Wednesday, August 26, 2009

Rosenberg: Aug 26th 2009

Rosenberg's commentary today:

THE MARKET DOES NOT MAKE THE NEWS
Yesterday, we witnessed some pretty fascinating things that were reported on
bubble-vision. We were told how the equity market was rallying on the news that
(1) Bernanke was reappointed; (2) the first increase (0.7% MoM seasonally
adjusted terms) in the Case-Shiller home price index since May 2006 in June,
and; (3) the seven-point jump in the Conference Board's consumer confidence
index in August, to 54.1 — taking it all the way back to where it was .... in May!
Uncork the champagne.

NOT SO FAST
1. Bernanke reappointed
We really fail to see how it could possibly be that the same central bank official,
who, over a span of a decade, presided over two massive bubbles and their
busts, can be viewed as being a positive force for the markets. Perhaps there is
some solace in knowing that the same person who created this awesome and
complex $2 trillion Fed balance sheet will be around to dismantle the largesse
since he’s probably the only one that knows how.
2. The first monthly increase in the Case-Shiller home price index
As for the second point, there is a difference between a trendline and the noise
around that trendline. Home prices are down a massive 31% from their peak
and have been in a vertical-down pattern for nearly three years. Perhaps a
respite is in order, but with the true underlying unsold inventory near 12 months’
supply, which is double what would typify a balanced housing market, it would
seem like wishful thinking that we have suddenly achieved a fundamental low in
residential real estate values (especially at the high end).
3. The seven-point jump in consumer confidence in August
With regard to point number three, we welcome any rise in consumer confidence
but an honest appraisal of the data would show that 54.1 is still a very
depressed level. In fact, the average index level during recessions is 73.0 —
August’s reading was nearly 20 points below that. So, if the recession is indeed
over and done, somebody forgot to tell this 70% chunk of GDP otherwise known
as the consumer.
Now, what about Mr. Market, who is still in a most joyful mood. Well, the normal
level of consumer confidence in the month in which the S&P 500 is up 55% from
an oversold bear market low is 100. So, the stock market is behaving as if
consumer confidence is twice the level it really is.

Look — nobody ever said Mr. Market was rational. Why, look at October 2007
when the market was trying to come up with new and exciting definitions of
global liquidity. Little did Mr. Market realize that we were within two months of
the onset of the worst global economic downturn in 70 years.
What caught our eye in that Conference Board survey was the investor
sentiment segment. Those bullish on equities rose 8 percentage points to
36.5% and the bear-share slipped to 26.4% from 34.0%. That 10 percentage
point gap in favor of the bulls is now the largest since ... October 2007.
Something to ponder about whether or not you share our contrarian streak.

Tuesday, August 25, 2009

Green Shoots

Steve Keen: Debunking Economics

Steve Keen - Getting to Grips with the Economy part I and II:



Monday, August 24, 2009

Japanese Yen Fractal - Path for the U.S. Dollar?

Source: Here

August 24, 2009

Japanese Yen Fractal - Path for the U.S. Dollar?
by Adam Brochert


Though I keep hearing how we're different than Japan and their lost two decades of deflation (or as close to it as we seem to get in a fiat world), we are making the same foolish mistakes: protecting the financial/banking keiretsu that caused the current mess, burying the bad debt under a cloak of secrecy, and engaging in a massive quantitative easing campaign to "stimulate" the economy.

Yes, there are important differences, and unfortunately, they make the U.S. picture more grim! We have no savings to fall back on and our access to the reserve currency printing press ensures that we will abuse this privilege until the dam breaks and our currency spirals out of control.

However, one step at a time. The deflationary forces engendered by the collapse of the private credit/debt markets continue to pull Americans and their favorite bankers deeper into an asset price decline/debt morass. If you are a bank or overleveraged financial institution or individual, this is a problem that has not yet gone away (for large banks, this is true even after pillaging the world's taxpayers). While it is true that our government and its [privately held, non-federal, corporate] federal reserve central bank have caused a great deal of damage to the structure of the U.S. economy and the longer-term viability of our currency by their actions, it is also true that other countries with their fiat money machines are engaging in similar plans of taxpayer-sponsored spendthrift madness.

It is a race to the bottom for all fiat currencies and this is why I hold debt-free money (i.e. physical Gold). However, secular credit market implosions are not minor events and bureaucrats only have so much control over the economy, even in places like China and Russia. So, yes, the U.S. Dollar (just like all fiat currencies) will eventually get even closer to its intrinsic value of zero before it is replaced.

