A Bull Market That Few Are Buying

We refused to touch credit default swaps. It would be like buying insurance on the Titanic from someone on the Titanic.

- Nassim Taleb.

It's not just what you know, it's who you know. And it's not just who you know, it's who you pay off. As the Center for Public Integrity reports (as cited in last week's Financial Times), the largest US originators of subprime mortgages spent roughly $370 million on lobbying and campaign donations in Washington during the past decade in attempts to stave off tighter regulation of their industry. The study “shows that most of the top 25 originators, most of which are now bankrupt, were either owned or heavily financed by the nation's largest banks, including Citigroup (C), Goldman Sachs (GS), Wells Fargo (WFC), JP Morgan (JPM) and Bank of America (BAC),” who collectively originated $1 trillion in subprime mortgages (almost three quarters of the total) between 2005-2007. That $370 million was money well spent though, given that it was followed, in turn, as the mortgage market imploded, by $700 billion – so far – in troubled asset relief funds – otherwise known as taxpayers' money. Who said crime doesn't pay? That's a return on capital some 1,891 times bigger than the original “investment”. Now that’s leverage. Strangely enough, US politicians have been largely silent about their own complicity in the theft of the century.

GMO's Jeremy Grantham is a little more willing to discuss this obviously uncomfortable truth, and he does so in his latest, excellent quarterly letter. He also touches on the grotesque issues of moral hazard, not to say outright social bias, raised by the partisan attitude of the US administration, and others, toward the (previously deep-pocketed) banking sector:

If a government invests directly, drawing employment from a large pool of the unemployed, and only invests in projects with a high societal return on investment such as hiring workers with well-stocked tool belts to install insulation, or repair bridges and transmission lines.. it seems nearly certain that such a government will never have to regret it. Keeping banks, bankers or even auto workers in business seems, in comparison, far more questionable. So questionable in fact that it must be justified by politics, not economics. We should particularly not allow ourselves to be intimidated by the financial mafia into believing that all of the failing financial companies – or very nearly all – had to be defended at all costs. To take the equivalent dough that was spent on propping up, say, Goldman or related entities like AIG (that were necessary to Goldman‟s well being), as well as the many other incompetent banks and spending it instead on really useful, high return infrastructure and energy conservation and oil and coal replacement projects would seem like a real bargain for society. Yes, we would certainly have had a very painful temporary economic hit from financial and other bankruptcies if we had decided to let them go, but given the proven resilience of economies, it would still have seemed a better long-term bet. But, as I said, this is all just speculative theory and I don‟t have to deal with Congress.

That last observation may not be strictly accurate, inasmuch as all of us working in finance are now braced for more intrusive and poorly thought-out regulation thanks to our cousins in the banks.

To add insult to taxpayer injury, Bloomberg was quick to report that Goldman Sachs was judged to have sufficient capital after the widely leaked Geithner banking stress tests. In practically the same breath, the news service reported that Goldman reaped more than $100 million in trading revenue on a record 34 separate days during the first quarter of 2009. The previous peak was 28 days during Q1 2008. Will US taxpayers be getting back their rightful share of those proceeds, one wonders. But in any case, US banks making good money during the first quarter does not exactly require superhuman ability. As Niels Jensen of Absolute Return Partners points out:

Of course US banks made good money in Q1. The environment created for them is the equivalent of the US government reducing the cost of goods to zero for its embattled car manufacturers and then going on to buy – courtesy of the US tax payer – a couple of million cars that nobody really needs. Even Detroit would make money given those conditions!

In any event it is the sudden and somewhat mystifying recovery back to health by the equity markets that is leaving more than a few market-watchers and putatively professional investors scratching their heads. How can a still deteriorating macro economy, an ongoing dearth of banking credit and a dreadful global trade outlook be consistent with a sharp recovery by stocks? There are several answers. One is that the heroic diversion of taxpayers' money toward the banking system has temporarily goosed a capital-sensitive and sentiment-sensitive stock market – this, essentially, is Grantham's view. Another is that professional investors have been sitting on the sidelines for a sufficient length of time that they are scared at the prospect of missing a suddenly fast-moving train, irrespective of where it is headed. Another is that short-covering managers have voted with their feet. Another still is that the financial crisis is nearly over and the global economy is headed for recovery. Anybody who truly believes this last scenario should be sectioned.

