Sucker's Rally Approaching an End 197 comments
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Whatever the technical reason for the 25 percent rise in the S&P over the past five weeks, or a more modest eight percent bounce in GCC regional stock prices, the absurdness of this sucker’s rally ought to be obvious to all.
Unemployment is still rising, house prices are still falling, and the fundamentals of bank balance sheets are still deteriorating with total bad debts unknown except that we know they must be getting worse. Global trade fell off a cliff in the first quarter of the year. Even Mercedes car sales to the oil rich of the GCC fell 23 per cent. The collapse of the world’s second largest economy, Japan, has been unprecedented. Nor do you have to look hard to see what the bad news to come might be: US banks will have to reveal all in government stress tests to be published at the end of this month; the bankruptcy of Chrysler and General Motors (GM) loom, two companies of vast importance to Main Street USA with a million jobs in jeopardy and huge borrowings to be written off by the banks. The stock market pattern in 2008-9 has so far been a mirror image of the crash of 1929-30 with a halving of prices from the autumn followed by a 25 per cent rally from March lows. In April 1930 stocks moved sideways and then they crashed another 50 per cent into the summer. What possible reason is there for optimism to believe that history will not repeat itself? Government stimulus packages have more than likely been too small and too late to prevent another down leg in stocks, and will take time to revive the real economy, if indeed they can do so. They might just stop the worst possible scenario but are they going to prevent the plunge downwards? Governments have not managed it so far. At the commonsense level you have to ask why should an economy show signs of recovery as it lays off hundreds of thousands of people: the unemployed are not big consumers, and it frightens the hell out of people left in work who stop spending and save. Consumer demand is the most important fundamental in modern economies and the confidence of consumers is being blown to pieces. It will take more than weasel words from US bankers and ‘green shoots’ in the waffle of President Obama to put things right. Eventually global stock markets will reach a bottom but they are not close to having visited it just yet. Wall Street and its friends are playing investors as suckers but they are in danger of overdoing it. For once these guys are impoverished where will the next bunch of fools come from? Goldman Sachs' (GS) results this week might well mark the top of the rally, beyond that the only way is down.
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This article has 197 comments:
On Apr 13 07:15 AM coastalpirate wrote:
> Rick and to the Author, What would settle the 1930's comparison for
> me would be some facts comparing leverage levels, Loan to Value %,
> avg home price to avg salary comparisons etc, I know the un-employment
> rate was much higher then, but was the population and the banks levered
> and over-extended at differing degrees? Seemed like people saved
> more back then. People did walk out of their houses leaving the furniture
> and everything they couldn't carry, but that seems the same as the
> foreclosures going on in CA, NV, FL etc. Did the Banks keep more
> than 1.5 to 3% actual assets to cover their loans like today? Need
> some more data !!!
On Apr 13 07:19 AM wes mantooth wrote:
> I agree with this article. No way we've seen the bottom. This was
> the biggest credit boom in history. It will be it's greatest bust.
It has to be that the thought-processes of the USA need to be looked at for the intellectual fractures. We can disagree on what needs to be done, but we need to get into doing it quickly.
Economic leadership from the 90s and early 2000s must step back and measure our next step. We are clearly committed to some kind of deficit spending, so get over that (as a concept, the degree can still be discussed). It sounds too much like there are people rallying their choirs and not motivating the nation.
This type of deficit spending will eventually drive some consumer driven market increases, but in the longer run, it is extremely bad for our economy.
Future generations are going to foot the bill for our bad behaviors.
Some will still profit in this mayhem. Trading around your core positions will at least yield some free cash flow to your portfolio. Options can also limit your downside exposure.
Everyone so busy trying to call the bottom in the markets that they are missing the bigger pictures. Don't be distracted. More bad news lurking. Time will be needed to fix this as well as some fiscally responsible local/state and national budgets.
Nothing has changed in the past five weeks to justify a 25% rally. Despite all of the media coverage, it seems like many people don't yet appreciate the depth or gravity of the world economic situation.
This could create a wonderful shorting opportunity. I'll keep my power dry and finger on trigger. The next month could prove to be very interesting.
I think the only sucker is you!
Don't wish gloom and doom on the markets just to chase your shorting gains that you enjoyed last year. Enjoy the ride and be happy for some light at the end of the still long tunnel....
If you use unemployment data for trading, good luck to you. I take the nonfarm payroll data for some back testing on S&P500, I am kind of dissappointed. If you buy when the nonfarm payroll increases and sell when it decreases, the result is awesome, it's far worse than buy-and-hold.
Those who coined the expression "sucker's rally" probably meant it to apply only to those who enter in the late stages of such a rally, then watch their positions drop, then, perhaps, compound their error by panic selling near the subsequent trough.
On Apr 13 08:03 AM BeachRider wrote:
> The markets could certainly fall some more, but both sides of this
> argument have valid signposts that their trend will hold. One has
> to look at the position of the USA in the global economy and find
> it to be one of the most-organized while being the most intellectually
> fractured of the leading economies.
>
> It has to be that the thought-processes of the USA need to be looked
> at for the intellectual fractures. We can disagree on what needs
> to be done, but we need to get into doing it quickly.
>
> Economic leadership from the 90s and early 2000s must step back and
> measure our next step. We are clearly committed to some kind of deficit
> spending, so get over that (as a concept, the degree can still be
> discussed). It sounds too much like there are people rallying their
> choirs and not motivating the nation.
Adjusted for size of the GDP and the difference in the risk free interest rates, the S & P 500's recent low of 676 represented a 94.3% overall 10-year decline in the S & P since 1999. To imply that we haven't reached bottom simply doesn't reflect the facts.
I'm not saying we are going to bounce back real quick. the 1999 peak was a massive bubble that we probably will not see again in our lifetimes. But, I also believe that that lows recently witnessed are, as Doug Kass as has called them, "generational lows" that will not be seen again.
Both crashes were caused by excessive leverage. It took WW2 to get us out of the depression. Pump priming didn't work. We paid for the war by selling bonds and then inflating them away. We'll get out of this fix by hook or by crook but I'm betting the dollar will be worth a lot less then than it is now.
Getting 25% return in a month still doesn't mean you ain't a sucka. I got a blind squirrel with a nut that wants to talk to you.
I have no idea what will happen the next 12 months, but guessing is gambling not investing. Maybe the bull comments think we should print another $5 trillion in cash and go another $20 trillion in debt. Imagine the VALUE creation!
Nothing personal, but no it didn't. And Hoover wasn't a deregulating, small government President (nip that in the bud right now).
Hot Richard wishes people would throw off the yoke of their American Government supplied education and really learn about the Great Depression.
The wild card is govt spending - 800 billion to fannie/freddie and 300 billion for long bonds.... that's a lot of money. Who knows how this will work it's way into the market.
Perhaps he was long for this rally and just got short and is explaining why? What kind of value does "You were the "sucker" if you didn't participate in the rally." add? The fact is, who cares whether he's been long or short? Do you believe his comments are rational and useful? That's all that should matter.
I happen to agree with his comments. But it doesn't matter if this is a "sucker's rally" or whatever you want to call it. If you're a good trader, you love this kind of volatility. I happen to think the poor economic fundamentals are likely to push the longer trend back downward for a bit. But I don't care either way really.
Cheerleaders, both bull and bear, get burned. People who spin the stats to make them feel better about their positions will always lose: like "Accountant" quoting the 94% decline from 1999 as a clear sign we've bottomed. Go back about 30 years and you'll notice the S&P is just now bouncing on a trendline that looks like a reasonable long term sustainable trend (~7.5%/ann actually). Talking about being consistent with the facts, I don't believe it's reasonable to measure from a peak where the S&P had gone up 230% in 5 years.
Absorb the information, change your mind, be nimble and be unemotional. I rarely see that on this site. When stocks are plummeting, the shorts come and toot their horn. When the rally comes, they shut-up, and all the longs (despite likely large losses) jump out and rah-rah the recovery. People seem to treat their accounts like their favorite football team - they support them whether they're winning or losing.
Before they critique a post perhaps folks should disclose whether they're a "trader" or an "investor." The difference of course, at least where it pertains to public sites like this, is that one trades with some type of insight and the other buys on hope and dreams. Please don't start citing well known "investors", because the folks posting here are not Fidelity or Blackstone, and you don't get the same terms as Warren Buffet. There seem to be a lot of "investors" out there, who talk about the long term opportunity. But in reality most of them just don't have the ability or insight to short (or just be in cash) and/or are okay with losing a lot of their money in the interim before they get it back in the years to come. I'm very happy that so many "investors" are getting some of the value of their investments back. I just hope they don't need that money anytime soon, because I know a scarce few will have the insight to take the money and run.
I'm all for the long term success of our economy, but I must see the situation for what it is. Do I want to own stocks after they've had the largest one month rally in over 70 years? I would say my odds of success are stacked against me. Unfortunately I think a lot of the general populace see and think the same, yet they don't sell their stocks. Instead, they remain "investors," waiting through the losses and hoping for that eventual recovery.
Successful investing is path-dependent. Anybody can buy one share of SPY and ride whatever the market or economy does over the years. Those people should not be posting here, because they offer no insight. And if you think right now is a great time to buy stocks, then I believe there is a good chance you fall into that category. Sure the market will be higher years from now, so it's easy to argue for buying. I also think the market years from now will be higher than it was on 12/31/08, but I'm certainly happy that I wasn't buying then.
Sorry for the long rant. Just hoping some folks can take a step back and try not to trade on their emotions, hopes and dreams. Best of luck to all.
Now the banks are at it again (with the connivance of the US Government) getting Mark to Market dumped and playing a giant shell game to hide the fact that even after the bailout their balance sheets are terrible. And people are buying into this b******t?
I'm with Peter on this. This rally may not be all fueled by suckers, but this IS a sucker's rally. Once this market is finished playing out and the big players have sucked everything they can out of the middle class and small investors, there is going to be another generation of people (like those who survived the 20s and 30s) who will never put another dime into the stock market as long as they live.
There wouldn't be a stock market if the market moved according to reason and analysis. We could just value stocks according to a formula and go home.
The problem is, no one knows when the inevitable 'sucker' rallies will occur and when they will fizzle and that's why there is a stock market in the first place.
This has nothing to do with fundamentals.
If you could live backwards from 1935 to 1929, you could make a fortune even without shorting the market because you would know exactly when the rallies would occur and when the drops would resume.
It's that simple.
History is orthogonal to all of this but not irrelevant because if you get history and the fundamentals right, you will make money in the long run even if you miss some of the big and inevitable up and down surges on the way DOWN or UP (depending on how you analyze the present economic and financial events.)
