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U.S. Stocks Are 40% Above Fair Value, Headed for Declines, Smithers Says

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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 07:26 PM
Original message
U.S. Stocks Are 40% Above Fair Value, Headed for Declines, Smithers Says
S&P 500 Overvalued by 40%, Set to Fall, Smithers Says (Update5)
By Patrick Rial


Oct. 26 (Bloomberg) -- The U.S. Standard & Poors 500 Index is about 40 percent overvalued and headed for a drop as central banks pull back on securities purchases that pushed up asset prices, according to economist Andrew Smithers.

Declines are likely because banks will need to sell more shares to raise capital, the economist and president of research firm Smithers & Co. said in an Oct. 23 interview at Bloombergs Tokyo office. The closing price on Oct. 23 of 1,079.6 was 40 percent above 771.14, a level last seen in March, according to data compiled by Bloomberg.

Markets are very vulnerable to an end of quantitative easing, said Smithers, 72, who recommended avoiding stocks in 2000 just as the U.S. benchmark entered a two-year bear market. Central banks, theyve got to stop some time and if that happens everything will come down.

Central banks from the Federal Reserve to the Bank of England last year embarked on unprecedented measures to flood credit markets with cash in order to rescue the global financial system from the worst crisis since the Great Depression.

Those purchases may be nearing an end, said Smithers, who worked for 27 years at S.G. Warburg & Co. where he ran the investment management business. The Feds emergency liquidity programs including the Term Auction Facility and commercial paper purchases have shrunk as the central bank completes the scheduled purchases of housing debt and Treasuries. Bank of England policy makers voted unanimously at their latest meeting to leave the asset purchase program unchanged, minutes showed. ...........(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20603037&sid=aRg...




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ixion Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 07:38 PM
Response to Original message
1. That, Mr. Anderson, is the sound... of inevitability
:(
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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 07:39 PM
Response to Reply #1
2. ........
:thumbsup:


And the stock market is no Neo.


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ixion Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-27-09 09:20 AM
Response to Reply #2
16. thanks... yeah, you're right
if anything, it is We, the People who are Neo. Either way, I don't think it's going to work out like the movie. It's one of my favorite movie quotes, though. :)
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ConcernedCanuk Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 08:48 PM
Response to Original message
3. well, yeah -it's another "doh" moment - the "stimulus" was just a methadone shot for the banksters
.
.
.

when it wears off,

the pain and cravings return.

The "stimulus" didn't fix anything

it will work as good as the military "surges"

BOTH are a joke,

and and insult to the taxpayers intelligence --

or is it a reflection?

:freak:

hmm

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Warren DeMontague Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 08:49 PM
Response to Original message
4. Market is up? WUR DOOMED! Market is down? WUR DOOMED!
Apparently, we're doomed. :shrug:
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pampango Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-27-09 09:58 AM
Response to Reply #4
18. Funny analysis. Don't the Market up, market down "All is well"ers balance out the "doomers"?
I'm sure that 6 months ago the "doomers" pointed to continuing market collapse as proof that "WUR DOOMED" while the "All is well"ers thought a rebound would come, as it always has (even in the Depression). Now the WELLERS point to 6 months of stock market rise as proof that "All is well" and the "DOOMERS" believe another market decline is coming as it always has in the past.

I remember a comment making fun of economists to the effect that a particular one (perhaps mythical) had predicted 8 of the last 3 recessions and a similar number of recoveries. If I predict a collapse (or a dramatic increase) in the stock market, I will always be right if I make enough predictions and wait long enough. I could have predicted a rising market all through 2008 and early 2009 and I would have been wrong until I was right when it turned around in the spring. Since March I could have predicted a fall in the stock market and I would have been wrong until I am right when the market declines, as it will.

Both the "DOOMERS" and the "WELLERS" have good fundamental reasons why the market will do what they think it will. And whichever turns out to not yet be right (never admit you're wrong :) ) a few months from now, will probably have a good reason, consistent with their beliefs, why they are not yet right.
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Warren DeMontague Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-27-09 03:38 PM
Response to Reply #18
19. I think there are reasons to be optimistic- AND concerned.
My point was only that we see a lot of "we're doomed" talk here no matter WHAT happens with the market (not so much "all is well", actually) and we also see a lot of people get flat-out angry when the market does well (witness the pissed off threads that popped up when the Dow hit 10,000 again.
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Roland99 Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 08:50 PM
Response to Original message
5. 5th Elliott Wave down anyone?
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slipslidingaway Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 08:52 PM
Response to Reply #5
7. Where did the fourth start? n/t
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Roland99 Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 09:10 PM
Response to Reply #7
8. Are we not on a 5th wave up waiting for the big fall after that?
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slipslidingaway Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 09:51 PM
Response to Reply #8
11. Well I'm not sure, I've never tried to wrap my head around all the rules of EW...
Edited on Mon Oct-26-09 10:01 PM by slipslidingaway
just know some of the basics. Saw the triangle in November 08 as the 4th wave so waited for the fifth down.

But I have not been following the advance closely in regards to counts, just noted the negative divergence on the Summation index.

Just looking around found this, but I do not know this poster, so take it with a big grain of salt.

:)

Also this is from the end of last week, today's low was 1065 at the lower end of the purple channel and just above the gap area.


Edit - not sure why that link did not work. Basically they had the recent high as a 3 of 5 ... currently in a 4 down.

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Roland99 Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 10:14 PM
Response to Reply #11
13. I'll have to freshen up on it. I haven't followed the markets too closely since summer.
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slipslidingaway Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 10:25 PM
Response to Reply #13
14. Sent you a PM with a link that might work, regardless of the count the chart...
might have some of info.

Good luck!



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ruggerson Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 08:50 PM
Response to Original message
6. Smithers, regardless of what he says, is just a mouthpiece for Mr. Burns
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Blue State Blues Donating Member (575 posts) Send PM | Profile | Ignore Mon Oct-26-09 10:05 PM
Response to Reply #6
12. Oh, you beat me to it. Excellent.
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flvegan Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 10:26 PM
Response to Reply #6
15. Release the hounds.
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CK_John Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 09:34 PM
Response to Original message
9. The market has had the best 6 months in history. I wonder if Smithers did any buying or if
like many that I know, that have made the same stupid mistake for 30 yrs and are now ready to buy. I agree it is time to sell.
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AllentownJake Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-26-09 09:36 PM
Response to Original message
10. Can't fight nature
Eventually people wake up to fundamentals.
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Phoebe Loosinhouse Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-27-09 09:24 AM
Response to Original message
17. People need to go back to basics and learn what a P/E ratio is
and why it's good to have profit that is not gobbled up by the executives instead of being paid out as dividends or put towards capital improvements, expansions, etc. We have an inflated market based on imaginary valuations of stock. It's no different than the tech bust of 2000.

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quiller4 Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-27-09 04:14 PM
Response to Reply #17
20. If you look at the P/E then there are quite a few undervalued stocks, too.
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