Apocalypse now?

There's plenty of bad news ahead for this economy, and late summer is typically a tough time for stocks anyway.

By Jim J. Jubak Aug 3, 2011 5:37PM

Jim JubakUpdated at 4:30 p.m. ET Thursday


I haven't heard anyone breathe the word, but we've come close this week. 


Pimco's Bill Gross told Bloomberg TV: "We're not looking at a recession yet, but we're at a tipping point."


And Harvard's Martin Feldstein, who was the chairman of the Council of Economic Advisors under President Ronald Reagan, said: "This economy is really balanced on the edge. There's now a 50% chance that we could slide into a new recession."


I love the smell of fear in the market. It usually signals that a buying opportunity is approaching. 


Thursday's slide wiped out all of 2011's gains, with the Dow Jones industrials ($INDU), the Standard & Poor's 500 Index ($INX) and the Nasdaq Composite Index ($COMPX) all down more than 11% year to date.  


The Dow's loss of 513 points was its worst one-day tumble since December 2008, and this recent downturn is the longest losing streak since October 2008 -- the depths of the global financial crisis. 


Technical indicators are now reading "oversold," with many showing the most oversold reading since July 2010. The S&P 500 bottomed at 1,027 on July 1 of that year. The subsequent rally took the market to its April 27 peak of 1,356 for the S&P 500, a 32% gain. 


The problem with oversold readings is that an oversold market can get even more oversold before it begins to rally. And frankly, the news flow seems loaded with bad news in the short term.  


For example, we got weak jobs numbers Thursday in the report on initial claims for unemployment, and we could see more Friday in the payrolls and unemployment reports.  


The consensus among economists is that the economy added just 84,000 jobs in July. That would be an improvement from the 18,000 added in June but still far short of the number needed to cut into the unemployment rate.


And I expect that euro debt crisis to keep delivering, well, a crisis. Bond yields above 6% for Italy and Spain are frightening, since they say those two countries will need a bailout. 


I don't disagree with folks who say the U.S. economy is growing dangerously slowly, or those who point out that the recent debt deal will slow the economy even further.  


But company earnings this quarter -- especially for companies with substantial overseas sales -- have been reasonably strong. Stock valuations are at the low end of reasonable. And low and falling bond yields support higher stock prices at some point. 


So far we haven't broached levels that have been support for a stock market that has been stuck in a range for the past few months. 


I'd still like to see more fear -- a few uses of the word "apocalypse," for example -- before I start buying, especially because it is, well, August and because August and September are historically very hard on stocks.  


But at this point, while I'm still keeping my powder dry, I'm closer to buying than to selling. There aren't a whole lot of good growth opportunities among stocks right now, but that scarcity is itself very attractive. 


I'm working on a list of growth stock opportunities that I'll post Friday. 


At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 


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64Comments
Aug 4, 2011 3:54PM
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Well maybe if oil goes down & we pay around $2.00 a gallon for gas then people will have extra money to buy in stores which in turn creates jobs across the boards.  Most people's extra money right now is going in the gas tank & the only ones profiting from that are the Oil companies & the Speculators on Wall street.  Maybe when everyone sees how oil rules everything from a gallon of gas to the ingredients in a slice of pizza this lifeline of a commodity will be capped.  Until then we are all at the mercy of Government & Wall Street!!!
Aug 4, 2011 3:55PM
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A couple of days ago Jim Cramer was telling people it was a good time to buy. Where do these idiots come from??? And why are they given prominent platforms to spew their garbage??
Aug 4, 2011 3:56PM
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Pimco's Bill Gross told Bloomberg TV: "We're not looking at a recession yet, but we're at a tipping point."

 

Really, Mr. Gross? FYI, we've never come out of the last recession, let alone speak of another recession. The world continues its slide into a full-on 2nd Great Depression. Here's how it works...

 

The fat cats buy into the stock market, giving the false appearance that all is well. As soon as the small-fry jump in with the force of their collective big bucks, the fatties skim off the cream and then, run.

 

A nice racket, if you know how to play, are bereft of ethics, and you can afford it.Martini glass

 

Aug 4, 2011 4:13PM
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Obama has sent a clear signal through his 2000 page Financial Regulations bill, the 2000 page Obamacare bill, the EPA declaring carbon dioxide to be a pollutant, the NLRB ordering Boeing not to open a billion dollar aircraft plant in S. Carolina and his clamp on using our own resources that business is expected to bear any level of burden in order to comply with his ideology. Presidential signals are important to the economy. When Reagan fired the Air Traffic Controllers the Democrats screamed that planes would fall from the sky, but Reagan's decision signaled to business that the unions would no longer run the Federal government. It was a decision that encouraged corporations to embark on a great expansion. Obama's signals are all negative for business and so corporations are reacting rationally and sitting on their hands and their cash.
Aug 4, 2011 1:33PM
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unless you feel you are faster and smarter more analytical and can stay up all night

like the computers that you are trading against...trying to invest long term has turned

out to be a lose lose and trying to trade the market as a retail investor is also a lose

lose might as well go to vegas at least there you know the odds are stacked in favor

of the house

Aug 4, 2011 12:35PM
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the only relevant statement that Jubak makes is that an oversold market can get more

oversold..that means of course that "oversold" is just a technical opinion...if the market

goes down its precisely because there are no buyers..my uncle who passed away in

the 1970's and who owned a major scotch whiskey distillery in scotland had 0 dollars

in the stock market..he died worth approximately 50 million in 1970's dollars

that would be about a half billion today....his quote to my dad THE STOCK MARKET

IS A SUCKERS GAME...

