The S&P may plunge another 55% to 400 by 2014

According to Bloomberg, Russell Napier, the author of “Anatomy of the Bear" and an Institutional Investor’s top-ranked Asia strategist from 1997-1999, today said, The S&P may plunge another 55 percent to 400 by 2014. Before the trough in 2014, investors are likely to see a so- called bear market rally for the next two years as central bank actions delay the onset of deflation.

His analysis was based on The Q ratio, developed in 1969 by Nobel Prize-winning economist James Tobin. The Q ratio on U.S. equities has dropped to 0.7 from a peak of 2.9 in 1999, and reaching 0.3 has always signaled the end of a bear market.

The Q ratio for U.S. equities has fluctuated between 0.3 and 3 in the past 130 years. At the end of the four largest U.S. bear markets in 1921, 1932, 1949 and 1982, the Q ratio fell to 0.3 or lower, and history is likely to repeat.

The government’s efforts will eventually fail as ballooning government debt devalues the dollar, causes investors to flee U.S. assets and takes the S&P 500 to its eventual bottom in 2014, Napier said.

He said, the ratio shows the Standard & Poor’s 500 Index is still too expensive relative to the cost of replacing assets, while the 39 percent drop in the index this year pushed equity prices below replacement cost, history suggests the ratio must sink further as deflation sets in.

With deflation, the value of assets falls and the value of debt stays up, then equity get crushed. The results are always horrific. Bear markets always end for exactly the same reason, and that is the market begins to price in deflation.

Related Posts :

Warren Buffet of Russia: "for the time being the best thing is to sit and wait"

Sources :

Bloomberg: Q Ratio Signals ‘Horrific’ Market Bottom, CLSA Says (Update4), December 10, 2008 16:15 EST

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

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2008 Dec 10-Upgrade/Downgrade

1. American Express(AXP) was downgraded by BAC to sell, target $13
   
   Via Reuters:

   Citigroup and Bank of America initiated coverage of American Express Co (AXP) with "sell" ratings, partly due to a slowdown in consumer and corporate spending.
   
   Significant consumer and corporate spending slowdown, the accelerated loan book growth over the past few years and geographic and demographic risks embedded in current receivables will hurt the company's near-term prospects, Bank of America said.
   
   Upcoming funding and liquidity obligations needing to be addressed in a stressed capital markets environment will also negatively impact the prospects, it added.
   
   Citigroup said credit will deteriorate at a faster rate at American Express than at its peers due to its more aggressive growth in 2006-2007.
   
   Citigroup also started coverage of the credit card sector with a cautious view and said the group faces negative headwinds from weakening credit, a difficult funding environment and the potential for greater regulatory pressure.
   
   "The powerful combination of rising unemployment and weak housing should drive charge-offs above historical peak levels," Citigroup analyst Donald Fandetti said in a note dated Dec. 9.
   
   Also, weak fourth-quarter results and new restrictive industry rules by the U.S. Federal Reserve coming as early as Thursday next week will be the key negative catalysts in the short-term, Fandetti wrote.
   
   The brokerage started Capital One Financial Corp (COF) with a "hold" rating, saying the company has the best relative funding position.
   
   It also initiated Discover Financial Services Inc (DFS) with "hold."
   
   Shares of American Express were down 8 percent at $21.37, while those of Capital One were down 3 percent at $31.86.
   
   Discover Financial shares were down 2 percent at $10.12 Wednesday morning on the New York Stock Exchange.



2. Citigroup downgrades Sina(SINA), target $30
   
   Via Barron's:

   Citigroup’s Jason Brueschke today cut his rating on Sina (SINA) to Hold from Buy, slicing his target on the stock to $30, from $40, to bring his stance in line with “our broader negative 2009 sector outlook for the advertising market.”
   
   “Failing corporate profitability and consumer sentiment, not simply headline GDP growth, are keys to advertising spend in 2009,” he writes. Brueschke says Q4 will likely be strong for the China-based Web portal, but that the first half of 2009, and especially Q1, will be a challenge, with advertisers delaying commitments, making shorter commitments, and making smaller commitments, increasing earnings risks.

Related Posts :

The current credit-card business is another version of subprime lending

Sources :

1. Reuters: UPDATE 1-Citi, BofA initiate American Express with sell, December 10, 2008 12:54pm EST
2. Barron's: Sina: Citi Downgrades; Sees Growth Slowdown In ‘09, December 10, 2008, 1:51 pm
   

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

The 3-month Treasury bills were traded in negative yield

Chart courtesy of ChartMechanic
The 3-month Treasury bills were traded in negative yield yesterday. The Yield fell to between negative 0.1% and 0.2%. However, none couldn't confirm if trades were executed at these levels. By afternoon trade, the yield moved back into positive territory to 0.04%. The Negative yield reflects that market is hunger for safety.

According to Kathy Lien, A forex Analyst, the only reason why anyone would buy Treasury bills at negative real return is if they believe that recession will deepen, driving bond prices higher and yields further below zero.

From her experience, the bond markets tend to have it right which suggests that we may see further losses in the currency and equity markets this week. The only thing that could help would be a bailout for the automakers and even then, the positive impact on investor sentiment may be limited.

Related Posts :

The 3-month treasury bill’s yield at the lowest level since Lehman collapsed

Sources :

1. Wallstreet Pit: What Zero Yield in Treasury Bills Signal for Currencies, December 9, 2008
2. The Wall Street Journal: T-Bill Yields Fall to Historic Lows, December 9, 2008

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.