Financial topics

[Matt1989]

John, you might try reading some of the writings of Von Mises on the mises.org site where you got that Bubble that broke the world book. Mises actually goes into what follows a period of unusually cheap money, in that the players begin to think they can do anything. I don't believe the Austrians really cared what was called money and only favored gold in the sense that it enforced dicipline. I have yet to read any Austrian stuff that waged war against paper in the sense that every paper currency went to zero. They believed in the business cycle and they believed it to be a credit phenomenon.

They believed it to be only a credit phenomenon.

[John]

-- Market summary, Tuesday morn, October 28, 2008

I saw Art Cashin this morning. He's unhappy because the market is
suffering "death by a thousand cuts." He wants the big blowout that
will lead, he believes, to total capitulation and a return to growth
(i.e., resume the bubble).

Everybody else though is smiling and cheerful, thanks to the huge
rallies in Asian and European markets, and the big opening rally on
Wall Street this morning.

However, those smiles have started turning upside down in the last
few minutes, as the rally seems to be fizzling, after consumer
confidence stats were at a record low.

Sincerely,

John

[John]

Dear Jordana,

> Thank you very much for your great insights and posts; i would
> appreciate your views on whether, contemperaneous with the "big
> event", gold/silver would experience, at least a temporary, flight
> to safety upsurge?

All that Generational Dynamics can do is identify major
discontinuities based on long-term generational trends. Thus, we
know that there'll be a major financial crisis, but we can only make
intelligent guesses at the details, based on trends and previous
crises.

It seems to be an easy call that the price of gold would spike at the
time of a generational panic and crash, as people lose faith in Wall
Street and the American economy. And in fact that may happen -- it's
impossible to predict for sure.

But we have this really crazy situation where everyone's looking for
a "crash event," which, unbelievably, is seen as a GOOD thing, a
"capitulation event."

"Insanity in individuals is something rare - but in groups,
parties, nations and epochs, it is the rule."

And so, we have to anticipate the truly incredible possibility that
the generational panic and crash will be seen in such a positive
light that it will actually cause people to invest in stocks, selling
gold and pushing its price down. This cannot be predicted.

In the long range, the bubble price of gold will fall, as the
deflationary spiral continues. But specific events may cause
temporary spikes, and those cannot be predicted.

Sincerely,

John

[jordana]

Thank you for your reply. I presume that what you wrote of Gold applies to Silver as well?
Thank you again.

[Matt1989]

http://theautomaticearth.blogspot.com/2 ... heres.html

Ilargi: Wherever I look this morning, Asia, Europe, Wall Street, I see journalists and analysts claim that bargain hunters are causing the rising stock prices. They're not. There is something different going on.

Prices these days fall when and because large investors need to sell assets in order to get cash. Prices rise when large investors need to cover their shorts.

The investors involved in both cases are largely identical, though not entirely. It's important to understand that while, obviously, price drops cause loss of capital, price rises are now the result of the same. Everybody still tries to hide their losses, but it’s getting much harder. That's what happens in casino's: there comes a point where you have to show your hand. And when things get bad, sometimes you have to show both.

After Porsche said it wanted 75% of Volkswagen, VW went up 150% yesterday, and 93% more today (that’s an almost 500% increase!), to become the biggest company in the world. Not because it's doing great; in fact, it's rumored to be drowning. Which is why parties like Morgan Stanley, Goldman Sachs and major hedge funds were shorting the stock. Porsche's announcement forced them to cover their shorts and buy VW like mad men. And so you get to be the global no.1 because gamblers are paying off their losses.

The Bank of England reports today that the total cost of taxpayer funded bail-outs has surpassed $7 trillion. As insane as that is, it's just the start. Now even Roubini wants to add another $500 billion plan in the US. That’s his second whopping no-no in a week. His first was a claim that the worst in the credit markets was over, and the real problems would from now on in be in the real economy.

Yes, Libor and other spreads are down a bit, and yes, the real economy now hits the real trouble. But the credit markets are still getiing worse by the minute. That is because the underlying reason for the crash, the casino toilet paper, is still being hidden, protected and even bailed out. A plan like Roubini’s, half a trillion dollars more for 'infrastructure', is a dead in the water duck -or worse- as long as the horse race tickets are kept away from daylight. And Roubini should know that.

Turns out, the banks that got the bail-out billions are not using it to lend out, and they don’t give a hoot about Congress threatening to give them a grillling. They’ll use the taxpayers’ cash to buy other banks. Small fish gets eaten by bigger fish gets eaten by biggest fish, with Hank Paulson deciding who gets to be big.