On Apr 13 07:32 AM MJJP wrote:
> When figuring the unemployement data REAL unemployement is comparable
> to the 1930's. We don't see it because of the many safety nets that
> exist and the just the way unemployement is calculated is different
> now than then.
Unions had their day and their legit place in preventing maltreatment during the industrial rev era...but they have now gone too far and have resulted in socialism in employement and compensation practices, vs. the power of numbers to prevent abuse. This is counter-productive to the individual being incentivized to "work harder and do better". It just doesn't work. Ask anyone from the former Soviet "republic".
P.S. -- gotta love the way our unions are looking more and more totalitarian! The new push to remove the secret ballot...and the long-existing requirement to pay union dues regardless of desire to join the union, if one gains employment at a union shop. These types of coercion are TOTALITARIANISM. Further show how unions are NOT tools of freedom and individual opportunity.
On Apr 13 07:37 AM MJJP wrote:
>Real wages have stagnated
> over the past 20 years and unless industry turns a new leaf on attitude
> and outlook by opening their purses this downturn is likely to be
> with us for some time. Unionization gets a bad rap from conservatives
> and the right wing media but unions are the only alternative to getting
> this accomplished.
Some relevant economic trends:
1. Unemployment rate - up
2. Consumer sending - down
3. Corporate earnings - down
4. Credit quality - down
5. Credit availability - down
6. Bankruptcies - up
Whatdoyathink??
if it goes down to the former low and lower the bear is alive. if act like the mar 30 bottom the bulls ar in commend.
It is due to politics and corporate 'policies.'
It was the private police forces of big corporations that smashed unions from the late 19th century up until the 1930's. During the Great Depression of the 1930's union membership grew mostly because of the politics of the Roosevelt administration.
The Taft-Hartley act and many other political acts, including Ronald Reagan's ruling on the Air Traffic Controller's strike, after World War II, reduced union membership (non-government) from about 25% to around 7% in the United States today, which is the lowest percentage in the industrialized world.
On Apr 13 01:24 PM Socialism cannot compete! wrote:
> BS. Unionization leads to what we see in the auto industry -- falsely
> high costs that become unbearable. It leads to wages that are paid
> NOT based on individual merit -- which is the lifeblood of capitalism,
> the notion that harder/smarter work begets bigger profits -- but
> instead, pay based on a collective...this is socialism in pay calculations.
>
>
> Unions had their day and their legit place in preventing maltreatment
> during the industrial rev era...but they have now gone too far and
> have resulted in socialism in employement and compensation practices,
> vs. the power of numbers to prevent abuse. This is counter-productive
> to the individual being incentivized to "work harder and do better".
> It just doesn't work. Ask anyone from the former Soviet "republic".
>
>
> P.S. -- gotta love the way our unions are looking more and more totalitarian!
> The new push to remove the secret ballot...and the long-existing
> requirement to pay union dues regardless of desire to join the union,
> if one gains employment at a union shop. These types of coercion
> are TOTALITARIANISM. Further show how unions are NOT tools of freedom
> and individual opportunity.
What we are witnessing is the transfer of debt from the big banks' balance sheets to the taxpayer. So all of a sudden, the banks are making record "profit"!. Congrats!. It's time to distribute new bonuses!. Enjoy the ride!
We'll know whether this was a bear-market rally or the end of the bear market in a year or two or three. The more important question, as someone pointed out in an earlier comment, is whether it is an investable, or tradable, rally. I suspect that for some it has been, and for others it hasn't. That's because everybody works with different time-frames when they decide what is investable. The spectrum runs from day traders at one end to buy-and-holders at the other. What's a "sucker rally" to some is a profitable opportunity for others.
But the fundamentals also sucked last summer when the stimulus checks created a "false rally."
This time all of the money the Fed is pumping into banks and infrastructure and pay checks is starting to be felt. So this rally will continue as long as the stimulus is feeding the country.
Then, fundamentals will take over and pop... down, down, down. At least that is my two cents.
The heroes from the navy, together with the french navy and with 3 big wahrships have killed 3 pirats
in a smal plasticboat = Another 1 week rally.
And, and, and.
I think WE will be footing part of that bill as it's impact on our savings becomes apparrent in the near term...and it will be very ugly.
Based on what may I ask, Sir, other than your own opinion? Charts show me a viewpoint that is totally to the contrary. This rally has enormous legs. Volume is extremely healthy. Chart metrics could not be better. Baed on what has actually happened there is no reason to conclude that the rally is over.
Just like you pull excuses out of the air I will surmise that you (the author) are a sourpuss because:
1. You missed the stinkin' rally!
2. You have short positions that are chewing your bank account!
A coin has two sides. Just like you conclude that the unemployment numbers are scary one can also conclude that they are a lagging indicator just like what happened the post-Reagan era bull rally where high unemployment numbers showed up for 18 months after the recession was over! Consumers are not spending? You can't face facts that there are positive signs -- tell me, how in the world did Best Buy, Bed Bath and Beyond and RIMM have such a good quarter? By all indications they should have had a 50% down quarter. I live in Arizona in a new housing development and just 4 months back 1/3rd of the houses were empty. Now they are all full and we had a "Welcome the neighbors!" party. I went to a popular restaurant last December and there were emty tables till the eye could see. I went last Friday and I had to stand in a line for 30 minutes.
You, author Sir, will be the last one to catch this rally and you will be what many call the "BAGHOLDER".
www.wealthalchemist.co.../
Check out my piece: VIX Breakdown Forecasts Bear Panic
seekingalpha.com/insta...
There is panic buying after hours in Citigroup, now up to $4.20. Also BAC.
Here is an addendum to my piece:
Question from this posting on MarketOracle.com:
VIX showing buying panic?
Just wanted to ask about your interpretation of the VIX. When I saw the VIX break down below 40, I took it as a sign that we'll see less panic in general, on the long side and the short side. Options implied volatility works both ways. Why did you see it as a set up for panic buying?
Reply:
It's interesting that there are many divergent interpretations of this indicator that has become widely monitored.
First, clearly historical volatility has not diminished in this bull phase...we all know that this is "the fastest rally since 1933."
The VIX tends to move inversely to the market. Technically the index had reached a point that demanded resolution implying a sharp break in either direction. A break down from the 200 DMA and the triangle formation would imply a continuation of the bull trend in stocks...and a sharp one. A move away from the 200 DMA is a fundamental change of trend. It means something very important is happening. Bears had been expecting an upside resolution to the VIX, coinciding with a top in the "bear market rally". They have tried to short the market again at this level on the blanket assumption that the bear must return. The breakdown in the VIX in an indication (and a strong one) that they are probably wrong. It is possible that on Tuesday or Wednesday there may be a sharp pullback in the markets and the signal that the VIX has given may prove to be a bull trap (or bear trap from the perspective of the VIX chart). However that would need to happen in the next few days or the shorts will start to cover and sideline money will pile on driving the market to the 200 DMA on the SPX.
If you are trying to decide what to do here are some thoughts.
1) You should not be in all cash if you are an investor.
2) The banking stocks may have bottomed but that doesnt mean banks are out of the woods. I can only go by the consensus of the best analysts, that we have lots more financial assets to write off. Perhaps 30 Trillion.
3) Some of the greatest companies are selling at lifetime low PE ratios.
4) The market is priced at approx 54% of its highs.
5) The PE of good companies was dropping for most of the past decade prior to this recession.
My point is that when you remove the emotion and assess the situation it is a good time to own some stocks. Just dont bet the ranch on the market going straight up from here.
You can trade this thing with close stops, or you can sit on the sidelines and call everyone else suckers. But the numbers are the numbers, and 30% to date is a big move.
F. Horne
One thing is for certain. Gold, commodities, and non-dollar assets will benefit from any recovey and the attempts to print our way to prosperity every bit as much as stocks.
Templeton Global Bond (TGBAX) is up 12% since the market bottomed so just like 03 to 07 you can probably make just as much in foreign bonds as the dollar gets debased as you can in equities but, on one third the volatility.
If this was domestic wealth creation stocks and the dollar would rise but, its more trying to print and borrow our way to prosperity which eventually will leave the dollar debased and the U.S. operating its daily functions on printed money.
If you studied the Crash of 1929, you would see the fallacy in such statements. The world is vastly different from that time in many ways. The response of our current government is 180 degrees different from the response the Hoover administration took.
Comparisons to 1929 are simply ridiculous.
On Apr 13 07:15 AM coastalpirate wrote:
> Rick and to the Author, What would settle the 1930's comparison for
> me would be some facts comparing leverage levels, Loan to Value %,
> avg home price to avg salary comparisons etc, I know the un-employment
> rate was much higher then, but was the population and the banks levered
> and over-extended at differing degrees? Seemed like people saved
> more back then. People did walk out of their houses leaving the furniture
> and everything they couldn't carry, but that seems the same as the
> foreclosures going on in CA, NV, FL etc. Did the Banks keep more
> than 1.5 to 3% actual assets to cover their loans like today? Need
> some more data !!!
Events have consequences. Marketing master Ted Levitt suggests "The future belongs to people who see possibilities before they become obvious." In the present fiscal toxemia, the names Kyle Bass, Michael Burry, Steve Eisman, and Jeff Greene are among those who recognized the dissonance, foresaw the meltdown, and ignored the conventional "wisdom" while positioning themselves to score billionaire-level victories. The ongoing transfer of toxic costs to the public balance sheet is the price of 45 years of delusional romanticism. As long as our "leaders" ignore this point, there is no reason to take them seriously in anything. Just figure out what they're peddling, and SHORT them, ruthlessly.
On this same "possibilities before they become obvious" theme, CareerBuilder has a 3/09 survey saying 6 of 10 upcoming retirees will take years to recoup losses in their 201Ks, my estimate is an extra 4 years in the workforce, on average, for the next several years. Rough guess, an extra 2.4M jobs needed, maybe more, as this becomes a new norm...likely losers - the college grads in classes of 2009-2012, whose potential employers won't have 2.4M vacancies to fill each year. "Normally", unemployment is a lagging indicator, but a mass boomer postponement has potential to put a whole new spin on "change we can believe in". Read about it in TIME, March 2011, or later.
On Apr 13 02:02 PM techzone12 wrote:
> It's called a sucker's rally, because it sucks you in...
> What we are witnessing is the transfer of debt from the big banks'
> balance sheets to the taxpayer. So all of a sudden, the banks are
> making record "profit"!. Congrats!. It's time to distribute new bonuses!.
> Enjoy the ride!
>
But I am an independent investor in a comfortable position and not a sourpuss who missed the rally - indeed it has improved my own long-term holds nicely. I am also an independent journalist building a financial comment website in the Middle East and just trying to understand what is going on in our world.