But the game is not so simple for those looking to trade the markets (as an example, please don't ask how I've done in my trading account over the past 3 months!). Despite bailing out the banks and "printing money," the Japanese saw their currency strengthen during their mighty cyclical deflationary bear market in the 1990-1993 time frame. I know, I know, we are printing more in the U.S. and we are different, blah, blah, blah. Yes, the greater government debt creation will eventually come home to roost and cause more problems down the road.

But I again believe that a rise in the U.S. Dollar on an intermediate-term basis is upon us. I found an interesting fractal in the Japanese Yen price from the 1990-1991 time frame I wanted to share to show what could happen with the US Dollar despite all of its problems. And again, keep in mind that I store my savings in physical Gold, not fiat dollars from any country. I am a [transient] deflationist who is bullish on Gold because the value of Gold relative to other assets rises during deflationary wipe outs. I also more importantly believe that we are getting dangerously close to the end game for the current global fiat currency system. This is an event one MUST be early for, as being a day late could leave you close to wiped out as a holder of U.S. Dollars.

Anyway, following is a weekly chart of the Japanese Yen during the 1990-1991 time frame. Keep in mind that this chart includes the time frame following two brutal legs down in the cyclical bear market that began their lost 2 decades (which by the way haven't ended!):

And in case you haven't seen it lately, here's a 22 month weekly chart of the U.S. Dollar:

Now, for the obligatory "what happened next" chart in the Japanese Yen:

If you don't think this can happen to the US Dollar, ask yourself why. Think of it this way: what caused the US Dollar to rise so spectacularly last fall? Whatever your answer is, do you think that those forces cannot occur again?

The reason I keep harping on this is because I am passionate about Gold as an asset class in this environment. It seems that 90% of Gold bulls ignore the "reserve currency of last resort" function of Gold / its role as money. This means that Gold can do well during deflation by holding its value. It also means that commodities can tank while Gold can remain strong (which is wildly bullish for Gold miner profitability). Many Gold bulls are also commodity bulls, but I think the commodity bubble, if its poster child oil is any indication, has already burst. We are closer to the 1930s disaster than the 1970s disaster, though both decades are inexact comparisons.

The governments and central banks of the world hold physical Gold as a monetary asset and reserve "just in case." Well, we are now at one of those "just in case" decades where Gold's insurance function is just as important as its appreciation function. I believe Gold will rise significantly in price and possibly in a wild and exponential fashion. But if Gold just sputters along and holds its value in the $1,000/ounce range while every other asset class that a typical individual desires collapses in value, the holder of Gold has become significantly richer in real world terms.

No, I am not talking about the world coming to an end, eating Gold, or using Gold to buy groceries. Last I checked, stocks and bonds were not used to buy food or guns! I am talking about value as well as stabilization and enhancement of one's net worth in a scary investment environment. Those who plan to hold U.S. Dollars will profit from the Dollar's rise during the pending wave(s) of further deflationary panic. "Cash is king" during deflation. However, eventually the world will pull the plug on the U.S. Dollar as the reserve currency of the world. Though this could come about as an orderly process, history suggests otherwise. I don't know when this will happen and, at this point, Obama and Bernanke probably don't know either.

I think another buying opportunity in Gold is pending (still...). Once the US Dollar starts rising, Gold will take an initial hit precisely because so many are holding Gold for the wrong reasons right now. When the Dollar spikes higher, you can bet the Gold bulls and momentum traders will panic, shorts will press their advantage, and a brief price spike down will allow longer-term oriented investors to pick up more Gold on weakness.

As an aside, although change often happens at the fringe, expect to see more stories like this one about the role of Gold as money throughout the world.


Adam Brochert
http://goldversuspaper.blogspot.com/

Wednesday, August 19, 2009

Reforming healthcare?


US Representative Barney Frank walks past a sign prior to a town hall meeting on healthcare reforms in Dartmouth, Massachusetts. (AFP Photo)

Monday, August 17, 2009

Precther on the dollar

Robert Prechter on the dollar: Dollar may move to the upside.












Sunday, August 16, 2009

Thursday, August 13, 2009

Guide to the credit crisis

Source: Zerohedge


GuideToTheCreditCrisis -

Interesting Thoughts from Bob Janjuah

Source: ZeroHedge

My last cmmt, from 5th June, is re-presented below.

