As I said on Friday, it feels like some sort of bottoming process is in place. Far be it from me to pick the bottom, but as my college friend Vince Farrell wrote me this morning, the fall of the S & P 500 is near historical bottoms.
Jeremy Grantham, one of the most skilled investors for generations, is quoted in this weeks Barrons as saying fair value for the S&P is 1025. The index closed Friday at 899. He readily acknowledges that an overshoot of 20% is not just likely, but probable. 20% off 1025 brings you to the low 800’s and that is where we got intraday last Friday.
Also, there is a triple bottom between 775 and 800 going back to 9/11/01 and into 2002. Maybe 800 is the technical bottom of the market. 800 would also be a decline of 49% from last Octobers high of 1576.
If we have reached a floor for the market, the last week was brutal for some supposedly smart people.
On Friday, Aubrey K. McClendon, the chief executive of Chesapeake Energy, issued a statement saying he had been forced to sell all of his 33.5 million shares in Chesapeake because of a margin call.
Sumner M. Redstone, the chairman of Viacom and CBS, disclosed that he would sell $400 million in shares in those companies to pay down a loan. For shareholders, margin calls can be painful, forcing them to liquidate portfolios at exactly the worst moment, as stocks are near panic lows.
That Sumner Redstone would own his controlling stakes in Viacom and CBS on margin is pretty appalling. The old guy’s lifestyle with his young wife might be getting the better of him.
Just because the panic selling may have slowed, does not mean anything about the real economy. Sales of High Definition TV’s are down 40% YOY, and all three American Auto companies are in deep trouble. The next sign of trouble I would watch for is credit card defaults. They are soaring.