However, the parallels with 1929 are uncanny - and I think the huge slump in global trade and GDP on a scale quite unprecedented in my lifetime are the real issues here. To expect stocks to rally very much further against this headwind looks over optimistic even for the natives of America.
If you want more a more detailed comparison of the 1920s to the 2000s have a look at this item. I can not write a thesis in 400 words but this is a summary:
arabianmoney.net/2009/.../
Buy stocks that are levered to benifit from a rising market such as asset managers.
1. mark to market rule change
2. treasury pumping more $$$ into the market (insurance)
3. china saying their first stimulus plan showing signs of change
4. china getting ready for a round 2 of stimulus
5. g20 meeting...anything come out??
not that i'm saying we're heading straight up, but the point is, things have changed in the past five weeks.
On Apr 13 08:30 AM somecatchyphrase wrote:
> The author offers an excellent summation of the recent rally. Thank
> you.
>
> Nothing has changed in the past five weeks to justify a 25% rally.
> Despite all of the media coverage, it seems like many people don't
> yet appreciate the depth or gravity of the world economic situation.
>
>
> This could create a wonderful shorting opportunity. I'll keep my
> power dry and finger on trigger. The next month could prove to be
> very interesting.
Yes, Japan is not exactly the same as the US today...but it's a good reality check for the bulls. Both situations were massive debt bubbles, which is why we should pay attention.
www.planbeconomics.com.../
The one thing that the article does not talk about is the use of protective stops...no matter how WS is "playing " the consumer investor, unless they deliver a huger overnight drop, stops can protect the "little guy".
What a country.
1. VERY FEW PEOPLE buy "The Market". People buy individual stocks or basket of stocks.
2. At present prices, you can buy stocks at 20 cents on the dollar, just as you can buy houses at 20 cents on the dollar. Such a deal!
3. This bear market is really about 10 years old, but was hidden because much of the action took place sector by sector.
4. Those things people are mindlessly calling "Toxic Assets" - what are they REALLY? These are pools of mortgages that have been sliced and diced so many ways that nobody really knows what they own. But look at some numbers, -roughly speaking.
say you buy these "Toxic Assets". $1,000,000 face value costs $300,000. (Such a deal!) Of these assets, 90% are current, paying 6% of face value, producing $54,000 per year of interest income. The other 10% go into foreclosure, and you get 50 cents per dollar of loan, so that gives you $50,000 of return of capital for the ones in foreclosure (but that 10% only cost you $30,000 in the first place) . At the end of the first year you got $ 104,000 in income on the $300,000 investment. Not bad for these "Toxic assets".
4. Can you see why a bank might want to use 8% interest TARP loans to get 36%+ returns. Is this not a great deal or what?
Estimates are for numbers like 25% but the truth is that they are just guesses. We could be higher now, or lower.
Another factor besides the social safety net is that there are far more two wage earner families now, which provides some cushion. On the other hand the trend towards nuclear families is much stronger - back in the '30s multigeneration extended households were common.
Then of course there is the issue of the ecological disaster of the dust bowl, and the much more agrarian economy of the 1930's.
What is clear though is that while it is very difficult to compare the effects of unemployment then and now, the economies of the 1930's showed far greater declines in GNP than we are seeing now.
On Apr 13 07:32 AM MJJP wrote:
> When figuring the unemployement data REAL unemployement is comparable
> to the 1930's. We don't see it because of the many safety nets that
> exist and the just the way unemployement is calculated is different
> now than then.
The resulting mess would seriously tip up the odds of long term financial miasma and decay; of serious inflation, low growth and stagflation.
I will add that it's important to not lose sight of the fact that the stock market does not move based on fundementals, technicals, or reality. It's a perception market. And if the perception is that the economy is improving, whether true or not, it will move the market up.
> 2. At present prices, you can buy stocks at 20 cents on the dollar,
> just as you can buy houses at 20 cents on the dollar. Such a deal!
What you really mean is that you can buy stocks at 20% of their recent peak, right? "on the dollar" implies some baseline, certain, calculable value. That's fine if you believe a stock trading at $20 is worth (to you) $100, but that doesn't mean that's what it's worth with any certainty. When AIG was trading at $15 you could say it was trading at 20 cents on the dollar (vs it's high of ~70), by your analysis, but additional information bore that not to be true. By the same token, I could argue that the S&P at 1500 was overvalued by 150 cents per dollar, versus its 2002 level. That is, it's a moving target and there is no corrollary to a "cents on the dollar"-type analysis. If I can know with some degree of certainty that I might recover 20 cents on the dollar on a corporate bond in liquidation, then I'll accept that argument. But this analysis does not apply to stocks.
> 4. Those things people are mindlessly calling "Toxic Assets" - what are they REALLY? These are pools of mortgages that have been sliced and diced so many ways that nobody really knows what they own. But look at some numbers, -roughly speaking.
> say you buy these "Toxic Assets". $1,000,000 face value costs $300,000. (Such a deal!) Of these assets, 90% are current, paying 6% of face value, producing $54,000 per year of interest income. The other 10% go into foreclosure, and you get 50 cents per dollar of loan, so that gives you $50,000 of return of capital for the ones in foreclosure
> (but that 10% only cost you $30,000 in the first place) . At the
> end of the first year you got $ 104,000 in income on the $300,000
> investment. Not bad for these "Toxic assets".
First, people do know what they own. The public may not understand how ABS and CDS (and CDS on ABS) work, but that does not mean that those of us who invest in such products don't understand them very well. The reason why the securities trade as "cheaply" as they do is a combination of leverage (by security structure) and future expected losses. It has nothing to do with the fact that 90% are still current on their mtg (as CNBC and everybody else in the media loves to point out) - like the stock market, prices are based on future cash flows, not past. If you own a first-loss piece of a home equity ABS, you can easily get a value of 30 cents (or lower) on 10% delinquencies. Heck, you can get below 30 cents on 5% delinquencies.
Your math suggests that the investor owns a trancheless ABS or MBS. On the aggregate, your argument may be true, but on a security-level basis it is not.
And while I don't really like the name "toxic assets" either, it's naive to suggest that people "mindlessly call them that." They're not toxic to the investors that buy them now, at the bottom. However, they were very toxic to the banks that owned too much of them, valued them with too optimistic assumptions, and ultimately allowed them to help destroy their capital base. That was the toxicity.
As an aside, the banks managed to convince the government, and FASB, that many of these products are so illiquid that it's not fair to utlize mark to market accounting. That current prices couldn't possibly reflect fair value. This is one of the biggest crocks of this whole mess of a bailout. These securities trade (I trade them, and see them trade daily) - they are more than sufficiently liquid to mark to market. The banks just don't like the current clearing price, and FASB obviously doesn't know any better. Had FASB called me to corroborate the illiquidity situation I would have laughed at the proposition. They might as well let asset managers (who actively trade these securities) decide what to mark to market. Because hey, I'm not planning on selling it for a while so why should I have to mark it to today's prices either?
On Apr 14 09:24 AM Jonathan Christopher wrote:
> Some things to consider:
> 1. VERY FEW PEOPLE buy "The Market". People buy individual stocks
> or basket of stocks.
> 2. At present prices, you can buy stocks at 20 cents on the dollar,
> just as you can buy houses at 20 cents on the dollar. Such a deal!
>
> 3. This bear market is really about 10 years old, but was hidden
> because much of the action took place sector by sector.
> 4. Those things people are mindlessly calling "Toxic Assets" - what
> are they REALLY? These are pools of mortgages that have been sliced
> and diced so many ways that nobody really knows what they own. But
> look at some numbers, -roughly speaking.
> say you buy these "Toxic Assets". $1,000,000 face value costs $300,000.
> (Such a deal!) Of these assets, 90% are current, paying 6% of face
> value, producing $54,000 per year of interest income. The other 10%
> go into foreclosure, and you get 50 cents per dollar of loan, so
> that gives you $50,000 of return of capital for the ones in foreclosure
> (but that 10% only cost you $30,000 in the first place) . At the
> end of the first year you got $ 104,000 in income on the $300,000
> investment. Not bad for these "Toxic assets".
> 4. Can you see why a bank might want to use 8% interest TARP loans
> to get 36%+ returns. Is this not a great deal or what?
There is no right answer here. Some will win and some will lose.
Just make sure you are on the right side of the trade. Again, so many brain surgeons here feel they have the answer. OK smart guys where were you in October when most of you had your heads and wallets handed to you? Oh yes I know, buying Citi at 48 dollars a share.
I was out in August because I didn't like the looks of things. Am I smart?? No, damn lucky.
When silly day traders say the bottom's in it really means it isn't. When all of you say it's poison out there - then we may get closer. There is no capitulation yet. When you've lost 90% of your wealth then I know it's time to go back in.
I think one thing we've learned is with the government's help, there will be a never-ending supply of good news and figures to keep this thing going, so it won't be when Obama is out of bullets when it ends, but when these bullets stop having the intended effect.
One thing to watch closely (all just my opinion) is when they release the stress test results. They will obviously be good. Just the way the tests are constructed guarentee it. Watch the market reaction though. Once these manufactured positive nuggets stop having the intended effect, look out.
I am long QLD and it has done pretty well, but it now looks like we are reverting to the downtrend and I'll probably be stopped out.
On Apr 13 01:24 PM Socialism cannot compete! wrote:
BS. Unionization leads to what we see in the auto industry -- falsely high costs that become unbearable. It leads to wages that are paid NOT based on individual merit -- which is the lifeblood of capitalism, the notion that harder/smarter work begets bigger profits -- but instead, pay based on a collective...this is socialism in pay calculations.
On Apr 13 07:59 AM djk! wrote:
> are the people who saw the opportunity in buying a month or so ago
> and did so and then took some reasonable profits since then suckers?
> I think not. The suckers will be the ones who did not understand
> what was happening and as a result may lose because of it, but those
> are probably a small percentage of all who took part in the rally.
> Even when there is a full blown bull market and a rally comes about
> there are folks who miss out on the gains for various reasons. There
> will always be "suckers" at the end of any rally in any market. *Sucker
> rallys" is just another misnomer, an overused term that implies that
> folks who participate in market action at certain given times are
> uneducated fools. Nothing could be further from the truth of the
> situation. The last month or so has been a good time in this current
> market for many people. Just because it will no doubt turn out that
> some folks will yet again take losses does not mean the rally itself
> was for suckers, just that some suckers took part in the rally, and
> I think every rally has it's own share of suckers.
I know I got out a few days ago on many of my positions, and cleaned up nicely. I probably could have stayed in a little longer and made more, but I wasn't going to risk it. That's how I intend to play the market over the coming years. I used to be a believer in buy and hold, but no longer.