And even that's just a humble beginning. The IMF is running out of money to put thumbscrews on the world's poor. But that won't deter the fund, it can simply start issuing AAA rated bonds, which are rated by the .... IMF, and in real life are simply more casino bathroom paper. And if you don't like that one, they’ll move to the most perverted financial instrument in centuries, the Special Drawing Rights, also called paper gold, introduced in 1969, in anticipation of Nixon’s 1971 decision to not honor US gold liabilities.

Who do you think determines the value of an SDR? Yup, you’re right, it’s the IMF. They can buy the world. That may seem far-fetched, but don't forget that for a few billion dollars in loans that have to be paid back at high interest, they’ve bought themselves financial control of the likes of Hungary, Iceland, the Ukraine and soon Pakistan, Serbia, Croatia, Latvia and Turkey. And their eye is on Russia.

I was wondering last night how much money it would have taken me to drive up oil prices to $147 a barrel, go short oil all out, drive prices back down to $40, make a killer of a profit, and kill off OPEC control, Putin and Venezuela in the process. I concluded that $1 trillion would have been enough, when carefully utilized.

I've long since realized that it's no use to fear for the future of mankind, since there's nothing kind about man. But I still am surprised at how little people focus on the symbiosis of crisis and opportunity. There are people out there busy bankrupting the entire planet, and buying it back for pennies. Just like in the 1930's US rust and dust belt, but this time on a global scale.

[John]

-- Third quarter earnings estimates suddenly plummet

As regular web site readers know, I've been tracking corporate
earnings growth estimates for several quarters now, showing how
estimates are very high at the beginning of each quarter, but fall
precipitously as the quarter proceeds, and then as the quarter ends
and actuals come in.

For a while, it seemed that earnings growth estimates were
stabilizing around -10% (that is, 10% lower than third quarter
earnings for last year).

However, the estimate posted today suddenly has fallen off a cliff:


Date 3Q Earnings growth estimate as of that date
------- -------------------------------------------
Mar 3: 25.0%
Apr 1: 17.3% Start of previous (2nd) quarter
Jul 1: 12.6% Start of quarter
Sep 5: 0.8%
Sep 12: -1.6%
Sep 19: -0.3%
Sep 26: -1.7% End of quarter
Oct 3: -4.8%
Oct 10: -7.8%
Oct 15: -9.8% Wednesday
Oct 16: -10.3% Thursday
Oct 17: -9.1% Friday
Oct 20: -9.6% Monday
Oct 21: -9.9% Tuesday
Oct 22: -10.0% Wednesday
Oct 23: -10.9% Thursday
Oct 24: -11.0% Friday
Oct 27: -11.3% Monday
Oct 28: -23.8% Tuesday

http://www.cnbc.com/id/15839135/site/14081545/

Ironically, this is one of those magical days where stocks are
rallying sharply -- as I write this, the Dow is up over 500 points
(7%).

Once these new earnings estimates settle in, you can assume that this
rally will dissolve quickly.

Sincerely,

John

[isaac]

It seems the market is an unstable system in both directions. I suspect if a power spectral density (PSD) analysis was performed one would find a divergence in progress. This massive upswing has to be terrified shorts, the opposite side of the terrified longs. The shorts are more active than the longs at this point because they are the day traders, consequently we have thusfar seen faster upside panic than downside panic. The longs have been slower to react, but there are more of them and when they panic it will be interesting.

[Gordo]

Once these new earnings estimates settle in, you can assume that this
rally will dissolve quickly.

With all due respect, bad earnings for Q3 and Q4 are factored in, I don't even know the point of tracking these short term estimates. Bad earnings for all of 2009 are partially factored in at the Oct 10 DOW low (a low that has not been seriously challenged for now going on 3 weeks). In my opinion, a multi-month counter trend rally is now in place, but that of course remains to be seen, we have already had a big up day like today not long ago and it quickly fizzled.

By the way John - it would be nice to see your definition of a market crash. Many would say that a 50% decline IS a crash, and if you took the NASDAQ for example, well it was down 70% from its peak, that's gotta be considered a crash by any standard.

[John]

-- Elliott Wave charts

Robert Prechter just appeared on Bloomberg TV, and he's made some of
his charts available to Bloomberg viewers for free:

http://elliottwave.com/bloomberg
http://elliottwave.com/products/ffs/081 ... px?code=dc

The point of the article is that investors have not yet panicked
enough to cause a "capitulation."







Sincerely,

John

[Gordo]

That's fine, but I also believe it's important for people to
understand that Bernanke's plan is going to fail. I would not want
someone reading this to think that my silence on this question means
that I think it might work.

When you talk of "Bernanke's plan" what exactly are you referring to? The quote that I provided? This is not something he has done yet. Saying something will fail is not very helpful, specifically in what way will it fail and why?