S&P500 dropping to 600 by spring 07

[Chris Scoreboard Johnston]

Chris Johnston

Keep in mind that she also predicted a 50% RE drop, so if you criticize her for one, it would be hard to sign off on the other. Neither one of those predictions ever had a chance in my opinion of being correct. Predicting the end of the world economically is hard to do. My big picture timing indicator is so close to generating a sell signal, but it has not done it yet, so it is still long. Very few major highs historically have been made in January or February.

[Chris Scoreboard Johnston]

Chris Johnston

Quite a day today, I would love to say that I predicted this but I did not. In fact, I went long on the gap down open in my short term trading account and got stopped out for 14 pts/contract in the S&P, a five digit loss. I did mention that we needed a decline into March/May to setup a buy for a rally into a summer high. I did not expect something this sharp, so it remains to be seen if this down move will effect the fundamentals enough to eliminate the buy signal I was anticipating.

My big picture timing model has still not generated a sell signal, which makes me think we will rally back up, but I do not know if we will go down more first. Drops this sharp do internal damage that is tough to assess after just one day. Do not be a hero when volatility gets like this, if you place any trades, trade smaller than you usually do to take into account the volatility increase.

Hopefully the commercials are buying this drop, it will be interesting to see the next COT report.

[(former)FormerSanDiegan]

S&P dropped 50 points today.

There are 16 trading days until Spring.

If we extrapolate that the S&P will drop by the same number of points each and every trading day ’til Spring guess where it will be ?

600

Spoooky.

[PD]

If I remember correctly, the actual call was a drop off the high by a certain percentage. At the time this thread was started, that percentage equaled a drop to 600.
Does anybody remember what that percent drop was? Wasn’t it something like 28%?

Did anybody else avidly watch the market today? It looks like markets around the world are continuing the slide tonight. What will Wednesday bring?

[(former)FormerSanDiegan]

The day of the original post, the S&P 500 closed at 1301.78.

The actual call was S&P to hit 600 by Spring ’07, not a percentage drop from some future peak. It’s right there in the title. After yesterday’s bloodbath, the S&P 500 was up 7.5% from the date of the original post.

I still think there is plenty of downside risk in stocks. However, the notion that an 50%+ drop in the HMI equals a 50%+ drop in stocks based on a correlation study is both mathematically incorrect and naive.

[davelj]

I will be shocked if the Nasdaq doesn’t close below 2000 in the next 12-18 months. Other than early-2000 (the year, to be clear) I’ve never seen valuations so high at a time when the fundamentals of both the economy and individual stocks – and particularly tech stocks, where inventories are absolutely through the roof – were deteriorating so rapidly.

We just got what amounts to negative guidance from Dell. I’d expect pre-announcements and negative guidance from at least the following over the next several weeks:

TXN
QCOM
INTC
AMD
RIMM
MOT
AMAT

… and many many others. This is going to be a bloodbath. Why? Everyone’s on the wrong side of the trade… as is the case leading up to all major dislocations…

Look out below, folks.

[PD]

FSD, at the time Powayseller created this thread, we were discussing this issue in a different thread. In the other thread, powayseller (if I remember correctly) presented data showing that the stock market typically drops a certain percentage during a recession (per Roubini?). Since she was calling a recession to start very shortly, she applied that percentage drop to the current S&P numbers. Voila, a drop to 600. She then started this thread.
Of course, this is all from memory and I have not dug through the posts from that time to verify.

Powayseller, was this how it happened?

So, Powayseller may end up being right about the drop (percentage wise) but wrong about the onset of the drop. I think she has gotten too much flak for this post as people have either forgotten or never read the previous thread.

[(former)FormerSanDiegan]

PD –
I remember the other thread along the same lines as you. It is correct that stocks have fallen in recessions which was the general premise there. It is also probably a good bet that the S&P 500 will drop significantly in the next recession. I’ll grant those points.

But I think it absolutely clear what is stated in this thread.
It was stated that the S&P500 will drop to 600 by Spring 2007. (That’s a drop from 1301 at that point to 600 … a 53% drop) The reasoning was based on the HMI index being correlated with a certain lag with the Stock market.

I personally don’t care if we re-interpret it as a 53% drop by Spring, Summer or Fall 2007. My opinion is that that re-interpretation will turn out to be incorrect as well.

If we re-interpret that the stocks will drop by Spring 2007, to the same levels as it was when this was originally posted it might be correct.

My problem is directly linking the magnitude of a drop in item A, simply because it is correlated with item B and item B drops by 53%. This is naive, she succumbed to someone’s cherry picked 10-year segment of a time series and made a naive conclusion.

If you look back at page one of this thread, where I plotted a longer range time series you can see that there are large movements in HMI that result in very little movement in S&P 500. In fact 1989-1990 saw a 64% decline in the HMI, while the S&P 500 declined by about a 15%. That was heading into the July 1990 – March 1991 recession.

That’s right a 64% decline in the HMI led to a 15% decline in S&P 500, not a 64% decline.

I am re-posting the plot to which I refer below for convenience.

[img_assist|nid=1399|title=S&P and HMI|desc=Plot of S&P 500 and NAHB/WF HMI index.|link=node|align=left|width=466|height=314]

[PD]

Fair enough. Do you think we will see a 15% decline if we are heading (or already in) a recession?

[anxvariety]

What a ridiculous thread… most of the dudes posting here have balls bigger no bigger than peas to begin with.. not suprising they would criticize a persons guess or projection with conviction.. maybe they were foolish enough to follow this prediction??

