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Mark's Market Blog

9-17-08: Buying the Bottom in a Recession

By Mark Lawrence

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Hard as this will be for y'all to believe, I actually listen to other people. Some years ago, a friend Bill told me, "The bull market isn't over until the last bear is dead and everyone thinks it can never go down. The bear market isn't over until the last bull is dead and no one thinks it will ever go up again." We're nearly there - Goldman and Merrill - absorbed by much more conservative banks. Freddie, Fannie, AIG - effectively nationalized. Morgon - everyone knows they're next. Wall street is being disassembled, the organizations that participated in the drunken monetary orgy being destroyed. China, the 3rd model immune to our stupidities, down 55% now and facing a contraction, at least in growth. Japan sinking again after their 1-year-in-10 bull market, and confronting a shrinking and aging population that guarantees growth is over for them for at least a generation. Germany and France with declining economies and declining populations, what little growth left coming from muslim immigrants. I sense that it's now thought it will never get better, the financial crises will go on forever. I claim we're now in the end game of this bear market, we're going to spike down in the next few days / weeks, then spike up, then level out for a year or two, then begin the 4 year climb to recovery and new highs. Oil is dropping fast, currently at $92 and sinking. This is the time to buy, or at least to make your buy plans.

Yesterday I bought 1000 GM @10.8 (10.1 today). Tomorrow if GM sinks into the 9s, I'll buy another 1000. Bottom line: we're a nation that drives pickups and SUVs and that's not going to change tomorrow. These will change a bit: flex fuel, hybrid, lose a bit of weight; but soccer moms are not going to suddenly scale back to Civics, construction guys to a Prius. Moms hate the idea that their life style is sinking and will want their SUVs back when gas prices fall below $3, and when housing recovers next year pick up sales will follow. btw, the feds have already approved a $25B loan package for Detroit, they're just waiting to fund it at a moment of maximum PR effect. GM has $25B in cash now, is bleeding cash at about $2B / month, if there's a recovery in '09 they will be fine in '10. The feds will not allow the entire state of Michigan to go belly-up.

FXI is down 56% on the year at 32, their down spike is just building momentum. I'll be buying some of that soon, certainly if they break under 30, more if they break 25, lots more if they break 20. EEM is off 41% at 32, same rule as FXI. SPY is off nearly 25% at 118, I consider this a good buy with a downside no worse than about 105. Below is the spreadsheet I use to track this stuff:

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