iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
22,035 Blog Posts

Expect Cruelty in the Tape until Things Become Clear

Pardon yesterday’s blog — I must’ve had COVID of the brains to speak in such a manner. Those aren’t my true feelings, as I do enjoy helping others achieve financial independence. What more can I say, other than I believe Mr. Hyde is back in his cold basement cage now.

I was perusing NASDAQ returns for 2002, as it is my analog for 2022, and came upon May 6th, 2002 a day which saw the NASDAQ +10.7% for the session. By the way, it should be noted that all of the very biggest one day gains have occurred in the worst of markets.

May 6th, like May 13th, was a Friday so the next trading day was May 9th.

Date/Returns

5/9: -2.58%

5/10: -4.5%

5/11:  +4%

5/12: +5.8%

And then we went on with a slew of small gains followed up with larger losses, making for a miserable tape.

This is precisely what I expect to happen now. We will likely dump out Monday and Tuesday, providing enough fear and panic to get another mean reversion trade and then up we go again and that’s it — bear market trading the whole way. The best word to describe bear markets is “cruel.” It never seems fair and you’ll always feel as if the game is rigged against you.

The truth is, markets are trying to discovery a price that can be called a “bottom” based upon valuations. Presently the market s trading 14.5x earnings on a median basis. This is not including the potential 40% decline in earnings. If we factor that in, the market would need to trade about 35% lower in order to be considered “cheap” on a historical basis. This of course is predicated on recession and high unemployment, none of those things are present today. If the economy doesn’t slow to a degree that would reduce earnings by 40% (I am using CSCO’s earnings drawdown in 2002, 2008 as my base case) then markets are 25% cheap right now.

So which is it? I have my assumptions, but like you, I haven’t the slightest fucking idea.

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9 comments

  1. Cricket

    Something will happen that is completely unpredictable.

    Do you think that the G7/G20 can respond to a global economic downturn like they did in 2008. Things are just too fractured now, geopolitically.

    This means past experience is not a guide, even in the slightest degree.

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  2. roguewave

    Energy Minister Suhail al-Mazrouei warned that passage of the bill, known as “Nopec”, could send oil prices up to 300%

    Gas $20/gal Probably nothing

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  3. metalleg

    Covid Brain is a real thing so no apologies needed.

    It is mood altering whereby you don’t give a fuck about anybody or anything. I love my dog immensely but when I had Covid and for a few weeks after, I felt no connection. Same goes for people in the workplace and my general attitude toward others I came into contact with. I’d say it lasted about 4 weeks post Covid for a return to my usual considerate self.

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  4. Cricket

    Assuming historical charts of the S&P 500 (from Microtrends and with the exception of 1944), during the 20th century earnings fell prior to and during recessionary periods then steeply recovered afterward.

    Conversely in the 21st century, earnings rocketed during recessionary periods and fell afterward.

    Make of this what you will, but in a rising interest rate environment there could be a reversion to 20th century behaviour; or maybe it’s just a new and different definition of what constitutes a recession, inflation and earnings. However past is no guide so flipping a coin may be just as useful.

    What will happen to earnings going forward is a very interesting question.

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  5. Orson

    I must concur with the author.
    Yes, some relief rallies will be in place. However, with the exception of oil, I fully expect dismal earnings and the impact of such to continue the legging down.
    In addition, the higher rates to be announced in the next 2 sessions will be futile.
    The throws of inflation will prove to be daunting task to quell.

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  6. purdy

    Are the controllers positioned to profit from reigning-in inflation and saving the dollar …what is the Fed’s actual mandate?

    If the dollar is to be saved, they’d have to trigger a deep reduction in demand …and stocks plunge.

    I have no idea what they’re going to do. Wish I did. So far they’ve had both the Fed and their DC/media/neocon tools do exactly the opposite of what you’d do if you wanted to save the dollar.

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    • soupbone

      Everything they do is with an eye to November, right, wrong, superficial, or what have you.

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      • john galt

        Absolutely, if anybody thinks the clowns are doing anything that isn’t for themselves it’s laughable. The egos are straight out of a cartoon caricature.

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  7. alaric

    Most humans with power will do anything to maintain that power. This includes Democrats, Republicans, and any other humans you can think of. If this surprises you…. you’re a dumb fuck.

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