Bob Brinker Timing Model Mauled By Bear Market

Bob Brinker's premature bashing of his "Bad News Bears" in May when the S&P500 was over 1400 was early at best and wrong if the market continues to go down. Brinker was also wrong last December when he wrote "We expect the bull market to continue at least well into 2008, and we look for significant stock market gains, including new S&P 500 record highs." The market was already in the early stages of the bear market when he wrote that as the graph and table of data below show.

A picture is worth a thousand words.

But for those who don't read graphs, here are some words. By Brinker's own definition, we are in a bear market as the S&P500 closed down over 20% from its all time

Date of last high is 10/09/07
Last Market High is 1,565.15
Date of last low is 07/09/08
Correction Low = 1,244.69
Decline in Pts = 320.46
Decline in % = 20.5%

Besides being fully invested at the top and looking for new highs in 2008 he had an "All in" buy for new money in the mid 1400s. Marketimer newsletter quotes follow:

October 2007 with 100% invested & S&P500 @ 1526.75

• Dollar Cost Average. Lump sum mid 1400's
• "Although we do not believe further weakness into the mid-1400's range must occur, we remain comfortable with rating the market attractive for purchase should any such additionalweakness occur. Above that price range, we prefer a dollar-cost-average approach for new stock market investing. All Marketimer® model portfolios remain fully invested."

Dec. 2008 with 100% invested & S&P500 @ 1481

• Dollar Cost Average. Lump sum mid 1400's
  
• "We continue to believe that a bear market (S&P Index decline in excess of 20%) is not on the radar screen at this time. We expect the bull market to continue at least well into 2008, and we look for significant stock market gains, including new S&P 500 record highs."

Months into the bear market, Brinker thought we were still in a bull market. The bear market started at the high, in October 2007!

January 2008 with 100% invested & S&P500 @ 1468.36

• Dollar Cost Average. Lump sum mid 1400's
• Pg 3: “In summary, the Marketimer stock market timing model indicates that conditions are favorable for the market as we enter 2008. We expect the S&P Index to achieve new record highs this year and to reach the 1600’s range in the process."
  

March 2008 with 100% invested & S&P500 @ 1330.63

• Dollar Cost Average. Lump sum low 1300's
• Marketimer Pg 1: "Based on the model’s current readings, we expect the area of the correction bottom established during recent weeks in the S&P500 Index low 1300’s to contain any further testing and probing that may occur."

May 2008 with the S&P500 back over 1400 he gave a bad news bashing on the radio that had their heads spinning. Brinker said:

“So what we have here basically, is an example of false prophets and it’s sad. And the reason it’s sad is the damage done. Think of the people that are looking today at the market, S&P at 1400 and they’ve been scared out of the market in the first quarter by these bears………It’s just amazing and yet these people are out there, and these people are not happy, I’m sure, to find themselves out of a rising market since March. To find themselves looking for ever lower prices when in fact we’ve had the opposite.

We’ve had the market rising since mid-March. It’s rather significant when you stop to think about it. If you go back to mid-March and you take a look at the S&P 500 Index since mid-March, right now you have a total return, including cash dividends of about 10 1/2%.....................So it’s fair for you to say to the Cassandras, where is that recession, where are those millions of lost jobs, where are the two quarters of negative real GDP growth? Where’s the bear market? …………The answer is, they blew it! That is the answer, they blew it. They got caught up in their own negativity and they pronounced that it was all over, it was going to spiral downward and there was no end in sight – and they got it completely backwards. Truly amazing to see, and sad to see the people that are harmed by such unjustified negativity.”

June 3, 2008 Article "Bob Brinker's June Market Outook"

• Bob Brinker's Marketimer: Bullish. In his most recent issue, which was published in early June, editor Bob Brinker wrote that his market timing model "remains in favorable territory as we approach the start of the summer season. We continue to expect stock prices to work higher and to achieve new historic highs in the market indexes." Brinker's model portfolios are fully invested.

