June 28, 2010
Red and White D sends this note.
This fellow (Raghuram Rajan) has more insight than anyone else I've heard or read since this whole mess started. With the growing gap in incomes, governments worldwide have been attempting to replace the lost real income of the middle class with debt, both private in the form of home refinance etc. or public in the form fiscal deficits. Its a sort of 'If there is no real income then let them eat credit' concept. The financial machine, as in Wall street and The City of London took this and ran wild in the streets with it till it blew up.
Sooner or later that debt must be paid back, with interest.
Also, American recessions have over the preceding 60 years or so have been relatively quick snap back events with financial markets leading employment by a period of time. However, with each recession, employment has taken longer to catch up to the pre-recession levels. In 2001 it took about 18 to 24 months. He predicts, as you do, that this time it will be many years, maybe a decade, before employment reaches pre recession levels. Naturally this is catastrophic to government revenues, while at the same time they are spending like mad to stimulate, stimulate and stimulate some more. This could be a recipe for messy civil disorder if 'gummit' can't gin up the machine again.
The NCPL has a copy of the book. I'm going to get it.
http://www.amazon.com/Fault-Lines-Fractures-Threaten-Economy/dp/0691146837
http://www.npr.org/blogs/money/2010/06/24/128089847/deep-read-let-them-eat-credit
'There has been a stagnation in the wages of a significant part of the U.S. population ... over the past 20, 25 years, the answer has been increasing borrowing.
You borrow in order to finance a better lifestyle, but in fact you're going deeper and deeper into debt.
... if you can offer more credit to housing, people have a house, which is an asset ... as the house price rises, you feel wealthier, you don't feel you're borrowing, you don't feel you're going deeper and deeper into hock...
It's credit as a palliative. And of course, it accords well with the fact that, at least in the short run, it can make people feel much happier. The problem is the bill has to be paid in the longer run.'"
Even Paul Krugman agrees with you now.
http://www.nytimes.com/2010/06/28/opinion/28krugman.html
Happy?"
.............
In the June 28, 2010 edition of TIME there is an article titled 'The Other Financial Crisis', by David Von Drehle. It describes how municipalities and states are bankrupt or soon to be there. It's a grim story. I quote the article below.
...Indeed, the 'B' word has crept into so many conversations in communities around the country that a number of investors are worried the municipal bonds have become the latest debt-fueled bubble ready to burst. California's public employee unions are lobbying for a bill to ban government bankruptcies entirely, so worried are they about the possibility of widespread defaults to escape pension obligations."
June 23, 2010
Red and White D sends this note.
I blow thru here
The music goes 'round and around
Whoa-ho-ho-ho-ho-ho
And it comes out here
I push the first valve down
Happy Days are here again....."
The music goes down and around
Whoa-ho-ho-ho-ho-ho
And it comes out here:
Here is a link to 'Fed Concerned About New Home Sales Plunge' by my favorite: Richared Suttmeier on Minyanville.Com. I quote the article below.
Boy, howdy Richard. You also noticed that giving banks money by the barge-full did not create a single job....funny how it always works out that way. Banks are simply not engines of job creation, manufacturing is, construction is...ooops...seems that new home sales are plunging.
Here is a link to 'Forget Peak Oil, Peak Lumber Is Coming' by Justin Rohrlich on Minyanville.Com.
June 23, 2010
Keith sends this link to 'Felix Zulauf: The March 2009 Low Won't Hold' on Pragcap.Com. I quote the article below.
...'Commodity prices are heading lower. The stock market probably will make its low for the year in late summer or fall. The upside is probably 5%, the downside 20%. If there is a big break in the fall and the Federal Reserve starts printing money again, stocks could rally.'"
.............
Tobby Connor sends along this posting:
We continue to hear pundits describe gold as a bubble. Certainly it will turn into a bubble before this is all over but we are hardly in the bubble stage yet. In order for a bubble to form you need the public to come into an asset class. The public is pretty dim and it can take 15-20 years before they "catch on". It took 18 before they noticed the tech bubble.
