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