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Post# of 173715
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lentinman

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lentinman

Re: None

Wednesday, 11/23/2005 5:32:55 PM

Wednesday, November 23, 2005 5:32:55 PM

Post# of 173715
MARKET PREDICTION:

As most know, on March 10th I predicted the market top as of March 7th. Here is a post of mine after the market close on March 7th and then on March 10th.

March 7th: http://www.investorshub.com/boards/read_msg.asp?message_id=8026789

March 10th: http://www.investorshub.com/boards/read_msg.asp?message_id=5700699

These posts were based on historical precedent for cyclical bull markets within secular bear markets. The standard that is used is the DOW and it is what I refer to in the posts.

The DOW reached a high of 11027 on March 7th, 2005. Today, it reached a high of 10951 - still below.

Even if it breaks 11027 (and it very well could, although today's action sure looked like a blow off top), I won't be changing my opinion. I have stated many times that the market could go up some from March 7th, but I believe it would be minimal. The VAST majority of the gains were made from October, 2002 to March 7, 2005. Anything beyond that is chicken feed IMO.

I predict a market collapse (meaning at least 15%, possibly much more) in 2006.

There is one possible reason why this may not happen and I will admit it could trump many of the other negatives - though unlikely to do so. The reason - and the ONLY reason IMO, is that as the housing bubble contracts, that money has to go somewhere. Assuming (and this is a BIG assumption) that the money that the speculators and investors have in these houses is "real" money (equity) and not just leveraged money (which, unlike the stock market, is gone with depreciating prices), then there is a chance it could go into the stock markets.

The best example of this was in 2000 when the housing boom began. It began because the money that was in the stock markets had to go somewhere. As the stock markets sank, the housing markets rose. This is a very clear - and by now - a very well known correlation.

However, that isn't necessarily true for the inverse. I admit it is possible, but there is a big difference. As far as I know almost everybody's money in the stock market is free and clear. So, when you sell, you truly do have cash in your hands. As we learned, it doesn't take much cash to parlay that into a bunch of real estate - which fed the bubble.

On the other hand, you may own lots of properties and still be underwater. You sell to avoid bankruptcy. Or if banks get stuck with properties, they sell to salvage what they can. That doesn't put a bunch of cash into someone's pocket so that they can buy stocks. Thus, the inverse is not necessarily true.

In fact, you could easily argue that as credit tightens considerably, the houses that ARE bought will require much higher percentages of down payment. Thus the amount coming out of the housing bubble might be used up simply by higher cash requirements for those who are still buying.

Regardless of this single unique situation, I'm sticking with my opinion that the March 7th highs were either the actual high or close enough that it won't have much bearing on overall returns. I'm sticking with a major decline of some type in 2006 - most likely late spring.

Len

Warren Buffet: 5 minutes and 17 seconds of pure, unadulterated, bulletproof, flawless logic.



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