Financial topics

[John]

Don't quote me on it,

Sorry, I couldn't resist.

John

[Higgenbotham]

Sorry, I couldn't resist.

John

http://www.bloomberg.com/apps/news?pid= ... pKbQuGT7QU

LOL. Thought you'd like this - my bolding. I think this is the (stock market) bubble here, not 2000 or 2007. People are buying air, just like they did in 1720. So there is essentially no limit in the sense that valuation and common sense are completely out the window. Also, the 1720 bubble ended in the Summer. In 2000, the stock market bubble was mostly in one area (high tech). In 2007, it was based on real estate and the earnings were somewhat real. The current bubble is in the core companies of the economy and is a gerrymandered piece of crap through and through. Now they're trying to sell it off to the public. Let's hope that doesn't succeed.

There's a Fed meeting next week. Let's see what they do and how the market responds.

Barton Biggs, the hedge-fund manager who recommended buying U.S. stocks in March of last year when the S&P 500 sank to a 12- year low, said American equities may rise another 10 percent to 15 percent over the next couple of months.

“I’m very struck by the level of bearishness everywhere I go,” said Biggs, who runs New York-based hedge fund Traxis Partners LP. “I’m not obsessed with history. I’m bullish because I think the global economic recovery is on track and is going to be surprisingly strong. The world was falling apart in 2009. There’s been a tremendous change.”

[jcsok]

higgenbotham wrote:

I'm guessing it could be over as early as next week, maybe sometime in the middle of next week. Anybody else? Any of you still short and thinking the end is nigh?

As I wrote to you about a month ago, I started selling mini SP scaling up, of course, its eating me alive. When it took out 1105, I stopped selling more, think it will now test 1174. I'm staying with it, as we discussed, to further support theory of Maximum Ruin. Call me WrongWayJimmy.

[Higgenbotham]

The "South Sea Bubble" scenario. Someone else sees it too. And as he does a nice job of pointing out, it would seem to be the Maximum Ruin scenario.

http://www.minyanville.com/businessmark ... 0/id/27263

Can they suck the public in?

The inflection point appears to be here.

The other possibility is that bullishness and inflation fears have reached their maximum point. These comments and the comments I quoted from Biggs could indicate the market may have reached its apex or is very close.

[John]

The "South Sea Bubble" scenario. Someone else sees it too. And as he does a nice job of pointing out, it would seem to be the Maximum Ruin scenario.

http://www.minyanville.com/businessmark ... 0/id/27263

Can they suck the public in?

The inflection point appears to be here.

The other possibility is that bullishness and inflation fears have reached their maximum point. These comments and the comments I quoted from Biggs could indicate the market may have reached its apex or is very close.

He seems to be predicting a huge surge until June, and then a huge crash.
Doesn't that contradict what you're saying?

John

[Higgenbotham]

He seems to be predicting a huge surge until June, and then a huge crash.
Doesn't that contradict what you're saying?

John

I see two possibilities.

One is that the end of this is very close, that the high has occurred or is a few days away. The Fed has said they will shut down the liquidity facilities and conclude MBS purchases at the end of March. That could happen and the public could refuse to get involved in the bubble this time. Mutual fund cash levels are at record lows now, near where they were at the 2007 high. The Lehman report could spark a serious reaction (and it should).

The second is that the Fed decides to chicken out and let the party continue, and we get a South Sea Bubble style blowoff that could last as long as the Summer like that guy is saying. Someone told me that CNBC was touting Friday that public contributions to mutual funds suddenly surged last week. If that really happened and were to continue into the next few weeks the Dow could lift off over the January high and the speculation could get out of control quickly.

So I think things are at an inflection point. Also, I have read that there is dissention within the Fed, which seems to corroborate that.

We're really in a heap of trouble, John.

PS This question of possibilities seems to keep coming back to the fact that the US public and our representatives have refused to take action to curb this bubble, but are instead doing everything they can to encourage it. Last August, the Chinese authorities took action to curb their stock market bubble and August has been the high in Chinese stocks. At the same time, US authorities refuse to even acknowledge that it is a bubble. Therefore, until something changes, it seems to me that the bubble can grow until it collapses of its own weight, which will be extremely devastating and will probably mark the end of the US as we know it. This is because by definition only government money can grow the bubble at this point and that stops only when the country is completely bankrupt. One of those quotes you recently reproduced by Elizabeth Warren really sums it up. We've been saying the same thing here for months.

[John]

> We're really in a heap of trouble, John.

As you know, Higgie, I agree with everything you're saying, but
there's one more angle. I've come to believe that whatever crisis is
coming, it's probably not going to begin on Wall Street. I believe
that the probability is higher that it will begin in Europe or China.

In Europe there could be a major crisis beginning in any of the
PIGIES, and China is extremely unstable, both financially and
politically.

Of course, it's a distinction without a difference, because if a
crisis begins in Europe or China, it will then spread to Wall Street
before you can say "Jack Robinson."

John

[Higgenbotham]

This article does a nice job of explaining the two scenarios I laid out using different words and some indicators that he follows. I just pray that the public doesn't get sucked into this thing and drive prices skyward because that will make the crash so much worse. I think he means "slow" instead of "show".

The "Dumb Money" indicator, which is shown in figure 1, looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investor Intelligence; 2) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio. The "Dumb Money" indicator has turned bullish to an extreme degree. Extreme bullish readings in the indicator imply that a price move is nearing its end, and the ascent of prices is surely to show. This is our expectation 85% of the time. The other 15% of the time or what I like to call "it takes bulls to make a bull market" scenario, the market will continue meaningfully higher despite increasing bullish sentiment. We saw this in 1995, 2003, and 2009 when the markets were coming off of long periods of under performance. I am not banking on this time being different.

http://www.safehaven.com/article-16088.htm

[Higgenbotham]

> We're really in a heap of trouble, John.

As you know, Higgie, I agree with everything you're saying, but
there's one more angle. I've come to believe that whatever crisis is
coming, it's probably not going to begin on Wall Street. I believe
that the probability is higher that it will begin in Europe or China.

In Europe there could be a major crisis beginning in any of the
PIGIES, and China is extremely unstable, both financially and
politically.

Of course, it's a distinction without a difference, because if a
crisis begins in Europe or China, it will then spread to Wall Street
before you can say "Jack Robinson."

John

Do you think it could begin with a bankruptcy of one of the states like California? Or the sudden realization that the banks are insolvent and the government really can't stand behind them any longer? Or do any problems in the US occur as a result of problems on the periphery (the smaller and more unstable countries like Iceland, Greece, etc., which eventually works its way up to larger countries like Spain or China and gets to the point where a bankruptcy occurs in an entity that is "too big to save") because the periphery is naturally weaker? In other words, the dominoes fall in approximate order of size and the US is the largest, so anything here falls last.

[VinceP1974]

Do you think it could begin with a bankruptcy of one of the states like California? Or the sudden realization that the banks are insolvent and the government really can't stand behind them any longer? Or do any problems in the US occur as a result of problems on the periphery (the smaller and more unstable countries like Iceland, Greece, etc., which eventually works its way up to larger countries like Spain or China and gets to the point where a bankruptcy occurs in an entity that is "too big to save") because the periphery is naturally weaker? In other words, the dominoes fall in approximate order of size and the US is the largest, so anything here falls last.

I'd love to be a fly on the wall in Tehran. I wonder what they have up their sleeve.