Financial topics

[Higgenbotham]

I've been checking the validity of the points I outlined earlier.

1. Dubai. Seems valid. I don't see how it's a lot different than the Ohio Life announcement August 24, 1857 that they would be suspending payments, which precipitated the Panic of 1857. It seems pretty clear to me that Dubai has announced intentions to default and that is what they are going to do. I'll keep looking into this. One difference may be that the recipients of the Ohio Life payments had no collateral to seize. On the other hand, it seems clear that Dubai does not have adequate collateral to cover the loans or they would not be defaulting. One common sense point would be that if this was not a problem, there would not be 100 bankers scheduled to meet in Dubai on December 21, 4 days before Christmas. It's a big problem.

2. The Dollar. Somewhat valid. A better correlation to short term stock market activity seems to be this: http://finance.yahoo.com/q/bc?s=EURJPY= ... z=m&q=b&c=
Notice how it tracked stock market movements this week.

3. The Declining Trade Deficit. Not valid. I had assumed imports had declined which was not true. Imports were up 0.4% and exports were up 2.5%. This is indeed very good news and positive for the stock market. However, WAS may be the operative word instead of IS. Most analysts are saying the increase in exports was due to the low dollar. Well, as of this week, the dollar is a lot higher than it was when all this good news was taking place.

4. This Week's 30 Year Bond Auction. Valid.

5. The Bernanke "Hold" and Obama's Poll Numbers. Not an immediate problem. The Bernanke "hold" is a low probability wild card. Orders of magnitude more likely in my opinion is that a crash occurs first, then Bernanke gets forced out, rather than the other way around.

Looking back at these and some other issues I thought would impact the market:

Holiday sales were OK from what I can tell. People said they weren't going to spend as much, but they did spend more than last year.

The Dubai debt problem has been pushed off to March or April.

The dollar continues higher but the stock market has ignored it and moved higher.

30 year government bond interest rates have moved from about 4.53% to about 4.70% but the stock market has ignored that too.

John's recent articles about the upcoming housing panic and earnings mean reversion are two of the best articles I have read in a long time. I simply can't understand why investors are unable to see this. Believe it or not, on CNBC, an analyst said that the S&P was cheap because it was selling for only 14 times next year's earnings.

Some of this seems to have generational aspects tied to it in that I thought the panic in 2008 would sober people up, causing them to further reduce spending this Christmas and look at things like PEs in a more realistic manner. This clearly is not happening and I'm wondering what it will take. In other words, how much unemployment (or whatever the case may be) will it take to sober people up.

My guess is that the stock market bubble is within days of starting to deflate, but how long have I been saying that? At least 6 or 8 weeks now after having said it for a period of time earlier last year. But market behavior is starting to change. Funny thing is, the market really isn't going up much. It inches up a bit most days but is eerily quiet. There's no sudden movement except on the rare occasions it jerks down but that only lasts a few minutes. Today I watched the market drop more in one minute than it had risen for an entire hour. The "panic" lasted for one minute, then abruptly stopped. What if that same thing were to last all day? It would be devastating.

I feel John is correct - the generational panic did not happen in 2008 and is still coming.

Wrong Way Higgy

[jcsok]

Higgy, I'm with you, I'm still short the S&P futures, trying to attain that seemingly inescapable maximum ruin. It has been a slow, torturous climb since mid October. Although I don't watch the market trade during the day except briefly, occasionally, almost every day I must talk myself out of adding to my position. Bad news puts the market a little higher, good news moves the market a little higher, pump & dump moves the market a little higher, but we're just 40 points over early October. As Denniger keeps repeating, the math doesn't lie; I'm trying to hang on until the math test. However I keep thinking of the quote that markets can be irrational longer than I can be solvent. Having traded for many years, I've learned patience is a virtue, and have learned many times that virtues can be expensive. I feel your pain, but its just money. When the markets go against me, I really appreciate the security of having a great family. That being said.....

