Tuesday, March 04, 2008

Final poll results

The polls are now closed for the market bottom and investment choices.

Market bottom: The majority of blog visitors believe the Dow will bottom out either above 11,000 (36%) or between 9000 and 11,000 (32%). The remainder were evenly split between 7000 to 9000 (15%) and below 7000 (15%). My forecast for 8500 is definitely in the minority.

Investment choices: Visitors were allowed to give multiple answers here, and 2/3 of the responders indicated they owned stocks or stock mutual funds. Cash and short (bear) positions were each present in about 1/3 of the portfolios. Bonds, options, and "other" were each represented by 2 of the 25 surveyed. I wonder what "other" means? Real estate perhaps?

I'm in a combination of cash and bear funds, which is in the minority in terms of bull vs. bear bets.

The next bubble (still open): I'm happy to see a relatively even distribution of answers here. The most popular guess for the next bubble is emerging markets (36%), while the least popular is commodities (10%). Sixteen percent of responders went out of their way to indicate that the next bubble was not on the list of choices; if any of those folks would like to share their thoughts, please feel free to leave a comment!

Given my forecast for a painful bear market/crash to come, I think many of the stock and mutual fund holders in the survey will be selling en masse at some point this year. I also think individual forecasts for the market bottom will change as the market falls and more bad news comes out. I wanted to collect opinions now before the gloom really sets in - like taking a survey in 2000 instead of 2003.

Thanks to all who participated!


Dan said...

I think you are way to pessimestic predicting a market bottom around 8500. Brinker keeps saying we are there we are there. The market has held up well at the 12,000 to 12,200 ish level. Do you really believe it will go much lower? Seems all the bad news is out there on the plate right now?

Jody said...

Hi Dan,

First of all, I'm not Kirk.

Regarding Brinker and the market: I think the limitations of Brinker's timing model are now coming home to roost. The only reason stocks are worth anything to long-term investors is that they (usually) pay dividends, but the dividend yield of the S&P 500 has been at an historic low of 2% or lower for the past several years. Brinker simply doesn't take this into account.

It's not clear to me that Brinker learned anything from his mistake of calling for a buy in the 1400's earlier. I'm not saying he has to be perfect every time, but it would help to hear him say "oh, we forgot about such-and-such last time."

There are other factors as well, like Brinker missing technical warning signals in late 2007, and his use of operating earnings instead of as-reported earnings, which give a foward P/E ratio over 20 now.

Finally, I think there's actually more bad news to come. This isn't a simple case of misreported earnings and over-valued stocks like 2000. There are fundamental issues of a declining dollar, low growth coupled with high inflation, more loan defaults and tightening credit.

Dan said...

Sorry about thinking you were "kirk".

I agree that there are what I like to call dark forces at play here. I truely believe that there is an attack on the middle class in this country and the desire is total control and one way to do that is by controlling via ecomomic means. Our own government and the FED have set us up for this disaster. They want total control over the masses and this is how they are going to achieve it. Recall NAFTA and GATT? Recall that Alan Greenspan suggested that a loosening of credit would make it good for the consumer.

The boa constrictor is tighten its grip on the middle class - perhaps your forcast is not all that unrealistic.

Jody said...

Hi Dan,

I do not subscribe to the "dark forces" explanation. All markets go through repeated cycles of boom and bust, or bubbles that burst, and the government can't prevent them.

When companies stopped paying large dividends in the early part of this decade, investors had the freedom to choose *not* to buy stocks. But investors bought stocks anyways, even when the yield of the S&P 500 was a worthless 1.5%! Similarly, home buyers were not forced to choose sub-prime loans over fixed-rate mortgages. They could have bought smaller houses with safer loans.

The individual investors who willingly make the unwise choices share as much of the blame for the bubble-burst cycle as anyone.