Best & Brightest See Rally Ahead

For edition of December 01, 2008

Some of the most astute bears we know have turned bullish in recent weeks, none moreso than Porter Stansberry. Porter was a good six months ahead of the crowd when he read Fannie and Freddie their last rites early in 2008. Although we can’t recall the last time he waxed enthusiastic about stocks, he is doing so now: “The investments you make right now will become the best investment of your entire life,” he asserts in his latest advisory. He sees this as one of the great buying opportunities of the last 30 years.

Bob Hoye is another seer of renown who thinks a turn is at hand, although not a full-blown bull market. In recent years he’s been a bear’s bear, and he’s gotten it right for as long as we can remember. He now thinks equities are building steam for a powerful rally that could carry into 2009: “A [bear rally] amounting to fifty percent of the loss from the May high seems possible,” writes Bob in the November 27 edition of Pivotal Events. That would imply 10,300 for the Dow and 1090 for the S&Ps. (They are currently trading, respectively, for around 8800 and 896). Another favorite of ours, Peter Eliades, sees a bullish correction that could last till April or May. Peter, whose Stockmarket Cycles was recently ranked by Hulbert’s as the top performing newsletter in the country for the first nine months of 2008, says that although the odds are small that the November 21 low will endure, conditions are improving for an intermediate-term rally.

Powerful MACD

And finally, there is our old friend and former PSE options-floor colleague Tom Tankka, a trader who has lived by his wits, and lived well, since we first met him nearly 30 years ago. An e-mail we received from Tom last week took a skeptical view of our recent assertion that the so-far 1200-point rally in the Dow was just one more short squeeze, destined to fizzle out as quickly as those that have preceded it. Tom responded as follows: "A short squeeze, pure and simple? Possibly. But there's one thing you can't ignore on the last low: the huge MACD bullish divergence. It's one of the most powerful MACD patterns I've seen -- and I follow them diligently, as you know. The kicker is, it exists in hundreds and hundreds of stocks that I track, and I have never seen this before. Bottom line: This rally will probably go much further than most think. The test should arrive shortly, as this wave up gets overbought. A shallow pullback should lead to a further squeeze into year end, as I think most are underinvested -- especially the hedgies, who just got done selling for all the redemptions. Also, we aren't that far off in tracking '29: The market dropped 49% off the highs, then rallied back like 40-50% in four months before a very painful 2-1/2 years down. We just dropped about the same, and could be set for a similar bounceback. Stay tuned."

Investor’s ’A-List’

For our part, with the global economy sinking into its deepest bog since the 1930s, we would be astounded if stocks were indeed about to embark on the kind of sustained rally that our friend Porter envisions. However, we think his “A-list” of stocks is a good place to start if you’re seeking relatively value, safety, and long-term returns. The list includes ExxonMobil, Wal-Mart, Microsoft, Johnson & Johnson, AT&T, Chevron, IBM, Pfizer, Cisco, Apple, Verizon, Intel and McDonald’s. These companies are not going out of business any time soon, and, if truth be told, the way they conduct business looks better suited to survival than the methods and policies now being pursued by the U.S. Government.

http://www.rickackerman.com/commentary/2008/Best__Brightest_See_Rally_Ahead.html

The Dow Jones took roughly 25 years to close above the 1929 high. But it was roughly another 12 years before a valuation peak comparable to 1929 was attained.

So in Bill Bonner’s argument the next high should have been 2037, using his historical precedent.

Using the valuation peaks of 1901, 1929, 1966 and 2000 the average peak to peak is 33 years - peak in 2033?

From valuation peak in 1901 to valuation trough in 1920, the duration was 19 years, using trailing ten year earnings.

From valuation peak 1966 to valuation trough in 1982, it was 16 years, also using ten year earnings.

From valuation peak in 1929 to valuation trough in 1949, it was 20 years, using trailing one year earnings to make a suitable comparison in the cycles.

So that the average duration from peak to trough is roughly 18 years. Which suggests that the duration from valuation peak to valuation trough maybe around 2018.

While the recent interventions of the Federal Reserve have been contrasted to post 1929 it is suggested that the contrasts should be 1927, 1971, 1987, and 1997-99.

This then suggests that a major rally in the stockmarket will occur in the aftermath of measures taken to prevent the unpreventable, as has occurred, more or less, in the above interventions.

The argument for the above is presented in “Crisis then Last Hurrah” in “Barack Obama, Jimmy Carter and JFK - Clues to the Future” http://www.members.optusnet.com.au/futurewatch/id77.htm

what i want to know however is how central bankers and legions of MBAs can be blind to what seems so simple. surely they have economic advisers who can appreciate the same macro economic results that you can. surely some of these individuals are on a circulation list and have a comment they would like to make... ?

i can't believe that paulson and co are at the helm of an evil empire with intentions of committing everyone to servitude. i, like many of your readers, wish to understand why it seems far more plausible this is based on motivating people to buy gold through preferred suppliers than an ideological war against misguided policy.

so so so confused.