A rally built on sand? Relative performance by FTSE sectors, year to date: A glance at the best and worst performing index sectors within the FTSE this year shows that the rally has explicitly favoured the most cyclical and recession-vulnerable stocks: industrial metals; retailers; automobiles and parts; industrial engineers.. But the rising tide has not lifted all boats – defensives like food producers; utilities; tobacco; pharmaceuticals and telecoms stocks have all suffered negative returns. That admittedly reflects just how bombed-out and oversold many cyclical businesses became during the first quarter, but it strongly suggests a relief rally as opposed to a sustainable one. Because as the IMF recently indicated in its World Economic Outlook, recessions triggered by financial crisis are inevitably more severe than regular business cycle recessions, and recoveries are typically slower, impeded by weak private demand and credit and a steady rise in household savings.

There is another reason to fear that the rally's foundations are less than secure, and they come in the form of the dead hand of (inconsistent) government intervention, specifically but not exclusively in the Anglo-Saxon economies. For breathtaking hypocrisy, note for example the scolding issued by President Obama to bond fund managers within the hedge fund community for opposing a government rescue that compromised their duty to their investors:

While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everyone else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. I stand with Chrysler's employees and their families and communities. I don't stand with those who held out when everybody else is making sacrifices.

Evidently those hedge funds didn’t spend enough on lobbying. As hedge fund manager Cliff Asness of AQR responded:

Managers have a fiduciary obligation to look after their clients' money as best they can, not to support the President, nor to oppose him, nor otherwise advance their political views. Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. If they give away their clients' money to share the "sacrifice", they are stealing.

And as Bill Gross of Pimco pointedly observed, as Adam Smith's invisible hand comes to resemble more and more the public fist of government, asset values will be negatively affected:

First comes the haircutting and burden sharing, most recently evidenced by Chrysler and soon to be played out via the stress testing and equity dilution of government ownership of ailing banks. In those footsteps, however, will follow a slower rate of economic growth, not just in the US, but worldwide as heretofore libertarian capitalism is bridled, saddled and taught to trot instead of gallop over the investment plains... the Obama cannon shot will have financial consequences. Do not be deceived by the euphoric sightings of “green shoots” and the claims for new bull markets in a multitude of asset classes. Stable and secure income is still the order of the day.

So a war on terror is followed by a war on free markets, wherein those special interest groups (namely bankers) who bribe politicians most heavily get the greatest protection, while other financiers whose businesses don't involve millions of voters and who never required a penny of taxpayer support get publicly flayed. Those of us watching aghast at the incineration of the public finances in the UK at least have the grain of comfort that the current socialist administration will almost certainly be voted out of office within the next 12 months. Our friends in the US have an altogether longer wait – and many will no doubt be regretting their support for the Big Government they have landed themselves with.

Comments

[Trading to Win:]

Stages of Obama:

1. Obamarama- campaign and election.

2. Obamanomics - summers, geithner, stimulus and budget. A blend of Statism and Socialism.

3. Obamageddon - 2011?

May 10 06:22 AM

[RonB:]

It is remarkable to watch so many people come out with harsh criticsm, and to recognize that these people have no constructive ideas, and no responsibilities. And of course, they do it after the economy is showing signs of stability. Where were all these self-acclaimed brilliant people before things fell apart?

May 10 09:24 AM

[BobFD:]

Bravo!

May 10 09:38 AM

[Momintn:]

The biggest mistake of all was made years ago by allowing commercial banks to become investment banks. Once you allow banks who are regulated by the government to trade in risky classes of investment products, then anyone could have foreseen the consequence of where we are today. And instead of holding these decision makers responsible and doing a proper investigation for possible fraud thereby at least removing them from their executive position, these same men are regarded as advisors to our most highly-elected office. If our government can investigate someone's sexual acts, you would think they could investigate the people who caused this demise of our stock markets and our economy.

May 10 10:10 AM

[nuclear stocks:]

Hedge funds looking out for the fiduciary duties of its investors? At what point does that statement end? Can a hedge fund steal the money and then say they were just looking out for the interests of the shareholders? Even hedge funds must have some responsibility to the greater good. The hedge fund investors will not be better off if they live in a banana republic, which means they would be better off working with the government to take the losses they deserve on the risky bonds they invested in.

