Jim Cramer (Realmoney) zu den 30 DOW-Aktien

When I calculated the increase, at first I blanched. "No, I am not that bullish," I said to myself. But I can't fudge. I calculated each stock's gain, and added them all up, and I get 12,470.

So be it.

This is how I got there:


3M (MMM:NYSE) - Look for $90 at year-end

Here's a stock that already has had a run simply because it picked a CEO, which is more than it had before. I was beside myself with glee when James McNerney left 3M because he went to Boeing (BA:NYSE) , which I own for Action Alerts PLUS. The new fellow, George Buckley, frankly, is a bit of a question mark. Buckley did a great job at Brunswick (BC:NYSE) , which historically had been very poorly run. The problem is that McNerney left at all, and I don't know why he did. 3M's a great but intransigent company, hard to get your arms around and hard to learn, so I believe that Buckley's got a real transition year ahead of him. That said, raw costs have peaked, so I am not worried about the numbers, just the innovation and add-on growth. I believe the company could make as much as $5 next year, but don't know if it deserves a 20 multiple on that. Let's put it at $90 at year-end 2006.


Alcoa (AA:NYSE) - Lucky to flatline in '06

I have no confidence, zero, zed, that Alcoa can make its $1.90 next year. I believe that $1.70 will be more like it, and darned if I'm going to give this stock more than a 15 multiple on that number. That's right, I believe this stock will be lucky to flat-line in 2006. It is poorly managed, not rationalized and facing a glut of aluminum from overseas. What should have happened to Alcoa? It should have moved on to titanium, or ceramics or carbon fibers. Aluminum is simply not that useful anymore. Ouch! But this stock will be at $26 next year at this time. What's truly sad is that in the final year of the economic expansion, when the Federal Reserve was raising rates furiously and curiously as it did in 2005, Alcoa should have exploded upward. Wrong!


Altria (MO:NYSE) - Steaming into 2006

There will be no Altria next year at this time, just Philip Morris International, Philip Morris Domestic and Kraft (KFT:NYSE) . I don't know what the keepers of the Dow will do with that split-up; they'll probably use it, moronically, to add still one more pharma or telecom name, which they seem to be addicted to -- and which is why the Dow has become so unrepresentative of late. BellSouth (BLS:NYSE) anyone? Wyeth (WYE:NYSE) ?

Altria comes into 2006 steaming hot, with prices going up and China embracing Marlboro. I have to tell you that Kraft, if anyone would pay attention to it, could be worth a lot more, but if you spend every waking hour being deposed and under litigation, you don't think much about cream cheese. I believe the parts of this company are worth north of $105 and that they will be the best-performing stocks in the Dow next year. Which, of course, is why I own Altria for Action Alerts PLUS and wish it would come down so I could buy more. I don't really care about the earnings estimates here, by the way, because it is a total sum-of-the-parts situation.


American Express (AXP:NYSE) - Could gain 8-9 points

With $3 in earnings power and easy comparisons because of gasoline, Hurricane Katrina and Hurricane Rita, this stock should motor to $60 rather early in the year. Underneath the steady businesses is turmoil, though, as the company tries to deal with the dismantling of that Advisers business and as it searches for new growth. I still believe that there could be a takeover here, and that Citigroup (C:NYSE) wants the property. But on earnings alone, I see the thing up 8-9 points. Travel can't be as bad as it was in 2005, it just can't be.


AIG (AIG:NYSE) - With fires out, it burns higher

Martin Sullivan turns out to be good, and as much as I believe that Hank Greenberg was a charitable guy, the stuff that went on in his name is just downright creepy. He obviously overstayed his welcome, and continues to do so. Oh, and by the way, doesn't it seem that all the miscreants have decided to come on television and trash New York Attorney General Eliot Spitzer, even as they, not Spitzer, were evil-doers? (In the interest of full disclosure, Spitzer was an investor at Cramer Berkowitz, the hedge fund I founded.) With rates up dramatically, and honest accounting now in store for AIG, I believe estimates are way too low and this company could earn $6. Give it a 15 multiple and you have a $90 stock. You know something? I may just buy this stock in a couple of weeks because rates are up gigantically and this business, year over year, could be en fuego. Good riddance, Hank!


AT&T (T:NYSE) - Might as well be a bond

Nope, doesn't have it. One of the things I pride myself on is how darned right I have been about how bad these telcos are. AT&T will stretch to make its $1.80; it will do it all the wrong ways; it will be unimpressive; and it will be given no due this year, just as in 2005. This stock might as well be a bond. If I were this company's management, I would slash the dividend and build out the infrastructure to make it so you can wirelessly send video into homes. But they won't do that. There's nothing here, I am afraid, and I see only $25 next year, too.


Boeing (BA:NYSE) - Second-favorite of the bunch

Numbers are way too low here, the $3.30 estimate will be blown away, and I believe that $3.60 could be more like it, or maybe even $4 if the orders come through. I will pay easily $90 for that, because this company is the single-biggest beneficiary of the need to have low fuel costs for airlines. The renaissance of the airline business worldwide and the domestic strength in the group make the stock my second-favorite for the year after Altria. People, please understand that aerospace is in a multiyear cycle and you can't let your mind be constrained by how high the current multiple is.


Caterpillar (CAT:NYSE) - Not just a housing play

This company is so misunderstood. People somehow believe this is a play on domestic housing. No, no, no! It is a play on alternative energies that made no sense until oil breached $40. With the stock at $58, there are more orders from major non-oil energy companies than Goodyear (GT:NYSE) can make tires for. Plus, I believe that steel costs are coming down, which means that earnings could explode to the upside. I see $5 in earnings for Caterpillar in 2006, and I am tempted to pay 18 times that for the stock, which puts this sucker at $90. OK, maybe that's extreme, given the flat-lining in housing and the strong dollar -- too strong, which is going to help Kubota (KUB:NYSE ADR) , its competitor. So, let's say $80, and you have one giant, well-performing metal bender.


