell low), if one is persistent, value oriented, I believe stock market is where people should invest. Basically, hunt for quality companies and ONLY buy at reasonable price.

Masayako

[poorgradstudent]

The most likely scenario in my mind is this bull will continue to run for the short term, although the summer is often pretty stagnant. The fundamentals look sound, especially if you project earnings to continue to grow at the rate they have been in recent years (which I don’t, but projecting is a dicey buisiness).

A slowing economy will hit earnings sooner or later, which will eventually end this bull run. Once people stop expecting earnings to keep going up, they start valuing stocks differently. Putting an exact timepoint on it is impossible, but I don’t think this next quarter’s earnings will be bad enough to spook the horses.

At this point in the cycle the most prudent course of action seems to be defensive, “boring” stocks along with some cash and foreign equities that are less tied to the US economy. It’s early to be shorting the market as a whole, although there are always overheated individual stocks that could be worth a look.

[poorgradstudent]

The most likely scenario in my mind is this bull will continue to run for the short term, although the summer is often pretty stagnant. The fundamentals look sound, especially if you project earnings to continue to grow at the rate they have been in recent years (which I don’t, but projecting is a dicey buisiness).

A slowing economy will hit earnings sooner or later, which will eventually end this bull run. Once people stop expecting earnings to keep going up, they start valuing stocks differently. Putting an exact timepoint on it is impossible, but I don’t think this next quarter’s earnings will be bad enough to spook the horses.

At this point in the cycle the most prudent course of action seems to be defensive, “boring” stocks along with some cash and foreign equities that are less tied to the US economy. It’s early to be shorting the market as a whole, although there are always overheated individual stocks that could be worth a look.

[hipmatt]

Who is Chris Johnston / Chris Scoreboard?? and why does he start every post with his own name? Is he writing the letter to someone else?

[hipmatt]

Who is Chris Johnston / Chris Scoreboard?? and why does he start every post with his own name? Is he writing the letter to someone else?

[Anonymous]

Chris, it seems to me that the mood on the U.S. stock market is turning sour:

There is new concern about inflation.
There is new concern about rising interest rates.
Today’s news reports that productivity is down and labor costs are up.
Today, the White House lowered their forecasts for ’07 GDP.
Turkey is now making incursions into Iraq.

Are you still confident that things are going to hold up until August?

It seems to me that the U.S. market is getting increasingly vulnerable to an ugly surprise, whether such is economic or geopolitical.

[Anonymous]

Chris, it seems to me that the mood on the U.S. stock market is turning sour:

There is new concern about inflation.
There is new concern about rising interest rates.
Today’s news reports that productivity is down and labor costs are up.
Today, the White House lowered their forecasts for ’07 GDP.
Turkey is now making incursions into Iraq.

Are you still confident that things are going to hold up until August?

It seems to me that the U.S. market is getting increasingly vulnerable to an ugly surprise, whether such is economic or geopolitical.

[Chris Scoreboard Johnston]

Chris Johnston

Matt, sorry you do not like my format, it just comes up like that. I guess I could just delete it, but the full history of the name goes back to a debate I had in here with someone who did not like me. I pointed to a documented place where proof of an annual return of 60% was posted for me, and referred to it as Scoreboard, which is an old trash talking saying from my days as an athlete.

JG, negative sentiment is what I want for the rally to continue, bullish sentiment is a negative in my view. When you look at major peaks and troughs in stock prices you will often find the peaks occur when a sentiment is high and troughs when sentiment is low. There are a number of ways of measuring sentiment, but I like to focus on the small speculators, and the investment advisors, and do the opposite for the most part of what they do. This is somewhat contradictory in that I could be considered an advisor. However, I am talking about the collective whole of the community, not just one individual.

I have no idea if the rally will last until the end of the summer, that is just what my model is telling me. If I see the commercials jump off the long side, while bonds are still as weak as they are now, I will exit my longs instantly. So far, my system says to still be long, so I am. I do think you are going to get a healthy decline that could begin by summers end, as I have said many times before. It is unlikely that the model will be exactly on target, but I did state in here before the fact that a big rally was going to start in April to May, and that was based on the model, so it has been pretty good so far this year.

I hope my model is accurate, and gets me out before it happens. However, I will then view that as another buying opportunity for what it’s worth. If we all agreed on market direction, there would be no trades, so disagreement is imperative.

[Chris Scoreboard Johnston]

Chris Johnston

Matt, sorry you do not like my format, it just comes up like that. I guess I could just delete it, but the full history of the name goes back to a debate I had in here with someone who did not like me. I pointed to a documented place where proof of an annual return of 60% was posted for me, and referred to it as Scoreboard, which is an old trash talking saying from my days as an athlete.

JG, negative sentiment is what I want for the rally to continue, bullish sentiment is a negative in my view. When you look at major peaks and troughs in stock prices you will often find the peaks occur when a sentiment is high and troughs when sentiment is low. There are a number of ways of measuring sentiment, but I like to focus on the small speculators, and the investment advisors, and do the opposite for the most part of what they do. This is somewhat contradictory in that I could be considered an advisor. However, I am talking about the collective whole of the community, not just one individual.

I have no idea if the rally will last until the end of the summer, that is just what my model is telling me. If I see the commercials jump off the long side, while bonds are still as weak as they are now, I will exit my longs instantly. So far, my system says to still be long, so I am. I do think you are going to get a healthy decline that could begin by summers end, as I have said many times before. It is unlikely that the model will be exactly on target, but I did state in here before the fact that a big rally was going to start in April to May, and that was based on the model, so it has been pretty good so far this year.

I hope my model is accurate, and gets me out before it happens. However, I will then view that as another buying opportunity for what it’s worth. If we all agreed on market direction, there would be no trades, so disagreement is imperative.

[HereWeGo]

Chris-

Is the next “buying opportunity” this Friday morning or next Friday morning (Thurs COB for fund buyers)?

[HereWeGo]

Chris-

Is the next “buying opportunity” this Friday morning or next Friday morning (Thurs COB for fund buyers)?

[Anonymous]

I dunno, Chris. This bearish sentiment appears pretty painful for those long, looking at the DJIA/S&P 500/NASDAQ, today.

[Anonymous]

I dunno, Chris. This bearish sentiment appears pretty painful for those long, looking at the DJIA/S&P 500/NASDAQ, today.

[Author]

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