Plse read it. The following - which is in response to a very large number of requests - will make more sense once you have read it, and if you have read what I have been putting out all yr:

Both Kevin and I have been saying all year that this yr was going to surprise, with H1 09 far better than the consensus was forecasting back in Jan/Feb (and H2 much worse). Take yourselves back to the dark days of Jan/Feb. I know that I have the reputation of an uber Bear, and I think this sometimes means that some folks may sometimes ASS-U-ME they know what I am saying, rather than actually carefully reading what I am actually saying. However, I don't know of any (other?!) 'uber Bears' who were telling you back in the dark days of Jan/Feb that risk assets would rally and surprise to the upside. The entire Street was telling you H1 09 would be terrible. Not Me, and not Kevin.Virtually every client we spoke to in Jan/Feb was telling us that this year was going to be a disaster, with some small hopes of a bottom and turnaround at 09 year-end. Not Me, and not Kevin.

What is the point of this? Well, simply put SO FAR this yr economies and mrkts have broadly followed the route map we suggested. OK, we could have been a little more aggressively bullish. On a scale of -10 (max bear) to +10 (max bull), having been at -10(00!) over 07 and 08, we only went to +3/+5 or so on risk assets. We should have gone to +10, but for us a move from -10 to +3/+5 was pretty significant. Fortunately, enough clients did follow our words (rather then any pre-set belief of what our words were saying) to mean that, SO FAR, 09 is working out pretty well. At the very least, some folks as well as ourselves realised that pretty much EVERY major bear mrkt in history has AT LEAST one major 50% retrace along the way. From the all time highs in Oct 07, thru to the dark days of Jan/Feb 09, we had not seen even a single retracement anywhere near these % move levels, and thus we were well overdue one. We are having it NOW, from the lows in March 09, to the highs which I think we see in the next few weeks.

If you have read my previous cmmt (below) CAREFULLY, you will see that on the day of writing, June 5th, I said that the risk asset rally has further to run. On June 5th S&P traded at 950, the iTrx XO index traded in the mid-low 600s. As you will see below I suggested that the Jul thru to Sept period would be the 'tipping zone' and that during this period we could see another 5 to 10% gains in the S&P before rolling over. Between 5th June and now we had a mini-retrace (869 early-July S&P low, from an early-June high of 956, nearly -10%) but are now in the middle of a parabolic spike up. This spike higher/better in risk assets is as expected and fully within the levels I said in early June. I expect this risk rally to CONTINUE, into and maybe even thru a large part of AUG. I see scope, as I said in early June, for a move in the S&P up to 1000 (no doubt)/1050 (potentially), this equity move will drag all risk assets better and lead to further weakness in govvies and the USD too.

What happens after that? Well, SO FAR, nothing has happened to alter the views I have set out already below - namely that the next ugly leg of the bear mrkt begins as we get into the end of the Jul thru Sept tipping zone, driven by failure of the data to validate the V that is now FULLY priced in into markets, with new equity lows forecast for late 2009/early 2010. I see late Aug/early Sept as the most likely best spot to short stks/credit/risk assets, as I expect the S&P to peak for the yr at 1000/1050 around then, and I see this same timeframe as a great oppo to buy BUNDS again, when 10yr bund yields could well be back up in the 3.70s/3.80s yield area.

Some will say the data - macro and earnings - are validating the V. Well, if for some reason your time clock only started working the day after Lehman, then of course you are right, and it is such comparisons which have driven the current bear mrkt rally post early-March. But compare the data to the day before Lehman - do this and you will see things are in much poorer shape, on almost every metric. The Lehman event is, as Kevin puts it, going to be seen as the head fake when this crisis is looked back upon in the history books of tomorrow. I had my own staggering version of this recently. One client at a leading investment firm told me the other day that I was too bearish long term because Q2 earnings were UP. Up? Up against what? Against the utterly bogus guidance given to you by companies themselves, which have been trimmed down continuously into the reporting date? Yes!! Yippee - I guess. Up vs the results of Q4 and Q1, which were amongst the 2 worst qtrs in global economic history EVER? Yes, but again, yippee - how could they NOT be up considering governments around the world have thrown TRILLIONS of taxpayer money at the hole. But Up against the same qtr last yr - NO NO NO. Q2 S&P operating earnings are DOWN over 20% vs Q2 last yr, and that measure is AFTER the dramatic 'changes' on accounting policies re earnings from the financial sector.