July 10, 2008 Barrons article:

• Bob Brinker's Marketimer: Bullish. In his most recent issue, which was published in early July, Editor Bob Brinker reported that his stock-market timing model remains in favorable territory. ..... Brinker is recommending that subscribers' stock portfolios be fully invested.

All quotes are detailed at:

>>Bob Brinker's Asset Allocation History<<

Brinker's belief that he can time the stock markets is flawed at best. The good news is his other advice to become your own financial advisor, use low cost index funds and avoid excessive concentration in any one stock is sound. Sadly, I think the good advice is to lull you into the belief that he can time the stock markets.

"Market Timing is a wicked idea. Don't try it --- ever."
[Charles D. Ellis, Winning the Loser's Game]

"I have been following markets for about 50 years, and I’ve never met anybody who could time the market correctly."
(Burton G. Malkiel on 4/28/07 as a guest on “Moneytalk with Bob Brinker.” Malkiel won the 1973 Nobel Prize in Economics for his work on efficient markets presented in his book “A Random Walk Down Wall Street

Long Term Brinker Shadow Timing Model Update 5/1/08

We posted Bob Norton's shadow timing model update at The Bob Brinker Fan Club on May 1, 2008.

This is a Special Report by Bob Norton for the Bob Brinker Fan Club.

Put Call Ratio 60 Day Moving Average Record High

One of Bob Brinker's sentiment indicator components is what he calls the "60-day put/call ratio." The CBOE (Chicago Board Options Exchange) Put/Call Ratio (CPC) is the ratio of the trading volume of put options to call options. Bearish investors buy put options that gain in value when the market goes down. Bullish investors buy call options that gain in value when the market goes up. According to Bob Brinker, a high 60 day moving average of the put/call ratio is bullish for us contrarian investors.

The 60 day moving average (60-DMA) of the CBOE Equity Put/Call ratio ($CPC) remains near at a record high of 1.10 as shown on this chart.

Click charts courtesy of stockcharts.com to view full sized images

On January 04, with the 60-DMA of the put/call ratio at a then record of 1.00, we reported here that Bob Brinker said this was bullish.

In his January Marketimer, Bob Brinker reported:

"The 60-day put/call ratio remains in bullish territory as the new year begins."

Brinker remains bullish, does not expect a bear market (as defined as a 20% or more decline in the S&P500) and he looks for new highs to be made in the year ahead.

On an intraday basis, the market declined 20.2% and the put/call ratio is 10% higher at the current record level of 1.10.

Some Historical Perspective:

• In January 2000, when Brinker last lowered his asset allocation to equities , the 60-day put/call ratio was 0.525
• In March 2000, when the S&P500 peaked before the 2000-2002 bear market, the 60-day put/call ratio was all the way down to 0.475.
• In November 2002, shortly after the markets bottomed in October 2002, the 60-day put/call ratio was 0.86
• In March 2003, when Brinker returned to a fully invested position, the 60-day put/call ratio was 0.82

Here is a chart of the put/call ratio back to 1998.

For more information, see Technical Analysis: Sentiment Indicators

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Click to view the attached (but slow to load) PDF file: Take Profits & Sell Sentiment Indictors from The Market Top.

If you want to know what I have been buying in this period of weakness with my profit taking dollars from selling when the market was higher, Subscribe to Kirk's Investment Newsletter TODAY and get the April 2008 issue FOR FREE!

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Bob Brinker's 2008 Operating Earnings Estimates

One of five the components of Bob Brinker's stock market timing model is Valuation. He used to to say the S&P500 can trade at 16 to 17 times forward operating earnings in a "low inflation" environment such as we have had in the past few years compared to the high inflation environment of the 1970s and 1980s.