I have absolutely no faith in this economy, or in the way this administration is handling it. The government has played every trick it has, so I see this as a highpoint for a while.
On Apr 13 07:19 AM abetterplace wrote:
> If you're not smart enough to figure the 25% rise, I seriously doubt
> you can call the "rest of the story".
You're preaching to the choir. Common sense would also tell you to play only with money you can afford to lose. We see how that works really well...
We still have more drops ahead of us, no doubt about it.
On Apr 13 05:46 PM Repsonsible Citizen wrote:
> Were did Your IRA and Retirement MONEY probably Go ? Right to Goldman
> Sac s via Goverment Bailout of $180 Billion bailout to AIG that money
> was transfered to GOLDMAN SACs to Pay off there worhtless CDS s So
> GoldMan didnt lose a Dime , course everybody else did Including YOU
> !! Dillan Radigan fromly of CNBC tried to Break the story two weeks
> ago he was FIRED the Next day ! There Should be a Federal Investgation
> Of Goldman but there wont be . Too Many powerful politcal players
> to stop it !!
On Apr 13 07:58 PM InvestBaboo wrote:
> Articles like this annoy the heck out of me when the author starts
> out concluding why the sucker's rally (that is what he calls it)
> is over.
>
> Based on what may I ask, Sir, other than your own opinion? Charts
> show me a viewpoint that is totally to the contrary. This rally has
> enormous legs. Volume is extremely healthy. Chart metrics could not
> be better. Baed on what has actually happened there is no reason
> to conclude that the rally is over.
>
> Just like you pull excuses out of the air I will surmise that you
> (the author) are a sourpuss because:
>
> 1. You missed the stinkin' rally!
>
> 2. You have short positions that are chewing your bank account!<br/>
>
> A coin has two sides. Just like you conclude that the unemployment
> numbers are scary one can also conclude that they are a lagging indicator
> just like what happened the post-Reagan era bull rally where high
> unemployment numbers showed up for 18 months after the recession
> was over! Consumers are not spending? You can't face facts that there
> are positive signs -- tell me, how in the world did Best Buy, Bed
> Bath and Beyond and RIMM have such a good quarter? By all indications
> they should have had a 50% down quarter. I live in Arizona in a new
> housing development and just 4 months back 1/3rd of the houses were
> empty. Now they are all full and we had a "Welcome the neighbors!"
> party. I went to a popular restaurant last December and there were
> emty tables till the eye could see. I went last Friday and I had
> to stand in a line for 30 minutes.
>
> You, author Sir, will be the last one to catch this rally and you
> will be what many call the "BAGHOLDER".
On Apr 14 01:22 AM headlocal wrote:
> Techzone 12 is right. The debt is being transferred from the banks
> to the public balance sheet...which is fair enough, since it was
> the euphoric delusion of "unlimited abundance" persistently preached
> by LBJ and others all the way to BHO, Dodd, Frank et al, that created
> the conventional wisdom that CRA, BS mortgages etc were fine, and
> then both coerced and incentivized the banks to facilitate the toxic
> debt, creating both the bubble and its implosion. Rubin and Bill
> Clinton are the prime perps to recognize here, both for the 1993
> restrictions on corporate deductability of income which unleashed
> the cult of "performance-based compensation", and use of the Boston
> FED "analyses" on redlining to pressure banks into lowered-standards-unde...
>
>
> Events have consequences. Marketing master Ted Levitt suggests "The
> future belongs to people who see possibilities before they become
> obvious." In the present fiscal toxemia, the names Kyle Bass, Michael
> Burry, Steve Eisman, and Jeff Greene are among those who recognized
> the dissonance, foresaw the meltdown, and ignored the conventional
> "wisdom" while positioning themselves to score billionaire-level
> victories. The ongoing transfer of toxic costs to the public balance
> sheet is the price of 45 years of delusional romanticism. As long
> as our "leaders" ignore this point, there is no reason to take them
> seriously in anything. Just figure out what they're peddling, and
> SHORT them, ruthlessly.
>
> On this same "possibilities before they become obvious" theme, CareerBuilder
> has a 3/09 survey saying 6 of 10 upcoming retirees will take years
> to recoup losses in their 201Ks, my estimate is an extra 4 years
> in the workforce, on average, for the next several years. Rough guess,
> an extra 2.4M jobs needed, maybe more, as this becomes a new norm...likely
> losers - the college grads in classes of 2009-2012, whose potential
> employers won't have 2.4M vacancies to fill each year. "Normally",
> unemployment is a lagging indicator, but a mass boomer postponement
> has potential to put a whole new spin on "change we can believe in".
> Read about it in TIME, March 2011, or later.
>
Don't wait for FSAB to call YOU: send them a copy of this your commentary here or call THEM. This is too important a issue to get lost among blogs that FASEB certainly does NOT read. But your blog is public now anyways and is so well taken, not least because it comes from the "trenches" (where FASEB is NOT) that it should be brought to FASEB's and other "higher up's" attention by yourself and your trader colleagues.
We must get our arms around these trillions of "toxic assets" before we can un-zomby the banking industy and begin healing our economy. The sooner we an do this, the better!
Thanks for your great commentary!
On Apr 14 11:07 AM stocks007 wrote:
> I disagree with several of your points.
On Apr 14 02:10 AM Peter Cooper wrote:
> Many thanks to everybody for some excellent comments, almost entirely
> devoid of abuse which is rare on websites these days.
>
> But I am an independent investor in a comfortable position and not
> a sourpuss who missed the rally - indeed it has improved my own long-term
> holds nicely. I am also an independent journalist building a financial
> comment website in the Middle East and just trying to understand
> what is going on in our world.
>
> However, the parallels with 1929 are uncanny - and I think the huge
> slump in global trade and GDP on a scale quite unprecedented in my
> lifetime are the real issues here. To expect stocks to rally very
> much further against this headwind looks over optimistic even for
> the natives of America.
>
> If you want more a more detailed comparison of the 1920s to the 2000s
> have a look at this item. I can not write a thesis in 400 words but
> this is a summary:
>
> arabianmoney.net/2009/.../
We have now entered another bubble - public debt. In this bubble the pop will be massive inflation due to printing (since there are not enough buyers except for the FED). Unemployment has to get worst so with all this we have not reached the bottom espeacially for banks. Banks may start making money again but they have alot more losses to come in comeercial and real estate. We had a bubble folks ( a 20 year bubble) and built up huge over capaciaty in everything, that doesnt unwind in a year or two
In reality all the ideological mumbo jumbo as well as the pseudo historical comparisons are meaningless. Does it really matter if the unemployment right now is at or near the 1930s level -- we intuitively and empirically know that life is tough for many of us.
I would be more impressed if we saw more fundamental analysis to base our on-going decisions -- i.e. what companies, what sectors, what markets, what geographies are doing well or have the likelihood of improving their position, based on fundamentals:- rev, margin, share, demographics, balance sheet etc.
Yes we had a bubble -- but quite frankly we have some sort of bubble every 7 years (at least during my adult life).
So let's not get too melodramatic about where we are...I have a feeling we are feeding on emotion at this point.
On Apr 14 02:39 PM Mad Hedge Fund Trader wrote:
> It certainly is overdone short term. Will someone please help me
> out here? Q1 is widely expected to be the quarter from hell, with
> earnings expected to plummet by 38%, and the market rockets 26%,
> the biggest hyperbolic move since 1930. Is there a disconnect here?
> I know I only got a magna cum laude in math in college, not the summa
> cum laude I deserved (my professor didn’t understand his subject
> and hated me for it). But is it possible that the market has gotten
> ahead of itself? Just a tad? Is the economy really going to have
> the massive bungee cord type recovery that the market is discounting
> here? Could we be setting up for the perfect sell in May and go away
> scenario, like we saw last year? I don’t get this. I await your comments
> in earnest.
On Apr 13 07:59 AM djk! wrote:
> are the people who saw the opportunity in buying a month or so ago
> and did so and then took some reasonable profits since then suckers?
> I think not. The suckers will be the ones who did not understand
> what was happening and as a result may lose because of it, but those
> are probably a small percentage of all who took part in the rally.
> Even when there is a full blown bull market and a rally comes about
> there are folks who miss out on the gains for various reasons. There
> will always be "suckers" at the end of any rally in any market. *Sucker
> rallys" is just another misnomer, an overused term that implies that
> folks who participate in market action at certain given times are
> uneducated fools. Nothing could be further from the truth of the
> situation. The last month or so has been a good time in this current
> market for many people. Just because it will no doubt turn out that
> some folks will yet again take losses does not mean the rally itself
> was for suckers, just that some suckers took part in the rally, and
> I think every rally has it's own share of suckers.
While there will be cap and trade discussions, labor strengthening discussions, tax increase discussions, and a general intrusion of government into business, the fact is that a global boom brought on by inclusion of billions of new workers and transformative technology will continue, and the US populace will not settle for a stake in it.
It will require further weakening of the US dollar, and it may take taxpayer revolt and a change in parties in Congress, but make no mistake- the Fed's monetary stimulus will combine with Obama trying to avoid widespread criticism to put a bottom in the economy that will allow asset writedowns to stop and earnings to recover. And as that becomes obvious (perhaps it already is), it would not be unreasonable to expect the market to continue its recovery.
We had a credit boom because we had a very real economic boom- the boom will continue in other areas than housing...
While there will be cap and trade discussions, labor strengthening discussions, tax increase discussions, and a general intrusion of government into business, the fact is that a global boom brought on by inclusion of billions of new workers and transformative technology will continue, and the US populace will not settle for a stake in it.
It will require further weakening of the US dollar, and it may take taxpayer revolt and a change in parties in Congress, but make no mistake- the Fed's monetary stimulus will combine with Obama trying to avoid widespread criticism to put a bottom in the economy that will allow asset writedowns to stop and earnings to recover. And as that becomes obvious (perhaps it already is), it would not be unreasonable to expect the market to continue its recovery.
We had a credit boom because we had a very real economic boom- the boom will continue in other areas than housing...
"i pulled da ting, i just wanted to do hoodrat things with ma friends, he smokes them ciguhretsss"
Now, for a word on HONESTY and ETHICS:
If this global cricis has taught us one thing, it is that HONESTY and ETHICS...or the lack thereof have been MAJOR factors in EVERY CORNER of this cricis. We've seen in with FANNIE MAE and FREDDIE MACK. We've seen it with our last several sessions of Congress, our Presidents, media, Corp CEO's , the Bernie Maddoff's of the world, etc..... In my opinion, Honesty and Ethics are two core assets that we each must make a stronger committment to include in our daily lives if we want to really lay a foundation for America to come out of this cricis a stronge country. That said:
Although I consider this recent rally to be a classic "Sucker's Rally", I definitely do not consider all those you've traded in it to be suckers because they chose to go with the rally. It is those unfortunately misinformed souls who drink the koolaid sold by the pimpers like GS, our own Govt, ...and the likes of the "Cetin's" are peddling and who really believe their claims that all is rosy and the only direction from here is UP.
