U.S. Stocks About To Make U-Turn?

I think it's about time for a compelling argument that the stock market could be making a turn around...right? Well like it or not Chrisopher Hill, editor of Investorazzi.com, has come to make an argument that he'll be defending in the comments section! So if you think otherwise tell him why!


Equities have been on a roll these past two months. On Monday, the Standard & Poor’s 500 Index, which is a meaningful benchmark to investors because it generally reflects the movements of the U.S. stock market as a whole,  reached a four-month high to close at 907.  The tech-heavy Nasdaq Composite Index also has been on a tear, finishing Monday at 1,763--- up 11% for the year.

At this point, many traders and investors are asking, is the current rally in equities sustainable?  Or, are U.S. stocks about the make a U-turn and head south?

Recently, a couple of legendary investors shared their views on where stocks might be heading.

Back in early March, Marc Faber, who is famous for warning clients to get out of the U.S. stock market a week before the October 1987 crash, predicted that U.S. stocks would rally.  On April 13, the money manager told a Bloomberg Television audience:

“Now the market in the very near-term has become somewhat overbought, and the correction should essentially follow.  But I doubt we’ll go and make new lows in the intermediate future… and that we have another push up into July, for the simple reason that the economic news is not good, but it will not deteriorate at a much faster pace, than when the economy collapsed and fell off a cliff between September and February of this year.”

On April 28, a piece appeared on the TIME magazine website in which Jim Rogers talked about his latest investment outlook.  Rogers, who is more known for his work with commodities these days, shouldn’t be forgotten for his accomplishments down on Wall Street.  As a co-founder of the Quantum Fund with George Soros in 1970, Quantum gained 4,200% over the next ten years while the S&P 500 advanced only 47% during that same period.  Anyway, this is what the CEO of Rogers Holdings had to say last week about U.S. equities:

“We could have a rally for who knows, six months, a year, we could have a rally for a while after having had the kind of collapse we did. In the ‘30s the stock market rallied frequently. But in the end it was still the Great Depression.”

Legendary bond investor Bill Gross also has doubts regarding the sustainability of this latest rally.  In his just-released “Investment Outlook” for May, the founder and chief investment officer of PIMCO said:

“Do not be deceived by the euphoric sightings of ‘green shoots’ and the claims for new bull markets in a multitude of asset classes. Stable and secure income is still the order of the day. Shaking hands with the new government is still the prescribed strategy, although it should be done at a senior level of the balance sheet. If the government indeed becomes your investment partner, you should keep the big Uncle in clear sight and without back turned. Risk will not likely be rewarded until the global economy stabilizes and the Obama rules of order are more clearly defined.”

Even legendary stock investor Warren Buffett might be shying away from equities these days.  In a piece that appeared on the NBC Philadelphia website on Monday, CNBC’s Alex Crippen wrote:

“.. in a live CNBC interview with Becky Quick in the driveway of his Omaha home, Buffett repeats his long-held optimism that the economy will get better -- he just doesn’t know when…

‘American economy is slow, and still getting slower, but that will turn’ .. just don’t know when .. hopes it’s soon…

‘The cheaper things go, the better I like it’ .. especially when compared to buying Treasuries .. stocks will beat out Treasuries over the long-run. Asked if he or Berkshire has been buying stocks recently, he repeated his statement that he likes things when they’re cheaper.”

CNN Money’s Colin Barr wrote that same day:

“Berkshire Hathaway is ready to make a deal at the right price, but it has nothing in its shopping cart right now, CEO Warren Buffett said Sunday.

Buffett, the billionaire investor who runs the conglomerate, said Berkshire has $20 billion in cash and is ‘perfectly willing to make a deal that’s compelling’ should one arise.”

If we are truly in a “trader’s market” these days, as Dr. Faber remarked some time ago, it might be best to watch out for a U-turn in U.S. stocks considering recent comments from some of the world’s greatest investors.

Christopher E. Hill
“Tracking The World’s Greatest Investors”

16 thoughts on “U.S. Stocks About To Make U-Turn?