I am of course aware of the risks to this call. Specifically, I could be putting too much emphasis on policymakers making the right longer term decisions rather than shorter term populist decisions, which will almost certainly end in disaster, albeit disaster delayed. Policymakers can decide to create another asset price bubble thru running non-credible and ultimately disastrous monetary and fiscal policy. They can blow up another bubble in asset prices by inflating, no doubt to breaking point, the public sectors' balance sheets (government accts and central bank). This will give all us supposed market pros exactly what we deserve - a shrt term illusion of wealth and gain. I use the word 'supposed' because, frankly, we should all by now have learnt the consequences of greed & letting policymakers put short-term 'populist' DEBT policies in place over sound longer term policy. Short-termism and Greed gave us the mother of all debt collapses which we are now working thru. Deepdown investors and analysts must realise they are AGAIN being sucked back into the game where 'markets make opinions', where 'excess liquidity' is the driving investment rationale - surely we must all know that investing purely because of price action and excess liquidity NEVER ends well. However, whilst I still HOPE and believe that we will now see sound longer term polices to deal with this debt-bust, which will mean PAIN over the next 12mths at least, my FEAR is that policymakers/governments will blow up sovereign credit worthiness so that we can again con ourselves that all is well, at least for a little while.

TRUST ME, we should NOT choose the shrt-term 'new bubble' route now. Why? Because the end-game to this type of bubble, if unchecked, is almost always, IMHO, UTTER disaster in the form of protectionism, horrible levels of sustained unemployment & inflation, and maybe even social/civil unrest - history is pretty consistent on this point. There is NO new paradigm here. Sadly the majority of sell-side analysts & policymakers in the world - the same crew that did not see the credit disaster coming even when it was inches away from their collective noses - have chosen to forget these basics and instead spout output gap, valuation & other such rubbish to you, like the 1970s (or indeed 07 & 08) never happened. Still, what do you expect. My real disappointment is not with such folks - they are doing their jobs - but rather with all of us, because we are so eager to forget their failures, and are so eager to believe their bull-hype without seriously thinking thru the consequences. Ask yourself this: who bails out Government after they have bailed out everyone. Reckless fiscal and monetary policy, which is being used to pretend that the debt-bust didn't happen, will - if it runs unchecked - be the worst possible outcome for the UK and US economies. It might trick us - in the short term - into believing all is well, into causing UK and US house/equity/asset prices to rise and into believing that 07/08 weren't really that bad, but this will all largely be a MYTH/money illusion that will not last much beyond mid-2010. Into late 2010 and 2011/2012, the costs of such reckless policy will I think make the events of the last 18/24mths seem like a walk in the park. Think of unemployment, inflation and bond yields up in the teens and then ask yourself how you will feel. Trust me, if unemployment, inflation and govvie yields are in the teens, buying risky assets like credit, equity and EM at current levels now will be exposed as hugely loss making endeavours.

In order to protect against this fear, that policymakers can't bring themselves to do the right thing and instead do the short-term thing AGAIN, with no heed to the l-t consequences as a result, then sensible Stop Losses are needed. I will go with the same Stop Loss I set out below on 5th June. So, if the S&P cash index closes ABOVE 1022 for 4 consecutive days, I will be stopped out and it will very likely be the case that policymakers are going the 'shrt-term next bubble' money illusion/nominal route rather than the longer term route which would be more painful shrt term but which will pave the way for the next 20yr boost to real productivity and real wealth gains.

Lets see. I fully expect S&P to move up to 1000/1050, but holding above 1022 for 4 consecutive days, as opposed to a single day spike up to 1050, will tell me a lot. If what I fear (as opposed to what I hope) plays out then I will have to concede that the lunatics that ran the asylum pretty much into the ground, culminating in the events of Q4 last yr, are back in control. Sadly, if this is indeed what plays out, then when the public sector balance sheet bubble bursts, maybe in a year, but almost certainly within 24mths, I will hopefully be far far away from the madness. I am deeply troubled by what we could see - a REDUX of the Greenspan Fed 2003 thru to 2005, where the WRONG polices were kept in place far too long, validated by nonsense around productivity and global savings glut, which DIRECTLY lead to the terrible failure of global credit markets over the last 2 yrs, and where the new paradigm was that house prices could go up for ever and that nothing could ever default....Ben Bernanke - PLEASE do not make the same mistake as your predecessor!! You and other policymakers should be applauded for dealing with the post-Lehman fall-out, but even you used the term 'Emergency Policy' when dealing with this. You must deep down know that such Emergency Policy is NOT the right policy going forward, as Lehman has been 'dealt' with. Sadly, your most recent testimony and the way you talked so vaguely abt exit policies - whilst 'bought' by the mrkt - leaves me extremely nervous as you said NOTHING concrete abt exit. Some of you will feel I am talking rubbish. Others will say 'who cares abt the l-t, I only care abt this week/month/qtr/year as it relates to my PnL & payout'. And some others will say 'sure, you may be right but I will be smart enuff to get out in time'. All Fair Enough. But ALL of us (I reckon) want to live for another 20/30/40+ yrs and in most cases either have or want to have offspring. If you are in this camp, then YOU should care DEEPLY abt the risk of policymakers favouring short-termist populist, 'immediate gratification giving' policy over sound long term policy choices, because policy mistakes NOW will make life more miserable for ALL of us for a sustained period of time not too far down the road.