May 10 11:35 AM

[nuclear stocks:]

Hedge funds looking out for the fiduciary duties of its investors? At what point does that statement end? Can a hedge fund steal the money and then say they were just looking out for the interests of the shareholders? Even hedge funds must have some responsibility to the greater good. The hedge fund investors will not be better off if they live in a banana republic, which means they would be better off working with the government to take the losses they deserve on the risky bonds they invested in.

May 10 11:35 AM

[Ranger:]

On May 10 09:24 AM RonB wrote:

> It is remarkable to watch so many people come out with harsh criticsm,
> and to recognize that these people have no constructive ideas, and
> no responsibilities. And of course, they do it after the economy
> is showing signs of stability. Where were all these self-acclaimed
> brilliant people before things fell apart?

Good post. These people do this because they have been wrong about everything, and are simply spouting off. Stay away from these freaks, sir. You seem to understand what is happening. I would listen to you before the idiot above.

May 10 11:41 AM

[Andrew Butter:]

Very good article thank you

May 10 11:43 AM

[InvestBaboo:]

The title "A bull market that few are buying" is correct but with an entirely different line of reasoning than this author.

There is a vast amount of cash waiting on the sidelines that is yet to buy into this market that will provide rocket power boost once it starts coming in. It is a matter of when this money will start flowing in and not if the money will start flowing. The money that the author and his friends have will also come pouring in once they realize that you can't fight the trend but given just how much reservation the author has about this I am affraid he may be the last one to get on the train and left as the bagholder.

What I am saying is that facts can be looked at with colored glasses. I could get on either side of the fence and make extremely bullish or extremely bearish arguments. I have been wrong in the past when I have trusted my opinions and invested contrary to the the trend in the market. One day I woke up and realized that fighting the trend was a mistake and I will always invest with the trend and from that deduce either a bullish or bearsih bias. This is because the markets are always right and anyone who argues against it is wrong!

As I keep saying the trend is your friend till the bend at the end and there ain't no bend to see at the present my friends. Articles like this are healthy in the sense that some doze of bearishness is good for the bull market but I urge the readers of SeekingAlpha not to miss the bull market and once-in-a-lifetime wealth creation opportunity that the market has presented us with.

May 10 11:51 AM

[nukldrager:]

So what's a bull to do o' friend of the trend?


On May 10 11:51 AM InvestBaboo wrote:

> The title "A bull market that few are buying" is correct but with
> an entirely different line of reasoning than this author.
>
> There is a vast amount of cash waiting on the sidelines that is yet
> to buy into this market that will provide rocket power boost once
> it starts coming in. It is a matter of when this money will start
> flowing in and not if the money will start flowing. The money that
> the author and his friends have will also come pouring in once they
> realize that you can't fight the trend but given just how much reservation
> the author has about this I am affraid he may be the last one to
> get on the train and left as the bagholder.
>
> What I am saying is that facts can be looked at with colored glasses.
> I could get on either side of the fence and make extremely bullish
> or extremely bearish arguments. I have been wrong in the past when
> I have trusted my opinions and invested contrary to the the trend
> in the market. One day I woke up and realized that fighting the trend
> was a mistake and I will always invest with the trend and from that
> deduce either a bullish or bearsih bias. This is because the markets
> are always right and anyone who argues against it is wrong!
>
> As I keep saying the trend is your friend till the bend at the end
> and there ain't no bend to see at the present my friends. Articles
> like this are healthy in the sense that some doze of bearishness
> is good for the bull market but I urge the readers of SeekingAlpha
> not to miss the bull market and once-in-a-lifetime wealth creation
> opportunity that the market has presented us with.

May 10 11:59 AM

[nukldrager:]

What I mean is throw us some tickers... if you and Greenspan are correct, and turbulent globalization doesn't mean the world is coming to the end, show us the tofu!


On May 10 11:59 AM nukldrager wrote:

> So what's a bull to do o' friend of the trend?

May 10 12:04 PM

[nukldrager:]

At the risk of incurring a fine for quoting wikipedia a little too much, The Taylor rule, again;

..."In economics, dynamic inconsistency, or time inconsistency, describes a situation where a decision-maker's preferences change over time, such that what is preferred at one point in time is inconsistent with what is preferred at another point in time. It is often easiest to think about preferences over time in this context by thinking of decision-makers as being made up of many different "selves", with each self representing the decision-maker at a different point in time. So, for example, there is my today self, my tomorrow self, my next Tuesday self, my year from now self, etc. The inconsistency will occur when somehow the preferences of some of the selves are not aligned with each other."