Once they do start to 'get it' we will have about a year to a year and a half as gold enters the parabolic stage before the bubble pops. See the Nasdaq chart below from late '98 to March of 2000.
At gold's top, half of your neighbors will be buying gold (not selling like they are doing now).
At the top there will be lines outside the the local coin dealer waiting for the next shipment of gold to come in.
At the top 7 of 10 billboards you see driving down the highway will have something to do with precious metals.
At the top the guy standing next to you in the grocery store will tell you how many thousands of dollars he made last month off his gold coins.
At the top everyone will have become convinced the dollar is toilet paper and will only continue to decline until it has become worthless.
At the top the population will believe that we have to go back on a gold standard. By the way, a gold standard never stopped any country from debasing its currency. In ancient Rome they clipped some of the gold out of the coins. Roosevelt confiscated and arbitrarily revalued gold in the 30's. A gold standard will not prevent a government from trying to get something for nothing by debasing the currency.
At the top stocks will be universally hated and gold universally loved. In reality, stocks will at that time, represent true value. Much more so than a shiny metal with virtually no industrial uses.
At the top smart money will eventually come to their senses and realize that true value (profitable companies making the necessities for life on Earth) are being given away for pennies on the dollar to purchase a shiny metal that really has no intrinsic value.
Here is a chart of the Nasdaq followed by a chart of gold. You tell me, does gold look like a bubble yet?
Of course not!
I think we might be getting close to the Nasdaq 1998 level, but gold is hardly in the runaway parabolic stage where it rallies over 100% in a year. Not to mention that none of the other signs I noted above are even remotely present yet.
But no one needs to worry about a bubble just yet. We need to have at least one more serious correction similar to what happened in '08 or in tech stocks in 1998 to wash out bullish sentiment before we can start the final parabolic run into a true bubble top.
If I had to guess I would say that will occur during the next liquidation event which should be due in mid to late 2012 as the stock market collapses down into the third leg of the secular bear market.
That should mark the next four year cycle low and possibly the nominal bottom for the secular bear market in stocks that began in March of 2000. I expect the selling pressure at that climactic event will also drag gold down into the correction that should separate the second phase (what gold has been in since early '06) from the third and final bubble stage. Gold will quickly recover, like it did from the last selling climax, and when it does this is when we will see the public begin to panic into gold.
Then and only then can we start talking about a bubble.
At the moment I think we are about to enter the second leg of an ongoing C-wave advance that began in September of last year. I'm expecting this leg to take gold to the $1400-$1500 level before experiencing a major D-wave correction.
I'll be monitoring the advance on a daily basis to keep subscribers appraised of where gold is in its intermediate cycle. When I think we are getting close to the top of the C-wave I'll warn subscribers to take profits and exit the precious metals market so as not to get caught in a D-wave correction."
June 13, 2010
Here is a link to 'Calling a Bear a Bear', by Randall Forsyth on Yahoo.Com, originally from Barrons. I quote it below.
'So all in all, I'm convinced through many of my studies that the top has been put in and the primary bear trend is again in force. Remember, the 14-month counter-trend advance served to hold back the bear forces, even though the bear pressure had been building up. For this reason, I'm afraid of what might occur in the weeks and months ahead. This, even though I believe a tame period is overdue.'
On the latter score, Market Semiotics' Woody Dorsey proprietary sentiment readings point to some "upside tries" ahead. His Semiotics Sentiment hit an absolute 100% at the peak in late April, but has tumbled all the way to 1% in the latest reading. That could point to a bounce into June 18-23 before giving way to the Summer Bummer he's been predicting for months. For the longer term, Dorsey remains steadfastly bearish, calling from the next buying opportunity in 2012 and an ultimate 'secular buy' in 2015-16.
For now, Mark Steele, BMO Capital Markets' head of quantitative and technical research, offers this unequivocal recommendation in the title of his report: 'Go to Cash -- In Plain English.' In a version prepared for non-technical readers, he offers this cogent summary:
'We advocate switching out of equity positions and going to cash. The European sovereign debt crisis appears to be nowhere near over. The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risks and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency, equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will slow. Profits will be squeezed by the higher cost of capital.'"