Anyone looking for credit in their predictions or to bash others, while highlighting the rare cases where they were correct – are simply insecure and obviously didn’t capitalize on their own predictions enough because they’re still in here rather than golfing all day in Rancho Sante Fe.

[davelj]

Personally, I think it will be more than 15% if we head into a recession because the current estimates are for the S&P to grow earnings both this year and next in the high-single digit to low-double digit range. If we hit a recession earnings will decline as profit margins – which are currently as high as they’ve ever been since recordkeeping began in 1954 – collapse. So, you’ll get a P/E adjustment AND a large earnings adjustment at the same time – a double whammy, if you will, on the valuation front. I think 900 on the S&P 500 and 1800 on the Nasdaq is not at all unrealistic at some point in the next two years, but they could easily stall at 1000 and 2000, respectively. I don’t have a crystal ball, but my bet is that we’re headed into a correction that’s deeper than 15%.

[(former)FormerSanDiegan]

I’d be prepared for a 20% or more drop in stocks during the next recession.

[(former)FormerSanDiegan]

What a ridiculous thread… most of the dudes posting here have balls bigger no bigger than peas to begin with.. not suprising they would criticize a persons guess or projection with conviction.. maybe they were foolish enough to follow this prediction??

Anyone looking for credit in their predictions or to bash others, while highlighting the rare cases where they were correct – are simply insecure and obviously didn’t capitalize on their own predictions enough because they’re still in here rather than golfing all day in Rancho Sante Fe.

… and the point is what ?

Are you golfing in Ranch Sante Fe today?

[PD]

Sounds like PMS to me.

[hipmatt]

A hundred different snapshots could show you the mess we’re in. Soaring personal and government debt. A plunging savings rate. Record-high mortgages as a percentage of GDP. Plunging yields on 10-year Treasuries. Soaring but “hidden” unfunded government liabilities, to the tune of $53 trillion…

But none show it better — and more plainly — than these two I’m showing you right here, above. The first is our skyrocketing money supply. The second is our plummeting purchasing power. That’s about as plain as you need to get.

How so?

Because this is the starkest vision you’ll ever get of the absolute carnage that’s piling up in a “secret war” Washington’s fighting right now… and has fought, unsuccessfully, for the last 20 plus years. No, not the war in Iraq. Or Afghanistan. Or even some possible future conflict with Iran.

This is another kind of war… right here at home.

The enemy is the dark nemesis of a dead and stagnant economy. And the Fed secretly fights to hold it off desperately every single day. This is a worse enemy than recession. It’s the enemy called deflation, an economy where nothing moves and nobody buys a thing.

The weapon of choice in this ongoing secret war is to flood the market with cash and easy credit. Because regular cash and credit injections make everyone feel rich. The theory goes, when you’ve got cash and low-priced credit, companies borrow and expand. Consumers borrow and spend. Families borrow and buy homes.

Which is why, since 1950, the total amount of money in circulation has soared well over 3,000%! And it’s all good… or seems good… until it goes all wrong.

See, the trouble is, even money can’t escape the natural law of supply and demand. When there’s too much of it floating around, each dollar is worth that much less relative to the whole. Suddenly, you’ve got price inflation.

Suddenly, every dollar you have in the bank is worth less.

Hemingway called it the “first panacea of a mismanaged nation.”

And in our case, it’s helped plummet the purchasing power of our dollars by a mind-blowing 96%. The dollar’s worth today is just pennies compared with what it bought a century ago. In fact, its worth is just a fraction now — as we just demonstrated — compared to the last time gold prices boomed, in the 1970s and early 1980s.

Only now, unlike then, the “wiggle room” we have left now between us and a complete dollar implosion is so thin it’s practically transparent. Could total implosion actually happen? Absolutely.

Take what relatively new Fed Chairman professor Ben Bernanke famously said in a speech at the National Economists Club in Washington, in November 2002…

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost… We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

In other words, if you want to juice an economy… turn on the printing presses and make it as easy as all get-out to borrow money at a low, low rate of interest. Bernake and others in the Fed think that’s no problem. They think they can handle it, just so long as short-term interest rates don’t go to zero.

But a brilliant and famous colleague of mine — someone I’ll introduce you to in just a second — completely disagrees. Flooding the market with easy money, he recently told me in private, is more like burning your furniture to keep warm. It cannot last as a stopgap measure. It’s courting disaster.

He and I both like to think an even smarter economist, Ludwig von Mises, got it right instead, when he said…

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

See, thanks to all that Fed-driven loose credit, consumer debt has soared. It’s never been higher. In 1987, when Alan Greenspan first took his job in Washington, consumers where in the hole by about $10 trillion. Where are they now? An unbelievable $37.3 trillion in the red – or nearly 350% of GDP!

Think about that.

As a whole, Americans owe three and a half times more than the entire U.S. economy — the largest in history — produces in a year. If you or I owed that much on a personal level, we’d be suicidal.

Meanwhile, the government doesn’t seem to worry. They spend money even faster. They borrow even deeper. Even this administration now, with full knowledge of the implications of a credit disaster, has already borrowed more money since 2000 than every White House since the time of Washington!

By 2017 – says the Heritage Foundation – our federal deficits should be soaring by at least $1 trillion per year. After that, it will jump to $2 trillion. That’s not how much we’ll owe. It’s how much we’ll add to what we owe… every 12 months, for as far as the eye can see.

Doesn’t that sound, to you, like we’re at a turning point?

…from an ad I saw promoting gold..

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