  1. Are Gurus Smarter Than The Market?
    Don't really care what these gentlemen believe or how often thay have been right in the past; as usual , no mention as to how often they been wrong. Perhaps they have been right more than wrong. But they could also be wrong more than right , who cares, since the their trade is about writing opinion and not being right or wrong.

    I for one, prefer a concensus of opinion backed by conviction
    and expressed by market price. How can that be right or wrong?

  2. The jump in 30 year rates on the Treasury auction today triggered the sell-off. Judging by the volume and breath, this is likely the start of the needed retracement. Maybe sell in May and come back in Sept. rule has started. Anyway rates have been going up for several weeks. Large investors will probably take profits and see how the economy looks in September.

  3. If it were me, I don't think I would be quoting Jim Rogers, who seems to be a bit out of it these days. For example, his "Sell Sterling" call just before the Pound rose 10%.

    That said, it makes perfect sense for this rally to run out of steam pretty soon. The reason is that last year's crash happened so suddenly that a lot or retail investors got trapped in the market. Those folks will most likely see a rally like the current one as a second chance to get out with a reduced loss.

    If that's true, that means that selling will accelerate now and the rally will turn down pretty soon.

    1. I thought it would be fun to include Jim Rogers' views on the rally, considering he doesn't talk too much about U.S. equities these days. Plus, the man actually has a pretty good overall track record when it comes to making the right investment calls, according to a study conducted by The Times (UK) back in January.

  4. Obama doesn't care how much he spends........the next president gets to clean up his mess.....just like he gets to clean up bushes mess................Spend Spend SPend.......thats the only hope Obama's got....... Love the "we can only afford to spend" BS> from Obama
    P.S. - Sorry, forgot to tell you great post!

  5. Ladies and gentlemen. The S&P has gone up way to fast. Way to fast... so once this mini bull market or as some call it a bear market ralley cools off. You'll see a pullback (maybe to the last recent low?), maybe not.. however.. I'm convinced you'll definitely see the S&P go back into the 700's... then back up...

    1. "The S&P has gone up way to fast. Way to fast"

      Here's a little something I came across on a financial website early this morning:

      "After closing at a 12-year low on March 9, the S&P 500 index has rallied about 34%."

  6. Bankrupting For Profit-JPM-87.4T in Derivatives-G/S 30.2T-B of A 38T-C-31.9Trillion

    Feb.6, 2009 the Kazakhstan Tenge went poof and was devalued by 18% in a single day.
    “But last week Morgan Stanley and another bank suddenly demanded repayment.BTA was unable to comply, and thus tipped into partial default.

    Morgan Stanley also asked ISDA to start formal proceedings to settle credit default swaps contracts written on BTA.”
    A credit default swap (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults.
    Wall Street banks derivative outstanding as 31 December 2008- JP Morgan$87.4T-Goldman Sachs-$30.2T-BofA-38.C 31-$ Trillion.
    The Financial Times reports, “As a result speculation is rife that Morgan might have deliberately provoked the default of BTA to profit on its CDS, since a default makes the US bank a net winner, not a loser as logic might suggest.
    In theory, lenders should have an interest in avoiding default. At worst, it creates the risk of needless value destruction as creditors tip companies into default.”
    Politically privileged banks with worse than worthless toxic assets sell them for cash at an inflated fair value lying price to a self-funded Special Investment Vehicle (SIV)HYPOTHETICAL
    For the sake of argument and simplicity assume that Bank G loans Company M $1M in either a leveraged buyout or some other type of deal that was common over the past few years when credit flowed freely.Then Bank G purchases a CDS on Company M’s loan for $30,000 from Bank B and the CDS is reinsured by Insurance Company A.