Red and White D sends this note:
There probably aren't many who haven't at least heard about the rooms full of computer servers which are replacing traders and doing the work of exchanges. If you don't think the retail investor is getting worked over by the new market paradigm you are not paying attention.
In a smallish town across the river from Manhattan in New Jersey called Mahwah, the NYSE is building a big cube of a building wherein they will house their new electronic exchange containing enough computing power to fill the grand canyon. This by itself is not so remarkable. What is remarkable is that the top 6 or so floors will house servers whilst the bottom 6 or so floors will house traders, along with their computers. These traders will have paid a very handsome price to be within nanoseconds electronic time from the mother ship. These firms are arbitraging one cent or less spreads a million times a second. They even battled it out over where they were to be physically located in the building until the exchange agreed to promise that no one got so much as a nanosecond advantage over the others.
http://www.theatlantic.com/magazine/archive/2010/05/monsters-in-the-market/8122/
The days of the 5 little old ladies meeting once a month to decide what to buy and sell would seem to be past. I for one fail to see how anyone, including the operators of these sophisticated HST ops can make a rational decision about investing. We are no longer creating wealth. We are merely chopping it up into fine bits and sending it asunder. My hat is off to all the speculators still in the market and there is no doubt they are just that, speculators. The day of investing has long past."
June 11, 2010
There are conflicting stories out right now. Here are two.
Here is a link to 'Housing, Banking Caused Recession, and Problems Continue', by Richard Suttmeier on Minyanville.Com. I quote it below.
The Fed estimates 3.5% growth this year, which won't be strong enough to bring quick relief to the 15 million Americans who are out of work. In 2011, GDP is projected to be 3.5% to 4%. This seems overly optimistic to me, given all of the concerns I've been writing about."
Yes Richard, Bubble Boy Ben is lousy at reading tea leaves. Maybe its because he reads the lies his own FED produces and believes them. That would tend to make one a lousy prognosticator.
Here is a link to 'China Bursts With Bullish News', by Matt Theal on Minyanville.Com. I quote it below.
Increasing the likelihood of a “soft landing,” the Chinese government also reported Thursday that housing prices have only risen 12.4% (year-over-year month of May), down from the 12.8% the month before. That said, double-digit price appreciation should still be looked at as bubble territory but the data are starting to show that the government’s efforts to cool the housing market may be working."
It looks like China's bubble is still on, still growing. When it does pop over there, and it will, it is going to be really ugly.
Here is a link to ''The End Of Work' May Be Upon Us', by Dr. Joe Duart on DecisionPoint.Com. I quote it extensively below.
It's not so much that robots have put people out of work, which is part of the story. It's that so called 'productivity' where workers seem to be doing more with less effort is only part of the picture. Millions of jobs have actually disappeared forever, being replaced by machines and the lack of a transitioning mechanism.
According to Rifkin, the solution should have been the creation by government of a work force whose only function should have been to help those who lost their jobs find something productive to do. Instead, we have had an expansion of the welfare state, where people are subsidized by the government for doing no work, and talent and human capital has been lost forever.
This is illustrated quite clearly by the situation in Europe where the social safety net is so vast that it's collapsing under its own weight. And the situation in America seems to be headed along the same path, at least in many ways.
Indeed, what we're seeing now is the product of what corporations and governments did decades ago. The latter increased automation in order to increase profits. We're seeing that now, as many firms have reported healthy earnings, even during economic hard times. That's because they have fewer workers to pay and because machines are more productive than people, plus they don't require health care and retirement benefits.
With regard to the governments, welfare has expanded to the point where states are running budget deficits due to high Medicaid costs combined with fewer tax receipts, because, you guessed it, fewer people are working, and thus paying taxes."
The quote above is so very much in tune with my own thinking. There can now be a complete economic recovery - even as jobless rates increase. And this can go on for month after month, for years.
