Financial topics

[Higgenbotham]

Higgie's graphic:
http://generationaldynamics.com/gdgraph ... t-adv2.gif

It is like the whole market has gone back to "fill the gap" from the crash. Now that it has, should be ready to go down again. Strange stuff.

It gets stranger. In the calculations on page 285, a ratio of days is given as 644 divided by 521. 521 is the number of days from the March 2009 low to the August 2010 high (as well as the number of days from the November 2008 low to the April 2010 high). 644 is the number of days from the March 2009 low to Friday, December 10 (yesterday).

The mathematical relationship that came to me as I was sleeping last night is given by:

644/521 = 2*(phi-1) or 644/521 = 2/phi

Where phi is the fibonacci golden ratio.

http://www.friesian.com/golden.htm

Does Bernanke defeat geometry, natural law, and crowd behavior? If so, for how long?

From the above link, the theoretical value is the square root of 5 minus 1, or 1.23607.
The actual value is 644/521, or 1.23608.

644 is the sum of the fibonacci numbers 610 and 34.
521 is the sum of the fibonacci numbers 377 and 144.

[John]

The mathematical relationship that came to me as I was sleeping last night is given by:

644/521 = 2*(1-phi) or 644/521 = 2/phi

And I thought that I had weird dreams.

John

[Higgenbotham]

The mathematical relationship that came to me as I was sleeping last night is given by:

644/521 = 2*(phi-1) or 644/521 = 2/phi

And I thought that I had weird dreams.

John

I'm not sure I actually dream this stuff, but when I wake up it comes into my mind right away. This was the first thing I thought of when I woke up.

[Higgenbotham]

I've been searching for an analysis that incorporates some of the numerical values I've posted here recently. Found something similar here:

http://www.traders-talk.com/mb2/index.p ... ntry546493

This is a few months old, but this analyst seems to think the S&P will clear these levels and move to around 1300 next year. As I posted once before, 1302-1307, somewhere in there, seems possible.

He doesn't see the exact time relationships I've been pointing out. I can't find anyone who has. I like posting here because it's obscure and for some reason the search engines don't pick it up.

To my way of thinking, the extreme sentiment, belief the economy will improve because rates are heading higher, growing consensus of low to high teen percentage gains in stock indices next year, many prominent and not so prominent bears throwing in the towel and/or going into hiding (Prechter, Nenner, Janjuan, etc.) which might just mean that the media doesn't want to talk to them now which is more evidence of crowd behavior, belief that stocks always go up during this seasonal time period, etc., all point to the possibility that the market may turn down here and 1302-1307 won't be reached.

Didn't someone say a watched pot never boils? Bear market rallies must convince almost everyone before they are done. Then there are those few who will never be convinced no matter what.

http://www.cnbc.com/id/40578145

Another one convinced.

[Higgenbotham]

S&P 500

Back in 2007, the S&P 500 made a temporary high on February 22, 2007. Shortly thereafter, there was a "flash crash" type event as the subprime crisis temporarily made itself evident. After some similar gyrations to 2010, the Fed intervened and the S&P 500 went on to make its all time intraday high on October 11, 2007.

The time between the February 22, 2007 high and the October 11, 2007 high is 231 days.

This year, the S&P 500 made a temporary high on April 26, 2010. Shortly thereafter, there was a "flash crash" type event as the sovereign debt crisis made itself evident. After some similar gyrations to 2007, the Fed intervened and the S&P 500 went on to make a 2 year intraday and closing high on December 10, 2010 (so far).

The time between the April 26, 2010 high and December 10, 2010 is 228 days.

Another example of coincidence or mass behavior in action? I guess we'll find out soon enough.

http://www.bloomberg.com/apps/news?pid= ... TR8S7Yr5Kw

February 22, 2007 Bloomberg article about the looming subprime problem.

February 22, 2007 Temporary high in the S&P 500 and evidence subprime problems looming
August 17, 2007 Fed cuts discount rate
September 18, 2007 Fed cuts interest rates

April 26, 2010 Temporary high in the S&P and evidence sovereign debt problems looming
August 27, 2010 Bernanke hints at QE2 in a speech at Jackson Hole, Wyoming
November 3, 2010 QE2 Announced

As far as the relative impacts of these 2 programs, probably the best way to deal with that question is to gauge the market reaction to each piece of news. Today I'm going to review some work I did in 2007 regarding that and compare it to 2010.

Some interesting overall data:


August 16, 2007 S&P 500 low 1370.60
October 11, 2007 S&P 500 high 1576.09

August 16, 2007 GLD low 63.47
October 11, 2007 GLD high 74.59

During this time, the S&P 500 went up 15.0% while gold went up 17.5%.