Citigroup (C:NYSE) - Expect its multiple to expand in 2006

At last this company is out of the penalty box. This is another company that spent more time meeting with lawyers than with investors in the last four years. That's about to change, although I don't believe that Chuck Prince can grow this company the way I would like it to grow. That's why I see Citigroup buying Goldman Sachs (GS:NYSE) and becoming a much bigger international presence. In the meantime, I don't expect any real earnings surprises, just multiple expansion, the kind that always comes for financials when the Fed stops tightening. I believe $4.50 is doable, and this year people will pay a couple of multiple points more for that $4.50 as they solve for M, as in M (multiple) times E (earnings) equals P (price). Yes, I believe this stock could trade as high as $60, and it will be a great financial to own.


Coca-Cola (KO:NYSE) - Not much reason to smile here

Nope, another crummy year is on target for this faded blue-chip. Can we stipulate that Pepsi (PEP:NYSE) should come into the Dow and Coke go out? Can you believe how much wealth Pepsi has created between its restaurant spin-out and its snack and beverage divisions? Maybe Coke will make $2.23, mostly by having its way with the distributors, as always. You will pay right here for that, give or take a couple of points: price target $43. Nothing like asking a couple of other components in the Dow to do all the heavy lifting, as Coke, the drugs and the telcos just languish again.


Disney (DIS:NYSE) - Has lost its pizzazz

Holy cow, another challenging year for this company, which seems like it just doesn't have enough oomph to make anything happen. Great brand names seem to have lost so much pizzazz and I don't believe that Disney's different. The simple truth is that Disney is another company that is being emasculated by pirating, digitalizing and an overall challenge made by tech that will give us more agita in 2006. I don't know how it can trade north of $28 on $1.40 earnings power. Alas, it should have sold to Comcast, because that's how it was going to get there. Another disappointing year despite the new stewardship.


DuPont (DD:NYSE) - Has become a wallflower

This company will do better now that raw costs are under control, but nobody will really care. It has become a wallflower-dividend play, with about $3 in earnings power, give or take a dime, and a multiple that seems glued to $15. That's right, I don't see this stock trading far from its $45 anchor. It's a disappointment, despite all of that neat biotech and fuel-efficient stuff in the pipe.


Exxon Mobil (XOM:NYSE) - A wasting asset

Here's a company that gets so many undeserved accolades that it makes me sick. It hasn't grown its assets -- crude in the ground, my friends -- for years and has played the role of oil bank all too well. I believe it deserves a lower multiple than almost any oil company, even as I believe that the estimates are way too low and this company could earn $6. I am not paying more than $64 for that number, though, because it is, in the end, more of a wasting asset than any other oil company out there, including BP (BP:NYSE ADR) and Royal Dutch (RDS.B:NYSE ADR) . Maybe, just maybe, Lee Raymond will become Maria Bartiromo's permanent co-host this year, and we can bring in someone who actually calls the price of crude right for a change.


General Electric (GE:NYSE) - Too big to see its multiple grow

Biased? Owned? Say what you like because I work with CNBC, whatever; excuse me for saying this, but GE's too cheap. I believe the darned thing can earn north of $2 and deserves to sell at $40 for that plus the dividend giving you a decent return, not great, not bad. The issue here, frankly, is that the company can't escape gravity. We are not going to give the largest company on earth a premium multiple because it is too much like the earth! That's right, the largest company on earth can't advance like a growth stock even if most of its businesses are growing faster than the rest of the economy. It just won't work that way.


General Motors (GM:NYSE) - Abandon all hope

Oops! What happens when this one goes to zero? That's what it is worth, by the way. I believe that if I were running GM, I would just do a prepackaged bankruptcy and let 'er rip. That's right, I would demolish this common stock. Of course, the people who run this company are so clueless they still are paying out a gigantic dividend. I don't know if the keepers of the Dow will keep GM in as it goes down the drain. I also believe that the company will drag this out as long as possible, which is just plain stupid. I see no earnings and no dividend in 2006, which means the stock trades to $10 and really keeps the averages from ramping. I see no hope whatsoever here, even as I hope that I am wrong!


Hewlett-Packard (HPQ:NYSE) - Needs to stoke growth

CEO Mark Hurd is magical, but there's only so much magic in a company that really is a printer business with a PC-assembly game underneath. Hurd will provide better results than the $2.16 per share that people are looking for, maybe as much as $2.25, but I don't see people paying 20 times that; more like 16. So the stock will inch up to $35, which is better than a sharp stick in the eye. H-P has spun off so many good businesses and sold so much good stuff that it actually needs to make some acquisitions to get the growth going. That will happen, but not yet, because Hurd is still trying to rekindle the morale that was destroyed in the disastrous Carly Fiorina years.


Home Depot (HD:NYSE) - Will gain, but not dramatically

Can you say stalled? This company seems to get lost and get found over and over again. The stores are better run than they were, and the people less angry than they have been. The Expo stuff is now behind it, but I have to tell you, there simply isn't a lot of joy in going to a Home Depot store. I see encroachment from Lowe's (LOW:NYSE) everywhere and I don't see a big growth year for Home Depot, now that your home isn't leaping in price every month. Let's give the company its due and say it can earn $3. I don't believe many people will pay more than 16 times that, which puts it, conveniently, around $48. That's a nice gain, maybe even one worth having, but not exceptional.


Honeywell (HON:NYSE) - Something has to give

CEO Dave Cote is in a jam: He has to pull off a Johnson Controls (JCI:NYSE) this year, getting out of whatever is automotive or masking it with much bigger acquisitions than the gas-monitoring business he just purchased. Heck, he should buy Johnson Controls, or maybe Rockwell (ROK:NYSE) or Emerson (EMR:NYSE) . Something has to give here, because I just don't see him able to make aerospace big enough, and I don't love defense anymore. I see a low-quality $2.50 in earnings and I see people paying $40 and change for it. Not enough to win the competition with Caterpillar (CAT:NYSE) , Boeing (BA:NYSE) or United Tech (UTX:NYSE) in the Dow. Don't think that Cote won't sell the whole darned thing if a chance to do so materializes. What would be so wrong with a Tyco (TYC:NYSE) merger, for example? Two challenged companies propping each other up? Why not?!?