June 10, 2010
Keith sends this link to
'Gold the 'ultimate currency,' to hit $1,500, UBS projects', by Michael Babad on TheGlobeAndMail.Com.
Lar sends this link to this interesting tidbit.
'Was the Flash Crash Apple's Fault?', by David Waggoner on Yahoo.Com.
Paul Goedicke sends along this note.
My feeling is no - but the worry that it will is wide spread.
This is based upon two basic ideas.
1) Don't fight the FED. They own the printing press.
2) The markets climb a wall of worry - that keeps people out until greed
overcomes fear.
A few things that I don't see being spread by the media are:
For example here are probably the 2 worse big American Banks.
Citigroup $721.8 Billion in loans - $48.75 Billion in loan loss reserves - Tier 1 - 11.7% -- that is a 8.5 to 1 ratio - well below the 10 to 1 ratio considered prudent. Do you think that more than 6.75% of their loans are going to go to ZERO?
Bank of America $948.8 Billion in loans - $38.69 Billion in loan loss reserves - Tier 1 - 14.66% -- that is a 6.91 to 1 ratio - again well below the 10 to 1 ration. They have their reserves at a lower 4.16% - may be that much will go to ZERO.
2) commercial office space occupancy rate is rising - that means bodies coming to work.
Here is what I think: that most people who are freaking out over the explosion of the money supply.
The fundamental formula for an economy to function is the product of money supply times money velocity.
Ms * Mv ==> Me (money effectiveness) how many $$$$ are available to purchase goods and services.
We all know that up to now Mv has been dropping through the floor. And Big Ben fully understands the above equation - so to keep Me at some needed level - the mathematical answer is increase Ms - which he has done.
Read History - England and France in the late 1600's, America in 1933 - 'Me' dropped and nothing was done to increase it. France did not yet have a way to increase Ms to compensate, England invented fractional money and prospered over the next few hundred years.
Also, with a fractional money supply it is just as easy for Big Ben to decrease Ms as it is for him to increase it. With deflation a much bigger problem to over come than inflation - I think that those who do not understand the above and are only looking at the increase of Ms are crying WOLF and contributing to the 'wall of worry', which I really appreciate, I can get in an investment with a prudent view to the risks and rewards as I see them.
CAVEAT - I am long Citi (both stock and LEAPs) and looking to purchase more."
Red and White D sends this note.
If you pay attention to international media the way I do you will not be surprised when the southern European states renege on their debt payments. I've heard the term GSC (Global Sovereign Crisis) applied several times. This is much bigger and more problematic than the GFC (Global Financial Crisis). This is so because so many of the world's governments have already moved the private problem debt onto the public balance sheet there is little room left for the huge public debt that is coming due for refinance.
Most likely solution will be the 'New Drachma' the 'New Peso' the 'New Lira' and the 'New Real'. German workers will not pay for Greek public employees to retire at 50.
This is no different than the warning that was sounded in early 2008 about mortgage defaults. When these guys fail to pay back their loans in euros the fit will hit the shan.
I feel like I am caught in a Texas hail storm. I can't make it stop, I can't get out of it and all I can do is sit there and take it.
'Debtors' Prism: Who Has Europe's Loans?', by Jack Ewing on NYTimes.Com."
Ben Smith sends along this editorial:
'We're too broke to be this stupid', byMark Steyn on Macleans.ca.
Dave Cave sends this link to a map that charts unemployment county by county in the U.S. over time. I have posted this before. But, it is still an eye-opener.
..................
What I see, and what no one is addressing on the national stage is a simple fact that underlies much of the tension in the country:
THE MIDDLE CLASS HAS NOT HAD A RAISE FOR TWENTY YEARS
We have had lots of inflation over that time, particularly asset inflation.
We as a nation, and as individuals have encumbered more debt, lots of it, during those twenty years.
Let's see: rising debt levels, rising prices, and no raises. What does that spell?
Free trade had, going into it, a 'sunny side' and a 'dark side'.
On the sunny side, I can now walk into a WalMart and buy a pair of jeans for $8.