August 27, 2010 S&P 500 low 1039.70
December 10, 2010 S&P 500 high 1240.40

August 24, 2010 GLD low 118.71
December 7, 2010 GLD high 139.54

During this time, the S&P 500 went up 19.3% while gold went up 17.5% (again).


Gold typically leads the stock market up and down by a few days. They moved together in the 2007 comparison, but gold led by 3 days in the 2010 comparison.

The data seems to suggest that the interest rate cuts and QE2 had an equal impact on the gold market, but QE2 boosted stocks more. My inclination has been to think that stocks have been directly manipulated with the QE2 money and have become overpriced in herding behavior fashion that does not reflect underlying fundamentals, similar to April 1930. Most of the herd seems to disagree, similar to April 1930. Interest rate cuts do not funnel money directly into stocks. A similar percentage gain in stocks in response to the 2007 interest rate cuts would put the S&P 500 at 1195, which was about the max I calculated 2 months ago using other methods.

[Higgenbotham]

A common feature of all these earlier troubles was that, having happened, they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a record 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruiness fall. Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenonmemon. The ruthlessness of its liquidation was, in its own way, equally remarkable.

I've heard it said (and believe it is probably true) that today's cycles are about 3 times as long as the Great Depression cycles were. The 1920s bull market lasted about 8 years, while the bull market that began in 1974 or 1982 and ended in 2000 or 2007, whichever way you prefer to look at it, was about 3 times longer. If that's true, then the comparable 5 month recovery from the November 1930 post crash low to April 1930 would be expected to last longer than 5 months.

http://www.321gold.com/editorials/russe ... 12910.html

[John]

Here's something I heard from an analyst on Bloomberg tv this
morning:

> This is the time of year everyone's brushing up their forecasts,
> what they expect for next year.

> And WOW, are people waxing optimistic! I mean, you have everyone
> talking about what a great year 2011 is going to be.

> In fact Goldman Sachs said it's going to be a superb backdrop for
> equities. You have the average forecast up 11% for 2011. If we
> were to hit that, that would be three years in a row of gains.
> That hasn't happened in a decade. So people are feeling very,
> very good about stocks these days.

You know, my memory doesn't go back that far. Could somebody please
tell me what she's talking about that happened a decade ago?

John

[Higgenbotham]

You know, my memory doesn't go back that far. Could somebody please
tell me what she's talking about that happened a decade ago?

John

I don't know. The market was up for 5 years in a row from 1995-1999 and 5 years in a row from 2003-2007, so I have no idea what she's referring to.

On another note, the market made a peak today and sold off, but most of the indices still ended slightly higher (Russell and Nasdaq closed lower).

She's right about one thing. Everyone has turned so bullish (or is that bullshit). It'll be interesting to see if the herd is right. One bubble didn't surprise me (the year 2000). The housing bubble surprised me only in terms of how wild it got during the final 2 years. These bubbles we are witnessing in late 2010 are truly shocking to me. The degree of complacency is astonishing when viewed side by side with the reality.

[John]

Higgie, here's another tv quote today, from Bill O'Reilly on
Fox News:

> I say this: When Republicans take control of the House in January,
> they should put forth immediately legislation that cuts federal
> spending by 25% over the next three years.

> It's simple. The Feds have to stop spending so much money. If
> the Republican party leads the way in containing Federal spending,
> the folks will notice, and the unemployment extension will not
> mean very much down the road.

> Again, the country needs a 25% federal spending cut over the next
> three years. 8 and 1/3 each year. It's gonna be painful but it
> has to be done. Of course many Democrats will oppose that,
> perhaps including President Obama.

> That will set the stage for the election of 2012. But for now, we
> need this tax compromise, so pass it.

Can you imagine the Congress doing anything like this? This is based
on the same complacency that you talk about -- since the V-shaped
recovery is going to occur next year, and stocks are going to rise
11%, there'll be plenty of money sloshing around, so there's no
problem cutting federal spending 25%.

Today on TV I heard a couple of analysts talk about an impending
banking crisis in Europe, and another analyst talk about China's
bubble bursting. But these are just voices in the wilderness. And
anyway, so what? Those things are happening in other countries, and
have nothing to do with us.

John

[vincecate]

So I think we are going to see a "US bond bubble burst". So far prices are dropping in an orderly way. This does not look like panic yet. Anyone have URLs they like for watching bond prices/yields?

http://money.cnn.com/data/bonds/index.html

Bond value calculator. If interest rates go from 4% to 9% then a 30 year bond will be worth less than half as much.
http://www.calculator.com/calcs/bondcalc.html