Intel (INTC:Nasdaq) - Could trade up to $31

Will this be the year that Intel gets its mojo back? I believe it will be. Intel will have the plants and the demand, but it also has pesky AMD (AMD:NYSE) eating its lunch because the paranoids at the top are all retired or dead, I guess. Intel is a quandary, a not-expensive growth stock that needs to buy Qualcomm (QCOM:Nasdaq) or Broadcom (BRCM:Nasdaq) but failed to do so when they were cheap. I'd pay 19 times the $1.65 I believe Intel can earn, and I can see the stock trading up to $31 -- I know, not exciting, but that's what happens when you make your bed with WiFi and let your darned opponent catch up to you in price and public relations. I miss former AMD CEO Jerry Sanders; he always could be counted on to mess up AMD when it most counted. Bring him back, and Intel goes to $40.


IBM (IBM:NYSE) - Just isn't relevant here

IBM's got two IBMs: the hardware, which management doesn't seem to like; and the software, which management seems to like too much. I believe the company can earn up to $5.60 and can trade up to $95 for that, but not much more. This company really seems to be doing a lot right -- getting out of PCs, making a lot of niche acquisitions, but you know what? Nobody cares. We don't even like the part of the business they are emphasizing, consulting and software, with the multiples on both shrinking every year. I wish I had a prescription for these guys, but IBM is fighting one of the great headwinds for any company: relevance. It just isn't that relevant to this economy.


Johnson & Johnson (JNJ:NYSE) - Gotta get Guidant done

Either way, we get this Guidant (GDT:NYSE) deal done and J&J goes back to getting some luster, which now only belongs to biotech and the three European companies everyone loves: Novartis (NVS:NYSE ADR) , Glaxo (GSK:NYSE ADR) and Sanofi-Aventis (SNY:NYSE ADR) . You give J&J Novartis' multiple and you have yourself a $71 stock, which is, alas, where I believe J&J is going. Once the Guidant nonsense is out of the way -- and by the way, management should have stopped reading The New York Times and closed the darned deal, because all of these device companies have similarly "checkered" records -- the stock will start climbing toward my target.


JP Morgan (JPM:NYSE) - Rates the same as Citi

Jamie Dimon's a winner even as he has some serious heavy lifting to do. The new CEO needs to merge this bank with Wells Fargo (WFC:NYSE) and get some growth going. I still don't believe, though, that he has his arms around retail, which the company has starved for so long. With William Harrison out as CEO this year, Dimon can work some magic and he will, which is why I see the stock climbing to $48 on the back of $3.50 earnings power and expanding multiple. I don't believe people realize, though, how hard it will be for Dimon to streamline this operation. That's why I don't like it any more than Citigroup (C:NYSE) . Ah, in the end, it is just a bank.


McDonald's (MCD:NYSE) - Will be lucky to see $36

It's not easy to lose two of the best CEOs in one year, but that's what happened to Mickey D's. I just don't believe current management can muster much here, although I never believed that Wendy's (WEN:NYSE) could get to $55 on the back of dissidents and deck-chair shuffling. The simple truth is that even if I liked McDonald's, I know that Darden (DRI:NYSE) is the better buy. McDonald's can earn $2.20 but not get more than a 16 multiple for it. Frankly, it doesn't even deserve that multiple, because it really has less growth than just about all the other stocks in the Dow. By my calculations, this stock will be lucky to advance to $36 in 2006.


Merck (MRK:NYSE)  - Now is a good time to sell

My favorite investment in 2006 is in the tort bar [tort = Schadensersatzrecht], which will have its day picking apart the carcass that is Merck. I also don't believe that Merck is going to get that holy grail of a cervical cancer drug through the Food and Drug Administration this year, which is where the upside is. I believe that Merck will be fighting to maintain its dividend this year and fighting to maintain any earnings growth. The Street is way too optimistic about these guys and the litigation strategy, which is awful. I want to pay no more than 10 times earnings for its $2.50 in suspect earnings power. Really good time to sell this stock, right now!


Microsoft (MSFT:Nasdaq) - Just has to go up

If Microsoft doesn't go up in 2006, it's never going to go up. There, I said it. I see this company selling at 20 times $1.60 and ramping to $32, which isn't much of a ramp but is better than what it has been doing. You have Vista and Xbox 360 for all of 2006, two new operating systems! You have some rationalization to its communications strategy -- MSN? And you have some sense that maybe it can make some inroads on the Web just because we don't want Yahoo! (YHOO:Nasdaq) and Google (GOOG:Nasdaq) to win the whole game. It is amazing that Microsoft is still so arrogant after all the bludgeoning it has received. When will this company grow up?


Pfizer (PFE:NYSE) - Lost its mojo

Prepare to be disappointed again in the growth and in the management. There really is nothing here, nothing to own nothing to be proud of. I'll pay 12 times its $2.00 in earnings power, no more than that, and I believe that a lot of its older drugs really have nothing cooking but losses. Pfizer needs to do a merger to hide this lack of growth, but it won't do one fast enough to rescue it from a flat-lining at $24. This is still another company that doesn't have its mojo. I really am disappointed in this company's inability to develop new drugs. It feels like the Pfizer of the '80s, not the Pfizer of the '90s.


Procter & Gamble (PG:NYSE)  - Much upside already priced in

This company will surprise positively with the Gillette deal, and I believe that the $2.60 earnings estimates are way too low, with $2.70 being possible. Can it get 24 times that? I don't know, that could be a stretch. As I look at this company, one that I have liked very much, I realize that much has already been priced in. I don't know if it can trade north of $65 totally on its best-of-breed status. That 6-point gain may not be enough to keep people involved, and I wouldn't be surprised to see some Procter ennui developing. I know I want to start scaling out for my ActionAlertsPLUS charitable trust because I am feeling piggish. In the end, it is just toothpaste, razors and shampoo.