On the dark side, the Americans who used to make clothing lost their jobs. So did tens of millions of other Americans. I fear those jobs were not replaced with better paying ones. They were replaced with worse paying ones. Fact.
This is what 'free trade' has done for us. The competition it supposedly spawned did not serve to convince the big 3 auto manufacturers to build better machines. They had to go bankrupt to discover they needed to do that.
The 'free traders' ignore what has happened to the middle class. But, instinctively, the middle class itself knows it has been screwed. That is why we have the anger of the Tea Party. The anger is real. It may not be well directed. But it is very real.
The middle class no longer has the ablity to lever itself out of the hole it is in.
History will list that fact as one of the main factors to the Depression we are already in. And it is a Depression. It's the modern version of the '30s. But it going to be a long, long slog.
June 8, 2010
Tobby Connor sends along this posting:
Still Just A Baby Bull
It's sad to say but I'm afraid 90/95% of all retail traders/investors are not going to successfully ride the gold bull. The reason of course is that they are deathly afraid of draw downs. It's glaringly apparent every time gold pulls back or suffers the slightest correction. Immediately a slew of traders come on the blog and warn of impending doom. "Gold is going to $600" (think Elliot wave). Some are even brave (maybe I should say 'foolish') enough to short. Here is one we hear alot lately, "miners are going to get crushed if the stock market enters a new leg down in the secular bear market".
Pure nonsense!
Let me show you what happened to gold and miners during the 2000-2003 bear market.
During one of the worst bear markets in history gold rallied over 50% and miners well over 200%. So this notion that the precious metals sector has to get hit during a bear market is simply ludicrous.
Now I know what you are going to say, "just look at what happened in `08".
The reality is that the crash in '08 was a very special set of circumstances that aren't likely to repeat. Up until September the bear market was following the normal path most bear markets follow. Slow grinding declines followed by explosive counter trend rallies. Gold was holding up amazingly well during this period as were miners. Both were actually up significantly during the first 5 months of the stock market bear. It wasn't until gold entered a normal D-wave correction in March of '08 that either corrected at all.
In September a rare event happened that drastically changed the entire fundamental picture of the bear market. At that time roughly $700 billion in debt came due. The financial system needed to roll that debt over but couldn't as the credit bubble was in the process of imploding. That led to one of the few true stock market crashes in history.
The ensuing panic led to a selling climax in every asset class even including, to some extent, gold. The actual price of physical gold never even came close to dropping to the levels of the paper market. Smart money investors were taking advantage of the irrational selling by buying up every single available oz. of physical gold on the market. At the time premiums on physical were over $100 above the paper price.
The point I'm trying to get across is it took a very special set of circumstances to create the kind of selling climax that could take down the precious metals sector. Those circumstances are not present today. The EU has already gone to the printing press to halt their debt problems. The US has done away with the mark to market rules and Ben stands ready to print so we have no looming debt crisis in our future.
So if we are about to enter another leg down in the secular stock market bear the odds are it will be another slow grinding affair, very similar to the 2000-2003 bear. There will be plenty of sharp counter trend rallies and one can bank on the Fed throwing more and more trillions of freshly printed dollars at the problem all along the way.
And that my friends is the fundamental bedrock of the gold bull.
Now let me show you a long term chart of the last great secular bull market.
This is just about text book for a big secular bull market. We see a very extended period of consolidation below a key resistance level. Eventually that resistance level gets broken. Once it does it's like a damn breaking, the force then becomes unstoppable, ultimately reaching heights far beyond what anyone can foresee at the original break out.
In oil's case the secular bull rallied almost 300% above the $40 breakout level, topping out with a massive parabolic move lasting about a year and a half (remember me saying bubbles tend to last about 1 to 1 1/2 years as the final phase tops out?).
I want to point out this happened in oil, a commodity that was virtually impossible for the average Joe to invest in. This was a bubble driven purely by the investing community. Remember this because it's important.
Now let's take a look at the next secular bull, one that's still in the baby stage.