Their dishonesty and manipulation is nthing less than "pimping" - packaged as news and sound analysis or fiduciary guidance - but is aimed solely at optimizing their exit point to off-load their equity at inflated prices and short-purchasing by intentionally misleading naive people. It is one thing to be a contrarian and short the market when others believe it is time to buy.
But for all those who intentionally and repeatedly present misleading info to get ill-informed people to buy into the same rally or stock you know is fundamentally worthless, is not consistent with my idea of ethical trading.
Developing an investment strategy in order to making money honestly, be it by going short or long is laudable. Intentionally and actively misleading others into loosing their savings based on info you know is misleading - purely so you can profit from their willingness to believe your story - is just as wrong.
SteadfastMason
On Apr 15 01:10 AM Peter Cooper wrote:
> The traders who are taking profits from the recent rally have gotten
> it right. I simply find it impossible to see an upside with global
> trade and GDP falling at the worst rate since 1930, and actually
> it is worse on the data collected by JK Galbraith in 'The Great Crash
> 1929' - and that is the book to read for the parallels are uncanny.
> There is an article on my website exploring this.
I currently own: SRS, FAZ, ERX, DXO, USO, UCD, UNG, UGL, GLD, HL, FXI, FXP.
When prices drop, I am looking to buy URE, NLY, MFA.
I don't see us rallying to new highs soon, but I don't mind owning some solid dividend players in this market. Across industry spectrums. Trading around the margin is ok, but mostly dollar cost averaging. Although I bought more than usual in early March.
My grandmother picked tobacco and still bought stocks all during the Great depression. She made out ok. :)
On Apr 14 05:53 PM wobatus wrote:
> Much closer to 1937 than 1929.
I'm astonished that by now there are still so many people that think a rally can't sustain itself just because current economic data is weak.
----------------------...
Unemployment and home prices are always lagging indicators. Expect them to improve 6-12 months after the recovery has begun. That's basic economic history.
"What possible reason is there for optimism to believe that history will not repeat itself? "
----------------------...
This crisis and the great depression had virtually identical causes: investment arms of banks made bad investments that shut down commercial lending. Govt. response in the early 30's included tariffs, taxes, reducing money supply, raising interest rates, and talk from officials about how things will sort themselves out. Govt. response in this crisis is the exact opposite of those discredited approaches. That's a very significant reason.
"At the commonsense level you have to ask why should an economy show signs of recovery as it lays off hundreds of thousands of people: the unemployed are not big consumers, and it frightens the hell out of people left in work who stop spending and save."
----------------------...
I agree. The unemployed do not spend, and the scared tend to save. I predict that we are reverting to the long-term sustainable mean consumer savings rate of 10% - a big increase from negative one percent just a couple years ago. If people quit spending 10% of their income, that alone would reduce GDP by about 7-10%.
Yet, this downward feedback loop cannot continue forever, or the great depression would never have ended. As marginal producers exit markets, more efficient producers become even more efficient and pick up market share. As wages, prices, consumer indebtedness, and interest rates fall, incentives increase to produce and to purchase.
www.businessinsider.co...
Impt: on it's long term inflation adjusted average the market i approximately fair value right now.
from about 1990 until now the market has been above trendline
if you buy right now you have about a 50% chance of winning or loosing long term
What will happen in the next few years I do not know, but please lets be clear, from a long term perspective the market is only fair valued. Unfortunately big ben and the governemnt appears to be determined to always keep the market above fair value regardless of the effect on the macro economy.
However, a historical chart does not predict very much about the future. Imagine the predictions people would have made about the zig zags of the 1900's, 1960's, and 2003!
Plus that strangely straight red line seems a bit suspicious to me. It's obviously not statistically derived, so what is it? Just an end to end line?
People tell me I'm crazy when I say that triple digit returns over a 5 year period are likely after such a massive crash. I'd say that the chart shows they are very likely. People's perception of "fair value" changes fast when earnings go up and higher P/E's become the new normal. Seen the P/E's of great ETF's like VWO, VTI, EWY, EWA, or EWZ lately?
On Apr 15 04:17 PM dcb wrote:
> this has some very interesting charts.
> www.businessinsider.co...
>
>
> Impt: on it's long term inflation adjusted average the market i approximately
> fair value right now.
> from about 1990 until now the market has been above trendline
>
> if you buy right now you have about a 50% chance of winning or loosing
> long term
>
> What will happen in the next few years I do not know, but please
> lets be clear, from a long term perspective the market is only fair
> valued. Unfortunately big ben and the governemnt appears to be determined
> to always keep the market above fair value regardless of the effect
> on the macro economy.
here's our take on the "bear market rally" thesis if anyone is interested: moneyneversleepsblog.b...
1. This downturn is NOT like the 1930s, because the unemployment rate is under 10%. But this may be the worst recession in the last 30 years.
2. There is plenty of monetary and fiscal stimulus in the pipeline. The economy could very well show a positive GDP starting Oct 09. This means the stock market will move higher about 6 months in advance.
That's what is happening.
3. The expected SP500 Index earnings for this year is about $60 as opposed to $80 in 2007 (Briyni, as reported in WSJ Market Lab). When the 10 y treasury is less than 3%, I will give a P/E multiple of at least 17 (5.88% earnings yld), which means the year end SP500 will be 1020.
This recession will end sooner than most people believe and we will hit SP500 1200 by the end of 2010. If inflation is going to go up because of too much money in the system, it will go through the Stock Market, which is not a bad thing.
Please remember, earnings is the mother's milk of the stock market. The earnings will be lot higher than $70 next year.
Where is the problem? Maybe, you are a short seller!!
Cheers.
There is still to much bad news that will be hurling at us at light speed:
Toxic assets are still around. They just did some accounting mumbo jumbo to cook the books. If we did that in our own business we would be put in jail. NO ONE IS TALKING ABOUT THIS!
AIG, FANNIE MAE, FREDDIE MAC are all still not out of hot water. Have we forgotten about these misfits??
The insurance industry is teetering on collapse. They are having problems paying on their annuities. Additionally if life insurance policy holders make a run on their policy cash values, watch out! It will be like a run on the banks during the depression.
GM will be cut in half or less and Chrysler will be gone. There will be 1/3 less people in the auto manufacturing supply business also. There goes about 500,000 more auto jobs.
The banks are still in bad shape and will be in worse shape because the bleeding of continued job losses will create millions of additional mortgage defaults. The unemployed will also be defaulting on their credit card debt in the coming months. NO ONE IS TALKING ABOUT THIS! GE Credit will be in big trouble too!
One more note about the banks. Even with TARP money to lend, who are they going to lend this money to?? I mean, would you lend money to anyone in this economy?
The unemployed and the scared employed and the rest of us are not spending a penny more than we have to. When a consumer based economy doesn't spend money - retail sales will continue to be in the toilet. Watch for many more store closings and job losses in this industry. NO ONE IS TALKING ABOUT THIS!
Commercial real estate is taking a major pounding. Owners of these properties can't get money to refinance. The defaults will be happening soon and the property prices will drop like home prices. Obama can't print enough money to bail out the banks when this happens. NO ONE IS TALKING ABOUT THIS!
Who can buy a house?? They taught people to live on five credit cards and no money down. You can't sell your house and how many people have 20% to put down ? Housing market recover, your guess is as good as mine.
Folks, it is bad and it is going to be worse. When the hard pounding reality of what is actually happening on the street hits wall street the suckers rally will end. Run to your old short standby's: SKF, SRS, FAZ, day trade these when the market turns. Buy gold, any type, you can't print $7 trillion and not have inflation.
I agree with some of the others here. I think we could see the DOW at 5500 by mid summer. REALITY SUCKS BUT THIS IS REALITY.
BIGGER FOOL THEORY drives today’s investing:
IF I BUY IT TODAY, A BIGGER FOOL WILL BUY IT FROM ME TOMORROW AND GIVE ME A PROFIT.
THIS IS WHAT BUBBLES ARE MADE OF AND THIS IS WHY THE BEAR MARKET WILL RETURN, IN A FEW WEEKS, WHEN SMART INVESTORS GET OUT BEFORE THE LACK OF FUTURE DIVIDENDS AND GROWTH BECOME EVIDENT TO THE BIGGER FOOLS!
If not for the BIGGER FOOL THEORY, why else would people be buying FORD which will NOT pay a dividend for the next 5-7 years and has NO CHANCE of meaningful growth over the same period especially with new competitors from India, etc.?
If not for the BIGGER FOOL THEORY, why else would people be buying the large money center banks which will NOT pay a meaningful dividend for the next 3-5 years? Especially when it is clear that the markets that gave them so much growth and profits over the last 10 years, i.e. subprime mortgages, credit cards, intuitional investing, will NO LONGER be their cash cows because of the newfound diligence of the U.S. regulators who will severely restrict their irresponsible behavior that got the banks BIG PROFITS at our expense vies-a-vie BIG BAILOUTS. Also, the yield curve is too flat to make a profit by lending thanks to the FED buying Treasuries.
If not for the BIGGER FOOL THEORY, why else would people be bidding ALCOA up last week, when the world’s largest alum producer in CHINA is closing down plants because of lack of worldwide demand?
We are going to be in a recession for the next 2-3 years so who needs more aluminum; not for cars, not for appliances, not for airplanes…then for whom will ALCOA be making more products to justify the rising stock price? THE BIGGER FOOL, that’s who!
Just because some of us recognise a market bottom and are willing to put assets to work gives you the right to call us suckers??
I'll be selling you my shares at a 300% profit next year when you all quit worring about the sky falling...and you are very late to the party. Then who will be the sucker losers.
You will cry about "wall street" or whatever but it will be little ole individual me who took your money .
The '74 and '80 recessions and stagflations make this current downturn look like a party in the park on a nice day.
.
In the meantime I'll make some money and have some fun..
Gary/ So Cal
P.S. Losers, send your whiny comments to airrail2001@yahoo. I will be glad to delete them-
The consensus prediction is for no real growth until early 2010 at best. If stocks lead by six months, we're a few months early for the beginning of another bull market.
On a $10 stock that has fallen from $50, $40 is an 80% loss. But, the "big rally" has it up $2.50 for a 25% gain! Wow.....not. Big deal.
Sold out, corrupt money managers will take any angle possible to try to convince you of an improving economy, and some readers fall for it. Don't be among them who do.
1. The trend is your friend. This rally appears to be missing the big money and the smart money. It's a question of when, not if.