On that cheery note, I need to let you all know that I am away travelling and on hols for the whole of August, and will hardly be able to check bberg/e_mail. I will mention that this will be the third Aug in a row that the Janjuah clan are in Barbados (and yes, it was all booked in March, when the deal was staggeringly cheap). I mention this merely because that last two Augusts' proved to be pretty pivotal turning points, Aug 07 being the +ve head fake when everyone wanted to believe that policymakers had seen off the Credit disaster at the pass (of course it merely served to suck everyone into risk again before the real nastiness began), and Aug 08 being the calm before the utter collapse of Sept/Oct/Nov.....3rd time lucky anyone?

Normal service will resume in Sept, in the interim Andy Chaytor will be here for you.

Cheers Bob

Bob's World from 5th June 2009:

U won't hear much from me over the next 5 wks or so as I am on the road.

So:

1 - We are - as Kevin has said - in the fag-end of the H1 09 rally we called at the beginning of the year. We may have another 5/10% in S+P gains from here.

2 - July thru Sept looks like the tipping zone. The driver will be failure of the V, which is now almost fully priced in, to materialise. The focus for seeing this will be leading indicators of private sector capex, demand, incomes, spending, jobs, earnings (incl. core bank earnings). Of course housing and banks still matter, but these will increasingly be led by and not lead the above factors. For the V in global risk asset pricing to be validated we need to see a surge higher in the above real indicators, not just 'less bad' data and not just a hovering around at these levels. I think we'll see a weakening trend.

3 - The next issues are inflation and rates. I am not worried abt core over the next 6/9 mths pretty much anywhere globally. The concern is the commodity area, esp. crude. We may want to cling to hopes that the rise in commodities (and rates) over the last few mths are signs of grwth, but as already mentioned the grwth data needs to improve meaningfully now if such hopes are not to be dashed painfully.

4 - Sustained increases in commodity prices/non-core inflation and rising bond yields driven more by global investor fears - especially in the US and UK, but also in most 'developed' and EM sovereigns running meaningful trade + fiscal deficits - around the issues of monetisation, debasement, currency concerns, sovereign 'credit' quality, massively higher QE needs, political concerns etc would cause serious damage to risk assets, and very severe damage if the data on the grwth side also deteriorates.

5 - Over the next 4/8 wks, as the rest of the rally leg plays out, and subject of course to data:

* Equities are at or near the highs for the rest of the year and will I think revisit the March lows. A move to new lows (mid 500s S+P) is still highly likely this year (risk is it may take 3 mths or so longer) if we get the combo of the grwth, commodity/inflation and rate concerns highlighted above.

* Depending on what you think in respect of these 3 factors - and if like me you are worried on all fronts but esp. on grwth - govvies are cheap outright at the peak yield levels seen over the last few weeks, but the real gem even if you are not as bearish on grwth is long bunds, shrt USTs (looking for USTs to trade +50/+100 to bunds in 10yrs).

* In FX I like buying VOLA generally but, because I expect to see much higher QE needs - this is just abt all that policymakers, esp. in the US and UK, have left as a tool to create inflation/nominal grwth - I like buying puts/vola on the twin deficit balance sheet impaired currencies, most obviously USD + GBP, mostly vs NOK, Surplus Asia and EUR. These currencies will be risked for the sake of control over yield curves if, as I fear, the grwth story does not materialise as discussed. A 20% move lower in the USD would not shock me.