It has been reported (Summary Bob Brinker Moneytalk) that Brinker said on Saturday April 5, 2008:

"Well as I’ve – you mentioned the investment letter that you subscribe to, and then you well know, I’ve written about this in the letter. And this is the reason that I’ve had (EC: Had is past tense. Remember this!) very, very conservative 2008 earnings estimates for the S&P 500 -- very, very conservative. My number for the S&P 500 for 2008 is way below, way below the Wall Street number for 2008. And the reason is because of the reason you said – because we have a sluggish economy.
We expect the first half to be especially sluggish. And even though I expect some recovery will start in the second half, when you take a look at the year on a whole, hey, we’re looking at a sluggish year. Very low growth in real GDP for the full year is my projection. And consistent with that, and consistent with the inevitable margin compression you get in an economy like this, we have anticipated this in the investment letter by coming forth with a very, very conservative estimate for S&P 500 earnings for calendar year 2008. "

I think if any current subscribers were watching Mr. Brinker live, they might have observed his nose grow a bit longer with that misstatement of the facts.

Every week or two Runner26 reports in our "Bob Brinker FREE Discussion Forum" what Standard and Poors estimates the earings will be for the companies in their index. As of March 31, S&P estimated 2008 operating earings for 2008 would be $96.74, which is LOWER than Bob Brinker's published estimate made in 2007 but higher than Brinker's current estimate!

This is what Bob Brinker said in October Marketimer dated 10/3/07 with the S&P500 at 1526.75:

We expect significant additional stock market progress into next year as investors discount growing corporate earnings in an environment of low inflation and benign interest rates.
.
Our Current Marketimer S&P500 Index Operating earnings estimate for 2007 is $93.70. Using our forward price/earnings multiple estimate of 16 to 17 times earnings, the S&P 500 Index should be able to trade into the mid-to upper 1500's range. Investors will begin to look forward to 2008 operating earnings, and based on our estimate of $99.50, we see the potential for theS&P 500 Index to rise at least into the mid-1600's range next year
.
We expect slow economic growth this year, with real GDP growth in a range of 1.5% to 2.5%.
.
In the August and September editions of Marketimer, we rated the stock market attractive for purchase on any weakness in the area of the S&P 500 Index mid-1400'srange. .... Although we do not believe further weakness into the mid-1400's range must occur, we remain comfortable with rating the market attractive for purchase should any such additional weakness occur. Above that price range, we prefer a dollar-cost-average approach fornew stock market investing. All Marketimer model portfolios remain fully invested.
.
In our view, stock market valuation remains reasonable, with the current P/E ratio on the S&P 500 Index at 15.3 based on our 2008 operating earnings estimate. We expect investors to mark up stock prices into next year as corporate earnings continue to grow against a fundamental backdrop of monetary accommodation, slow to moderate economic growth, low inflation andlow interest rates.

Clearly the market did not make the 1600s. This is what Bob Brinker says now in his April 3, 2008 Marketimer newsletter with the S&P500 at 1322.70:

The current S&P 500 Index price of 1322.70 represents a P/E ratio of 15.2 times our 2008 operating earnings estimate of $87. (EC: He should say "New and greatly reduced earnings estimate") We expect investors to value these operating earnings at a multiple of 16.5 to 17 times as we move further into 2008, bringing the index into the mid-1400's range during the second half.

So, maybe his earings estimates are "very, very conservative" TODAY but that was not the case when the market was at a record high and he was looking for investors to "market up stock prices" into the 1600s into 2008.

In fact, Brinker is far less bullish for the S&P500 TODAY than he was back in late 2007 when the market was over 200 points higher and he was predicting it would be in the mid 1600s.

BTW, if you use 16 times his $87 estimate for 2008, then you get 1,392 which is only a gain of $69 or 5.2% above 1322.70. Perhaps that is why he increased the lower multiple from 16.0 to 16.5.

I don't think Mr. Geppetto would be very pleased with Bob Brinker's answer to the caller Saturday.

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Operating and Actual Earnings Estimates for 2008

One potential flaw in Bob Brinker's Long Term Stock Market Timing Model is he looks at operating earnings which ignores the write-offs. Many companies use write-offs as part of their business model. That is they make a ton of money in the good years then in the bad years they lay off staff and get out of marginal businesses and "write off the costs" to lay people off and exit business.