We all make decisions, and are susceptible to Leonardo's lament, "... supreme misfortune is when theory outstrips practice". Like divorce for one. 20/20 hindsight for another, where we would have preferred to stay in longer, or gotten out sooner, (both the market or the marriage) but that may be stretching it. It's a non schizophrenic descriptor for the mutability of our minds. (This theory is applied to economic decision makers but here it is used loosely)
Our current self will have to answer to our future self. Here's hoping that the conversation takes place in the sun and the sand with a drink in our hand, and not some Kafka novel.

May 10 01:05 PM

[chinooking:]

well said,,,,,,,,,,,,,,,,,,... many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everyone else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. I stand with Chrysler's employees and their families and communities. I don't stand with those who held out when everybody else is making sacrifices.

May 10 02:26 PM

[Valley Boy:]

The government would show true responsibility by breaking
up those institutions considered "too big to fail," tightening some
regulations on financial institutions while loosening regulations
on nonfinancial institutions, reducing most tax burdens and government budgets, and in general, trusting the people rather
than government bureaus to work the economy and try out
their constructive ideas.

On May 10 09:24 AM RonB wrote:

> It is remarkable to watch so many people come out with harsh criticsm,
> and to recognize that these people have no constructive ideas, and
> no responsibilities. And of course, they do it after the economy
> is showing signs of stability. Where were all these self-acclaimed
> brilliant people before things fell apart?

May 10 02:27 PM

[Sober Realist:]

This article is actually the best and most detailed I've read explaining the inexplicable V-shaped rise from the ashes of the stock market. Peter Schiff reflects these sentiments in a recent article (seekingalpha.com/artic...) , but suggests the stimulus-fed rally could last 2 years before the floor falls out.

May 10 03:18 PM

[DonFurio:]

Right now it seems like history is playing itself out. Idiots are waiting until the "all clear", but unfortunately for them, the "all clear" is Dow 12,000 and they will miss most of the recovery, instead of averaging down and being able to sell out if one so wishes before the losers come back in the market. These are the same losers who had no problem buying a house in 05/06 because the market looked "good", but if you asked them to have some conviction to buy a house now, they would say it's "too scary". As long as you don't put all your money in at once, have clear set goals and understanding of your risks, to me it seems obvious that it is better to invest money now rather than 3-4 years from now. I do think housing will take a good time to recover, but if you are renting and have money saved up and don't plan on moving for a few years, it could make sense.

May 10 03:52 PM

[Econ 101:]

On the whole very good article.

However, I believe your imagery was wrong here: "the dead hand of (inconsistent) government intervention", it should be "black hand", or were you worried about the Mafia takeing offense ?

Support HR 1207, an Audit of the Federal Reserve!

May 10 04:52 PM

[maxiedog:]

Firstly, a widespread government failure to regulate the rapacious financial 'services industry' ( some misnomer ) and then an ill-considered lurch to revive and regulate its twitching corpse. The consequence of having elephants waltz on an oily dancefloor is that there is usually a large crash at the end.

May 10 06:56 PM

[Alan Young:]

I agree with the premise of the title—why are there not more buyers? This is an important question. Beyond the simple point about "relief rally," I don't see that the author has done much to address it, despite a vast amount of rhetoric.

The punchline: "So a war on terror is followed by a war on free markets, wherein those special interest groups (namely bankers) who bribe politicians most heavily get the greatest protection" —is very apt, as well. But it was Paulson, in the previous administration, who got selective about bailouts, pushed financial markets over the cliff, demanded more money and more power from congress (the better to intervene in the markets with, my dear) and then colluded with GS to deploy bailout funds unfairly. It's perverse to blame Obama for this pattern, even though it continues, and much as I wish he would do more to reverse it.

May 10 06:56 PM

[LillyM:]

Let's hope these guys are out faster than they went in. The worst govt. since Carter presidency and that's saying something!


On May 10 06:22 AM Trading to Win wrote:

> Stages of Obama:
>
> 1. Obamarama- campaign and election.
>
> 2. Obamanomics - summers, geithner, stimulus and budget. A blend
> of Statism and Socialism.
>
> 3. Obamageddon - 2011?

May 10 07:29 PM

[FWallace:]

LillyM

Just what are you smoking or are you just stupid?

Do you really believe that our current President is the source of our problems today? I'm sorry but please get a clue... this mess was created and therefore started several years ago, in fact why not blame our previous adminstration for the problems we're facing now... and praise our current adminstrations for their efforts and the challanges they are forced to deal with to help get us out of this fiasco.