* In EM the relative winners in the grwth + risk asset front will be the strong balance sheet, no/low deficit economies, and the big commodity plays. However equity performance in particular will only be a 'relative' win.

* Clearly I like crude and gold, esp. longer terms (12/24 mths) where I see $150 crude/$1500 gold.

* And finally in credit, no longer the lead indicator but very much an asset class that will be pushed around by rates, FX and equity moves, as well as by policy involvement, if the scenario I have outlined and favour plays out I expect to see new wides in HY/SME credit driven by default risk, and a revisit to wides in the IG/big cap arena driven by technical imbalances in supply/selling, vs demand/dealer bid. Essentially, illiquidity and gap moves. I expect to see cash to underperform, big senior fins to relatively outperform IG corps, and in indices I am looking for a ITraxx X0 S11 up at 1250, Main up above 200, with HY12 in the 60s and IG12 up at 200.

6 - No doubt there will be twists and turns, as well as other, maybe even unexpected developments. I will do my best to stay in touch, but don't bank on anything too timely. Andy Chaytor will be here for you in any case.

7 - Clearly the mini-May turn did not quite wrk out. Rather than a decent interim sell-off we saw something smaller - S&P peaked in early May at 930 and bottomed in mid/late May at 880-ish. So more of a sideways consolidation. The driver seems to be fear/greed/hope/liquidity, but as is clear from all of the above, this fear/greed/hope/liquidity driven trade now needs to start seeing real data validation. Plse see above for where we go from here (better in risk over the next few weeks, and then the risk outlook turns much more bearish).

8 - If Kevin and I are wrong abt the V and the data does provide validation that the V is real (less than 1 in 5 chance based on what we see now, vs what seems to us a 4 in 5 chance that the data shows a failure in the V), then we need some stop losses to protect ourselves. In the V environment Risk will Win, esp Equities, HY, EM, and Commodities, and Govvies (esp US) will do badly. And, in a V, Europe will have 'less' of a V so we will see Bunds relatively outperform USTs, and European risk relatively underperform. The EASY stop-loss is at 1050 on the S&P, based on 4 consecutive closes above this level. The tougher stop-loss levels, again based on 4 consecutive closes, are 950 S&P or 1000 S&P. I think the right one to use is somewhere between 1000 and 1050, and talking to Tom Pelc 1022 S&P seems like an good level. So, in case we are wrong on the V (becoming a U or W), I am gonna go with S&P 1022 stop loss, based on 4 consecutive closes. BASED on the current 940 S&P closing level, one is risking 8/9% downside vs potentially 30/40% upside if I am right and we rollover during Jul/Sept and do end up, as I fear, down at new lows on equities in H2 09/early 10.

The key going fwd is data, focused on the private sector demand indicators/drivers, and the policy responses. The risk is of significant spikes in VOLA, the breakdown of old correlations and the beginning of new paradigms/paradigm shifts. As such, one has to keep an open mind and not rely too heavily on conventional thinking.

I think we are gonna have some fun.

Cheers. Bob.

Wednesday, August 12, 2009

Taleb on why we are worse off

Original read from here.











Bob Farrell's 10 Rules for Investing

Bob Farrell was a legend at Merrill Lynch & Co. for several decades. Farrell had a front-row seat to the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987's crash.


1. Markets tend to return to the mean over time

When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people's heads. It's easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one direction will lead to an opposite excess in the other direction

Think of the market baseline as attached to a rubber string. Any action to far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.

3. There are no new eras -- excesses are never permanent

As the fever builds, a chorus of "this time it's different" will be heard, even if those exact words are never used. And of course, it -- Human Nature -- never is different.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

Regardless of how hot a sector is, don't expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction.

5. The public buys the most at the top and the least at the bottom

That's why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing.

6. Fear and greed are stronger than long-term resolve

Investors can be their own worst enemy, particularly when emotions take hold. Gains "make us exuberant; they enhance well-being and promote optimism," says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that "Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks."

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names

Hence, why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks ("Nifty 50" stocks).

8. Bear markets have three stages -- sharp down, reflexive rebound and a drawn-out fundamental downtrend

9. When all the experts and forecasts agree -- something else is going to happen

As Stovall, the S&P investment strategist, puts it: "If everybody's optimistic, who is left to buy? If everybody's pessimistic, who's left to sell?"
Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.

10. Bull markets are more fun than bear markets

Especially if you are long only or mandated to be full invested. Those with more flexible charters might squeek out a smile or two here and there.