Each month in "Kirk Lindstrom's Investment Newsletter" I update the page I call "Fed Model Update." The “Fed Model” refers to a simple model the Federal Reserve uses which compares the earnings yield of the S&P500 with the 10-year Treasury bond. The model says the stock market is over valued if the earnings yield (defined as the total earnings of the S&P500 divided by its price) is lower than the yield of 10-year Treasury bonds, currently yielding 3.77%.

Below is my comparision for this month. Note how the year-0ver-year estimate for operating earnings growh is a whopping 18%.

2007 Operating EPS (bottom up est.) = $84.13
Year over Year Dollar Growth = -$3.59
Year over Year Percent Growth = -4.1%
PE Ratio = 16.0
Earnings Yield 6.2%

2008 Operating EPS (bottom up) = $99.50
Year over Year Dollar Growth = $15.37
Year over Year Percent Growth = 18.3%
PE Ratio = 13.6
Earnings Yield 7.4%

2007 GAAP EPS = $71.56
Year over Year Dollar Growth = -$9.95
Year over Year Percent Growth = -12.2%
PE Ratio = 18.9
Earnings Yield 5.3%

2008 As reported GAAP EPS = $71.20
Year over Year Dollar Growth = -$0.36
Year over Year Percent Growth = -0.5%
PE Ratio = 19.0
Earnings Yield 5.3%

Fearful investors won't get too excited about the market until it starts to look past the write-offs that have crushed GAAP earnings.

This chart shows TTM (trailing twelve month) GAAP earnings.

The bad news bears think the decline in earings is only starting while bulls like Bob Brinker believe we are having a temporary downturn in earings like we saw in early 2003 before we resume earings growth.

GAAP stands for “Generally Accepted Accounting Principles”

Visit our Facebook Sentiment Forum at "Investing for the Long Term" to ask questions or discuss the data.

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Bob Brinker Shadow Stock Market Timing Model Update

Bob Norton has udated the "Bob Brinker Shadow Long Term Stock Market Timing Model" and reports it "remains in favorable territory as we move into February, 2008."

This is a "A Special Report" by Bob Norton for Bob Brinker Fan Club readers. You can read the whole report here.

The "Shadow" Long Term Stock Market Timing Model now has 3 bullish indicators and one neutral.

Bob also swrites:

• "I believe we are in the process of forming a bottom in the S&P, possibly within the general level of 1275-1300. The fact that we are presently at 1395 is great news, but it would seem too easy to conclude that we would move straight up to the mid 1500s without some probing and testing of the recent bottom. Watch for a test of the 1275-1300 level. Hopefully selling pressure will be exhausted, and will confirm the march toward the mid 1500 recovery area later in the year.Perhaps Bob Brinker may issue yet ANOTHER buying opportunity in this retest area!"

I wrote:

• It is a coin toss at best. If you study Brinker's "gift horse" and "MOABO" buy levels through history, about half of them hit and half miss. Bob Brinker issued a buy under 1380 in 2007 after the market rose above that level to go on and make new highs. When the market was in the mid 1500's without a drop again below 1380, Brinker raised his lump sum buy level to the"mid 1400's. After that, the market crashed to the "low 1300's or about 18% from intraday peak to bottom, so far. Brinker took that mid 1400's buy level off via a special bulletin when the market was at 1325. At that price, he said to once again dollar cost average while he attempts to "identify a bottom." I prefer to use asset allocation which had me taking profits when the market was in the 1500's and has had me buying stocks these past weeks at lower than current prices.

This is a "A Special Report" by Bob Norton for Bob Brinker Fan Club readers. You can read the whole report here.

Read Bob's full report to see if you agree with his conclusion and update on the four basic model indicators:

• Valuation


• Monetary


• Sentiment


• Economic Cycle

Then give Bob your feedback on this in our Bob Brinker Free Discussion Forum at facebook's "Investing for the Long Term" group.

If you want updates on what Brinker is saying on Moneytalk delivered to your email box, often within 24 hours after Sunday's show, then follow the instructions at the Bob Brinker Fan Club.

Click Bob Norton for more articles by Bob Norton.