Aug 4, 2011 5:18PM
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agrhiredswords,

 

"Still waiting for help from the government..."

That's your problem right there.

 

If more people stopped waiting on the government for help, perhaps we'd be better able to rein in the government. Instead, we have tens of millions of people (or more) collecting from the government and wondering how they can get more.

Meanwhile, the government is still raping me in order to give people like you "free" stuff.

By the way...if you're on the take: you're welcome.

Aug 4, 2011 4:42PM
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in the end, it will be the little guy that gets the short stick. unfortunately, I'm one of the little guys!
Aug 4, 2011 5:16PM
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The whole thing is a joke. We live in a world where a man thinks he needs twenty million dollars to live on when he really needs nine hundred thousand. The amount of greed in people is sickening. I f you can't survive on sixty grand a year then you have no clue how to manage your money.
Aug 4, 2011 3:52PM
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The indicators that say the market is oversold need to be recalibrated. A strong argument can be made that most public companies are over-valued, and by a sizeable amount. What we're beginning to see is a global economy seeking a new equilibrium...one that factors in the new realities of high debt levels in developed economies, high unemployment, increasing inflation, and a lack of good ideas for solving these vexing problems. I don't think it's unreasonable to see market declines of 30-40%.
Aug 4, 2011 4:36PM
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Yep a buying opportunity is on the way.    Translation:   Like the receding waters before the tsunami, new beach front property has opened up.  Just run down to the shore and stake your claim.
Aug 4, 2011 4:28PM
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raymagnumx -

We are only at their mercy so long as we choose to be....It is time to rise!!
Aug 4, 2011 5:14PM
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How you gonna grow jobs if the US corporations continue to build factories in China, Vietnam, etc? At some point these guys just need to do the patriotic thing and bring those jobs back here. Or what's the point? We will simply continue to decline, and sink deeper into the abyss, while the rich get richer , until it all just comes undone.
Aug 4, 2011 2:42PM
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It's gonna be a wild ride...I hope it doesn't take 25 yrs for the Dow to regain the numbers as it did in 1954 from the GREAT CRASH,  Black Tuesday, Oct '29!   Founder Joe Kennedy bailed out of the market and Hollywood in late summer, 1929.  No wonder the Kennedy clan in home movies looked like a Ralph Lauren clothing commercial, in color. 
Aug 4, 2011 3:42PM
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This is no surprise.  The current administration is the most antibusiness of all time.

It is almost as if they are purposely trying to destroy the economy.  Without capital businesses will not grow and will not hire more employees.  The president never loses an opportunity to denigrate business people.  Government is a burden of all - especially businesses.  Destroy businesses and you destroy the economy.  A constitutional lawyer, my butt, he only seeks to destroy the constitution.

Aug 4, 2011 10:28AM
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It seems like there is blood about to be running in the streets.  Seems like a good buying opportunity in the coming weeks.  Looks like we have returned to boom-bust cycles like the late 19th century, meaning that it will probably oscillate +/- 10% on average.  The key is to get in as low as possible, and start to sell when things are starting to flatten out at the top.
Aug 4, 2011 6:39PM
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How about everyone applying for public assistance pass a drug test? Just like applying for a job.
Aug 4, 2011 5:00PM
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This administration continues to astound me, they stifle growth in our on energy exploration and developmen by setting the EPA "dogs" loose.  They strive to underwrite and give away (to the supposed needy) more than any previous administration.  I'm damned tired of working while some slug gets a government check for sitting on his butt.  Let's take out country back before it's too late!!
Aug 4, 2011 5:20PM
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I can see President Big ears yes we can and all his supporters are going to blame Gorge Bush.   If they have not already.  lolAngel
Aug 4, 2011 12:29PM
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Buy in the fear.....good opportunities are availing themselves. People are panic selling......and the media rhetoric is not helping any of us.

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[BRIEFING.COM] The stock market punctuated July with a broad-based retreat that sent the S&P 500 lower by 2.0% with all ten sectors ending in the red. The benchmark index posted a monthly decline of 1.5%, while the Russell 2000 (-2.3%) underperformed to end the month lower by 6.1%.

To get a better feel for what led to today's retreat, we'd like to look back to Wednesday, when the market had ample reason to rally, but did not. Instead, it ended basically flat after a sloppy day of ... More


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