S&P500 dropping to 600 by spring 07

[(former)FormerSanDiegan]

PS –

The S&P 500 will double.

In other words, I am betting that the next 100% move in stocks is to the up-side, as opposed to the downside.

On another subject … as for relying on a traders or an economist for short-term stock advice, I think I’d put money on the trader, and here’s the reason :
High-profile economists have to stick by their prediction or “adapt” their opinion slowly as the markets change to save face. A trader knows they will be wrong many times and have no problems switching sides if it will make them money.

[bgates]

Now that’s a safe bet!

I too am sure the next 100% move will be to the upside –
that is, the index will double (100% up) before every company in the index goes bankrupt (100% down, to zero).

PS, I’m surprised to hear you say you have no idea where the S&P is going. How do you square that with your statement, “don’t confuse predictions with economic and business and housing cycles which are repetitive and cyclical and don’t need predicting; they only need to BE UNDERSTOOD.”

[Chris Johnston]

Chris Johnston
iamafuturestrader.com

Saying it will be dark is a fact, an event that has repeated with 100% regularity over a immense sample size. Predicting something that may or may not happen in the future is an opinion with a sample size of zero going on 1. Opinions including mine are far from facts. I cannot stress enought PW that you need to have some flexibility in your thinking.

I have no idea if you will be right or wrong about any of your strong predictions. I do know this, some of mine will be wrong, and I will adapt on the spot to the ones that are. Will you be able to?

I find it hard to believe that you would equate darkness of the night with an economic prediction from an economist. Also, where have I stated that I expect a 20% gain in the indices? I have no idea how much this rally will be once it starts, if it starts in the fall. My goal once I enter my trade will be to outperform the indices as a whole, which I have done every year since I have been trading stocks.

The last year as I stated the stocks I bought and held gained 19.2% from entry to exit as a whole. That included the small dividends that were paid on them during the hold period which was about 7 months. CAT, HPQ, HON, AA and HD were the 5 stocks that I bought, putting 20% of my money in the trade in each one.

That beat the indices for the year by a wide margin, which was my goal. It was certainly no home run by any means. I do expect this year for the trade to do better if it sets up properly in the fall.

[ybc]

Chris,

Do you consider tax when you make trades? It seems that almost all your gains will be short-term. The tax difference at top marginal rate is quite different from long-term capital gain rate, unless you are caught by AMT… Just wondering. Thanks.

[powayseller]

The economy, and the stock market move in cycles, up and down, up and down, just like night and day.

Chris, I got your 20% gain off the first page of the last newsletter, where you list the historical average for these mid-election year rallies.

Just curious: are you flexible in your view that the market will rally this fall?

My recession call is definitelyflexible, as I evaluate it every day. I will enter the market after I see a glimmer of hope for the economy. I’d need to see that consumer spending, which is 70% of GDP, has a shot at rising again. Incoming data is just reinforcing my recession call and the bear market starting by early 07.

I am not interested in debating this further, unless you have evidence that a recession is not possible. I won’t accept the argument that stock markets rise in a recession, because history shows that the markets falls 28% in a recession. So the only way that the S&P500 can rise, is if we don’t have a recession. It is certainly possible that in a bear market individual stocks will rise, and you can make money on short-term trading, although it is more difficult. I will leave that for the pros.

Well, I’ve exhausted this topic, and now we just have to wait and see how the market goes ….

[Chris Johnston]

Chris Johnston
iamafuturestrader.com

I agree the topic is tired at this point. You ignore the facts that do not fit your side such as the rallies in the recessionary years. There is not one 20% number in over a hundred numbers anywhere on the first page of the newsletter, I am looking at it right now.

Please do not misquote me in a public forum like this.

To answer your question about a recession being possible, absolutely it is. Also, could the market rally fail to materialize, absolutely. I outlined the conditions in the newsletter that would invalidate the setup. It is unfair of you not to mention these things that I have written that you have seen but others here have not without having them in the proper context.

I have just said there is likely to be a stock rally. I have said it itleast 50 times in here, I COULD BE WRONG. I am not sure that I have ever seen you type those words. Knowone knows the future. I could care less if there is a recession or not. That link is one that you drew. It is not part of my consideration to buy or sell stocks.

You will learn through time going forward that stocks can and have at times rallied during recessionary periods. This is a historical fact, it has happened in the past and will again during some down periods. These absolutes you draw are often not completely accurate.

You need to tighten some of these things up for your consulting because they are known by people with experience and you do not want your credibility undermined. It is ok to have strong opinions, but they need to be backed by the numbers. Absolutes are out there in some areas, but relationships that have had variations should not be presented as absolutes.

[powayseller]

Chris, with all due respect, it is actually you who is ignoring the data I have presented here several times. I hope you will read this carefully, as well as Roubini’s post, so there won’t be any further confusion about the relationship of the stock market and recessions.

You corrected me yourself, and explained why the stock market is forward looking. Therefore, by definition of forward looking, the stock market falls several months before a recession, and rallies several months before the recession is over. Roubini’s charts of the last 6 recessions depicts that this is exactly what happened. (This is explained by Ellis in his book Ahead of the Curve as well.)

Roubini’s charts and research show that the stock market fell peak to trough by an average of 28%, if you correctly look at the peak before the recession started, and the trough in the middle or near-end of the recession. Some economists and investors make the mistake of looking at the stock market during the period that defines the recession, because they don’t understand the recession is a lagging indicator, and the stock market is a leading indicator of the economy.

So in each of these last 6 recessions, going back to 1973, the stock market peak occured several months before the recession began, and the trough occurred 4 – 6 months before the recession ended.

Note that in none of the past 6 recession, did we ever rally in the stock market going INTO a recession. The times you mention that the stock market rallied in a recession – yes, they always do! As wages increase, and consumer spending picks up, the stock market anticipates increased corporate earnings and prices rise; a few months later, GDP increases again, and voila: the recession is officially over. So of course the stock market rallies toward the end of a recession, but it does not rally going INTO a recession. I hope I have explained this well enough this time around.

So the only question is: will we have a recession? There is no doubt at all that the stock market must fall going into a recession. If you want me to say I could be wrong, I’ll have to say it this way: “I am 100% certain we are heading into a recession, but it is possible that I am wrong about stocks falling in a recession; investors could bid up stock prices in the face of declining and dismal corporate earnings/outlook and bleak prospects for the future. It has never happened, but markets could behave irrationally. I could be wrong about a recession, but I’m not putting my money on that; my money is on a recession.”

As Ellis explains in his book, many investors get confused about recessions. While in a recession, they stay out of the stock market. Instead, they need to be looking for signs that wages and consumer spending are picking up. Once the recession gets under way, I will be looking for signs that it is ending, so I can get back into the stock market.

Chris, I’m sorry I misquoted you. I remembered the number incorrectly. I apologize for this error. As far as your statement “You need to tighten some of these things up for your consulting because they are known by people with experience and you do not want your credibility undermined”, it is actually you who misunderstands the relationship between the stock market and recessions. So take your own advice on that one.

[Anonymous]

you’re 100% certain that we’re headed into a recession? i guess 100% of those other people that look at the economy for a living are just pikers because 0% of them are assigning such certainty to their predictions. also, my statistics are a little rusty, but just because two events have or or haven’t been associated with each other in 6 out of 6 observations does’t make it a sure bet on the 7th. it will be greater than 50/50, but a helluva lot less than 100%. i’d be interested to see your statistical work on this relationship.

[powayseller]

If you pay me a consulting fee, I’ll give you all the data you want, siamcat. In the meantime, you can read it for free on Roubini’s blog. Just today, he wrote an entry about how economists almost never predict a recession; most are so bad at their jobs. But I am sticking my neck out to make a recession call. Beat me up if you want, but that won’t make me change my mind. Only a change in incoming data would reverse my recession call.

[Anonymous]

i don’t think anyone’s arguing that there isn’t a very good chance of a recession. probably most here including me agree with you. but applying a 100% degree of certainty to anything related to something with as many moving parts as the economy is as you like to say ‘delusional’.

[powayseller]

I didn’t realize that it’s improper to have 100% conviction. What etiquette rule did I break?

[(former)FormerSanDiegan]

Poway –

Only a change in incoming data would reverse my recession call.

Doesn’t this make it less than 100% certainty ?

I see no etiquette rule broken.
Just negative reactions to black-and-white predictions in a gray world of uncertainty.

[Anonymous]

it has nothing to do with etiquette. it’s about being completely disconnected with the limitations of your own knowledge. you come across as one of those people who has never admitted they were or might be wrong about something. those people always look really silly to those of us who understand that we don’t and can’t know everything particularly about the economy of all things.

[Anonymous]

exactly formersandiegan. poway – i’m 100% certain that the packers will win this weekend, and i’ll only reverse my call if they’re down by 3 touchdowns in the fourth quarter. i’m sure my bookie will let me change my bet at that point. pay you a consulting fee? you’re joking, right?

[an]

siamcat, I agree with you, it’s impossible to know anything to a 100% certainty, especially something as complex as the economy. ps, according to your statement, you say you have data that back up your 100% recession claim. However, has the last 6 recession have the same economic factors? I highly doubt even 2 have the exact same economic variables. Also, with all the current economic variables right now, does it match 100% to any of the last 6 recession? If not, then you can’t claim it to be 100% unless you have a crystal ball or just came back from the future. The economy have hundreds if not thousands of variables, it’s already hard enough predicting something with 2-3 variables with any certainty, much less something with thousands of variables. If you say you’re right on your 100% conviction until we bring data. How about you prove to us with your data of all the variables of the economy. So far, I only see you state of 2-3 variables.

[Author]

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