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Brinker's 60-day Moving Average Put/Call Ratio Indicator Remains Bullish

One of Bob Brinker's sentiment indicator components is what he calls the "60-day put/call ratio." The CBOE (Chicago Board Options Exchange) Put/Call Ratio (CPC) is the ratio of the trading volume of put options to call options. Bearish investors buy put options that gain in value when the market goes down. Bullish investors buy call options that gain in value when the market goes up. A high put/call ratio is bullish for us contrarian investors.

The current reading for the 60-day put/call ratio is 1.00.

• In January 2000, when Brinker last lowered his asset allocation to equities , the 60-day put/call ratio was 0.525
  
• In March 2000, when the S&P500 peaked before the 2000-2002 bear market, the 60-day put/call ratio was all the way down to 0.475.
  
• In November 2002, shortly after the markets bottomed in October 2002, the 60-day put/call ratio was 0.86
  
• In March 2003, when Brinker returned to a fully invested position, the 60-day put/call ratio was 0.82

This chart shows the sixty day moving average of the equity put/call ratio.

Click chart to see full sized version courtesy of stockcharts.com

In his January Marketimer, Bob Brinker reported:

"The 60-day put/call ratio remains in bullish territory as the new year begins."

Brinker remains bullish, does not expect a bear market (as defined as a 20% or more decline in the S&P500) and he looks for new highs to be made in the year ahead.

Read:

• Monday, December 24, 2007:
  Bob Brinker's Mid 1400's Buying Opportunity

If you want to read what Brinker said in his full update of this Marketimer stock market timing indicators, then you have to subscribe to Marketimer.

You can also read Bob Norton's free "estimate" of what Bob Brinker's timing model would do in "Bob Brinker Shadow Stock Market Timing Model Update." Brinker doesn't say if his individual indicators are bullish or bearish, but it seems Bob Norton made a direct hit with his estimate Brinker would remain bullish and fully invested.

Bob Brinker Shadow Stock Market Timing Model Update

Bob Norton has udated the "Bob Brinker Shadow Long Term Stock Market Timing Model" and reports it "remains in favorable territory as we move into the month of January 2008. "

The "Shadow" Long Term Stock Market Timing Model now has 3 bullish indicators and one neutral.

This is a "A Special Report" by Bob Norton for Bob Brinker Fan Club readers. You can read the whole report here.

Read Bob's full report to see if you agree with his conclusion and update on the four basic model indicators:

• Valuation
• Monetary
• Sentiment
• Economic Cycle

Then give Bob your feedback on this in our Bob Brinker Free Discussion Forum at facebook's "Investing for the Long Term" group.

If you want updates on what Brinker is saying on Moneytalk delivered to your email box, often within 24 hours after Sunday's show, then follow the instructions at the Bob Brinker Fan Club.

Click Bob Norton for more articles by Bob Norton.

Bob Brinker's LTSM Timing Model Update for December 2007

The Bob Brinker Shadow Long Term Stock Market Timing Model remains in favorable territory as we move into the month of December.

Article by Bob Norton, posted Saturday Morning on the Bob Brinker Discussion Forum at Facebook's Investing for the long term group.

ECs (Editor's Comments): by Kirk Lindstrom

Valuation:

Market close 11/30/07 S&P 1481

S&P earnings projection for 2008 is 102.86 as of 11/28/07.
p/e based upon S&P 1481/102.86 = 14.39

S&P Investment Policy Committee's most recent 2008 price target of 1650 presently yields a p/e of 16.04.

I anticipate that the S&P IPC may lower their forecast between now and the end of the year. On 11/26/07, one of my valued sources from which to make comparisons with Bob Brinker, Evergreen Investments, have lowered their 2008 guidance of S&P earnings from $100 x 17 =1725 down to $98.50 x 16.5 = 1625.

The Morningstar Valuation Graph has the market in deeply undervalued territory.

The NYSE 30 Day Advance/Decline Oscillator and the NYSE New High/New Low Ratio (Marketgauge.com) both indicate extreme oversold conditions.