May 10 09:45 PM

[naidle:]

They were being ignored.


On May 10 09:24 AM RonB wrote:

> It is remarkable to watch so many people come out with harsh criticsm,
> and to recognize that these people have no constructive ideas, and
> no responsibilities. And of course, they do it after the economy
> is showing signs of stability. Where were all these self-acclaimed
> brilliant people before things fell apart?

May 10 10:07 PM

[daniel3582:]

You are exhibiting the same reductionistic thinking that you are accusing LillyM of exhibiting.

Bush's fault or Obama's fault? Is it the House Democrats would did this or the pro-capitalist deregulators?

Until you rise above thinking there is a neat political answer, you will miss not only the simple truth that it is far too complicated a situation to lay at any one person's doorstep... but you will also continue support the notion that government is the solution to all our problems.

Ultimately, you won't understand why things continue to get worse, despite all the "helping" that our savior and lord Barack Obama heaps upon us in the name of equality, love, hope, and fairness.


On May 10 09:45 PM FWallace wrote:

> LillyM
>
> Just what are you smoking or are you just stupid?
>
> Do you really believe that our current President is the source of
> our problems today? I'm sorry but please get a clue... this mess
> was created and therefore started several years ago, in fact why
> not blame our previous adminstration for the problems we're facing
> now... and praise our current adminstrations for their efforts and
> the challanges they are forced to deal with to help get us out of
> this fiasco.

May 10 11:03 PM

[Mad Hedge F...:]

For good reason. Let’s say we spend our $2 trillion and get a couple of quarters of weak 2% type growth. Then once the effects of the stimulus wear off, we slip back into recession, setting up a classic “W” type recession. Unemployment never does stop climbing. This happened to Roosevelt in the thirties. So congress passes another $2 trillion reflationary budget. Everybody get’s wonderful new mass transit and alternative energy infrastructure. But with $4 trillion in spending packed into two years inflation really takes off. The bond market collapses, the dollar tanks big time, gold goes ballistic to $3,000, and silver to $50. Ben Bernanke’s replacement has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 20%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the Republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $200. This is not exactly a low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 14.5%, and credit default swaps are at lofty levels. The risk of Armageddon is still out there. Just thought you’d like to know. Pass the Ambien.

May 10 11:10 PM

[Stone Fox C...:]

so many doubters still makes me more bullish. Keep waiting for this rally to end, but very few are bullish.

May 11 12:06 AM

[horrid:]

Is there really all that much cash on the sidelines after the buying behind this rally, and after all the carnage that took place last year in the financial and real estate markets, and all the job losses>>>?
How much buying power is there, psychology/confidence levels aside???

May 11 02:03 AM

[Takayama:]

Good work. There is always two sides of the coin, and economics being an inexact science. The US economy is like a sick man given new super drugs, but once the drug effect wears out, the patient will be much worse than before.
The present bull rally is therefore NOT sustainable. We see this behavior before in the Japan market crash. History repeats itself.
This rally is supported by the big stimulus package and the printing of more US dollars.

May 11 02:55 AM

[guymar:]

Great post. But this type of analysis has landed in my inbox now for almost 10 years by means of Rob Prechter's newsletter. The question is: how to make money with this?


On May 10 11:10 PM Mad Hedge Fund Trader wrote:

> For good reason. Let’s say we spend our $2 trillion and get a couple
> of quarters of weak 2% type growth. Then once the effects of the
> stimulus wear off, we slip back into recession, setting up a classic
> “W” type recession. Unemployment never does stop climbing. This happened
> to Roosevelt in the thirties. So congress passes another $2 trillion
> reflationary budget. Everybody get’s wonderful new mass transit and
> alternative energy infrastructure. But with $4 trillion in spending
> packed into two years inflation really takes off. The bond market
> collapses, the dollar tanks big time, gold goes ballistic to $3,000,
> and silver to $50. Ben Bernanke’s replacement has no choice but to
> engineer an interest rate spike, taking the Fed funds rate up to
> a Volkeresque 20%. Housing, having never recovered, drops by half
> again. This all happens in the 2012 election year. Obama is burned
> in effigy, a Mormon is elected president, and the Republicans, reinvigorated
> by new leadership, retake both houses of congress. We invade Iran.
> Crude hits $200. This is not exactly a low probability scenario.
> Remember Jimmy Carter? This is why junk bond yields are still stubbornly
> high at 14.5%, and credit default swaps are at lofty levels. The
> risk of Armageddon is still out there. Just thought you’d like to
> know. Pass the Ambien.