United Technologies (UTX:NYSE) - A go-to name this year

I believe this is the year people will recognize that United Tech is among the most consistent worldwide growers we have. Can't give it a 20 multiple; the economy's too slow worldwide for that. But I believe that people will pay 19 times United Tech's $3.50 in earnings, with a chance that those numbers go as high as $3.60. Maybe $67 is in the cards. This will be another name that people will buy every time the programs clobber the averages. It is the best-run company in the Dow, save P&G, and it would deserve to trade for 20 times earnings if it didn't have so much cyclicality. It'll be a go-to name in 2006.


Verizon (VZ:NYSE) - Expect no earnings growth

If this company had done what Alltel (AT:NYSE) did and given us wireless and wireline, I would actually endorse it. But it can't because it doesn't even own the wireless division, and it's building out the wireline in a fated attempt to catch Comcast (CMCSA:Nasdaq) , which isn't even doing that well anyway. I see no earnings growth here at all, $2.50 in earnings power, and if it weren't for that dividend, you would be paying no more than $25 for it. The dividend will keep the stock at $30, but no more than that. What a sad-sack stock this one is.


Wal-Mart (WMT:NYSE) - Will remain upward bound

All of the fines, all of the judgments, add up to about a quarter of an hour's worth of sales in a Sam's Club, so stop fretting. Wal-Mart's not going to be able to grow its way out of its morass, but it is cleaning up its stores and becoming much more like Target (TGT:NYSE) , which we love. I believe the company still has much work to do in making its places look better, but it is no longer in denial and believing that its stores are attractive to look at. It also is getting into the warranty biz, which has nice margins. I continue to believe that it will remain on an upward path. Let's say it can earn $2.60 and give it a multiple between 20 and 21; that allows the stock to drift up to $55, and I would take it anytime the stock fell back to $47, where it seems to want to go of late.

I used similar war-gaming techniques to consider what might happen next year. Only instead of nuclear conflagration, I think about consumer spending, corporate expenditures and hiring. What might happen to real estate prices, and how will that impact other elements? Will the demand for commodities continue to increase? Will Asian growth stay strong? What will Congress do: taxes, spending, deficits, politics? What are the political wild cards? I wonder how inflation will impact all of it, and what the Federal Reserve might do, including the expected -- and the unexpected.

While doing all this war-gaming, one scenario kept coming up repeatedly: The slow-motion slowdown. It starts with the consumer, who after years of spending, finally tires. Soon, it infects corporate revenue and profits. Slowly, it cascades its way across different sectors: housing, durable goods, discretionary spending, entertainment. Eventually, the decay spooks the markets.

The Crowd Is Bullish

There is a lot of anecdotal chatter about sentiment , but I prefer to stick with quantitative data. I hear too many people say, "All my colleagues/friends/brother-in-laws are (fill in the blank)." That's meaningless.

The Business Week survey reveals one group of bullishness. When I made my guess, I never figured I would be the outlier to the downside. Silly me.

One alternative to conjuring up various scenarios would be to simply extrapolate this year into next. I suspect that's why so many forecasters cluster around the same numbers. Most of the surveyed group is clustered between 11,000 and 2,000 (about plus 5%-10%) on the Dow, while advising a 40% to 75% U.S. equity exposure.

But its not just the Pros: Other surveys reveal a similar bullishness. A WSJ.com poll of more than 5,000 people taken on Dec. 30 shows 46% expect the same thing in 2006 as the market gurus: between Dow 11,000-12,000. Another 12% think we end up at more that 12,000. About 22% expect to end 2006 unchanged. Only 9% expect we will see the Dow between 10,000 and 10,500 -- a mild correction of less than 10%. Just 11% believe the Dow will drop below 10,000.

This means 89% of these WSJ readers do not believe 2006 will be a substantially down year.

Note that the crowd isn't extremely bullish, however. It will take one more rally toward 11,000 to get investors to breathlessly embrace the market. Then the trap door gets sprung.

I understand why the crowd is so bullish. The past few years have seen terrific data points: S&P 500 earnings have grown by double digits for 14 consecutive quarters. Companies are awash in cash; they have been buying back shares at the most rapid rate we've seen since the late 1990s; more than $456 billion worth in 2005, according to TrimTabs Investment Research. Since the dividend tax rate was slashed to 15%, the number of companies issuing dividends has increased, and pre-existing yield-payers have upped their dividends significantly. That's before we get to the record-setting M&A activity last year.

Despite all of these elements, the markets are essentially unchanged. Look at any U.S. index for the past one or two-year period -- or even four or five -- and there's been very little progress made. Except for the pre-Iraq war selloff and subsequent snapback, and the rally from the October 2005 lows, there hasn't been much of a market gain. Aren't you curious as to why that is?


Cult of the Bear, Part 2
By Barry Ritholtz
RealMoney.com Contributor
1/9/2006 7:12 AM EST
URL: www.thestreet.com/comment/investing/10260656.html

In part 1, we reviewed my forecasting process, and considered some reasons why -- despite its bullish start -- 2006 might be rocky for U.S. equities. Today, we go to the charts.

The 100-Year Dow

Humans are particularly bad at thinking about long periods of time. We have evolved with much shorter cycles: A daily sunrise, a monthly full moon, annual seasonal changes. Longer periods of time are outside of our personal experience. They create an analytical blind spot.

When we look at the "long term," we discover interesting things. Consider each "market" period in this 100-year chart.

Regardless of how each one ends, every bull market over the past century has been followed by a significant refractory period. As the chart shows, it takes quite a while to recover from a crash. Some of this is due to the destruction of capital. At the end of bull markets, many indutries end up with excess capacity (think optical fiber or telecom.) But do not overlook the large psychological component of the pain incurred by investors. The damage gets repaired when investors finally forget about the pain they suffered -- or when a new crop of investors (without scars) finally appears.

Today, market junkies have a new mistress: homes. Their former passion for stocks has been replaced. As we have seen, their equity wounds -- plus 46-year low interest rates -- has made real estate the new hottie. My guess is that nothing short of a large and sustained move upward (e.g. several quarters) will rekindle their love affair with equities.

How likely is that? Is it possible that an 18-year bull market (1982-2000) could be followed by a two-and-a-half-year bear (March 2000 peak to October 2002 low), then followed by another multidecade (2003-2018) bull? Sure, anything is possible. But as the chart above shows, it would be historically unprecedented.