Source: Here

Tuesday, August 11, 2009

Sunday, August 9, 2009

GS State of the market Aug09

http://economicedge.blogspot.com/2009/08/goldman-state-of-market-august-2009.html

GS August

Rosenberg: Bear Market Stages

http://globaleconomicanalysis.blogspot.com/2009/08/what-growth-is-s-500-pricing-in.html

Dave Rosenberg is asking the important question What Growth is the S&P 500 Pricing In?

Based on past linkages between earnings trends and the pace of economic activity, believe it or not, the S&P 500 is now de facto discounting a 4¼% real GDP growth rate for the coming year. That is what we would call a V-shaped recovery. While it is possible, though in our opinion a low-odds event, it is doubtful that the economy is going to be better than that. So we have a market that is more than fully priced for a post-recession world — any further gains would suggest that we are moving further into the “greed” trade.

We realize that the market has to climb a wall of worry and that it will often price in a lot of bad news, but for the first time ever, it has rallied nearly 50% amidst a two-million job slide since March. That is either whistling past the graveyard or at the lows the market was indeed pricing in a full-fledged depression.

Think about that last comment. Whatever the market was pricing in at the March lows was obviously a pretty bad outcome, but isn’t that what we saw in the end? To be sure, the government established a floor under the financials, but when you go back and think about the fresh lows posted in late 2002, it was about earnings and the economy, not about financials.

In the four months after the recent lows in March, employment plunged by two million, which is as much carnage as we saw in the entire 2001 recession — and we are talking about the entire cycle including the jobless recovery that spanned from March 2001 to June 2003! We will guarantee you one thing — it is doubtful that the two million folks who lost their jobs are going to be heading to the malls, dealerships or restaurants anytime soon. And while that is only a sliver of the 130 million U.S. workforce, change does occur at the margin.

Usually, government plays a small role, but this time around, it may be the only actor in the play, and what multiple does that deserve is a very good question, especially now that Uncle Sam’s generosity is supporting a record of nearly 20% of personal income. The fact that we have now resorted to ‘Cash for Clunkers’ to support consumption is a very sorry state of affairs.




While the hosts on the CNBC show we were on yesterday afternoon claimed that the bounce in July auto sales was evidence of pent-up demand, we would simply have to disagree. If there was pent-up demand we wouldn’t need the subsidy to begin with — it just goes to show that there will always be people who will be willing to accept free money. What we think is important is how low the level of auto sales were in July, at barely more than 11 million units at an annual rate. It was only nine-years ago that auto-related stimulus (“0% financing”) brought us 21 million units; and just four-years ago another gimmick (“Employee discount for everyone”) brought us 20 million units. The ‘new normal’, we would have to assume after the response to ‘Cash for Clunkers’, is 11 million units. That’s supposed to get us excited over the consumer spending outlook? Keep in mind that we never saw 21 or 20 million units again after those prior programs were unveiled — could it be that we just saw 11 million for the last time too?

Low Quality Rally

Reuters did some nifty work and showed that in this last leg of the rally, which started on July 10th, CCC-rated stocks have surged 26.4%, BB-rated stocks are up 19.3%, while AAA-rated stocks have risen 9.5%. Look — when China is up 80% year-to-date, India 60%, and both the Kospi and Hang Seng up 40% — and dare we say, the SOX index up 60% in less than six months — it’s probably safe to assume that we have a huge speculative junky market on our hands. And, we know from the 2000-2001 and 2007-2008 experiences, they don’t tend to end well.

Bear Market Stages



click on chart for sharper image

Too Much Complacency For Our Liking

We mentioned how bullish the latest Market Vane Sentiment reading was, and now we have the latest data-point on the Investors Intelligence poll. The envelope please:

• Bulls: 47.2% versus 42.2% a week ago
• Bears: 25.8% versus 31.1% a week ago

The bull/bear spread widened by over 10 percentage points this week; a nightmare for the technical analyst (from a contrary perspective).
Video on Bear Market Rally














Rosenberg suggests there will be no recovery without the consumer. I suggest there will be no recovery in consumer spending, discounting of course "free money" programs like "cash for clunkers".

Of course this all depends on the definition of "recovery". At best, I think we have a "Recoveryless Recovery" before the economy slips back into a double or triple dip recession. Regardless, the stock market is priced for perfection while the odds of perfection are close to zero.