2. Being early is the same as being wrong. This rally appears to be driven by the news cycle, e.g. emotion. It just needs more straw.
3. Bank fundamentals are better in the short run, but much worse in the long run. Regional banks have much more exposure to commercial real estate. New regulation will hurt more than help.
4. The American consumer is done spending. Large purchases still have not found a bottom. Travel is down close to 40%y/y. Spending upticks in the last two months represented pent up demand from the fall.
5. Bankruptcies have not spiked up yet. They're up huge, but the rate of increase is still increasing.
6. Commercial real estate finance remains challenging.
7. Insurance companies will feel that pain very, very soon. They have not taken the kind of write-downs required. Significant "TARP"-like handouts may not be available due to political blow-back from AIG.
8. Forbearance and heavy loan modification efforts have simply kicked the can down the road with regard to write-downs from REO/Auction sales. Servicers I speak to indicate that foreclosures will go up in the coming months, not down.
9. TALF is useless. PPIP is not going to be nearly large enough to have a real impact. The stress test appears to be more placebo than medicine (at this point). Future bailouts will meet stiff resistance from the right and left.
10. The paradox of thrift has taken hold very strongly. When the savings rate peaks, that may be the new normal. Until then, hold on to your dog Dorthy, we're still in the tornado.
GenX'ers have been hearing that our whole life.. what did we pay off? weren't we stuck with some bill to pay? does anyone really think we are going to pay for this with same value dollars? inflate away the debt and we won't miss it. China, etc will be mad - so what's new?
The only "suckers" out there are people who are NOT buying RYURX (Inverse S&P500 fund) at the current prices and gettin' ready to ride the next crash down like Slim Pickins in "Dr. Strangelove".
And if you're like me, you're "locking" in your profits in on your existing trades with 25% trailing stops, cashing out the "winners" on the way down....
On Apr 14 02:10 AM Peter Cooper wrote:
> Many thanks to everybody for some excellent comments, almost entirely
> devoid of abuse which is rare on websites these days.
>
> But I am an independent investor in a comfortable position and not
> a sourpuss who missed the rally - indeed it has improved my own long-term
> holds nicely. I am also an independent journalist building a financial
> comment website in the Middle East and just trying to understand
> what is going on in our world.
>
> However, the parallels with 1929 are uncanny - and I think the huge
> slump in global trade and GDP on a scale quite unprecedented in my
> lifetime are the real issues here. To expect stocks to rally very
> much further against this headwind looks over optimistic even for
> the natives of America.
>
> If you want more a more detailed comparison of the 1920s to the 2000s
> have a look at this item. I can not write a thesis in 400 words but
> this is a summary:
>
> arabianmoney.net/2009/.../
On Apr 16 02:51 PM wobatus wrote:
> The key word here was "approaching" which gave plenty of wiggle room.
> I think it always very presumptuous to so precisely time the market,
> call folks suckwers, or say "the smart money" is doing or should
> be doing this or that. Just Say Whoa likely was in triple bear positions
> long before today, for example.
On Apr 13 07:19 AM wes mantooth wrote:
> I agree with this article. No way we've seen the bottom. This was
> the biggest credit boom in history. It will be it's greatest bust.
In fact - if you took someone out of highschool and prevented them from ever having credit and then gave someone else as much as they have been, you can probably bet that the first person would be way more financially sound 20 years later
On Apr 16 11:11 AM bobbobwhite wrote:
> All this inane talk about a 25% rally! Remember, folk's that's 25%
> of what is left, not what the market has fallen. Very big difference!
>
>
> On a $10 stock that has fallen from $50, $40 is an 80% loss. But,
> the "big rally" has it up $2.50 for a 25% gain! Wow.....not. Big
> deal.
>
> Sold out, corrupt money managers will take any angle possible to
> try to convince you of an improving economy, and some readers fall
> for it. Don't be among them who do.
On Apr 13 08:29 AM donzoab wrote:
> Unemployement always increases the most at or near the END of a recession.
>
> This type of deficit spending will eventually drive some consumer
> driven market increases, but in the longer run, it is extremely bad
> for our economy.
> Future generations are going to foot the bill for our bad behaviors.
>
> Some will still profit in this mayhem. Trading around your core positions
> will at least yield some free cash flow to your portfolio. Options
> can also limit your downside exposure.
> Everyone so busy trying to call the bottom in the markets that they
> are missing the bigger pictures. Don't be distracted. More bad news
> lurking. Time will be needed to fix this as well as some fiscally
> responsible local/state and national budgets.
On Apr 15 05:00 AM TheFounder wrote:
> The market dropped fast and steep. It is only obvious that the counter
> action will follow the same behavior pattern. That is why we saw
> the best 5 weeks since 1930. That and some government back wind.
> But fundementals are horrible and we should re test the lows at least
> once more. If you follow the bear markets since 1930 you will clearly
> see that no recovery ever took place until the 200 MA got really
> close to the index itself. We are not there yet. Maybe in August
> or early 2010. I sold all my longs recently and am in cash and shorts.
Everyone is an instant expert.
Go with your gut. It's your money.
Looking at the market, it's bottomed and now we are moving up. Suckers buying into this market? Then count me in as a 'sucker'. I went all cash Oct 06, I was not happy when the naz went from 2400 t0 2800, but I was very happy to not lose that freefall from 2400 to the bottom of 1260 (50% loss). I got back in 3 weeks ago, after the 'sucker rally' started.
Good luck to all, longs, shorts and SUCKERS!!!!
LOL.....
Blah, Blah, Blah and Blah, how can the market not go down. So in conclusion 100%, without a doubt, the market will go down.
Why are you writing a blog and not betting on Sports?
Cash out now ...
On Apr 17 02:36 AM ron_paulite wrote:
> Welcome to Dow 5000 points!
>
> Cash out now ...
The rich will be devastated, the middle class wiped out and the poor totally unaffected.
On Apr 17 11:22 AM dcb wrote:
> does the fact that the head of the NY stock exchange disagrees with
> you count, or do you still stick with all that you say. The if the
> head of NYSE says don't buy, I'll take his word over yours.
>
> Traders, Not Investors, Fueling This Stock Rally: NYSE Chief
>
> * Friday April 17, 2009, 10:55 am EDT
>
>
> Wall Street's stunning six-week rally has been fed more by traders
> looking to take advantage of quick swings in the market than investors
> with a long-term view, NYSE Euronext (NYSE:NYX - News) CEO Duncan
> Niederauer told CNBC.
> Related Quotes
> Symbol Price
> Because of that, the rally likely is to run out of steam as low volume
> eventually comes back to the bite the market, he said.
>
> "It feels to me we're in a trader's market and not an investor's
> market," Niederauer said in a live interview from the exchange floor.
>
>
> Markets are likely to near their March lows after an upswing that
> has sent the major indexes more than 20 percent higher, he said.
>
>
> "The volume in March hasn't convinced me that it's the kind of volume
> that you need to see to believe it was the real beginning of a turnaround,"
> he said. "Instincts tell me we're going to retrace one more time
> and the rally I believe is the summer rally."
>
> Long-term retail investors--with a three- to five-year time line--remain
> concerned that the rally is merely a bear-market bounce, and uncertainties
> in corporate health and the economy still pose dangers, he added.
>
>
> "I think the real-money investors are still watching because I don't
> think the fundamentals are in place yet where the people feel like
> they can do good fundamental homework," Niederauer said. "So the
> feeling I've got talking to a lot of investors is they're still watching
> and waiting."
>
> Niederauer called the current rally "too much, too soon," and said
> investor confidence remains fragile.
>
> "There's no doubt that a lot of the ... equity investing attitudes
> have been damaged and I think it remains to be seen whether that
> damage is irreparable," he said. "They're certainly not just going
> to come running back."
On Apr 17 11:30 AM wobatus wrote:
> The Tyler dirtbags and credit derivatives research say the same thing.
> Traders set the current price. So what? It is always like that. Investors
> don't care much about day to day movements, except if they are in
> the market that day. Traders also took it to the lows. I bet some
> "investors" were buying some names with staying power in early march.
> Duncan just wants more volume. he says wait until summer? Great,
> market timing suggestions from the head of an exchange. Sheesh.<br/>
On Apr 13 01:24 PM Socialism cannot compete! wrote:
> BS. Unionization leads to what we see in the auto industry -- falsely
> high costs that become unbearable. It leads to wages that are paid
> NOT based on individual merit -- which is the lifeblood of capitalism,
> the notion that harder/smarter work begets bigger profits -- but
> instead, pay based on a collective...this is socialism in pay calculations.
>
>
> Unions had their day and their legit place in preventing maltreatment
> during the industrial rev era...but they have now gone too far and
> have resulted in socialism in employement and compensation practices,
> vs. the power of numbers to prevent abuse. This is counter-productive
> to the individual being incentivized to "work harder and do better".
> It just doesn't work. Ask anyone from the former Soviet "republic".
>
>
> P.S. -- gotta love the way our unions are looking more and more totalitarian!
> The new push to remove the secret ballot...and the long-existing
> requirement to pay union dues regardless of desire to join the union,
> if one gains employment at a union shop. These types of coercion
> are TOTALITARIANISM. Further show how unions are NOT tools of freedom
> and individual opportunity.
On Apr 17 12:29 PM dcb wrote:
> Oh, and the wages of wall street somehow are based on merit? you
> need to get over your dogma a bit. Everything has a balance and role.
> to play. The unions did not determine the make of cars to produce,
> they did not lobby washington to make sure we made cars that get
> only a few miles to the gallon. It does not mean unions were perfect,
> but maybe you should read about what life was like before labor laws
> etc. Maybe we should go back to children working in mines or unsafe
> working conditions. dogma in beliefs without seeing what the other
> side is offering reflects badly on you
On Apr 13 09:17 AM hatarakiman wrote:
> According to the history, after the great depression there will be
> two world wars. So be prepared for it.
> If you use unemployment data for trading, good luck to you. I take
> the nonfarm payroll data for some back testing on S&P500, I am
> kind of dissappointed. If you buy when the nonfarm payroll increases
> and sell when it decreases, the result is awesome, it's far worse
> than buy-and-hold.
One thing this rally did allow those of us who continue to invest for the long-term to do was average-down and then sell on the way up to reset the (equivalent) basis on our original investments. That is a WHOLE LOT BETTER then just sitting around letting the investment rot, or cashing out and then winding up holding cash through most of the recovery (whenever it occurs), let alone missing out on the opportunities of trading a sideways market.
-Matt
I'll sit on the side line with Soros, Faber and Rogers and their belief that this is a bear market bull run.
Playing the rally can give you great short term gain but you better be a great market timer.
