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Wall Street will not tell you that this is a bear market
We are in a bear market, but Wall Street will not admit it. It is so emphatic in a market upward, but are reluctant to tackle the bad times. I know that the market is only 10-15% of its peak in October 2007, but wait a bit. I spent 32 years as an analyst Wall Street values, unlike the current generation of young analysts, experienced several major downward cycles. The economic and financial situation is probably the worst since the Great Depression of the 1930s. But it seems if you listen to feedback from brokers, television or the government.
It is difficult track all the bubbles, especially those not yet fully broken, such as oil and commodities consumer credit, commercial real estate and stocks. Busted bubbles are more obvious, but the degree and duration of the damage is not yet known – housing, subprime and CDOs, derivatives debt, banking and brokerage, the U.S. dollar, the budget deficit and federal spending, bond insurers, employment, GDP growth, etc formal reading CPI inflation in March was 4%, but the reality with all the risks, adjusting the numbers of the military regime, is the order of 7-11%. And the situation will get worse. future inflation is exacerbated by the continuing influx of federal, brokerage and other quasi-agency (Fannie Mae, etc) ransom.
The economy works in cycles, complete recessions every few years. Past real recession in the 1990s, one in 2002 was incomplete. The recession and stock market plunges a cleaning effect Renewal opening track and the next phase of expansion. The Fed can not keep housing system forever. It is short of silver bullets. background rate are not boost the economy. There are a pyramid built on massive debt leverage.
Derivatives are like the iceberg before Titanic: No one knows the size the surface. We know that credit default swaps stood at 62 billion dollars (with a T!) And the interest rate derivatives to $ 382,000,000,000 (of again with a T!) At the end of 2007. Amazing! When Warren Buffett bought General Re Insurance Company, he was finished with the entity resulting from five years span, losing 400 million dollars in the process. It is while the markets were normal before the credit freeze. The elimination of trillions in derivatives, some extending 30 years multi-currency and exchange, may take a generation to complete.
The frightening aspect of all this is that there are so many things we do not know. More things that can go wrong, and every month, there seems to unexpected financial difficulties. More these stem from too much debt and leverage. brokerage firms in the decade 1970 will not be allowed to have a debt of more than 12 times equity. These days, a report of over 30 is the norm. In mortgages, consumers, hedge funds and almost any other type of debt have increased tenfold in the last decade or two.
It took a decade in the 1930s to adjust the excesses of 1920s and the economic slowdown to play. During the Great Depression, the first government raised taxes and pushed trade protectionism exacerbate economic problems. We intend these issues again during the current political campaign. In the 1970s, after three years and lower 50% of all materials to set points before. I was on Wall Street during this period and lived. This time is worse, given the excesses of the late Most recently in 1990 and 2004-'07. Therefore, it could take more than three years to match.
Even during normal periods of market stock collapses into regular practice. From 1926-2007 the S & P 500 has dropped three in ten years. In bear markets there are many misrepresentations more than 5% For example, when a dozen bear market of 2000-2002.
Although this scenario sober, can not hear your brokerage firm or television in the main stop in any of these questions. They are entertainers and promoters. Wall Street is still in denial, eternally optimistic, with a systematic positive bias. A car dealer selling cars. brokerage firms selling securities. Both generate transaction revenues. The bias is an inherent aspect of the company.
In my book, full of Bull, I spent several decoding all the chapters misleading and damaging street addresses that are so against your investment strategy: Not always on Wall Street a la carte. Insiders professionals know better. The propaganda is evident in the nomenclature. A falling market is a correction. But a rising market is not called an error. The drop in GDP and employment growth is called a negative. A recession is a contraction.
Potential for bias values are also positive. Even in bad market Today there are less than 10% assessments copy, plus 90% neutral or purchases. Sometimes outweigh indicates an action is expected to decrease, but not as much as the other names in the industry. A change of Buy to Neutral is a strong negative signal to download the material in the code of the streets. Brokers rarely have the courage to use the dark "S" (Copy) word. earnings estimates are not different, almost always too optimistic. In most cases the Street analysts take the projection of benefits forecasts published by promoting business executives exuberant.
objectives of stock prices, as published in research reports are another way more positive. How often do you see the downturn, the potential price of worst case values are highlighted in a report? Never. The street is all I know money you can do to increase and not the amount that may be lost.
Wall Street does not focus on risk. He is always assessing prospects for contributions stock, not the protection of capital, prudent – At what point you should have. Even in the midst of a rapid decline in stock prices, as in financial services and home builders in the past 12 months, the Street is focused on "catch falling safe," is to guess the bottom of a recommendation purchase, rather than evasion. emphasis brokerage lists include all purchases, never sell ideas.
No matter how negative the current situation market or how uncertain the outlook, you can not trust Wall Street for objective advice on the risks. Given the tens of billions of dollars Street losses on loans subprime bad debt and other instruments, not in a credible position to reduce risk. Wall Street did not meet its own risk, do you expect to not focus on yours.
© 2008 T. Stephen McClellan, CFA
About the Author
Stephen T. McClellan CFA, is a former Wall Street investment analyst with 32 years of experience covering high-tech stocks. He spent 18 years as First VP at Merrill Lynch and eight years as VP at Salomon Brothers. McClellan has ranked on the Institutional Investor All-American Research Team for 19 straight years and on the Wall Street Journal Poll for seven years. He is in the Journal’s Analysts Hall of Fame.
McClellan is former President of the Computer Industry Analyst Group and the Software/Services Analyst Group. He has been a guest on CBS, CNN, CNBC, and Wall $treet Week and has presented to many leading technology companies including IBM, Apple, ADP, and EDS. He is the author of the national best-seller The Coming Computer Industry Shakeout: Winners, Losers, and Survivors, and his work has also been published in The New York Times, Financial Times, Forbes, and other leading publications.
He holds an MBA in Finance from George Washington University and resides in San Francisco with his wife, Elizabeth Barlow, an artist.
McClellan’s website is stephenmcclellan.com
Stocks Fall Hard Amid New Wall Street Landscape