• EC: This chart shows the number of NYSE stocks that are making new 52 week lows (red spikes) plotted with the S&P500 in black. You can see from the chart that spikes above 450 new lows are fairly rare. On Nov. 9, 2007, the NYSE made a second spike above 450 in just a few months!

Yesterday the 10 year Treasury closed at 3.97%, falling further away from the June 2007 level of 5.25%. Downward pressure on yield is a result of the flight to quality coming from the sub-prime mess, along with as-of-yet unsubstantiated recession fears.

The ratio of the 10 year 3.97% divided by the inverse of the S&P p/e (1/14.39) yeilds .572..... confirming that the market is substantially undervalued. In the December 3rd edition of Barrons, Don Hays of Hays Advisory Group said that this is an excellent indicator in that it shows that "money goes where it is treated best"

This indicator is BULLISH.

Monetary:

As of November 12th, M2 liquidity came in at 7403/6945 (year ago) =
6.59% increase minus 3.50% (headline inflation) = 3.09 inflation adjusted increase. M2 expansion is slipping against the projected 2007 GDP growth rate, but is still marginally ahead of 2008 consensus forecasts of 2.0 - 2.5% (Northern Trust, however, lowered its estimate to 1.7% earlier this month).

M2 growth trend needs to be monitored closely going forward, especially considering the Federal Reserve's task of balancing duel concerns over the housing-related slowdown with the recent uptick in headline inflation.

Headline inflation has jumped from 2.8 to 3.5%. Core CPI is slightly above the Federal Reserve comfort zone at 2.2%.

The PCE has risen to 2.9 from 2.4%, with the all-important Core PCE now standing at 1.9%.....still withion the 1-2% Federal Reserve comfort zone.

For the time being, core PCE is well behaved.

This indicator is BULLISH

Sentiment:

AAII bullish readings have fallen to 28.6 (12/2/07) from the 11/2/07 reading of 44.7

• EC: AAII: American Association of Individual Investors Bull/Bear Index: Charts and More Info

Investor's Intelligence Survey (bulls/bulls +bears) 11/20/07 from Market Harmonics stands at .643. This provides continued relief from the worrisome readings of over .70 which were consistent throughout the month of October.

• EC: Investors’ Intelligence Bull Bear survey: Charts and More Info

A recent reading of the moving average of the 60 day put/call ratio stood at .999... still showing sufficient negativity in the investment community.

• EC: The 60 day moving averate of the Put/Call ratio was under 0.50 in early 2000 when Bob Brinker's timing model signaled sentiment was too bullish. A reading of 0.50 or less means two bullish call options were bought for every bearish put option.
  
• chart: something wrong clicking the chart so I will upload it here later.

The ARMS Index of declining versus advancing NYSE issues has showed continuing improvement from the highly elevated readings of November 12th. Further improvement back toward a neutral stance is desired.

This indicator is BULLISH

Economic:

The November 30th 3rd quarter GDP revision of 4.9% yields an average GDP growth rate of 3.3% for the first 3 quarters. Still, there is widespread concern regarding the potential for a serious slowdown in the 4th quarter.

ECRI Forcasting (Lakshman Achuthan) noted on 11/30/07 that deterioration in their indicators continues, but that they still fall short of a recession call.

• EC: You can ask questions of Lakshman Achuthan in our Facebook discussion forum "ECRI Data (Economic Cycle Research Institute)"

Paul Kasriel is the director of economic research at The Northern Trust. They publish an excellent monthly report entitled "U.S. Economic and Interest Rate Outllook". Northern Trust has also been reluctant to make a recession call thus far, but their work suggests that a 2008 recession may be close to unavoidable. Their 2008 GDP forecast has been reduced to 1.7 from 2.0%. They make the case that the Federal Reserve needs to get short rates down to the area of 3- 3 1/2 % by mid 2008. But they also state that the Fed's hands may be tied by less than cooperative future inflation data. This report is definitely worth reading.

For the present time, a slow growth economy still wins out over recession as we begin 2008.

This indicator is BULLISH, but may be deteriorating toward a neutral stance. Federal Reserve policy announced at the upcoming December 11th meeting and incoming data during this month will play an important role in clarifying the direction of this indicator going forward.

