The Calm Before the Next Financial Storm? 22 comments
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This particular week has that same unsettling quietness that preceded the collapse in October last year, and to be fair I flagged it up with my article ‘Dow at 7,000, FTSE to 3,300′ at the end of September.
Yes we have had stocks rally by 20 per cent since the collapse of last autumn but where are the next lot of buyers going to come from? Anybody who wanted to buy on the dip will now have done so. The next move is therefore down.
Downside trigger?
What could trigger the sell-off? There is scary talk from the UK about accountants unable to sign off on big bank audits for 2008. Well, they are all bankrupt, that is the small technical problem.
Indeed, the full year figures from quoted companies are not going to look good, and the profit outlook is truly awful now. It is the profits side of the price-to-earnings ratio that is coming into focus, and that will not justify p/e ratios at present levels, and so a downward adjustment of share prices is unavoidable.
President Obama is coming on January 20th but that is already a known fact. So too is his only weapon, the stimulus package. These factors are written into current share prices, so they offer no downside protection.
Bottom picking
After the recent bear market rally the next step is another leg down. Will that then be it? Will the bottom be in the market? I suppose that depends how low we go.
My own prediction for this market bottom is 4-5,000 on the Dow and for gold to surge to $4-5,000 an ounce. However, the initial impact of the stock crash will be a dollar rally, so the gold price surge will have to wait until that is done and then the dollar and bonds will crash.
In this environment it makes sense to sit on cash or precious metals and do little else while the financial professionals lose their clients another massive amount of money.
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This article has 22 comments:
In the last month market was calm because no financial institution failed but this time will be the producer companies that will have liquidity problems and I don't see government giving support to all of them, cuz not many have a systemic risk on the economy.
Agree further that sitting on cash and some metals is the way to preserve capital [not treating cash as trash and all in stocks!].
Let the storm subside before re-assessing. Some light trading may be in order but only for those who are good at it.
The trigger could be much higher charge-off rates for unsecured loan / credit card portfolios. It seems that credit card loan-loss reserves are still too low for most banks (most are implicitly assuming unemployment rate peaks at 8%). Obama thinks unemployment could go to "double digits", while many economists are forecasting 9% as early as Q3 this year. Banks are under-reserved and will need fresh round of capital.
Watch for deterioration in XLF to lead SPY to lower lows. VIX will have to retest the old highs of 80%.
You're sure of a big surprise.
If you go out in the woods today
You'd better go in disguise.
For every bear that ever there was
Will gather there for certain, because
Today's the day the teddy bears have their picnic.
chorus
If you go out in the woods today,
You'd better not go alone.
It's lovely out in the woods today,
But safer to stay at home.
For every bear that ever there was
Will gather there for certain, because
Today's the day the teddy bears have their picnic
CHORUS
Every teddy bear, that's been good
Is sure of a treat today
There's lots of wonderful stocks to short
And wonderful games to play
Beneath the trees, where nobody sees
They'll short and sell as long as they please
Today's the day the teddy bears have their picnic
1. The government stops maniipulating the price and lets it go up? or,
2. The upward price pressure will make the government lose control of price through their manipulation? or,
3. Will Obama do what FDR did the last time the economy was in a similar situation - outlaw the private ownership of gold?
Why anybody should pay their mortgages and/r debts if US government intends bailing out non-payers? No reasons at all.
Intentions of Obama administration and US Congress to "fix" US economy are between outright stupidity and/or criminal malfeasances.
God save us. The economic and political danger level is extremely high.
----------------------...
The only one winner today is Manoff staying in his penthouse after looting close to $50,000,000,000
WOW!
On Jan 12 11:09 AM seekingknowledgeA wrote:
< So again, who is left to cause the big crash again?>
As bill Clinton said 16 years ago: " The economy, stupid"
That is just the sad facts when earnings are eroding and official unemployment heads towards 10% (unofficial unemployment is already above there).
I think everyone knows someone tapping their 401Ks this year. This is a very bad sign. I hate to be a downer but 2009 doesn't look one bit better than 2008, even in the second half of the year.
Government can's save us. We can save ourselves but it takes time, effort, and some austerity to pull our savings into line with our spending. The government isn't helping one bit in regards to this. For every buck we save the government is trying to spend $0.10 cents on one bailout or stimulus plan after another. By the time we get financially secure, the US government will be taking it all to pay for their prior help.
I am against TARP and all incarnations of completely unproductive wasteful government spending. I hope everyone on the boards is in general agreement with me on this by now.
We didn't save the economy or anything else. We just ended up the victims of the biggest single rip off in history. If we are mad at Bernie Madoff why shouldn't we be mad about the participants in TARP. Their misdeeds are 14x greater and in both cases no one can figure out where the money went.
