Generational Dynamics Forum - New Site

Posted: **Sat Oct 11, 2008 3:55 pm**

A web site reader referred me to this article:

> American financier kills his family and himself after losing
> fortune in credit crunch

> A businessman gunned down five members of his family then shot
> himself after seeing his family's fortune wiped out by the stock
> market collapse.

>

> Karthik Rajaram, 45, who had made almost £900,000 on the London
> stock market, shot his wife, three children and mother-in-law in
> the head before turning the gun on himself at the family home near
> Los Angeles.

> He was found with the gun still in his hand.

> In a suicide note to police, he blamed the killings on financial
> hardship brought on by a collapse in shares.

> Los Angeles Police Deputy Chief Michael Moore said: 'The source of
> it appears to be a financial state, a crisis that this man became
> embroiled in that has unfolded over the past weeks.

> 'We believe he has become despondent recently over financial
> dealings and the financial situation of his household and that
> this is a direct result of that.

> 'This is a perfect American family behind me that has absolutely
> been destroyed,' he added. 'It is critical for us to step up and
> recognise we are in some pretty troubled times.'

> Using a handgun bought on 16 September, Rajaram went from room to
> room, picking off the family one-by-one.

> Police found his mother-in-law, Indra Ramasesham 69, dead in bed
> on the first floor.

> Upstairs, they found his 19-year-old son, Krishna, who was
> studying business economics, murdered in his bed.

> Rajaram's wife Subasri, was found in another room, also
> apparently shot while sleeping.

> In an adjoining room, his 12-year-old son, Ganesha, was dead on
> the floor, and his brother, Arjuna, seven, was killed in bed.
> Their father's body was in the room with the gun in his hand.

> All had been shot in the head. ...

> Mr Rajaram, originally from India, left two suicide notes as well
> as a will at the home in Sorrento Pointe, a gated community in the
> Santa Susana Mountains.

> Rajaram wrote of two options: committing suicide or killing
> himself and his entire family. "He talked himself into the second
> strategy," said Mr Moore, "That would be the honourable thing to
> do."

> http://www.dailymail.co.uk/news/worldne ... runch.html

Posted: **Sat Oct 11, 2008 4:00 pm**

I hate to post back to back here, but I can see where Higgenbotham is coming from. The first day I was speculating as a SPX trader in 1997, the Dow was somewhere around 8000, the SPX was 916 (I remember clearly my first trade was 916 out of curriousity) and the Nasdaq was about 1700. That was November 15, 1997. Almost 11 years later and where are we? Not Dow 30,000 as was being promoted shortly afterwards. Under bull terms, the Dow and SPX should have doubled by now and the economy has officially been in recession only about 6 months of the 11 years i have mentioned. The dividend rate at these prices is a little under 3% on the SPX and a little over on the Dow. The Dow would be lower if it was the same index it was when I started trading it and the last record would have been 12,610 on the way back up. My point is and John's point is, why would anyone in a liquidating market buy the stock market when it is this overvalued against history. It would be one thing if we were looking at the market in 1997 against 1986, but we are looking at the market in 2008 against 1997 and it hasn't made anything. You could compare tops with tops, but the the Nasdaq barely made it past 50% of the 2000 top and the SPX made a double top. Save for manipulation, we wouldn't have seen the Dow make much either. If you are not a skilled trader, the idea of buying stocks from here or even from valuations down another 33% is crazy.

The stock market was created out of a bubble. A bubble is a system of excessive debt. John makes such a nice statement when he talks about all these bubbles being together and they don't seem to know how they happened? It is beyond most people to conceive that stocks are the backbone of speculative financial assets and move the most in bubbles. They also go down more when bubbles burst. This one has a good chance to go to down 90%, as the debt bubble was that much larger than in 1929. The earnings, dividends, stock buybacks and the money available to buy stocks all came out of the bubble and is vanishing fast now. People think the Fed is pumping up the money supply when in fact they are covering up the lack of money in the system. Their only solution is to find a way to make the bubble bigger.

I have a list of stocks I would like to buy for a trade as well. When we do have the rally, you won't want to stay too long. Take a look at a 20 year chart of the Nikkei. It hit 8000 on Friday. It was 39,000 at its peak at the end of 1989. You really think time is going to bail you out? This coming bottom is going to be the top for a long time to come.http://mannfm11.blogspot.com/

Posted: **Sat Oct 11, 2008 7:11 pm**

Dear Barry,

mannfm11 wrote: > I have a list of stocks I would like to buy for a trade as well.
> When we do have the rally, you won't want to stay too long. Take a
> look at a 20 year chart of the Nikkei. It hit 8000 on Friday. It
> was 39,000 at its peak at the end of 1989. You really think time
> is going to bail you out? This coming bottom is going to be the
> top for a long time to come. http://mannfm11.blogspot.com/

I read through some of your blog, and I get the impression that
you've changed your mind about some things in the last 2-3 weeks. Is
that true? How has your thinking evolved, and have other investors
that you talk to also evolved?