Gold has just recently broken out above the old 1980 high of $850. It hasn't even doubled yet much less rallied 300%. Now if you think gold rallying to $3500 is ridiculous you are absolutely correct. There is no way gold is going to stop at a mere 300%.
Unlike oil, gold is readily available to the public and ultimately that is what drives the final stages of a secular bull market/bubble. When the public comes into the market their panic buying drives the final parabolic move to unbelievable heights. We saw perfect examples with both the tech and housing bubbles. The public was deeply involved in both.
And now, for the topping on the cake. The precious metals markets are infinitely smaller than the stock market, real estate markets or energy market. That means it won't take anywhere near as much money to drive these markets to incredible heights.
Look at that chart of oil again. A 300% gain in a very large liquid market without ever drawing in any perceptible buying from the general public.
Now look at that chart of gold again, only this time with fresh eyes. The possibilities are simply staggering. I wasn't kidding when I said this will be the greatest bull market any of us will ever see in our lifetime.
If, and this is a big if, you can ignore the nonsense from the Nervous Nellies or the gold Bears (a breed destined for extinction) and just hold on to your positions you will ultimately reap unimaginable rewards as this bull progresses.
Now I will say that yes, there are times to take profits in bull markets. You take profits when gold and miners are stretched far above the 200 day moving average. Everything eventually regresses to the mean. So when we see the HUI 40-55% above the 200 DMA then yes, you should think about selling at least some portion of your positions. But to sell positions with the miners 3% above the 200 DMA is ... well, it's just plain dumb. This isn't the time to sell it's time to buy, buy, buy.
Let me say this as plain as possible. If you want to get rich from this, the largest bull market you are ever going to see, you don't listen to the traders and you certainly don't adopt their flawed strategies. You simply can't think like that if you want to ride this bull. You need to think like a value investor. When you see value you scoop it up no questions asked. And if the market is foolish enough to give you an even better bargain down the road you buy more.
Unfortunately here is what happens. Retail investors are unable to buy value. For the average retail investor to buy he needs emotional confirmation. I see this all the time. "Wait till the breakout for confirmation before buying." The problem with that approach is that most breakouts soon fail. If one waited for the recent breakout above $1225 to buy they then had to weather an immediate draw down.
I saw this in spades at the December top. Retail traders entered in droves during that time. They were getting the emotional confirmation they needed. Then when gold corrected they either got knocked out for a loss or they held on just long enough to get out even. Most simply don't have the patience to ride the bull on his terms. They want the bull to do what they want, when they want. I suspect more investors have been lost to boredom that draw downs.
The best strategy right now is to just sit tight. Remember this is still just a baby bull and it has a long long way to go yet.
June 5, 2010
Here are links to:
'Stocks, Commodities Tumble on Jobs; Euro Falls Below $1.20', by Rita Nazareth and Kelly Bit on Bloomberg.Com.
'U.S. Economy: May Employment Gain Trails Forecast (Update1)', by Shobhana Chandra on Bloomberg.Com.
Red and White D sends this note:
If you pay attention to international media the way I do you will not be surprised when the southern European states renege on their debt payments. I've heard the term GSC (Global Sovereign Crisis) applied several times. This is much bigger and more problematic than the GFC (Global Financial Crisis). This is so because so many of the world's governments have already moved the private problem debt onto the public balance sheet there is little room left for the huge public debt that is coming due for refinance.
Most likely solution will be the "New Drachma" the "New Peso" the "New Lira" and the "New Real". German workers will not pay for Greek public employees to retire at 50.
This is no different than the warning that was sounded in early 2008 about mortgage defaults. When these guys fail to pay back their loans in euros the fit will hit the shan.
I feel like I am caught in a Texas hail storm. I can't make it stop, I can't get out of it and all I can do is sit there and take it.
http://www.nytimes.com/2010/06/06/business/global/06toxic.html?src=busln"
I have just finished reading 'The Big Short', a book by Michael Lewis. It's about the mess we are in, and about a few people who started shorting mortgage bonds early on. I highly recommend this book. The writer is a great story teller. The story itself is both appalling and breathtaking in its breadth and depth. I quote a few passages at length below.