Fundamentals have a longer lifetime of consistency. In view of the near certainty of rising inflation, it seems that a selection of appropriate stocks is not such a bad idea. Naturally, I have no idea whether they will go up or down next week.
My gut feeling is that all the major banks will pass comfortably. Would you want to be the civil servant that declares Citi and Bank of America insolvent?
But it didn't happen today. The shorts lost and the longs won.
But neither lost or won much.
Sooner or later he will be right. I just hope it's years later.
But it didn't happen today. The shorts lost and the longs won.
But neither lost or won much.
Sooner or later he will be right. I just hope it's years later.
1) The Dow and the S&P are still *down* year to date. Last year was the worst year ever for the markets.
2) YOu guys confuse the economy w/stocks. I would rather own Sears at $30 w/a bad economy than at $150 and a good economy. 75% of the mathematical value of a stock is in years 5 and out. The main issue is if the stock dies before then. I think recent data confim that the idea of a great depression II is vastly overcooked do to a) stimulus, b) safety nets=unemployment and social security, c) money printing=makes real assets like stocks worth more--you like cash and not market lol??? d) global boom intact see china/india et al. it's not all about america. in 1900 UK was 35%+ of world market. It is now like what, 10%. Fortunes made other places.
I am short too as I believe that this rally does not make sense with all the bad data. However, I have also heard so much of the bulls views: market to market, stimulus money and govt intervention are having effects on the market. This short is causing me lots of pain : (
On Apr 15 05:00 AM TheFounder wrote:
> The market dropped fast and steep. It is only obvious that the counter
> action will follow the same behavior pattern. That is why we saw
> the best 5 weeks since 1930. That and some government back wind.
> But fundementals are horrible and we should re test the lows at least
> once more. If you follow the bear markets since 1930 you will clearly
> see that no recovery ever took place until the 200 MA got really
> close to the index itself. We are not there yet. Maybe in August
> or early 2010. I sold all my longs recently and am in cash and shorts.
On Apr 13 02:03 PM infp wrote:
"However, I am also aware of the maxim, 'the market can stay irrational longer than you can stay solvent.' Lately, that expression has been scaring the hell out of me."
On Apr 13 08:29 AM donzoab wrote:
> Unemployement always increases the most at or near the END of a recession.
>
> This type of deficit spending will eventually drive some consumer
> driven market increases, but in the longer run, it is extremely bad
> for our economy.
> Future generations are going to foot the bill for our bad behaviors.
>
> Some will still profit in this mayhem. Trading around your core positions
> will at least yield some free cash flow to your portfolio. Options
> can also limit your downside exposure.
> Everyone so busy trying to call the bottom in the markets that they
> are missing the bigger pictures. Don't be distracted. More bad news
> lurking. Time will be needed to fix this as well as some fiscally
> responsible local/state and national budgets.
Forgive my asking - I'm obviously a simpleton when it comes to money.
Do you really think stimulus packages have a positive impact ? I would rather believe the contrary. State intervention can only worsen things, as it has always done.
As an old man used to say, "the government is the problem, not the solution".
arabianmoney.net/2009/.../
The bottom was 666...get over it!
Stocks, as they always do, fell too far, and have now risen too fast. We may very well have a correcting retracement of maybe 50% ("All Aboard"...the train is leaving). Wait for it if you like, but know that the market rarely delivers the event that everyone is expecting.
The author paints far too bleak a picture...this is a recession, not a re-run of the Great Depression, and 2008 was not 1929 (and those who lived through it would laugh at and ridicule those who chicken-littles who make that comparison)...
GM and Chrysler were mismanaged for the last 40 years, took on far too much debt, and thus their problems were predictable. Nonetheless, GM will not go away (Chrysler might, but it is now to small to cause a major ripple). Banks WILL pass the stress test. The decline in housing is slowing (all the affordability indexes are favorable, the bottom is near)...
Employment has always lagged recoveries, and thus this reference is bogus.
For sure, problems remain, and there are new problems (such as commercial loans and car loans) that are almost certain to yet fully develop. However, markets can and do climb a wall of worry.
If you only invest when the road ahead is clean 'n green, and the sky is only blue...you are waiting for a market top!
On Apr 13 08:30 AM somecatchyphrase wrote:
> The author offers an excellent summation of the recent rally. Thank
> you.
>
> Nothing has changed in the past five weeks to justify a 25% rally.
> Despite all of the media coverage, it seems like many people don't
> yet appreciate the depth or gravity of the world economic situation.
>
>
> This could create a wonderful shorting opportunity. I'll keep my
> power dry and finger on trigger. The next month could prove to be
> very interesting.
Ha. EVERYTHING has changed. But, I see many are going to stay in their bear caves.
I guess the bears don't want to see that the banks around the world are being saved. Financial institutions are increasing deposits and the consumer (good and bad) are reducing debt. There are going to be negative numbers for another nine months. But much of that information will indicate what happened in 2008.
Now, let's pay attention to some obvious trading technicals:
A: The market is NOT up 20+ %. Use a one year high and a one year low, divide that in half, and tell me what ya' got. It ain't a 20% rise, is it?
B: Recent action indicates a trend up, not a trend down. If it was a bear trap, the biggest movers up would see a 25% retrace, immediately. This is not happening.
C: VIX. If you follow this indicator, then you see nothing but bullish bias. This thing could not get below 40 for months and months. Now, it doesn't want to go above 40. That should tell you something.
D: Trailing big caps: Many of the most familiar U.S. corporation have not even begun to really recover. It will only take one quarter of FLAT news to send these stocks soaring back to ONE HALF of their value last year.
If you want to remain pessimistic, please short some of my favorite long term plays. I will love squeezing the heck out of you little negative teddies.
On Apr 18 05:29 AM Peter Cooper wrote:
> Last week the rally managed to continue more modestly, but I have
> to ask was anybody really reading the news? It looked dismal to me
> and I note that most of the comments seem to support my view. For
> an update see;
> arabianmoney.net/2009/.../
At the moment, the buyers are still in control of this market...the price action tells you so. Higher highs and higher lows...that's an uptrend.
Anyone shorting the market at this time is trading on a thesis...a belief that this market is "overextended," or "overbought"...that prices shouldn't be where they are. And yet they ARE at these levels...and anyone who's been buying the SKF, SH, SDS or the like for the past few weeks is losing money because he/she is fighting the prevailing trend...and the Fed.
But since so many HAVE been attempting to fight it, some of these remorseful short-sellers end up supporting these higher price levels (and even pushing the market further upward) when they're forced to cover in order to limit their losses. The remainder feel the agony of loss -- and the fear of larger losses -- as the market ticks higher, day by day. In fact, since so many stocks and indices are still 40-50% (or more!) off from their highs, a bad bet on a short position could be devastating to a short-sellers portfolio if the market continues higher, since there's still so much room to run.
As a result, the widely-anticipated "pullback", or "correction," remains to be seen...because those who initiated short positions recently will be glad to cover their positions on any significant retreat in the price of those targeted shares.
Meanwhile, momentum buyers are always waiting in the wings, eager to ride the wave higher, methodically accumulating shares on every dip, and at every key support level. And why not? A lot of stocks aren't really "expensive"... AND they're rising in value! That's exactly when you're SUPPOSED to buy.
And, of course, some stocks are breaking out through resistance levels now...and lots of traders LOVE to buy on breakouts. I mean, who wouldn't? They can be explosive...and lucrative -- if you're on the right side of the trade.
If you're on the wrong side, though...well, it can be ruinous. I follow this one guy who trades on the internet (www.tradingwithtk.com/... shorted AAPL at $90...and then went on vacation. AAPL is at 123 now! That's a 37% loss (so far). Why would he do that? Because he thought AAPL stock was going lower...and he was wrong. And since he hasn't covered his position yet...he's STILL wrong. Is AAPL stock overpriced at $123? Well, no...because this is the price where it's trading now. Was it overpriced when he shorted it at $90? Clearly not.
His two other recent short positions are RHT @ $14.33 (current price $18.32) and IMA @$22.38 (current price $28.95). Now, I don't know anything about these companies...but I do know that these were bad trades. And it looks like they're getting worse every day. Are they up because of short-covering...rather than because of fundamentals? Who knows? Either way, he shouldn't still be in these trades...and it'll take a sizeable plunge in their share prices in order for him to even get his money back. I certainly hope that TK is enjoying his vacation...because, at this rate, it may be the last one that he can afford.
I read a comment here on SA a while back by a guy who said he was buying some SKF because it was "sooo cheap." That was when SKF was at $139. Today it's trading at $59. Is it cheap now? I have no idea...because it's not a company, it makes no products, it produces no income...it's just a trading vehicle. I don't know what a "cheap price" (or even a fair price") would be for SKF. I do know that it made an all-time low on Friday...as it did the day before, and a few days before that. Will it make a new "all-time low" on Monday, or Tuesday, or some time next week? Seems quite possible...regardless, I wouldn't want it because it's still going down in value.
Recently I read that "an investment is a trade gone bad," and I thought, "That makes some sense." I have some shares of DOW that I bought in Sept @$17 because I thought they were "cheap." I wasn't paying attention, and they subsequently took a nosedive...to as low as $5.89 at one point. It became an investment...which is fine with me, since I don't think Dow Chemical will go bankrupt anytime soon. Chances are, they'll be back to $17 sometime in the future.
I wonder, though...what kind of an investment is a short position gone bad? Isn't it just a bet?
My point is, shorting stocks that are currently in an uptrend is a high risk proposition...and without proper stop-losses in place, they can be very costly. The time to short is when the stock shows clear signs of a reversal...making lower highs and lower lows. Anything else is gambling. And while gambling can be profitable sometimes, it can also lead to big losses.
On Apr 17 11:16 PM jcjade wrote:
> Sorry of I sounded stupid, if you think the drop will likely come
> in August or early 2010 (which is 4 months away), why would you short
> so early ?
>
> I am short too as I believe that this rally does not make sense with
> all the bad data. However, I have also heard so much of the bulls
> views: market to market, stimulus money and govt intervention are
> having effects on the market. This short is causing me lots of pain
> : (
What a hoot this market has been for savvy investors to hop on right after the market bottomed on that Monday and the current skepticism is the catalyst to keep it firm and nimble. Some will need to wait for the proverbial 'pullback' before pulling the trigger. God bless them!
So many get caught up in the media and public negativity that they can't see the forest for the trees and won't because of their steadfast beliefs. I would be pissed if I had missed the buy opp that was there when the financial guidelines began to change that weekend. Many will still scratch their heads in annoyance that they missed the easy money and wonder still why anyone would still be buying this market. Buy selected stocks that will do well in an up and down market on Monday and you will be well rewarded next year if you have the guts and stomach to hold. I loaded that Tuesday because.... many great stocks were so cheap, the rules were changing as expected, the gov't was making moves and O'Bama began to tone down the pessimism. Secret recipe for a light at the end of the tunnel. Actually, all that occurred was a change in sentiment and Spring was coming. We all feel good then.