Sincerely,

John

Posted: **Sat Oct 11, 2008 9:28 pm**

A comment from a web site reader:

> By 'securitized' your idea, i meant that I took your idea, sliced
> it into little bits, combined back again, 'sold the story' to
> unsuspecting Malaysian colleagues, claiming independent thought
> and analysis....

> In that aspect, I have a got a small following

> As we say in Malaysia - we had to localize the content.... Just a
> bit of comic relief . If only CDOs were that simple too...

> I wonder, was your basis of your model derivived from using some
> of the system dynamics tools. I noticed that a lot of your
> predictions are based on Second Order, Thrid Order and x-Order
> effects. This is classical system dynamics - especially the
> violent reactions post the bailout of the world (BoTW I), the BoTW
> II and BoTW III (post G7 meeting this weekend).

> I do differ on the reasoning for this crash. Whilst you had
> accurately predicted the crash, I disagree that the reason is due
> to the high PE. I view this as Lehman Brothers and WaMU biting
> everybody from the grave - heck if 'prudent' Bond Investors suffer
> the downside of equity investors without the upside - this is not
> America. Its not even Mexico - Copyright Homer Simpson.

> Secondly, I would like to draw your attention to a comment made by
> Michael Steindhart. He mentioned last year on Bloomberg, that he
> 'would like to short the entire hedge fund industry.' This
> industry is in collapse - margin calls, followed by more margin
> calls, followed by even more margin calls. Those brave enough to
> stay invested on Monday, now look at an even more bleak picture.

> Who ever suspected that there would be no liquidity in the market
> - perhaps that will explain how Freeport McMoran tumbled,
> eventhough the price of Gold skyrocketed. Well, as the great Hedge
> Funds decided on the material and mineral play, essentially I
> believe that a great proportion of this and other materials stock
> was held by Hedge Funds, who on margin call day, found the market
> broken down, with no bids to match the ask.

> Furthermore, how many Jerome Kerviels are still out there. I bet
> there are a lot of 'unknown' contracts hidden in the drawers of
> great Wall Street Traders, bleeding red, blue and green. I am
> begining to suspect a big fire under the smoke cloud when JP
> Morgan reportedly demanded 5 billion from Merill Lynch as their
> margin call.., there could be others....

> Bottom fishing...hmm, well if i was going to get invested, LIBOR
> has to stablize. As James Bond once said

> "If you *can't trust a Swiss banker*, what's the world come to?"
> UBS - I am talking to you.

I'm fascinated by this new application of "securitization." It
sounds very interesting.

Unfortunately your analysis of the causes of the crash doesn't seem
to make sense. You're attributing the crash to very recent events
(the Lehman collapse, the WaMu collapse, Jérôme Kerviel and SocGen).
Recent events don't explain the dot-com bubble, nor the real estate
and credit bubbles.

Conversely, there were bank failures in the 50s, 60s and 70s, and
there were plenty of people like Jérôme Kerviel, but there was no
crash.

Sincerely,

John

Posted: **Sun Oct 12, 2008 8:39 am**

Could we just keep having weeks like last week, with no "black day"? Isn't there some mechanism after the 1987 false crash put in place to prevent freefalls from becoming power dives?

Posted: **Sun Oct 12, 2008 11:48 am**

Gordo said, recently: "Gordo wrote:Well today was the most bullish day we've had so far during the decline. Massive volume, a key reversal, end of day strength, all the major indexes made it to positive territory after a massive sell off (even though only the NASDAQ closed positive). The VIX went over 100, demonstrating an intense amount of fear not seen in decades. Again purely from a traders perspective, these are the types of things you would expect to see at a bottom. I do not by any means think this is "THE" bottom, but again looking back at history, in the '29 to '32 crash, we had massive rallies about every 6 months, and they generally lasted months, not days. So this is what you should expect. That doesn't mean it is safe to buy stocks, by any means. In fact, this is the mechanism by which (as John has pointed out) the market extracts every last dime from almost everyone, haha."
------
The topic of key reversal is very, very, very important on the micro scale, if the pattern truly matches that of a key reversal.

Is there anyone here who really knows key reversals? Can you see one on Friday?

Open at a gap low, first bar, dropped lower, reversed, closed the gap, rose above the gap, dropped below the gap.

This IMO is a key reversal, and the closing of a daily gap caused by 1st and 2nd bars. Gaps get traded after they get closed.

The gap at 10200-10350 stands unfilled. It's real, and it's there.

Friday was an exhaustion gap opening, but on a daily basis, there's no gap.

Indecision, which means a narrow band range is what I believe will be happening. The market has trapped the shorts, screwed the longs who panicked, and is filled with cagey hedge funds who won't get out unless the must.

Conclusion: Market's going nowhere. The anxious posters and traders will again get slaughtered and back off in this next sharp choppy waters phase.

The drive down is yet open to extend, based on symmetry; but nothing is 100%; so I will probably get bumped out of my last 1/4 short position or I will jump out at the next opportunity I see.

Posted: **Sun Oct 12, 2008 12:06 pm**

I think a significant difference this time is what fraction of mutual fund accounts is in "retirement accounts". These didn't exist in 1929-1932. The tax penalties for removing funds before age 60 are enough that it may be slowing down any panic reaction to the bad news. Yes, a lot of people may react by shifting their $ from stock funds to money market funds. But my point is there are structural brakes inhibiting the instinct to "get completely out of financial system NOW".

