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Random Thoughts


...the purpose of this journey is the journey itself.

  • In the realm of denial, migration and panic--the three phases of any market move (regardless of the time frame), I offered last week that we were in the late stages of that bovine tri-fecta. THE question, I suppose, is whether we've entered the "denial" phase of the ursine equivalent, when everyone is conditioned to buy the dips. Just a little food for thought before Hoofy and Debbie book their trip to Disneyworld !

  • With 62% of the S&P having reported, the average "beat" is almost 6% (and it's pretty broadbased). That's bullish, obviously, although I will frame it with two borders. The first is that the market is a leading indicator and, as such, the 13% lift off the summer lows has likely baked some of that into the cake (the news is always "best" at market tops and "worst" and bottom cusps). The second is that multiple contraction (value traps) is the fatal flaw of fundamental analysis. That's why I assimilate, rather than defer to, this metric.

  • T-minus one month before our massive Minyan minglefest that will marry sharp, insightful financial forecasts (in the afternoon) with a Festivus of the highest magnitude (at one of the country's snazziest venues) at night. Minyanville is a community and this, my friends, is an opportunity to gather in the name of children's education. I know some smart cookies that are rolling their holiday party into this (non-profit) event so if that might be something that would be of interest to you, please lettuce know!

  • Minyan (and MIM-CCA Moderator) Michael Santoli, in his always excellent Barron's missive, offered that, according to Birinyi Associates, the best performing 50 stocks in the first half of the year (+12% on average) lost 15% (on average) in the third quarter and the worst fifty stocks of the first half (-2.5% on average) gained 22% last quarter. Whip saw? You betcha! And Michael (correctly) opined that this is lending to the performance anxiety that is sweeping the Street.

  • Salmon? No thanks, I'll have the fluke.

  • Wax Off! Note Brazil as it takes a spill (-1.4%).

  • The weekend press offered that despite the softer-than-expected GDP, the strong stock market logged its fifth straight week of gains. True dat, on an absolute price basis, although I will remind Minyans that this particular news arrived one short session ago. We've learned through the years that bottoms are "points" and tops are "processes" and the short-term topping vibe (between October Expiration and the midterm elections) remains a distinct possibility.

  • Trick or Treat? Remember, Minyans, alotta mutual funds and hedge funds close their fiscal books on October 31st. That'll abate some--but not all--of the performance anxiety.

  • As communicated last week, I'm in the midst of a two week road trip that'll take the Critters from sea to shining sea. I'll be posting when available, of course, but kindly ask for your patience as we set the stage for the next Minyan phase. It's all good---and a bit tiring--but the purpose of this journey is the journey itself.
  • "We are raising our 2007 S&P 500 (SPX) target from 1,540 to 1,650 based on adjusted fundamental and new historical assumptions. Frankly, this is a decision that has come with great difficulty because our style is to not press the upside. Typically, we generally become a bit more focused on sector rotation after a significant and broad jump in equity prices, opting to wait for a meaningful pullback before again pounding the table. Our problem is that NOT raising the target at this point would be like a company's management offering overly conservative guidance knowing they believe it should be higher. We firmly expect that from both a fundamental and historic perspective, our new 2007 target may still be conservative." Snoop Tony Dwyer of FTN Midwest Securities

  • Minyanville- I thought that Dr. Hussman's current weekly commentary provides a good counter-balance to Tony Dwyer's comments this morning. He writes:

    "Currently, the S&P 500 trades at over 18 times record earnings on record profit margins. Earnings for the S&P 500 are also at the top of the long-term 6% growth channel that connects prior earnings peaks going back nearly a century. Historically, when earnings have been anywhere near that 6% peak-to-peak trendline, the P/E multiple on the S&P 500 has averaged about 9 or 10.

    Similarly, the S&P 500 trades at a price/revenue ratio of about 1.5 currently, compared with a ratio that has historically fluctuated between about 0.5 and 1.0, with an average of about 0.8. With few exceptions, the valuations that we've observed over the past decade are valuations that have only been observed over the past decade."

    Just another counter-viewpoint to consider. Many less sophisticated investors can become very confused when they hear one expert say things are cheap while others say it is expensive. In such an environment, they end up hopping on the train for fear that it is leaving the station, only to regret it later. Regards, Minyan James


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