Summary comments:

All four indicators are bullish, but with the economic indicator under some pressure. The immediate outlook for inflation still looks benign, even with the elevation in the headline number.

The falling dollar is viewed by many as making U.S. exports attractive to foreign purchasers and may provide a partial offset to future lower domestic spending caused by the "taxing effect" of higher energy prices. If higher energy prices do begin to leak into the core PCE, as I speculated about last month, then we may need to start discussing the possibility that a watered-down version of stagflation may set in.....but certainly nothing like what happened back in the 1970s.

As we close out 2007, the October 9th S&P high of 1565 was less than 1% (high or low) from the predictions made by Bob Brinker, the S&P Investment Policy Committee, and other sources which I monitor. It will be interesting to see how right they are next year!

That's it for now. As always, your insight and comments are welcomed and greatly appreciated!
Bob Norton
(more Posts by Bob Norton.)

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EC: Great work Bob! Thanks.

Bob Brinker Timing Model Update

Update on what Bob Brinker's "5 Root Causes of a Bear Market" and "Marketimer Stock Market Timing Model" are saying to the members of our discussion group.

This was posted today in our "Bob Brinker Discussion Forum" at Facebook's discussion group "Investing for the Long Term."

George asked:

Since the chances of a recession keep going up each day, could someone explain to me how a recession fits into the 5 root causes of a bear market as developed by Brinker? I think I understand the 5 root causes fairly well from reading the Brinker web sites and having subscribed to his newsletter in the past. However, none of the 5 root causes seem to deal with a recession. It seems to me that if you have a recession, profits are going to drop significantly. If profits drop significantly I would think you could easily have a bear market at least until the market could see the end of the recession. The 5 root causes could all be favorable or neutral but it seems like you could still have a bear market. The impression I have is the 5 root causes model has a lot of credibility with people associated with this site. What am I missing?

Allan replied to George's post:

In his November 5th newsletter , George , Bob Brinker sees " no evidence in our work that a recession will occur " . " The Conference Board Leading Economic Indicators and Coincident Economic Indicators show no signs that a recession is on the horizon , and we view the cacophony of financial media stories on this subject as highly suspect " .

Ivan replied to George's post:

A recession could follow if all 5 of the data points lined up and pointed to a bear which they do not.

The biggest piece would be tight monetary policy which we did not have IMO, and we never truly inverted the yield curve which is significant.

+ 5 major causes for a bear market (20-50% decline)

1) tight monetary policy - tight money when fed acts to limit the growth of money supply;
2) rising interest rates - currently or prospectively
3) high inflation
4) rapid econmic growth
5) overvaluation - overvaluation will not cause a bear

========
His timing model will give you clues of possible recession

Valuation
Monetary
Sentiment
Economic Cycle

====

it is not however fool proof IMO

Dan replied to Ivan's post:

"Smile, in light of the dismal stock market, it is amazing that not a single one of those 5 causes is negative. I don't think we have to have all five negatives for a bear market, but when not even one is, that makes you think.

The only one I can see that might even remotely be negative is inflation, and that's only if you view oil prices as the sole measure of inflation. And that's certainly not the case."

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Join us and give your inputs on what the model is saying to you these days! Request Invitation to facebook discussion group "Investing for the Long Term" to participate in our "Bob Brinker Discussion Forum."

Have a safe and Happy Thanksgiving!

Bob Brinker's LTSM Timing Model Update for November 2007

Bob Norton's "shadow" Update of Bob Brinker's Long Term Stock Market Timing Model (LTSMTM) has been posted at the "Bob Brinker Fan Club." Here is the URL:

• LTSMTM UPDATE November 6, 2007

Bob writes: "My version of the LTSMTM remains in favorable territory as we move through the month of November." Read his full report to see if you agree with his conclusion and update on the four basic model indicators:

• Valuation
• Monetary
• Sentiment
• Economic Cycle

Then give Bob your feedback on this in our Bob Brinker Free Discussion Forum at facebook's "Investing for the Long Term" group.