On the other hand, as every year passes, a bigger fraction of the people with retirement accounts are going to be old enough that the tax penalty for withdrawal does not apply. Maybe in the last year we've reached the tipping point on that aspect.

Posted: **Sun Oct 12, 2008 12:34 pm**

Tom Mazanec wrote: Could we just keep having weeks like last week, with no "black
day"? Isn't there some mechanism after the 1987 false crash put in
place to prevent freefalls from becoming power dives?

NYSE Press Release wrote:
http://www.nyse.com/press/1222772891771.html

News Releases

NYSE Announces Fourth-Quarter 2008 Circuit-Breaker Levels

NEW YORK , September 30, 2008 -- The New York Stock Exchange
will implement new circuit-breaker collar trigger levels for
fourth-quarter 2008 effective Wednesday, October 1, 2008.

Circuit-breaker points represent the thresholds at which trading
is halted marketwide for single-day declines in the Dow Jones
Industrial Average (DJIA). Circuit-breaker levels are set
quarterly as 10, 20 and 30-percent of the DJIA average closing
values of the previous month, rounded to the nearest 50 points.

In fourth-quarter 2008, the 10, 20 and 30-percent decline levels,
respectively, in the DJIA will be as follows:

Level 1 Halt

A 1,100-point drop in the DJIA before 2 p.m. will halt trading for
one hour; for 30 minutes if between 2 p.m. and 2:30 p.m.; and have
no effect if at 2:30 p.m. or later unless there is a level 2
halt.

Level 2 Halt

A 2,200-point drop in the DJIA before 1:00 p.m. will halt trading
for two hours; for one hour if between 1:00 p.m. and 2:00 p.m.;
and for the remainder of the day if at 2:00 p.m. or later.

Level 3 Halt

A 3,350-point drop will halt trading for the remainder of the day
regardless of when the decline occurs.

Background:

Circuit-breakers are calculated quarterly. The percentage levels
were first implemented in April 1998 and are adjusted on the first
trading day of each quarter. In 2008, those dates are Jan. 2,
April 1, July 1 and Oct. 1.

Contact: Mirtha Medina
Phone: 212.656.6192
Email: mmedina@nyx.com

Posted: **Sun Oct 12, 2008 3:31 pm**

Tom Mazanec wrote:Could we just keep having weeks like last week, with no "black day"? Isn't there some mechanism after the 1987 false crash put in place to prevent freefalls from becoming power dives?

Well, I'm not sure there is much difference between a dark gray day and a black one. I don't think there is any generational requirement for a +10% fall in a single day. It's a byproduct of the 4T mood, not essential to it. Panicking, OTOH, is a certainty. Last week, as far as I'm concerned, was a panic week, and will be recognized as such if the market continues to fall (as I expect it will).

Posted: **Sun Oct 12, 2008 3:39 pm**

** P/E10 drops below average for the first time since 1995

According to an article in the Wall Street Journal, P/E10 has dropped
below average for the first time since 1995.

http://online.wsj.com/article/SB122368241652024977.html

When I write about the "price/earnings ratio" or P/E ratio, I'm
usually referring to P/E1 -- the current price of a share of stock,
divided by the company's earnings per share for the previous year.

Robert Shiller, whose 1999 book "Irrational Exuberance" predicted the
Nasdaq crash, and whose 2005 second edition predicted the real estate
bubble crash, uses the measure P/E10 -- the current price of a share
of stock, divided by the average of the company's earnings for the
previous 10 years.

I believe that P/E10 is a more meaningful measure, but I write about
P/E1 because it's easier for people to understand, and it makes the
same point: That P/E ratios have been way above average since 1995,
and by the Law of Mean Reversion, will have to fall to values way
below average for roughly the next 13 years. Either P/E1 or P/E10
can be used, as long as it's used consistently. The historical
average for P/E1 is about 14.1, and the historical average for P/E10
is about 16.3.

According to the Wall Street Journal article, quoting Robert Shiller,
last week's bloodbath brought P/E10 down to 15, which is below the
historic average of 16.3.

In the Wall Street Journal interview with Shiller, he says he
"doesn't make predictions" and he's afraid that "it might go down a
lot more." He's being very diplomatic with the Journal, by not quoting
the Law of Mean Reversion, which says that it will certainly go down a
lot farther, and stay down for a long time.

So add P/E10 to the list of things that have been crashing in the
last weeks -- commodities, emerging market currencies, worldwide
stock prices, the Baltic Dry Index, various major financial
institutions -- and now add one more, P/E10.

This is a huge downward trend with a great deal of momentum. It's
like a ten thousand-pound boulder is rolling downhill, and you'd like
to stop the boulder, and start pushing it up the hill again. It
can't be done, and anyone who thinks that a fractious G-7 meeting or
a fractious meeting of EU leaders can stop the boulder is in total
fantasy.

John

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P/E10 drops below average for the first time since 1995