S&P 500 Forecast from GTBP Equity Traders

S&P 500 Forecast from GTBP Equity Traders ( Public ) Written by Rob Guerriere    Mar 04, 2009 at 10:47 AM

UPDATE: Tues April 14th, 3pm:  After seeing the retail numbers today, I took the opportunity of selling shortTGT (Target) at $39.09.  It is a good hedge against my long positions, since it is recently overbought, and the poor numbers which is a leading indicator.  Housing Starts and Permits are due out on Thursday and Friday morning C and GE are reporting.  I am staying long GE and PGH.

You’ve heard the common expression, “Economists have predicted 9 of the last 5 recessions.”

 

Mid-day yesterday, I went from a 25/75% stock/cash position to a 75/25% stock/cash position.   Based on some commentary below, and much thought, I decided to stick myself out and call the bottom.  The bottom was yesterday, in my now humble opinion.  For my actual picks, read ‘On the Road to Recovery’.

Since the last S&P 500 Forecast from mid-September, the GTBP.org Traders correctly predicted the drop and convinced me to take positions in ultra short ETFs for short term plays for a nice fat profit.  See the story here and see our trader’s performance here.  Now the S&P is sitting below the Nov 20th lows at 700.  There was plenty of fear and a little missed good news.  Personal Spending, a leading indicator, rose more than expected.  But when will the Springtime Rally begin?  So I put the question back to a couple of our traders.  I preceded the question with a high level presentation put together for individual investors by a highly respected financial planning firm in the Lehigh Valley, PA.  First the presentation.

VIEW the 14 Slides in the slide show.

 

Keith Nash

 

I have no idea if we'll reach 600 on the SPX this year. But I'll bet $10 we get there sometime before the end of 2010. The technical analysis crowd seem to think we're at a cusp and will either plunge the depths or have a rip-roaring rally, and soon. If we have the later, I suggest you get your parents to dump any long equity investments.

I talked my parents and youngest brother into moving to 'safe' investments last August, before the big dumps last fall. And it took some doing; my Dad resisted for a while and told me - in a nice way - that I'm a pessimist, and their broker actually came to their house to try and talk them out of it! But they stood firm, and thank me now. I feel that's one of the best things I've ever done.

Not that there’s much of anything that's really 'safe' - CD's and Treasuries are the best things I can come up with. If the dollar and/or US Gov't go boom, it won't matter if you have wheelbarrows full of money.

A year ago whenever I was indiscreet enough to tell people what I thought was coming, most of them would look at me like I had worms wriggling out of my ears. Guess I don't seem like such a moonbat now... but I still try to be discreet.

Anyway, I believe the worst is yet to come. Sub-prime was small in scope and caused no end of trouble. Now we have Alt-A and Option ARMS and other exotics coming up to bat. And many 'prime' mortgages will go into default, too, as unemployment increases. Commercial Real Estate failures will be huge and will take out many banks that were otherwise prudent and didn't take on the more exotic home mortgage stuff. And that's just in the Real Estate sphere.

Do you watch Treasury yields? The only thing keeping them pushed down is that capital has no where else to go that's 'safe'. But our Gov't plans to borrow so much money - an inconceivable amount, really - that yields can't help but go up, eventually. What happens when tax receipts fall precipitously at the same time borrowing rates skyrocket? What happens to the Gov't's spending plans then, if/when it can't even service the debt we already have? At any rate, long-term yields have been gyrating wildly in the last few months.

And the elephant in the room that no one wants to discuss is the CDS issue, though there are some rumblings about bringing these onto an exchange with a clearing authority and more transparency about prices, bids, and offers.

I could go on and on - but what's the point? I don't believe that humans will cease all economic activity. Things have looked nearly as bad before in my lifetime (e.g., the 70's) and were much worse say, during the Black Death, when a third of the population died. Something may turn up. Working fusion power generation would be great, if the eco/greenie/boneheads would allow us to use it.

We always seem to muddle through somehow.

 

Roger Berkowitz

 

Calling the bottom and buying more is always a good way to make your money back. Go ahead, call this one. Let me know. I haven't a clue. The truth is, this thing is going to last a long time. I think we will hit significant new lows at some point. It could be next month, but it could be in the Fall when people suddenly realize that 2010 might be as bad as 09. The truth is, no one knows how or when this will end. This is a unique event and all past charts can do is give some guidance. The question you ask: when will the consumer have confidence to spend again is the right one. The answer is, most probably, he won't spend again like he has been for another generation or so. This will be a fundamental shift in the American lifestyle and standard of living. It will hit across the board.  Fixing the banks, therefore, is just a one important part. There is simply no clear growth engine for the economy over the next few years, and a huge space for continued contraction. I think everyone is flying blind and trying to figure this out, but everyone is behind the curve. 

 

If we see another 10-15 % drop in the indices, I'll be a selective buyer again. But certainly not BOA or Citi or any financial that is taking federal money. I think in the end all of these folks will have all the equity wiped out or be so impaired as to be hobbled giants. That said, that is a general view without having looked closely at them.

 

Conclusion

 

Personally I am an optimist but I believe that I am more risk adverse that most when it comes to investing.  In 2006 and 2007, I was uncomfortable with the market levels and ratios, and only got into the market for short-term day trades and slept well being in cash every night.  I have been sitting on all cash for the first half of 2008.   I began shorting the market, in my regular trading account in August.   I only traded my retirement fund for two days and made a 20% return for 2008.  I sat on all cash till November 20th, and then took half my account and went long in financials, technology and energy.  I then sold into the rally and made a 40% return on half the account (for the 20% on the whole account for 08).  When professionals tell me that, “this time it is different”.  I cringe a bit but listen and try to qualify the advice given.  I might be early getting in here but I am confident in my stock picks and believe that the downside risk is limited in comparison to the upside.  It might take years to see any substantial reward, but I am still comfortable and sleeping well with my picks.  I also have faith in a springtime rally.