Will the market crash?

[Mark Heide]

It's funny whenever the market goes down a little all the negative analyst reports resurface. So, I figure it would make good discussion to find out what everyone thinks.

There was a report by a bond analyst that said the DOW would go to 5000. If anyone has a URL to this report, please post it. While watching WebFN today, the reporter from the NYSE said that traders were actually talking about this subject and now think it is a real possibility. Some, traders said that the market is inflated. I agree somewhat that the market is inflated and think that the S&P should really be around 780 and the DOW should be 7200. These numbers are based on slow growth expectations. Plus, I still don't think we have heard the last of corporate accounting, and overpaying CEOs.

Good Luck

Mark

[Wildbill]

I am watching carefully right now. I don't like the market's actions of the last week and I sense some potential trouble. I closed most of my active positions and even hedged some of my 401k. I see the fundamental problems as such:
1. It all starts with October. This scares traders and investors alike more than anything, everyone knows about the past troubles with October. What people don't seem to understand is that summertime is not a good business time unless you are a business model meant to take advantage of the time. Companies are not terribly productive because everyone goes on vacation for some time and others would rather be somewhere else when the weather is warm and the days are long. Major business decisions don't get made and auto-pilot is the rule. I have noticed over the years that analysts and investors alike seem to forget this factor and never seem to fully account for it in their projections, hence slightly off earnings for many companies causing some panics.
2. The corporate accounting atmosphere will probably start to really bite now. This means pennies here and there for the EPS and fewer glory-filled proformas. This will hurt at first, giving a sense of lost steam when its really just accounting numbers. Nonetheless, I don't see the investment world all too prepared for this. These accounting issues will yield some earnings warnings as we saw with the Golden Arches today and probably plenty more to follow as this is warnings season for the dangerous October close.
3. Iraq and its effects. I think the whole war discount is ridiculous, but its clearly affecting the market and we must always remember the rule that no matter what we think, the market is ALWAYS right. So until the market gets over it and the oil market settles in this overhang does make it risky to be in the market right now. Unless the entire military gets engaged into an all out invasion of Iraq, this whole business is overblown. I see no chance of that anytime soon and almost likely never. Its just not necessary nor is it good PR. Hussein has no outs right now, he can either be a powerless leader or he can just end up dead. For all the talk about how he will try to go out in glory I think that is crazy. The guy will do whatever he has to keeping some semblance of power. Then he can just tell his people his inabilities aren't his fault, its that evil America that does it. If he needs help with this routine, he can call up Fidel and talk to a guy that has found a strategy to do this for decades. This leads me to think little military action.
4. Utter lack of IPO's and M&A activity. Love them or hate them, these two things create buzz and hype and without them the market just tends to go flat. I cannot believe the complete lack of confidence in companies to go public right now. They listen to their bankers too much. Their bankers act like the IPO circus of the late 90s will come again soon if they just wait. Come on, fool us once shame on you bankers, fool us twice shame on ourselves. We aren't going to fall for it except in extreme cases so just get on with the business of coming to market. If a company has the products and depth necessary to be a public issue, then they should come to the market and get the money they need to grow. Sitting and waiting for a couple years in crazy hopes of garnering a few extra dollars a share is terrible policy, but that is what it seems is the common thinking. M&A activity always slows at this time for the same reasons, bankers and fools in the finance departments at these companies haven't gotten over the idea of using nothing but stock for acquisitions. Real ideas and real quality companies can be bought for cash, stock, debt, CEO's planes, etc...you name it. Bad deals shouldn't be done period. Problem is the bad deals have made everyone too afraid to do good deals anymore. Quality companies (read successful) know that bad times when things look bad is when you go out and aggressively gain market share. So where have the quality companies gone?
5. Price action looks terrible. Every modest rally seems to be met about halfway with a big sell-off. The market looks to be trying to rally, but its clear the big money wants no commitments right now. Suckers rally sure looks like the appropriate term for most of these up days. Last half hour of the last few days have seen some pretty big selling as it makes it quite apparent that none of the big players want to leave too much of their money at risk overnight.

There are many more factors for worry, but I just think at best the market will go flat to down a couple percent between now and the end of October. I think then you will see a very nice rally. I think the GDP numbers are getting so badly talked down that there is a lot of market upside to be had when the relief comes that the GDP wasn't so bad after all. I just can't see it being down much, as much as things appeared to be slowing, nothing showed signs of contracting and many big factors did fairly well. If that number comes out showing annual growth of 2% or better, the rally will begin. I plan on entering the market again around the last week or so of October. I don't think there will be a major crash though of the market. I just don't think there is that much farther to fall because interest rates aren't a negative and it looks like exchange rates are firming up and maybe even making the dollar look attractive again to foreign investors. Either of those two would be the driver that could lead to something of a crash, but neither look to be any kind of threat.

[adios]

The Dow 5000 prediction that you refer to was made by a gentleman named Bill Gross. Mr. Gross is widely acknowledged as the guru of all bond guru's and manages I believe the largest bond fund. Go to:

www.pimco.com (http://www.pimco.com)

The last time I checked the site there was an article written by Mr. Gross describing why he felt that way. In a nutshell it's because dividend yields on stocks are too low.

[Mark Heide]

NM

[Mark Heide]

Willbill,

It appears we're pretty much in agreement, along with other analysts. Everyone, I know, that I have any respect for, is waiting to see what happens with Iraq on October 15th.

Good Luck

Mark