...The people in a postion to resolve the financial crisis were, of course, the very same people who had failed to foresee it: Treasury Secretary Henry Paulson, future Treasury Secretary Timothy Geithner, Fed Chairman Ben Bernanake, Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack, Citigroup CEO Vikram Pandit, and so on. A few Wall Street CEOs had been fired for their roles in the subprime mortgage catastrophe, but most remained in their jobs, and they, of all people, became important characters operating behind the closed doors, trying to figure out what to do next."
June 4, 2010
Tobby Connor sends along this posting:
Ending Phase
I have to wonder, are we entering the ending phase of this cyclical bull?
For sometime now I've noticed the similarities between the '02-'07 cyclical bull and what we've experienced since March of last year. The one difference is that this time we've truncated the middle phase of the bull. I suspect that was a direct result of the massive liquidity Bernanke ... and all central banks have pumped into the system.
Both bulls exhibited powerful moves out of the bottom followed by a 9% correction separating the second leg from the third. In the '02 - '07 bull we then entered a 2 year phase were the market ground higher. That phase is missing from the current bull. What followed the '06 correction was a powerful runaway move into the February '07 top. That persistent rally skewed sentiment extremely bullish at the time. We saw the exact same thing develop as the market entered the runaway move out of the February 5th bottom. At it's peak sentiment had reached bullish levels exceeding what we saw at the top of the last bull market in the fall of '07.
In '07 the runaway move led to investor complacency and severely depressed put buying. The same thing happened at the recent top in April. Investors became terribly complacent. Protective put purchase fell off the chart. The market had no safety net under it. In that condition it was at risk for a crash if investors all tried to head for the door at the same time. They did, and we suffered a mini-crash in the spring of '07 and again in May.
In '07 the initial crash low was tested and broken followed by a 2b reversal.
Recently the S&P also broke to lower lows and bottomed with a 2b reversal.
Both markets experienced volatile swings as the market put in the intermediate term bottom.
Both crashes quickly moved sentiment back to extreme levels of bearishness. In '07 sentiment turned more dour than at any other time during that cyclical bull. At the recent bottom sentiment was blacker than at any time in the last 10 years as measured by a basket of intermediate term sentiment indicators.
These kind of extreme sentiment levels are the building blocks for powerful moves. In '07 the extreme bearish sentiment drove the market into a final double top that capped the cyclical bull.
If sentiment levels are any indication we should now be set up for at least one more explosive move higher before the fundamentals final overcome this market and drag it back down into the next leg of the secular bear.
The similarities are piling up:
Initial runaway move drives sentiment to extreme bullish levels? Check!
Protective put buying dries up leaving the market with no safety net and vulnerable to crash conditions? Check!
Mini-crash? Check!
Test and 2b reversal of the initial crash low? Check!
Sentiment depressed to extreme levels of bearishness? Check!
Volatile swings back and forth during bottoming process? Check!
If history is any indication we should now be on the verge of one more explosive move higher before this cyclical bull expires and heads back down into the next leg of the secular bear.
May 27, 2010
Toby Connor sends this link to his 'How do you answer the question?' on GoldScents.BlogSpot.Com. I quote this article below.
Does that mean I want to short stocks? Are you crazy? No way I want to fight with a bear market and the Fed's printing press. For one Ben has already aborted a left translated 4 year cycle.
Never in a million years would I have believed that was possible, but happen it did. Print enough money and the Fed could just as easily negate a broken yearly cycle low. And if you think he won't do it I have some ocean front property here in Las Vegas I'd like to sell ya? Sell short? No way no how. Not even with your money.
...Now each of you has to ask themselves which you think is more likely. Will the US all of a sudden come to its senses, default on its obligations to halt the exponential growth of debt, thus unleashing a deflationary holocaust upon the world…or will we just continue to kick the can down the road like we've been doing for the past 10 years, thus making the debt burden bigger and bigger and rendering it serviceable only by hyperinflating the money supply?
