Thursday, August 6, 2009

The Stock Market Kiss of Death

Many investors and traders staunchly believe in "contrarian indicators" as a tool for predicting market tops and bottoms. The reason has to do with emotions and momentum in an extreme sense, such that at that point, there are few bystanders left to be sellers in a downtrend, or buyers in an uptrend.

So, while I have seen many lately, none were quite as promising as today's from none other than the total failure of a clairvoyant, Abby Joseph Cohen from Goldman Sachs. I can't even remember how many times she has been wrong, but I'm sure others can, and I can pretty much guarantee they'll be front-running the market down now that she has piped up.

According to the WSJ, she has made the following comments:
  • The S&P 500 Index may rise as high as 1100 this year

  • "We do think the new bull market has begun"

  • Investors have seen improvement in key areas such as the job market and business inventories.

  • "We are beginning to see improvement even in the labor market, where it appears that the job losses are slowing and there is some job creation going on,"

  • Earnings of $75 a share for the S&P 500 next year are "reasonable" and that the S&P 500 at 1050 would put the price-to-earnings ratio around 14.

I don't think it's a stretch to say that she is my new favorite person. Her sense of humor and grand delusions are infectious and endearing.

Seriously, what the $%&* is she talking about? Investors have seen improvement in the job market? WHERE?! The job market is escalatingly abysmal and the only reason that the loss rate looks LESS BAD is because people have been unemployed so long, they're falling out of the ranks of those that still qualify for benefits.

Oh, and, I hate to be the bearer of bad news (i.e., reality), but the current P/E Ratio on the S&P is now 140. Earnings have dropped 97% from peak.

Keep that in mind.

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