The bottom has been seen in the stock market but not in our economic package. Try not to relate them, that's where you get derailed. Hopefully some of you will go back to past recessions and view the stock charts and put some cash to work before the next 10 or 15% shows up in certain areas. This is not complicated...don't make it so. Keep it simple.
What V shaped recovery? Look at the chart. Shorts are going to get a wake up call as some of us continue to climb the global wall of doom daily!
Bull market, bear market...bla bla bla. It's a market and the globe is looking to put cash to work as each day passes by. Which way do you think the trend will be, up or down? Some of the buy opportunities in front of us will not be seen again for many years. Load up at lows and hold on tight through the ups and downs.
Maybe DOW 8500 will be our ST top? If so, more will claim the pull back is coming.... of course at some point they will get their pullback and declare... " See I told you so! "
On Apr 18 11:13 AM Deepv wrote:
> The idea that stock performance = economic data is gonna crush you guys.
> That is predicated on great depression thinking. In great recession
> thinking one must employ valuation and remember we operate in a global
> economy with many positive secular trends. The days of making money
> (shorting) by trading a -headline are dead. Find me a person that
> does not know consumer is stretched? Yet in the horror of the market
> look how much Bed Bath Beyond earned in quarter ended Feb? It's incredible.
> You think that's gonna change? Why? What evidence. The market should
> not reward consensus view. This board still indicates consensus view
> is decidedly bearish. Good.
- the conditions that were priced in at the peak have gone forever; the private debt bubble is burst; the "great moderation" is an embarrassment;
- countering the downturn and rescuing the banks is costing big money; that's money that isn't available for more productive use (including buying shares);
- the financial sector is badly damaged and will remain under heavy government control.
At 8,000, if you're optimistic, there is some upside potential - but probably less than we have already seen from the recent bottom. Consumer demand will remain weak - even officials and the Fed are saying that the US consumer isn't going to rescue the world (also = isn't going to rescue the U.S. economy).
And if you look at the problems still outstanding - and well listed in some of the comments above - then the risks must give at least equal downside potential.
So, aside from specific stock picks for specific reasons, don't buy the market.
In the long term, the U.S. government's huge unfunded liabilities for welfare and Medicare will begin to undermine recover of the Federal balance sheet.
What does Dubai produce? Oil and terrorism. The price of oil is wayyyy down and there isn't much profit in terrorism - unless you are a Samoli pirate, and 3 of the pirates' gold necklace turned into a lead brainwarmer.
By the last news Dubai was using slave labor that was expendable and even many projects have gone into neutral territory.
I believe investing in America is a safer bet than a foreign nation that is in financial turmoil without any production to fall back on, other than the price of oil.
What does Dubai produce? Oil and terrorism. The price of oil is wayyyy down and there isn't much profit in terrorism - unless you are a Samoli pirate, and 3 of the pirates' gold necklace turned into a lead brainwarmer.
By the last news Dubai was using slave labor that was expendable and even many projects have gone into neutral territory.
I believe investing in America is a safer bet than a foreign nation that is in financial turmoil without any production to fall back on, other than the price of oil.
Dubai has not much oil and zero tolerance for terrorism. It is a rich trading, tourism and financial hub for the Middle East - invest at current prices and you will also become rich!
Maybe the author can expand on what is going on in Dubai that will guarantee profits. From what I've seen it's the result of poor arab trash getting suddenly super-rich and seeing what extremes they can go to?
It is all a matter of perspective. If you eliminate the March's unnatural market lows driven by undue hyper-pessimism then the market rally would appear to have a much longer way to go. It is all a question of future earnings and if future earnings are not as bad as the bears thought and the banking industry is not going to collapse then the market indices should be at a much higher level than today. The thinking by the bears before earnings season commenced was that the correct multiple for S&P took it far below 850. Some were even talking S&P 500! However, with the earnings season in full force and the banks meltdown fear put to rest the market seems to have concluded that a proper S&P multiple should put it north of 850 and the question is exactly where it should go? Dow 9000 and S&P of 950 represent a fair valuation for the market if and only if we believe that economic recovery is taking place and that future earnings prospect justify such a level on the Dow and the S&P. There are many green shoots and mustard seeds (as a CNBC host calls them) that one can look at and conclude that such levels are plausible. As far as I am concerned I only see a trend and the trend is bullish until it ceases to be not so. So the near term course of action for traders is to continue to ride the bull until it stops to take a breather.
But of this I am sure -- there will be no correction, no pullback, for those of you that missed the rally to get back on the bus. The reason it won't happen is 1> because the previous market hyper lows were driven by rumors and falsehoods that the banking industry was on the verge of a collapse which has proven to be simply not true and 2> it won't happen because so many expect and want it so that they can get on the bus to take a ride that they missed. Everytime the market pulls back a bit there is a section of those that missed the ride that will jump on the bandwagon sending it higher so chances of a real pullback are slim to none. If you sit and watch the buy and sell programs hitting the NYSE you will notice that everytime a sell program of reasonable magnitude hits soon there is a buy program of even higher magnitude that hits sending the indices back to their levels or even higher. This tug of war only dictates that the Dow and S&P will power higher and the real pullback will begin to happen once they have breached what the market thinks are fair valuation levels. So if the fair valuation levels are around Dow 9000 and S&P 950 then quite possibly the markets may breach these levels by 5 to 10% and then pull back to these levels but not pull back to the previous market lows from the current levels.
1. biggest credit boom in history and bust
2 largest oilprice increase in the shortest time when every other oil shock we have had has caused a recession by itself.
3 everything that will cause the economy to contract is wanted to be done by obama ie higher taxes and higher cost of labor (card check)
can you imagine if the unemployment rate is 12% and the fed needs to raise interest rates to 12% because of inflation or to sell treasuries.
think he has the guts to do it. ha
Do you really think that in a year where world GDP is projected to shrink (what is the proper equivalent for GDP on a world scale anyway) we can sustain a long rally?
Sooner or later, it comes down to the fundamentals. And the fundamentals for a bull market are just not there.
Wait late 2009 or early 2010. Then you'll have much easier year over year comparisons for profits and that's when you'll have the fundamentals for a bull market.
To try and guess ( that is what I get from this article.. guessing) is throwing caution to the wind...if in, or out...and if you guess wrong.. what happens? You either win or lose depending on how you called your action. Those whom missed this move.. well the 20-60-20% rule applies and is about as true as your going to see. The markets will return.. it is anybody's guess when..oops I said it again. You could be the winners on another rip or you would prove to be the looser -a goat if you will- if over precautious.
All I am saying is nobody knows what will happen.. nobody. I was in pretty heavy for me after early March when it turned for the 25% plus rip. I have tight stops especially in financials and will watch commodities like steel and fertilizers somewhat to the comments of another poster here. I caught RIMM at 41.00 smackers.. I was fortunate to play it right. I was in before earnings by over a week and called it, only silently to myself. I had convictions on the BB looks like that one worked. Competition breeds efficiency.
I do not know anything that anybody else doesn't know. It is a chance that I took and I got it right, finally. I like the market in general. There are promising trades out there.. I do not think we are talking holds yet unless your up on great long play dividends but that is my opinion. Speaking of which, I really like the cruise lines right now with loosened restrictions in Cuba. I am not saying these will rip but I am preparing for something to happen. And I feel, not fear , that this something will be positive. That is the key.. be positive where you can whether in or out.
good luck folks
We had started to recover by 1937, and then let up on stimulus and we had double dip. Like today people were crying about the deficit. Well the 40% of WW2 created a hell of a deficit.
Hopefully we can avoid the double dip fate, but if the fiscal hawks have it their way, we will repeat.
So go study your history books.
On Apr 13 10:21 AM Hot Richard wrote:
> Geoffster wrote "It took WW2 to get us out of the depression."<br/>
>
> Nothing personal, but no it didn't. And Hoover wasn't a deregulating,
> small government President (nip that in the bud right now).
>
> Hot Richard wishes people would throw off the yoke of their American
> Government supplied education and really learn about the Great Depression.
We had started to recover by 1937, and then let up on stimulus and we had double dip. Like today people were crying about the deficit. Well the 40% of WW2 created a hell of a deficit.
Hopefully we can avoid the double dip fate, but if the fiscal hawks have it their way, we will repeat.
So go study your history books.
On Apr 13 10:21 AM Hot Richard wrote:
> Geoffster wrote "It took WW2 to get us out of the depression."<br/>
>
> Nothing personal, but no it didn't. And Hoover wasn't a deregulating,
> small government President (nip that in the bud right now).
>
> Hot Richard wishes people would throw off the yoke of their American
> Government supplied education and really learn about the Great Depression.
On Apr 17 04:34 PM naidle wrote:
> Every day there are fewer articles like this which only tells me
> the masses are starting to fully believe in a relatively quick recovery
> (6 months before rebound). Maybe they're right and maybe they're
> wrong.
>
> I'll sit on the side line with Soros, Faber and Rogers and their
> belief that this is a bear market bull run.
>
> Playing the rally can give you great short term gain but you better
> be a great market timer.
>
On Apr 18 12:31 AM ejhickey wrote:
> I bought SPY and QQQQ late this week. Now that I have bought in,
> the sucker's rally is officially over.
On Apr 18 04:19 PM Smackdown wrote:
> Please stay bearish guys. I am up 35% ytd, buying MLPs, preferreds,
> trust preferreds, and some closed ends. Loving the market! And I
> collect 10-20% dividends/interest. Why would anyone want to play
> indices in this environment?
You'll never call top, and within fifteen minutes of the opening, I sold all my HBAN and BAC. I have a huge gain in WFC and BCS, and I might sell those tomorrow. In any event, it has been a profitable four weeks. I'll just go back to cash and playing my drums all day :p
On Apr 20 03:12 PM jeandit75 wrote:
> lol
Hey, there is a few bucks left in the gold market. Why not put your pitchforks on those poor suckers?
On Apr 20 03:14 PM jeandit75 wrote:
> cause MLPs were down massively last year (more than the S&P500)
>
This guy was totally wrong. :/
The Treasury Bubble? All of us believe it will burst eventually and inflation will be off to the Races.
Will Mobius be right or will Soros? Faber's prediction was for a 5-10% correction when the DOW was around 8100, the minimum was met when it dropped recently.
A BULL Bubble can be described as a hyberbolic rise, A Bear Bubble is a Hyperbolic drop.
Neither keeps going forever.
Go with the Flow.