Morningstar Blogs, 10 August 2008*, reports Jeremy Siegel's views.
The call got off to a quick start, as Siegel opened with a bold prediction, effectively stating that we've seen the market bottom (particularly in financials). In his view, the market reached a "selling climax" on July 15--the day he thinks will be noted as the low point of this cycle. Referencing what many believed to be signs of a "bottom" in mid-March with the whole Bear Stearns debacle, Siegel made what seems to be a very dangerous claim (given the high-level of uncertainty in the markets): "this time around will be different."
... To support his views, Siegel also took a jab at market pessimists who claim that the stock market hardly looks cheap with a P/E on the S&P 500 index's trailing 12 month earnings in the range of 22 to 23 times. Siegel argued that the huge write-downs from financial firms (and General Motors GM, for that matter) have caused a "valuation gap" to open up, and that if you look at operating earnings, you'd see a much different picture--and a P/E closer to 17. He also referenced the past few market bottoms, noting that the trailing 12 month P/E ratios on the reported earnings for the S&P 500 at each of those market bottoms was significantly higher than what we're seeing today. Simply put, he doesn't believe the market is justified in assuming "trough level" earnings on a going forward basis.
Being wrong comes with the territory in this business. "Predictions can be very difficult—especially about the future." —Neils Bohr, although occasionally attributed to these guys.
John Hussman, 11 August 2008, likens himself to a "nervous bunny."
With bonds and utilities deteriorating, stock market internals are becoming unusually hostile. This sort of joint deterioration in interest sensitive securities has often provided important warning of steep subsequent losses, as we observed for example in 1966, 1987, and 1990. While the market is still sustaining something of a relief rally from the lows of a few weeks ago, I've noted that hostile yield trends have a tendency to cut such advances short, even when bearish sentiment and oversold conditions would otherwise invite more sustained bear market rallies.
Paul Tudor Jones, in Alpha magazine, via Harry Newton.
I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear!"Irrationality reigns supreme." He wasn't talking about 2009, but he could have been.
Today there are young men and women graduating from college who have a tremendous work ethic, but they get lost trying to understand the logic behind a whole variety of market moves. While I’m a staunch advocate of higher education, there is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it — a sort of baptism by fire. One has to experience both the elation and fear as markets move five and six standard deviations from conventional definitions of value.
*Footnote: That's when I read it, despite the archive now showing a date of 18 August. There's a story in there somewhere.