    Company M deteriorates because its free cash flow and a little more all goes to service debt and Bank G sells 90% of its loan to Bank J. Because credit risk has increased Company M’s bond now trades in the market for $25,000 and Bank J purchases a CDS from Bank L for the current market price of $60,000 and reinsured by Insurance Company A.Banks B and L go bankrupt, the trader at Bank L who sold Bank J the CDS now either goes to work at Bank J or receives consulting fees and the privileged creditors of Banks B and L, such as subsidiaries of Bank J and G, receive government bailout payments through Insurance Company A.
    Company B, while still able to service its debt, does violate some provision of its debt covenant.
    Second, they fund a SIV with $25,000 of cash which borrows another $825,000 from the Bank’s government puppets.
    Third, the SIV pays Banks G and J $850,000 of cash for the Company M loan which, while trading for $25,000 in the market is being carried on their balance sheet for $600,000 and consequently results in a $250,000 gain on the income statement for the quarter after having written down a couple quarters ago.
    Fourth, Banks G and J receive $2M in bailout funds for the failed CDS contracts.
    Fifth, Company M is completely evaporated and thousands of workers lose their jobs.

    Total profit for Banks G and J:2.85M-$1M-$30k-60k=$1.76M.Nice pay for a days work

    The GLD ETF Auth.,Parties-Bear Stearns-Lehman Brothers-Citigroup-Merrill Lynch-Goldman Sachs-J.P. Morgan-Morgan Stanley-will use the language in the prospectus to do ?
    Derivatives, infest balance sheets of almost every publicly traded corp.
    Many local, state and national governments.
    When confronted with financial terrorists society has often had to take powerful measures.
    when John Law co-opted the French economyFrench Revolution was sparked.

    In the United States of America Section 19 Act of 1792 provided, “That if any of the coins shall be debased or made worse through the default or with the connivance of any of the officers every such officersaid offences, shall be deemed guilty of felony, and shall suffer "Death.”

  7. Obama doesn't care how much he spends........the next president gets to clean up his mess.....just like he gets to clean up bushes mess................Spend Spend SPend.......thats the only hope Obama's got....... Love the "we can only afford to spend" BS> from Obama

  8. I am always amazed at some so called "stock pickers." (Buffett not one of them) Farber made one big pick 20 years ago. What's he done since then? I think you HAVE TO LOOK at what causes a market to go up or down, whether it is technical or fundamental. When you look at the current situation in Washington with Obama taking over the banks, automobile industry, etc., you have wonder where it will end. We are becoming more and more socialistic, not good for capitalism and Wall Street. It is obvious that Obama is not a fan of Wall Street or business. This is not strange. Look at his background. Right now the market is a strange animal. Look at last Friday. Chrysler declares bankruptcy and unployment claims came in at 600,000. What did the market do? It went up 45 points. It should have been down 200-300 points. Right now Obama is on a honeymoon. Give him a few more months and people are going to start demanding results. I don't think his stimulus package is going to work. Trillions and trillions of dollars and how are we going to pay for it? I don't know where the markert is going the next month or two, probably sideways with a slightly up bias, but unless I miss my guess, this fall will see another big downturn. I've been investing for 55 years and this has been one of the easiest markets to trade. I saw this coming 4-5 years ago. You cannot abuse a financial system like we have and not expect to see a fallout. Every market has cycles and this cycle is a 70 year down cycle. Don't expect to see it end soon.

  9. The author writes a lot of words but really says very little definative in relation to the market going up or down. Is he a politician?? HA, HA.

    1. "The author writes a lot of words but really says very little definative in relation to the market going up or down."

      Yeah, the post is a little bit toothy. As for saying "very little definitive," personally, I'm going to have to side with Dr. Faber and his insistence that we are currently in a trader's market, not a buy-and-hold one (http://club.ino.com/trading/2009/03/buy-and-hold-no-longer-gold/). And, like some of these well-known investors I referred to, I have a feeling this current rally is getting a little over-extended. Time will tell, right?

      "Is he a politician?? HA, HA."

      Good one. If I were... I'd be doing my best to eliminate shorting all stocks in an attempt to make sure all asset classes go up ALL THE TIME. Anything to get your vote...

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