May 11 03:24 AM

[expat in China:]

I am very happy to miss any rally at this point!

Who would want to put their money into a ficticous scamming market that is propped up by socialist that will take it all away in the next 5 years

Just look at Venezuela well America is there!

May 11 07:21 AM

[Buy and Hol...:]

On May 11 04:35 AM Cetin Hakimoglu wrote:

> You can beat inflation buy buying stocks that benefit from rising
> commodity prices like MOS, MA, GOOG and POT, and holding them long
> term.

How does Google or Mastercard benefit from rising commodity prices? I guess I can see it with Mastercard, since that small fee they take in when someone uses their card will go up if the price of what the person is buying goes up.

But you'll have to explain Google.

May 11 07:57 AM

[Missing_Link:]

On May 10 11:51 AM InvestBaboo wrote:

> The title "A bull market that few are buying" is correct but with
> an entirely different line of reasoning than this author.
>
> There is a vast amount of cash waiting on the sidelines that is yet
> to buy into this market that will provide rocket power boost once
> it starts coming in [...]

The idea that the additional $500 billion that's been added to money accounts since 2008 is going to continue to inflate the speculative rally is nonsense. It is not a "flood" of cash nor a "wall" of cash nor a "tsunami" of cash or anything else that it's been called.

There is no reason to believe that that money is stupid enough to try to ride the rally this late in the game ... that it would prefer the American stock market to a foreign-market ETF or real estate or commodities or precious metals ... or that if it did enter the US market, that it would do so on the side of buying rather than short-selling.

Good luck getting the suckers to buy further into the suckers' rally. I believe this cash is ultra-conservative; if it weren't, it wouldn't be sitting in money market accounts.

May 11 09:13 AM

[Dean M:]

I got nothing useful from this article.

May 11 09:33 AM

[E Nuff Sed:]

My personal opinion is this rally is real and a positive feedback loop has now developed. It is very painful for people sitting on sidelines in cash to see the market shoot up 40%. It is especially painful for people who sold between Nov 20 and March 9. They are now rushing to get back in. The fear of losing all their money has been replaced by the fear of getting left behind. It is still a fear trade but of a different kind. Hence the sharp trajectory of the rally. Happens after every bear market.

May 11 09:34 AM

[raytayzmd:]

..."As I keep saying the trend is your friend till the bend at the end..."...a point that I keep trying to make to people who are bound and determined to tell the market or a particular stock where it SHOULD be going.


On May 10 11:51 AM InvestBaboo wrote:

> The title "A bull market that few are buying" is correct but with
> an entirely different line of reasoning than this author.
>
> There is a vast amount of cash waiting on the sidelines that is yet
> to buy into this market that will provide rocket power boost once
> it starts coming in. It is a matter of when this money will start
> flowing in and not if the money will start flowing. The money that
> the author and his friends have will also come pouring in once they
> realize that you can't fight the trend but given just how much reservation
> the author has about this I am affraid he may be the last one to
> get on the train and left as the bagholder.
>
> What I am saying is that facts can be looked at with colored glasses.
> I could get on either side of the fence and make extremely bullish
> or extremely bearish arguments. I have been wrong in the past when
> I have trusted my opinions and invested contrary to the the trend
> in the market. One day I woke up and realized that fighting the trend
> was a mistake and I will always invest with the trend and from that
> deduce either a bullish or bearsih bias. This is because the markets
> are always right and anyone who argues against it is wrong!
>
> As I keep saying the trend is your friend till the bend at the end
> and there ain't no bend to see at the present my friends. Articles
> like this are healthy in the sense that some doze of bearishness
> is good for the bull market but I urge the readers of SeekingAlpha
> not to miss the bull market and once-in-a-lifetime wealth creation
> opportunity that the market has presented us with.

May 11 09:34 AM

[Missing_Link:]

On May 11 03:24 AM guymar wrote:
> Great post. But this type of analysis has landed in my inbox now
> for almost 10 years by means of Rob Prechter's newsletter. The question
> is: how to make money with this?

The part about gold going to $3000, silver to $50, and crude to $200 might give you some hints.