16-Year Trading Range

On the 100-year chart, take a close look at the bear market prior to the most recent bull. It's the 1966-82 trading range. On the long-term chart, it looks like a fairly benign flat range. In reality, it was a volatile, dangerous period.

Assuming we are, in fact, in a long, post-bull trading range, than this is year five (give or take) of what could be a 10- to-15 year secular bear market. As the 1966-82 experiences shows, we may be in for violent moves down and rapid blastoffs.
The 1966-82 experience says we may be in for violent moves down and rapid blastoffs

If we are repeating the 1966-82 experience, I'd say we are somewhere around 1972-73. The similarities are imperfect -- especially regarding interest rates -- but an unpopular war, a potentially scandal-ridden second-term president with low poll numbers, and the end of a 20-year bull run five years prior are too similar to ignore. Compare the numbers: the Dow is up 45% from its October 2002 low and the S&P by about 60%. That parallels the Dow's 67% gain from the 1970 low to the 1973 peak .

The next chart reveals what is known as the four-year, or presidential, cycle. The theory behind this is that U.S. markets have a tendency to make a low in the second year of a president's term and a high in the fourth year. It has held up quite well historically, with the notable omission of 1986. Recall, however, what happened in 1987.

The chart suggests that cyclicality is at play. Given the upward bias of markets over time, regular corrections of 20% or greater may be inevitable.

What is truly astonishing is the very human propensity to downplay or even ignore these periodic dislocations. The classic example is the tendency of humans to build homes in earthquake zones, in flood plains, where tsunamis have previously hit -- even near volcanoes (!). Investors have similar blind spots.

P/E Ratios Are Not Cheap

The chart below covers the S&P 500 and its P/E ratio over the course of 1982-2000 bull market. Note that the P/Es started at 7 and rose to nearly 50. The median P/E went as high as 32.

There are those who claim that P/E expansion isn't all that significant to market performance; they argue it is a function of falling interest rates. A better explanation is psychology: Something shifted in investor sentiment that made them willing to pay more than $7 for a $1 of earnings -- in fact, almost $50 per. That change is best explained by a sentiment shift related to perceived relative value.

Most investors do not think about P/E expansion as the lion's share of the market's gains. Instead, they credit a robust economy, technological advances, productivity gains, and (of course!) earnings improvement.

All those elements did have an obvious impact . By my calculations, they were responsible for about 25% of the gains.

But the biggest contribution of these elements was not to the bottom line; rather, it was to investor sentiment. This "fantastic four" allowed investors to rationalize higher prices: Aren't stocks worth more if the economy is doing well? Doesn't technology make companies more efficient? If workers are more productive, then earnings will be all the more better.

While rational, these are hardly easily quantifiable data points.
Multiple Expansion and Mean Reversion

So what does this have to do with this year's market performance? Nearly everything.

Do not forget that the process works in reverse, as well. Post-crash, there is an increasing unwillingness to pay more for a dollar of earnings. Indeed, that's why we are seeing the market making so little progress, despite all the "good data." Investors are unwilling to pay more for earnings. The machinery is spinning furiously simply to stay in place. Without share buybacks and dividend increases, market performance would be much worse.

This is the psychological issue referenced above. Why worry about corporate malfeasance, earnings misses and bad management? Instead, fix up your home and watch it appreciate! And, it won't get marked to market every day (less stress), and, unless you live near a toxic waste dump, it won't go to zero.

This explains how sentiment affects multiple compression. But does this process have a mathematical explanation?

Yes: Mean reversion is the process by which earnings ratios oscillate above and below its long-term average. And markets do not seem to stop on their means. Instead, they swing wildly above and below.

The accompanying chart shows we have been way above the historical averages for P/E ratios. From 1955 to 2005, the median P/E was 17. Stocks may not be terribly expensive at present, but they are hardly cheap by historical measures. An even more discouraging analysis comes from Clifford Asness of AQR Capital Management. He calculated the P/E ratios for the entire market from 1871 to 2003 at about 11. That suggests stocks are even less cheap (or more expensive) than is implied by our measure of "only" the past 50.

Whether you take the 50- or the 132-year perspective, the theory of reversion to the mean implies that stocks likely will become even cheaper as P/Es revert to the mean -- and then overshoot.

P.S.: I know "P/E mean reversion" has been the mantra of the permabears since the bubble burst (if not prior), causing most to miss the rally from the October 2002 lows. But that doesn't mean they're entirely wrong or that the theory should be dismissed.

Over the long term, I do believe P/Es will ultimately revert back to average levels, after falling below for a period. But there certainly are going to be short-term opportunities within the longer-term reversion cycle and, unlike the permabears, I've made various bull/bear calls such as here and here.

Despite accusations from critics and inflammatory headline writers, I am not part of the "Cult of the Bear."

In part 3, I'll tie together the top-down approach from part 1 and the technical factors discussed above to show how I got to my 2006 forecast of Dow 6800 and S&P 880.

Der DOW startete 1900 bei 60 (logarithmische Skala). Ritholtz bezieht sich in seinem Artikel "Cult of the Bear" (Posting 2, 2. Teil) auf den Zeitrahmen von 1966 bis 1982, den ich im folgenden Posting noch einmal als Ausschnitt zeige.

Ritholtz, der KEIN Perma-Bär ist, vertritt in Posting 2 (Teil 2) die These, dass die Aktienmärkte nach der Mega-Blase im Jahr 2000 in einen 15-jährigen zyklischen Bärenmarkt eingetreten sind - ähnlich wie im Zeitraum von 1966 bis 1982 (siehe Chart unten). In diesen 16 Jahren lief die Börse zwar per Saldo seitwärts, machte aber im Trendkanal große Sprünge.

Ritholtz' These ist, dass die derzeitige "technische Erholung" der Aktien-Indizes ab März 2003 (Beginn des Irakkriegs) sich nun ihrem Ende nähert - vergleichbar dem 26-monatigen Anstieg von Juli 1966 bis November 1968 in der Grafik unten (grün). Nun soll, nach Ritholtz, die Abwärtsbewegung folgen, die den DOW auf 7000 runter bringt (rot, darauf folgend).