I seldom discuss economics and markets with people. The people that I deal with on a daily basis, mostly clerks - small business employees, men seeking work that don't have the ambition to hold a job for more than a week, etc., don't really think about the economy. They do seem to have a blase attitude, a queaziness about life in general. Unfortunately, while the people in my conservative area don't like what DC is doing, people do not have the ambition or the outrage to proactively make an effort to change things. I suppose its because this worldwide mess is too large to comprehend. While people want answers, solutions to problems, the problems are so large that there is no "solution". We all are on this runaway 'fright' train, going through the mountains, with no guiding light, along for the ride, a one way ticket to a destination that will surprise all but a few who were improbably correct in their guess of the future. That being said, John's theory of the necessity of a generational panic and crisis to bring this country together makes the most sense.

[John]

-- Simon Johnson video

Simon Johnson video - well worth watching:


http://www.youtube.com/watch?v=RLKuXwisOrc

John

[wvbill]

... Funny thing is, the market really isn't going up much. It inches up a bit most days but is eerily quiet. There's no sudden movement except on the rare occasions it jerks down but that only lasts a few minutes. Today I watched the market drop more in one minute than it had risen for an entire hour. The "panic" lasted for one minute, then abruptly stopped. What if that same thing were to last all day? It would be devastating...

Wrong Way Higgy

I feel the market is being manipulated, indicated, as you describe, by this constant trickling up especially in the last 30 minutes or so. But, once a real move starts I don't see how this can continue to work.

I also feel that soon. the "White Shoe Boys" will realize the game is about up, position themselves, and then allow -- possibly cause -- the markets to roll over.

These guys are crooked to the core. They know this will be their last chance at the big bucks and they are trying to milk it for every penny...

Bill

[jldavid47]

I highly doubt there is market manipulation going on. The entire rise from March has been choppy with waning momentum. This is the type of behavior seen in bear market rallies, not new bull markets and this, too, shall end.

Here's a good exercise: Overlay a weekly chart of the Dow for the past 3 years over a daily chart of the Dow from August, 1929 through April, 1930. There is an eerie similarity of kind at a different level of degree. As of this week, the Dow has retraced 53% of its loss from the 2007 top. The Dow rally from mid-November 1929 to mid-April 1930 was a 52.6% retracement. Now, there is nothing to say the rally stops here because these kind of bear market rallies squeeze the life out of those that are rationally bearish. The crowd that makes up the stock market is not rational, however, because crowds are inherently irrational and the old saw the "the market can stay irrational longer than you can stay solvent" applies here.

Full disclosure: I bailed from my short positions in late February and started to *slowly* re-enter them in late August. The only good news is that the market has not taken off rapidly to the upside. The only question is how long will I keep my resolve.

[Higgenbotham]

jcsok, Thanks for the voice of reason in the wilderness. It does help to come here and read a few people who still have their sanity. Thanks, John. Nearly everywhere else it seems so surreal. This morning it was announced that about 85,000 jobs were lost last month. But it seems even worse than that - labor participation rates, discouraged workers, and so on all look pretty bad. And, like you said, what does that market do? It goes up! A little. I understand the standard explanation for that. Poor labor conditions beget easy money, which begets easy money buying stocks and the dollar dropping. That can only go so far, though, yet it continues to be perfectly logical in the minds of Wall Street "investors". You know, the guys who received the easy money and think they will get more. I've become more philosphical about this since September. It is only money. I've gotten used to losing some along with everyones else and maybe I will make it back and maybe not. It's not so bad. Therefore, for now, I''ll remain short and see what next week brings. So I remain,

Wrong Way Higgy

[xakzen]

jcsok, Thanks for the voice of reason in the wilderness. It does help to come here and read a few people who still have their sanity. Thanks, John. Nearly everywhere else it seems so surreal. This morning it was announced that about 85,000 jobs were lost last month. But it seems even worse than that - labor participation rates, discouraged workers, and so on all look pretty bad. And, like you said, what does that market do? It goes up! A little. I understand the standard explanation for that. Poor labor conditions beget easy money, which begets easy money buying stocks and the dollar dropping. That can only go so far, though, yet it continues to be perfectly logical in the minds of Wall Street "investors". You know, the guys who received the easy money and think they will get more. I've become more philosphical about this since September. It is only money. I've gotten used to losing some along with everyones else and maybe I will make it back and maybe not. It's not so bad. Therefore, for now, I''ll remain short and see what next week brings. So I remain,

