S&P500 dropping to 600 by spring 07

[anxvariety]

Are you golfing in Ranch Sante Fe today?

Actually I was LOL…

Now I’m taking aim at the pompously circumlocutious ex post facto babble spewed by our resident prophetics.. Who cares this was a stupid prediction made 6 months ago… how about put your balls on the line and take your own guesses? Out with the vague Nostradamus bullshit..

[powayseller]

I just had a look at this thread, and am surprised by the level of misunderstanding. This is David Rosenberg’s study and it shows a 79% correlation between the NAHB homebuilder sentiment index and the S&P500 one year later. If you think he’s full of it, then time will tell.

In the last decade, we have gone from making products to buying and selling houses to each other on money created by the Fed, and recycled to us from Saudi Arabia, Japan, China, etc. NOW HOUSING IS THE ECONOMY.

That is why Rosenberg showed only the last decade in the chart: Housing is more correlated with the economy than ever. Housing IS the economy.

My timing has been off, as the market retreat was delayed by delusional market participants. Just as in 2000, they are grossly mispricing equities.

Ciovacco Capital has the Rosenberg quote, followed by the conclusion that the correlation, if it holds, would lower the S&P500 by 42% from August 2006 – 2007.

“The chart above is rather intriguing – the NAHB homebuilders index leads the S&P 500 by 12 months and with a near-80% correlation – a correlation that over time has actually strengthened, owing to the growing influence that the real estate market has exerted on the overall economic and financial landscape over the past five years. In fact, we can trace almost two-percentage points of the 3 1/2% average annual rate in real GDP over that time frame to the boom in housing construction and home prices – the direct impact on homebuilding, the spin-offs to other sectors like real estate services, architecture, engineering, legal, etc and the multiplier impact from the ‘wealth effect’ on consumer spending, especially on home improvements and household furnishings.”

The statement above means that during the past five years housing has either directly or indirectly accounted for 57% of economic activity. The latest release of new home sales shows a 21% year-over-year decline.

Using the 12-month lag of the S&P 500 as shown in the chart above, the actual correlation between the S&P 500 and the homebuilders index is .79, which would give us the following calculation to forecast where the S&P 500 may be 12 months from now (roughly August 31, 2007):

* The homebuilders index had a reading of 67 in August of 2005 (12 months ago)

* The reading of the index as of August 2006 is 32

* A move from 67 to 32 represents a 52% decline

* With a .79 correlation to the S&P 500, we need to reduce that decline by 79%, which gives us roughly 41% (reduced from 52%)

* If the correlation holds, which it may not, the S&P 500 would be 41% lower 12 months from now (or roughly on August 31, 2007).

END OF CIOVACCO CAPITAL QUOTE

[Chris Scoreboard Johnston]

Chris Johnston

I will take the other side of that bet, or the “over” if you want to label it in sports terminology.

[sdworker]

I am confused. I just went to a presentation given by the Chief Investment Officer of Wells Capital Management (the asset mgmt division of Wells Fargo Bank). He showed charts and discussed that housing and autos only represent 9% of the total US GDP. And while that 9% of the economy has been in serious decline, the remaining 81% of the economy is going gangbusters! See these charts and his comentary (James Paulsen) in his Nov 2006 newsletter at

https://www.wellscap.com/docs/ecomonic_and_market_perspective/EMP%201106_RFS.pdf

He said the press keeps talking about all the risks to the economy and how there is a sentiment out there of a “wall of worry”, but in the mean time the stock market has been doing well, the economy is doing well, profits continue to do well, incomes continue to do well etc etc.

The other interesting thing he said is that there are about 20 ways to calculate the savings rate of Americans and the one that gets bandied about in the press is, in his opinion, just about the worst way to calculate it…and if you look at other calculations that Americans are not in negative savings territory at all. Anyway that is a sidetrack to the point about the general economy and how much the housing market represents….but as said already…time will tell…

[Anonymous]

sdworker,

9% may be a conservative number when you account for ‘housing related’ GDP items. Here’s some of the GDP breakdown – just consider areas that could be impacted:

13.2 = Total 2006 GDP, trillions

Personal Consumption:
1.1 = Durable goods (vehicles, furniture, other)
2.7 = non-durable (food, clothing, gas, other)
5.5 = Svcs (housing, gas/elec, transport, medical, rec..)
—-
= 9.3 trillion, 70% of GDP, much of which is outside your 9%, yet still heavily impacted by a slowing economy and simply less people using home equity to pay for recreation, dining out, clothing etc.

[(former)FormerSanDiegan]

Chris Johnston

I will take the other side of that bet, or the “over” if you want to label it in sports terminology.

I also “predict” that the S&P will not decline by 40% before August, as spelled out in the revised forecast.

Of course, if I am wrong it is because the market is delusional.

[DaCounselor]

“I just had a look at this thread, and am surprised by the level of misunderstanding.”
___________________

I understand this thread completely. There are three main statements made in the original post:

1) “This chart predicts the S&P500 will keep falling and hit 600 by summer 07” Terribly wrong so far (but it ain’t summer yet). Still, terribly wrong to date.

2) “One more reason to stay out of the stock market for another year at least” A costly blunder – calling the temporary top far too soon.

3) “Sorry, no fall rally for the mid-election year cycle folks” Again, terribly wrong – a costly blunder.

That is all there is to know about this thread.

[davelj]

Dell pre-announced a debacle; AMD just pre-announced a disaster this afternoon… if you’re long tech, people, you’re about to get absolutely slaughtered…

********** From my previous post***************
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.

[sdworker]

Thanks for the clarification juice. I get very dazed and confused sometimes. I read both alot of bear and bull analysis and they both seem plausible and the data seems to support many shades of gray…

[poorgradstudent]

I’ll be shocked if the NASDAQ closes below 2000 in the next 12-18 months.

That would mean falling more than 14% from the current level. Seems like a worst case scenario to me, but I’m far less doom and gloom than a lot of the people here. Honestly, if it does get that low, I’ll be shoveling every quarter out of my couch cushions to invest at those values.

I expect NASDAQ to close up 2-4% from where it started 2007 (~2430), which would mean something around 2500. I’m still expecting 5-7% out of the S&P 500 by year’s end.

I don’t think we’ve hit a bottom, but we may be at a local minima. As I write this, Japan and the rest of Asia is broadly up, by more than a percentage point for most indices. Will Europe and North America continue following Asia’s lead? We’ll see.

[carlislematthew]

I also “predict” that the S&P will not decline by 40% before August, as spelled out in the revised forecast.

Of course, if I am wrong it is because the market is delusional.

Absolutely. If the market DOES decline by a large amount then the predictor is RIGHT. However, if it doesn’t decline by a large amount then everyone else is delusional and the predictor is still RIGHT. Whatever happens, the predictor remains confident, correct, and the only sane person in the room. All others are morons, or lucky fools.

[(former)FormerSanDiegan]

Happy Vernal Equinox !

[Happy renter]

Right now S&P is 1410 that is 100 or 7.7% increase from the 1st post, Aug 06. S&P has to drop 57% to hit 600. I personally don’t think it will happen by Spring 07. If the housing market is going to crash very badly, the S&P or stock market may drop 20-25% the most temporary. If it really drops, it will bounce back within 6 months to 1 year!

[little lady]

IT IS spring 07, anyone check Poway sellers web site?

[(former)FormerSanDiegan]

IT IS spring 07, anyone check Poway sellers web site?
Just follow the sounds of the chirping crickets.

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