Dafür spricht unter anderem die immer noch im historischen Vergleich recht hohen KGVs der US-Börsen: Der Langfrist-Chart des durchschnittlichen S&P-500-KGVs findet sich in Posting 2. Ritholz nennt in Posting 2 aber noch zahlreiche andere Argumente dafür.

Falls General Motors Pleite geht (der "Rettung" glaub ich nicht so recht bei 300 Mrd. Dollar Schulden und ständigen Marktanteilsverlusten), dürfte sich die derzeitige Börsen-Euphorie bald wieder legen. Die gestrigen schlechten Quartalszahlen von Alcoa (Aluminium) deuten darauf hin, dass uns in diesem Quartal noch andere negative Überraschungen bevorstehen.

sehr interessant!
Vor allem post 3!

mfg
Shaker

Heute: Ford tiefer auf Junk-Status gestuft.
Gestern: Alcoa mit enttäuschenden Zahlen.

On the one hand, a bullish market for commodities should benefit a mining company such as Phelps Dodge. Chinese and global demand has pushed copper prices to 16-year highs. But boosting production requires more costly exploration and those operational difficulties seem to have hit the copper giant.

Higher up the production stream, purchasers of raw materials, such as DuPont, are facing higher prices, mostly energy, while being unable to pass it down. "It's a double-whammy," says Morningstar analyst Sumit Desai.

Both Alcoa and DuPont conveniently cited Hurricane Katrina's impact on production as being partly resulting for their disappointing results. But it's worthwhile to note that both derive a good chunk of their revenues from the auto industry: 18% for Alcoa and 23% for DuPont, according to stock analysts at Morningstar. That's not helpful.

"Auto sales have collapsed at annualized rate of 38% in the fourth quarter," says Asha Bangalore, economist at Northern Trust. Mainly because of this slump, consumer spending will barely be positive in the quarter and overall GDP economic growth is expected to have slowed to roughly 3% in the fourth quarter compared to 4.1% in the third, she says.

With the big three automakers GM (GM:NYSE) , Ford (F:NYSE) and DaimlerChrysler (DCX:NYSE) cutting costs like there's no tomorrow, its suppliers down the chain are obviously having a hart time passing on higher input costs.

Beyond Alcoa, which provides aluminum, and DuPont, which provides coating to the auto industry, steel producers such as US Steel (X:NYSE) and AK Steel (AKS:NYSE) are hit even harder, says Morningstar analyst Scott Burns.

In terms of broader economic trends, there could be worse than slumping auto sales. It wouldn't be surprising to find out that consumption was already hit by the cooling housing market in the fourth quarter, according to Bangalore, who says that trend is sure to accelerate in 2006.

Such a scenario doesn't bode well for the likes of DuPont, which derived 12% to 13% of its revenues from sales of construction materials in 2004, according to Morningstar.

Still, the commodity boom that has been fueled mostly by Asian growth, and the ability of different players to handle higher costs has made it harder to determine what defines broad economic impact trends. The likes of equipment-makers Caterpillar (CAT:NYSE) and John Deere (DE:NYSE) , for instance, have had an easier time passing on higher costs.

Economic slowdown or resilience? Inflation or no inflation? Ben Bernanke, the soon to be new Chairman of the Federal Reserve, will need to sift through it all before we can expect the central banks to end rate hikes for good.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.

SMALL-CAP FOCUS
Take profits on small caps: Merrill
By Tomi Kilgore, MarketWatch
Last Update: 1:45 PM ET Jan. 11, 2006  
          §

NEW YORK (MarketWatch) -- Merrill Lynch recommended Wednesday that investors of small-capitalization stocks "take the money and run" following their recent run-up, citing concerns over seasonal factors and the upcoming earnings reporting period.

The Russell 2000 Index ($RUT:) was last down 3 points at 708, but was still up 5.2% since the end of 2005. Meanwhile, the S&P 500 Index ($SPX:) has gained 3.4% over the same time.

Analyst Satya Pradhuman said the gains may be partially a result of the "January Effect," which refers to the tendency of small-cap stocks to outperform the broad market in the first week of a new year.

The phenomenon is believed to occur because the illiquidity of small caps work in their favor as investors return to the market, following year end tax-related selling.

Although this effect is off to a good start, Pradhuman believes it will be short lived as earnings disappointments loom.

"As we witness a seasonal bounce, the start of the earnings season is likely to mute this anomaly," Pradhuman said. "Our work continues to show that high earnings expectations that leave little room for disappointment."

He noted that 46% of the small-cap universe has witnessed upward revisions to earnings estimates, well above the historical average of about 34%.

He recommends two courses of action for investors: "For managers who have benefited from this bounce, take profits; for those who have lagged, change nothing -- the market will likely come back in."

Among small caps that Pradhuman's research suggests are the likely to decline the most are Rambus (RMBS:) and Rackable Systems (RACK:) in the technology sector and Meridian Gold (MDG:) within the basic industrials sector.

In the consumer services sector, Pradhuman sees WebMD Health Corp. (WBMD:) as the most attractive "short sale," as is eResearch Technology (ERES:) in healthcare; Goodrich Petroleum (GDP:) within energy; TradeStation Group (TRAD:) in financials and Aeropostale Inc. (ARO:) in consumer cyclicals.

He cautioned against selling all winners, however.

PlusFunds unterhielt enge Geschäftsbeziehungen zu Refco und laut dem Nachrichtendienst Dow Jones auch zu dessen Top-Management. So zog PlusFunds zwei Tage, bevor Refco alle Kundenkonten einfror, 312 Mio. $ aus dem Krisenbroker ab. Dies rief die anderen Refco-Gläubiger auf den Plan. Sie bewirkten, dass Refcos Insolvenzrichter den Großteil des Vermögens im Sphinx Managed Futures Fund einfror. Der Richter kann die Gelder komplett zurückverlangen, wenn die anderen Refco-Gläubiger durch den Abzug tatsächlich benachteiligt worden sind.