Mike "Mish" Shedlock

Weekend cartoons



Comparing SPX to 1974 recession

http://www.ritholtz.com/blog/2009/08/comparing-thew-1973-74-bearrecovery-with-2008-09/

Friday, August 7, 2009

Rosenberg: July Unemployment Drop a Red Herring?

The drivers of the market are
1. Liquidity
2. Technicals
3. Valuations
4. Fundamentals

Weekend SPX Picture

Dated 7th Aug 2009









Wednesday, August 5, 2009

Say What!

GM chapter 11 = PRICED IN
125K+ jobs lost from GM chapter 11 = PRICED IN
unemployment @ 9% = BETTER THAN EXPECTED
unemployment @ 10% = DOW SOARS
unemployment @ 11% = GREEN SHOOT RALLY
unemployment @ 12% = ALREADY FACTORED IN
unemployment = 35% = DOW DROPS 100 POINTS
housing price =1% = RECESSION ENDING
housing collapses = GREEN SHOOT
Housing falls 20% = STABILIZATION
Government spends 1 trillion of OUR dollars = STIMULUS
North Korea fires nuke = RALLY
Israel bombs Iran = 30 MINUTE END OF DAY RALLY
world explodes = ASIA RALLIES
PMI crashes = HUGE RALLY
No jobs are created = RECESSION ALMOST OVER
U.S. debt overwhelming = TOO BUSY RALLYING TO CARE
Consumer stops spending = RETAIL RALLY
Banks are insolvent = SIGNS OF STABILIZATION
American auto industry BK = GOOD THING
Banks pass scam stress tests = HUUUUUUUUGE RALLY
Banks "only need 75 billion = OUT OF THE WOODS
Banks pass a real stress test = NEVER WOULD HAPPEN
Banks pay back tarp = LATE DAY SURGE
Banks can't pay back TARP = EARLY MORNING SURGE
12% mortgage delinquency = GOOD FOR STOCKS
Hundreds of thousands of mortgages underwater = HOUSING BOTTOMED
Dollar rises = RALLY
Dollar crashes = RALLY
Inflation = BULL MARKET
Deflation = BULL MARKET CONTINUES
REFLATION = MASSIVE SHORT COVERING RALLY
Gold rises = STOCKS RALLY
Gold falls STOCKS RALLY BIG
Banks' fake earnings = SIGNS OF STABILIZATION
CRE stabilizing= 1000 POINT RALLY
CRE CRASHING = STOCKS SHAKE IT OFF TO RALLY
CONSUMER INSOVENT = CONSUMER IS SPENDING
OIL @ 50 = BULL RALLY
OIL @ 60 = GREEN SHOOT
OIL @ 100 = IMPORTANT RECOVERY SIGN
OIL @ 20 = TAX BREAK
NO ONE IS BUYING STOCKS = BILLIONS ON THE SIDELINES 


Source: Here

ISM

Mish has an interesting take on ISM data here

USD & SPX Relationship

Source: here and WE Pollock

Monday, August 3, 2009

Why Cash for Clunkers is BAD for America?

Michael Pento has hit the nail right on its head:

To even propose such a plan is to ignore the catalyst for what brought the global economy to its knees. If one realizes that debt, inflation and lack of production were the illness, how can more of the same be the prescription? How can an economy that has a record amount of debt become healthy by borrowing billions more from the Chinese to buy vehicles made in Japan? Again, we misdiagnose the problem by believing it is a reduction of borrowing and consuming that needs to be reignited.

Full article here

The Platinum Rule: Love thy neighbor

How I Met your mother: The Platinum Rule

The one rule that stands above The Golden Rule, it stresses that one should never ever ever ever love thy neighbor. If you see someone on a regular basis, work with them or are paying them in some capacity, the rule states that under no circumstances are you to begin dating said person or else the same eight steps will occur: Attraction, Bargaining, Submission, Perks, The Tipping Point, Purgatory, Confrontation, Fallout. Some believe the Platinum Rule must be broken occasionally and that a ninth step, co-existence, exists which effectively makes the rule less menacing.


Step 1: Attraction - The ignition of desire
Step 2: Bargaining - Weighing the possibilities with close friends
Step 3: Submission - Jumping in
Step 4: Perks - Relishing in the "benefits" of the relationship
Step 5: The Tipping Point - Where it starts to go downhill
Step 6: Purgatory - The culmination of annoyances
Step 7: Confrontation - Ending the relationship
Step 8: Fallout - The unavoidable backlash
Step 9: Coexistence - Letting go and moving on