Technicians Speak
November 18th, 2008 7:39 am | by John Jansen |I have mentioned that I have a moderate sized position short the equity market and long 10 year notes. Against that bit of background and full disclosure I shamelessly flog my position by linking to a Bloomberg story in which several chartists predict dire outcomes for equities.
9 Responses to “Technicians Speak”
By Alex on Nov 18, 2008 | Reply
http://ftalphaville.ft.com/blog/2008/11/18/18355/if-all-else-fails-devalue-the-dollar/
By E-man on Nov 18, 2008 | Reply
Could you link to your reasoning for the short equity position? I’d be interested to read your thoughts on that.
By John Jansen on Nov 18, 2008 | Reply
I am a bond guy so please treat my words with caution.
I think that the recession will be longer and deeper than expected.
I think that we are passing through a period in which great change is being wrought. A revolution is occuring in open view.
That revolution will reflect itself in a more risk averse and less leveraged financial community. Less leverage and less risk means reduced levels of economic activity.
Additionally, I believe that the new Democratic Congressional majority will find out that with the cupboard bare of money that the only chance for vindication is to shackle business. Expect that a new era of regulation will greatly reduce opportunities for growth and expansion.
As an armchair economist I combine those factors and say to myself that it will be tough getting out of the recession and when we do emerge growth will average 2 percent rather than the 3 percent to which we had grown accustomed.
Against that background I expect the S and P to reach a level somwhere in the 750s which i believe was the low in the 2002 dot com bear market.
By Kevin Mackey on Nov 18, 2008 | Reply
Based on comments on the blog, you have indicated that the flood of Treasury securities will drive prices lower. If that is the case, why are you long Treasuries? Are you planning to hold to maturity?
By John Jansen on Nov 18, 2008 | Reply
I am long for a trade.
You dont have to love them, you just have to like them for an hour.
By cyclingscholar on Nov 18, 2008 | Reply
John your viewpoint is similar to Briefing.com, which expects a long recession but also…and here is the true break from recent history (2 decades for you yuppies); yes, SLOW recovery after. In that case the PE multiple for the market, which has one foot in the growth rate for stocks, will be lower in the future than it has been historically. PE compression has already occured with numerous growth stocks. Crank a PE in the low teens into projected EPS for the SP500 and see what ya get.
By Dave on Nov 18, 2008 | Reply
Back in the 70’s, the market PE was in the high single digits. Likewise, as an armchair economist, assuming this is a long recession and slow growth afterward, I think a PE of 10 or even less (similar to the 70’s) is possible. With that assumption, and assuming S&P earning under $70 next year, the market could fall another 20%, IMHO.
By Charles on Nov 18, 2008 | Reply
John, do you have an opinion on the outlook for non-financial corporate debt? Have we seen a bottoming in that market or are there further falls there as well?
By Dean on Nov 18, 2008 | Reply
What is the argument for the long bond doing poorly in a deep recession? Seemingly the Fed would want long rates lower, to encourage investment. Too, if long rates reflect short rate expectations, then the longer that short rates are expected to be low, the lower the long rate will be. I believe long rates fell as the Great Depression went on. The counter argument is that the Fed is increasing liquidity, which will create inflation which will have potential bond buyers demanding a higher rate. But what is the competition for these funds: cash, stocks, commodities. None seem that compelling. Also many expect to see deflationary pressure, which seems to be reflected in reports of various products being reduced in price.