Insgesamt haben institutionelle Commerzbank-Kunden in den betroffenen Dach-Hedge-Fonds Cominvest Hedge Conservative 14 Mio. Euro investiert, wovon nun 2 Mio. Euro ausfallen könnten. Die Commerzbank-Tochter Cominvest hatte den Dachfonds vor einem Jahr aufgelegt. Wegen der Probleme sei der aktive Vertrieb nun gestoppt, so die Sprecherin.

Aus der FTD vom 12.01.2006

Du schriebst mir gestern die folgende beleidigende Board-Mail:

" 'bin jetzt short SP-500 11.01.06 18:59'

du bist ja short
liegst jetzt hinten
und bleibst short
vielleicht auch long ?
in jedem fall bleibst du aber
irgendwie positioniert

solche dämlichen wixer wie dich habe ich ja echt zum fressen gern"

Öffentlich traust Dich offenbar nicht, Leute so vehement anzugreifen. Ich finde aber wichtig, dass die Öffentlichkeit erfährt, welch perfide Spielchen Du im Hintergrund spielst. Daher habe ich Deine Mail jetzt mal für alle sichtbar gepostet. Wer weiß, wer noch solchen Senf von Dir per Boardmail erhält...

Abgesehen davon, dass ich mich nicht für einen "dämlichen Wixer" halte und IMHO auch keinen Grund für derartige Beleidigungen geliefert habe, möchte ich Dir - die Sachlage betreffend - mitteilen, dass ich den Short gestern um 19 Uhr MEZ mit (kleinem) Gewinn gecovert habe, weil ich denke, die gegenwärtige Schwäche ist nur ein technischer Rücksetzer im nach wie vor intakten Aufwärts-Trend.

Teil 1 und 2 finden sich in Posting 2 dieses Threads.


Market Features
Cult of the Bear III: Getting to Dow 6800
By Barry Ritholtz
RealMoney.com Contributor
1/18/2006 7:24 AM EST
URL: www.thestreet.com/markets/marketfeatures/10262175.html

Part I of this series reviewed our stimulus driven, real estate-reliant, post-bubble economy. Part II looked at the cycles of bull and bear markets, and how history suggests trouble ahead for U.S. stocks -- despite the strong start to 2006.

Today we focus on how it could all come together or, as the case may be, come apart. I'll detail how to get to my 2006 target of Dow 6800 -- the lowest (by far) in the Business Week survey -- and lay out a scenario for how the S&P 500 could take a 30% haircut this year.

Before the Fall

With everyone so focused on the bearish year-end forecast, many have overlooked my expectations for early 2006. As the Business Week survey shows, my first half Nasdaq prediction of 2620 was the single most bullish in the group, while my mid-year S&P call of 1350 was in the top 10 of nearly 80 forecasters. I also forecast Dow 11,800 by mid-year. (For the record, the survey was conducted in early December.)

Why the bull call before the fall? Because that's how market tops get made: In the 12 months leading up to the October 1987 highs, the Dow ran from 1800 to 2700 (a 50% gain), while the S&P 500 sprinted from under 240 to about 340 (about 42%). From October 1999 to March 2000, the Nasdaq nearly doubled. Although I don't expect anywhere near those gains in the first half of 2006, the pattern could be quite similar: A leap to new highs on some widely held assumption, which subsequently turns out to be false.

In the present case, several suppositions potentially fit the bill: The widespread expectations that the Federal Reserve will halt tightening sooner rather than later and that the U.S. consumer will keep spending. And do you know anyone who doesn't believe earnings will remain robust?

The Case of the Overdue Correction

One oddity of the move off of the prewar lows in 2003 is that the S&P 500 has yet to have a 10% correction. During the bull market period from 1996-2000, there were six corrections of 10% or more. Since the bottom on March 5, 2003, the S&P has sustained only three corrections of more than 6% and none greater than 9%.

Regular corrections serve a purpose for healthy markets: They cleanse the excesses that tend to develop, allowing further gains to proceed.

The lack of a 10% correction reveals high levels of complacency -- something the CBOE Market Volatility Index (VIX) has been implying for quite some time. This creates "air pockets" -- soft spots in the base of support that can potentially become more vulnerable to selling in the event of a test. As the 1966-1982 chart shows [gezeigt in Posting 4 dieses Threads, A.L.], broad trading ranges typically experience much greater than 10% corrections. Considering how regularly markets pull back and test support, the longer we go without that 10% correction, the greater the possibility of a steeper and deeper downturn.

The suggestion of a 30% fall in the S&P 500 has engendered widespread disbelief; investors broadly discount the mere possibility of such a correction. But as the nearby chart shows, there were five corrections that ranged in strength from 25% to 45% from 1966 to 1982. That averages out to one major correction every 38 months or so. The S&P's last major correction was a 33% drop from March to July 2002. That was 42 months ago -- implying we are overdue for another steep decline.

Structural Imbalances Create Vulnerability

Past crises such as the Asian currency crisis and the Long-Term Capital Management meltdown were able to be managed because of economic strength. When they occurred, markets were in the midst of a bull run and the economy was growing organically. The Fed had lots of room to add liquidity. The economy shuddered a bit, but handled these shocks well.

Ups and Downs

Today, the economy has far greater structural imbalances. As the markets get further extended, they become increasingly less able to absorb what has become euphemistically described as "an externality." As the current account deficit rises and the U.S. fiscal deficit worsens, so too does our ability to shake off an economic disturbance. Nouriel Roubini, professor of economics at New York University's Stern School of Business, calls this an "increased probability of a systemic risk episode."

Getting to 6800

What would have to occur for 2006 to be the strong year for the Dow many are expecting? Forget Goldilocks, we would need a Cinderella scenario, where nothing goes wrong, and many things go precisely right: Earnings must stay robust, while energy prices and inflation moderate. The consumer would have to keep spending, despite signs of tiring. Businesses would need to build on third-quarter capex spending, and begin to hire in earnest. All of the vulnerable Dow stocks would have to avoid their major issues, or even a minor hiccup.