I agree with your assessment that there is downside risk to 640-680 for the S&P 500. The scenario that Peter Cooper describes is not impossible, but it requires a series of disasters (he describes possibilities). Your downside target is reasonable just based on probable earnings for 2009.
seekingknowledgeA - - -
Every share of stock has an owner. There is no cupboard where unwanted stocks are stored. Every owner has a price below which he will not want to own his stock, There is always someone who can sell until the stock goes to zero and then the final owner (at dissolution of the company) still has a tax write-off.
constructe - - -
I really hope that your prediction doesn't come true. Another 40% down for 2009 (to be as bad as 2008) would be around 5300 for the Dow, very close to Peter Cooper's prediction. You remark about the low volume and the reduced volatility. I am not concerned about the volatility, but the low (and decreasing steadily now for 8 weeks) is a concern. Fewer and fewer buyers and sellers are keeping the markets quiet. It could be the calm before the storm - consolidation before a big move up or down.
I fear the down more than expect the up.
My view about the shrinking volume is that its like a face-off between two gun fighters (think buyers vs. sellers) in the old west. The one that flinches first is dead.
On Jan 12 10:45 AM seekingknowledgeA wrote:
> Who is left in the market to cause the dow to go so low? The big
> investors are already on the sidelines (out of the market). The main
> investors that I see in the market are those with 401K, and they
> have already lost so much that (the ones I've talked with) feel that
> they will just ride it out, instead of moving their money. Do you
> also perdict the financials to go down? I do, but then I wonder.
On Jan 12 11:40 AM peterthepainter wrote:
> If you go out in the woods today
> You're sure of a big surprise.
> If you go out in the woods today
> You'd better go in disguise.
>
> For every bear that ever there was
> Will gather there for certain, because
> Today's the day the teddy bears have their picnic.
>
> chorus
>
> If you go out in the woods today,
> You'd better not go alone.
> It's lovely out in the woods today,
> But safer to stay at home.
>
> For every bear that ever there was
> Will gather there for certain, because
> Today's the day the teddy bears have their picnic
>
> CHORUS
>
> Every teddy bear, that's been good
> Is sure of a treat today
> There's lots of wonderful stocks to short
> And wonderful games to play
>
> Beneath the trees, where nobody sees
> They'll short and sell as long as they please
> Today's the day the teddy bears have their picnic
>
>
On Jan 12 04:38 PM nova wrote:
> Obama and B. Frank are talking about massive waves of bailouts parasites,
> speculators and corrupt state and local governments without any intention
> to pay money back.
>
> Why anybody should pay their mortgages and/r debts if US government
> intends bailing out non-payers? No reasons at all.
>
> Intentions of Obama administration and US Congress to "fix" US economy
> are between outright stupidity and/or criminal malfeasances.
>
> God save us. The economic and political danger level is extremely
> high.
> ----------------------...
> The only one winner today is Manoff staying in his penthouse after
> looting close to $50,000,000,000
> WOW!
On Jan 13 12:24 AM John Lounsbury wrote:
> RiskReturnOptimizer - - -
>
> I agree with your assessment that there is downside risk to 640-680
> for the S&P 500. The scenario that Peter Cooper describes is
> not impossible, but it requires a series of disasters (he describes
> possibilities). Your downside target is reasonable just based on
> probable earnings for 2009.
>
> seekingknowledgeA - - -
>
> Every share of stock has an owner. There is no cupboard where unwanted
> stocks are stored. Every owner has a price below which he will not
> want to own his stock, There is always someone who can sell until
> the stock goes to zero and then the final owner (at dissolution of
> the company) still has a tax write-off.
>
> constructe - - -
>
> I really hope that your prediction doesn't come true. Another 40%
> down for 2009 (to be as bad as 2008) would be around 5300 for the
> Dow, very close to Peter Cooper's prediction. You remark about the
> low volume and the reduced volatility. I am not concerned about the
> volatility, but the low (and decreasing steadily now for 8 weeks)
> is a concern. Fewer and fewer buyers and sellers are keeping the
> markets quiet. It could be the calm before the storm - consolidation
> before a big move up or down.
> I fear the down more than expect the up.
>
> My view about the shrinking volume is that its like a face-off between
> two gun fighters (think buyers vs. sellers) in the old west. The
> one that flinches first is dead.
On Jan 13 11:25 AM notsosmart wrote:
> madoff is a piker compared to wall st & the govt.its ok though-the
> stadium will be filled to capacity.forget it all.its the super bowl
> that counts.LOL