Wrong Way Higgy

More disturbing was the fact that another 285,000 people "left the work force" last month. That is they have been unable to find jobs in the last 12 months so the gov assumes they don't want jobs and so they don't count as unemployed. What a sick joke this is for the millions of families who find themselves in this situation. Oh and the headline for this story on foxnews.com yesterday was "Employment Report shows sign of turnaround" or some such nonsense. This because there were 46,000 temporary works hired. I've worked retail long ago and they always hire temps for Christmas and lay them off right after.

In other news I saw this interesting story this morning:
http://www.foxbusiness.com/story/market ... onspiracy/

[OLD1953]

The money came from savings and retirement money fund accounts, as the rates dropped towards zero, the retirees went to the market as they couldn't face the choices of cutting their lifestyles or dipping into principle. So they chose risk, after all, didn't the crash "prove" you'd always get your money back if you just waited a while?

Expect to hear about a new use for those overly large homes soon. The grandparents will be moving back home with the kids, and suddenly the oversize home will make the same kind of sense it made after the last crash. Whats huge for two people and a child or two will be comfortable with four, or a bit crowded with six.

And so the circle of life goes, round and round.

[freddyv]

...In other news I saw this interesting story this morning:
http://www.foxbusiness.com/story/market ... onspiracy/

While it may be possible that the "Plunge Protection Team" had a slight hand in the recent rally out of the March lows anyone with a bit of technical knowledge about the stock market can point to history to show examples very similar to the current rally.

Many people more knowledgable than I were calling for a rally out of the March lows, Richard Russell being the most prime example I can provide. None of those who called the primary turn correctly and then called for the rally seem to have expected THIS big of a rally but now that it's here it makes perfect sense and I completely embrace it. To do otherwise is foolish since it is now part of our guide to the future.

A lot of people were previously comparing the crash of 2008 to the crash of 1929, up until the rally out of the March lows. But if one looks at the big picture (bigger bubble; bigger timeline; bigger government involvement) it makes perfect sense that the market will retrace (close the gap left open from July of 2008) back to around 11,000 on the Dow and will take longer than the big bear rally into April of 1930.

But let's remember, this is NOT 1929 or 1930, we need to look at what led us here and what are the pressures that are yet to be released. Japan's debt? The China bubble? Unemployment? The derivatives bubble? The public debt bubble here in the US? All of this then needs to be put into the perpective of history and Generational Dynamics. My conclusion is that we either have a long slog ahead or a quick, deadly slide into oblivion that could see the entire global, fiat money system go POOF right before our very eyes.

Well, that's my theory and I'm sticking to it. One thing I've learned over the past couple of years is that I should look at all the data, distinguish the good from the bad, factor in how the bad may be fooling people and what the good really means, and then trust myself.

--Fred
http://www.acclaiminvesting.com

[freddyv]

Well, I am still short and have now lost 13% of my money.

And just when you give up is probably when the market will resume its decline. That's not just amusing it's probably true.

The key here is not to get too wedded to your beliefs. Yes, bad things are coming but history shows us that the stock market can remain irrational longer than most of us can remain solvent. One thing I know is that the market will offer tremendous value for a period of time prior to the start of the next great bull market, assuming there is one. I also know that our government must once again allow failure in order for our economy to succeed. Given these two basic principles I suggest that you conserve what you have and be very, very patient.

Actually I have been doing pretty well shorting spikes-up over the past few months but always seem to get back to even as the market goes a little higher than expected or, more likely, I get impatient. I am taking this unique opportunity to teach myself greater patience as I really think that is the single biggest weakness of most investors, including myself.

--Fred
http://www.acclaiminvesting.com