None of the negative "externalities" currently contemplated -- from a major bird flu outbreak to protectionist legislation or other policy mistake to an energy shock to a dollar crash to a geopolitical crisis over Iran's nuclear ambitions -- can come to pass, much less something currently not on the radar. Finally, equities would somehow manage to avoid the regular corrections so common in secular bear markets.

If Cinderella fails to show, how might the Dow work its way down toward 6800?

The momentum from the beginning of the year should carry stocks higher into February. But a series of earnings disappointments and a few negative surprises from select names -- think DuPont (DD:NYSE) and Alcoa (AA:NYSE) -- creates a wobbly market. Disappointments after the close Tuesday from IBM (IBM:NYSE) , Intel (INTC:Nasdaq) and Yahoo! (YHOO:Nasdaq) won't help matters and may prevent the early 2006 momentum from carrying as far as I originally thought.

Investors start to gradually recognize that all is not well in the economy. The P/E multiple compression discussed in part II only adds pressure to stock prices, as does options-expensing. Companies on calendar years are required to expense options, starting this quarter. The effects of expensing options will be seen in first-quarter and full-year guidance.

This scenario won't collapse the market, but makes it vulnerable.

Perhaps the first-quarter rally has trouble gaining traction in the second. A modest downslide starts, as first-quarter earnings are reported. The bulls declare it a mere retracement and buying opportunity. But it turns out not to be; by the second quarter, the cyclical high for 2006 already has been put in.

How does this possibly get us to 6800? The Dow is calculated via a divisor, currently 0.12493117.

A point [= 1 Dollar, A.L.] of each Dow stock's movement is equal to a little over 8 points on the index. It's not too hard to imagine that as earnings slow, stocks begin to soften. A loss of 5 points on each component adds up to a Dow drop of 1,200 points (40 points times 30 stocks = 1200) -- that brings us to Dow 9800. And that's only 5 points; a 10-point-per-Dow-stock drop would drive the average to 8600.

All it will take will be a modest earnings slowdown, and the Dow slips below 10,000. That happens, and apprehension levels rise in earnest. Dip-buyers who bought stocks 1,000 points higher are upside-down.

Now imagine what happens if any of the highfliers -- say Google (GOOG:Nasdaq) or Apple (AAPL:Nasdaq) has a miss, or simply lowers guidance to reflect the slowing consumer. Or perhaps Home Depot (HD:NYSE) and Lowe's (LOW:NYSE) feel the pinch of slowing housing and refinancing activity.

Given the heavily promotional holiday-price cuts, I expect that many retailers -- Wal-Mart (WMT:NYSE) , Target (TGT:NYSE) on the low end, Tiffany (TIF:NYSE) and Nordstrom (JWN:NYSE) on the high end -- will see the margin pressure impact earnings.

The spillover effect will be substantial. And if the same happens in any one of the pricier Dow components -- Boeing (BA:NYSE) , United Technologies (UTX:NYSE) and 3M (MMM:NYSE) are all vulnerable -- we can easily see a day when the Dow is down 300 points.

In Japan, an investigation into Livedoor -- hardly a premier Internet company -- was a convenient excuse to whack the Nikkei 225 stock index down 462.08.

If breaking 10,000 will make traders nervous, below 9000 the fear levels will be palpable. At that point, any one of our laundry list of negative catalysts might come into play. In my war-gamed scenarios, the dollar doesn't have to go into crisis, and the avian pandemic need not kill millions; instead, the investing public need only become alarmed that something nasty might occur to take fear levels up toward panic.

The move from Dow 8800 to 6800 won't be a rational, calmly contemplated affair. No one will be quietly wondering about option-expensing or multiple compression. Instead, it will be a severe overreaction to some external event.

If and when that happens, it likely will be the best buying opportunity in the markets since the October 2002 cyclical lows.

Barry Ritholtz is the chief market strategist for Ritholtz Research, an independent institutional research firm, specializing in the analysis of macroeconomic trends and the capital markets. The firm's variant perspectives are applied to the fixed income, equity and commodity markets, both domestically and internationally.

Der Kursanstieg der Tokioter Börse um 40 Prozent im vergangenen Jahr war fast vollständig auf den Ansturm ausländischer Investoren zurückzuführen. Europäische, vor allem aber US-amerikanische Fonds hatten das zuvor jahrelang ignorierte Japan 2005 wiederentdeckt, als sich dort ein konjunktureller Aufschwung festigte. Auch zur Jahreswende war der Tokioter Aktienmarkt ihr großer Favorit. Wie in den 80er Jahren galten dort Kurs-Gewinn-Verhältnisse von 18 bis 20 als tolerabel.

Im Vergleich zu den anderen großen Börsen war der japanische Markt zweifellos besonders heiß gelaufen. Dass die Schockwellen von dort so schnell um den Globus laufen, dürfte aber daran liegen, dass die Investoren zuletzt fast überall ihre Zurückhaltung aufgegeben haben. Am selben Tag, als der Kursrutsch in Tokio seinen Anfang nahm, berichtete die Investmentbank Merrill Lynch, dass die Quote an Bargeld, die Fondsmanager weltweit halten, mit 3,5 Prozent auf den niedrigsten Stand seit Erhebung ihrer Umfrage gerutscht ist. Mit anderen Worten: Der Optimismus und die Risikobereitschaft der Vermögensverwalter waren in diesem Jahrtausend noch nie so groß wie jetzt.

Der Banken-Sektor-Teilindex (BKX) des S&P-500-Index (SPX), der zugleich seines Achillesferse ist, ist im letzten Monat relativ zum S&P-500 um 4 % gefallen.

Das letzte Mal, als diese Divergenz auftrat (September 05), stürzte der SP-500 anschließend ab.

Details zum Herbst-Absturz finden sich hier:
http://www.ariva.de/board/242917

und hier:
http://www.ariva.de/board/242917 (Posting 1816)

Der massive Einbruch letzten Freitag setzte sich am Montag nicht fort. Optimisten glauben, damit sei die Korrektur beendet. 1271 (im S&P-500) könnte jetzt aber zum Widerstand werden - und ein Abprallen daran den nächsten Tauchgang einleiten.