How you answer that question will dictate how you want to invest for the next 5-10 years.
If you think like I do that we will continue to kick the can down the road then the easy investment is to just get on board the secular gold bull and hold on."
Rich Kolon sends this note.
Here are a couple old statistical timing models suggest the stock market may be heading up in the next six months.
http://www.marketwatch.com/story/two-highly-regarded-statistical- models-are-bullish-2010-05-26
At the moment, I don't trust the financial sector due to false accounting, but it does make up a good portion of the market. My guess is that bias is up due to the bailout money entering the market, and a skeptical public, which to me suggests that corrections will be bought.
The majority of stock trades seem to involve computer and index trading, and the power does not seem to reside in the public, who not only are less interested in stocks, but also accepting low interest rates on their 'safe' investments, and the public is constrained by money supply that has fallen significantly in the US. It's the rich trading firms that basically are interested in stocks. And they would kill the golden goose of HFT (due to government support and lack of prosecution) if they stayed bearish.
Mind you, the QQQQ 20-week signal remains temporarily negative for now. I don't think it will last beyond quarter end.
Rich"
May 25, 2010
Here is a note from Red and White D:
This earned GS a new moniker: "A giant vampire squid on the face of humanity". Of course they deny that they are such.
http://www.rollingstone.com/politics/news/%3bkw=%5B3351,11459%5D
http://www.commondreams.org/headline/2010/04/07-4
I believe, (a word I seldom use anymore) that the Federal Reserve banks may as well be scrapped and Goldman Sachs be appointed as the reserve bank of the U.S. Their play and reach in domestic and international finance is getting close to that of the Rothschilds in their heyday. Why fool around with the facade of the Fed when it is really a commercial bank that is really calling the shots. A huge chunk of the $60 Billion that our favorite uncle donated to AIG ended up in the pockets of GS employees.
Too big to fail hell......how 'bout too big to exist?"
Here is a link to 'Falling home prices stir fears of new bottom', by the Associated Press on Yahoo.Com.
May 23, 2010
On Minyanville.Com, Richard Suttmeier, perhaps my favorite pundit, posted this really grim article: 'Housing and Banking Signaling Double Dip' backed up with numerous points. The guy is certainly thorough. I quote the article below.
More than 10% of homeowners have missed at least one mortgage payment in the first quarter of 2010, which is a record high and up from 9.1% from a year earlier. Of these, about 8% of all homeowners with a mortgage, estimated to be 4.3 million homes, have missed at least three months of mortgage payments or are in foreclosure.
Mortgage modifications have put many homeowners in 'mortgage limbo' waiting for help -- and then they don't get any. And since they don't make monthly payments while they negotiate, when trail modifications aren't offered, the homes go into foreclosure or the short-sale status. This is why I forecast another wave down for home prices in the second half of 2010.
...What prompted my prediction in March 2007 that we would be in recession in 2008/2009 with a bear market for stocks being confirmed for stocks by the end of 2007? Weak housing and problems in the banking system! Back then I stated that you cannot have a bull market in stocks with a bear market in financials. ...I say we began the second leg of a multi-year bear market with the April 26 highs."
May 20, 2010
Here is a link to 'Why Recoveries Can Be as Difficult as Recessions' by Jack Stack on NYTimes.Com. I quote this article below.
...El-Erian has forecast an extended period of below-average economic growth, increased regulation and lower consumption in what Pimco, which manages more than $1 trillion from Newport Beach, California, has called the 'new normal.' The U.S. economy faces a 'protracted post-crisis resetting' as high unemployment persists, he wrote in a Bloomberg News column in February.
Investors have wrongly priced in an 'orderly' withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth, El-Erian wrote. That means Wall Street projections for gains in 2010 may prove incorrect and prices will slump, he said."
We are in a Depression folks. We are in the fourth year of what will be a ten to twenty year stint. It is going to get a lot worse. All the talk is of a 'double dip'. What no one is thinking about, and should be thinking about is the possibility of a 'tripple dip.'
Please bear in mind the following:
