Stock and commodity markets became wildly over-valued over the past year. Now there is a growing realization that maybe economic growth going forward won't be as stellar as prices suggest. The key point is that over-valued assets, like over-leveraged people, are highly susceptible to downside surprise:
Outsiders better pay attention here because insiders have been selling their shares into the market strength with great conviction the past several months:
What leads us to talk about PowerShares QQQ (you thought we'd never get around to telling you) was Alan Newman's CrossCurrents advisory letter, published a fortnight ago. More particularly, his survey of insider transactions in the top eight issues in the ETF. He performed the exercise on May 10 and what he discovered was rather astounding.
There were 231 sellers and three buyers, which works out to a somewhat lopsided ratio of 77 to 1. All told, the insiders sold 59.8 million shares and purchased 15,200 shares, a sell/buy ratio of 3,933 to l. Not exactly a resounding vote of confidence in the prospects for their companies.
Moreover, Alan notes, analysts are just as positive on the QQQ leaders as they were back in March 2008 before a 37% fall in price. At that time, 74.1% of the recommendations were Buys and 2.9% were Sells. As of May 10, 2010, 77.7% were Buys and 3.6% Sells. The more things change, we guess, the more things stay the same, especially on Wall Street.
See: Barrons: Orgy of Speculation
People who are holding and hoping have an uncomfortably high chance of loses over the next few months. If your financial advisor is telling you “don’t worry be happy” again for heaven’s sake SNAP OUT OF IT.
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Most people or even institutions fail to realize the correspondence between the economic growth rate cycles and stock price cycles.
The recent collapse in the commodity index is telling us that the peak in global industrial growth is imminent.
Markets are going to have to deal with the reality of a slowdown.
Personally, I buy the dips on an inverted chart….
More fun in Europe
http://www.spiegel.de/international/europe/0,1518,697680,00.html
2010 06. 06.
Profits for S&P 500 companies are projected to rise 17 percent in 2010 and 18 percent next year, estimates from more than 2,000 analysts compiled by Bloomberg show. The index trades at 13.1 times 2010 per-share earnings forecasts, compared with an average 16.4 times reported income since 1954. Economists predict gross domestic product will expand 3.2 percent this year, the most since 3.6 percent in 204, the data show.
Right.
But that's not what ECRI predicts, and their forecasts are pretty accurate. Still buying the dips on an inverted chart.