May 11 09:37 AM

[elcopone:]

I agree with the analysis for the most part but I think the main point is being missed....

The issue is not Republican versus Democrat. It's not one parties agenda versus another. Or one President's agenda versus what another President would have done. If you think the the Republicans are any less bought off or curropt than the Democrats, I have a bridge to sell you.

The issue is that our entire political system is completely broken. Politicians on both sides have been and will continue to act in a manner that benefits no one (except them personally and their party) untill the system is fixed. Republicans are bribed by one set of special interests and Demecrats are bribed by another. Some special interest who have enough money just bribe both.

None of the problems facing the US will ever be truly solved untill the political system is fixed. Here is the simple fix that will never happen....

1. Make lobbing of any form illegal.
2. Institute term limits.
3. Eliminate fund raising of any sort. All campaigns would then be run with equal money funded by the government.
4. Institute a 10-year waiting period between the time an elected official leaves office to the time they can be hired in the private sector.
5. Create a third and equal "Moderate" party that represents the roughly 60% of the population that is either an Independant, Moderate-Dem, and Moderate-Repub.

Simple economics... People's behaviors are motivated by incentives. Fix the incentives, fix the behaviors.

May 11 11:03 AM

[KIT:]

On May 11 09:13 AM Missing_Link wrote:

> On May 10 11:51 AM InvestBaboo wrote:
Good luck getting the suckers to buy further into the suckers' rally. I believe this cash is ultra-conservative; if it weren't, it wouldn't be sitting in money market accounts.

Bang on I'm 53 too close to retirement to shift a lifetime of savings into a recession market. I have made 4 years worth of interest on USD CAD exchange rate so I dont care that the Money market account pays no interest. NOBODY is getting my money till I see clear REAL earnings recover. 13 34 week crossover and retest IS REQUIRED. I get on chance to do this right for the rest of my life. At this point in my life I have no time to wait out a mistake

May 11 11:36 AM

[commoinsens...:]

I am (was?) an obama supporter and while he was not responsible for the mess we are in he's not the solution either. he needs to take a very hard stand against the banks and their executives. these peope should be out in the streets if not in prison. What's been done to date regarding quantitative easing is bs. break up the big banks and sell off the pieces.


On May 10 09:45 PM FWallace wrote:

> LillyM
>
> Just what are you smoking or are you just stupid?
>
> Do you really believe that our current President is the source of
> our problems today? I'm sorry but please get a clue... this mess
> was created and therefore started several years ago, in fact why
> not blame our previous adminstration for the problems we're facing
> now... and praise our current adminstrations for their efforts and
> the challanges they are forced to deal with to help get us out of
> this fiasco.

May 11 11:54 AM

[Jason Rines...:]

I wrote about them here and elsewhere but who the hell is Jason Rines? The article writer is correct that the global financial elites are crushing competition. He is also correct in stating that the monetary and political problems are closely intertwined and to unwind them will take time. The current signals from Washington to suppress dissent are ominous. If we become a communist nation completely (rather then the partial we see now), I would be a bit surprised. That said, our culture is not adaptable to this form of forced collective participation and the end results would be very messy indeed.


On May 10 09:24 AM RonB wrote:

> It is remarkable to watch so many people come out with harsh criticsm,
> and to recognize that these people have no constructive ideas, and
> no responsibilities. And of course, they do it after the economy
> is showing signs of stability. Where were all these self-acclaimed
> brilliant people before things fell apart?

May 11 12:00 PM

[Jason Rines...:]

I agree with most of this, add that private investors also waiting to see what happens in the banking system where the author makes solid points about corruption. How long can government manipulate the trade? The answer is as long as the taxpayers that are low-hanging fruit to government have money to confiscate via taxation, inflation, schemes etc.

Also add that many private investors are not day traders and this period will certainly be a day-traders paradise. I like going long on bonds, conducting a lot of due diligence into management, cash flow and consumer demand before investing. It creates a bit of confusion to learn to become an astute day trader or whether to just wait and see at this point for a few years.

"feelings" sometimes get in the way too. For I know that government being a vacuum cleaner of taxpayer money and me betting that trade accelerates the process. I can invest in my own businesses for the long haul instead and simply act like a clerk to appear before the State from time to time as it attempts to shake me upside down.

On May 10 11:51 AM InvestBaboo wrote:

> The title "A bull market that few are buying" is correct but with
> an entirely different line of reasoning than this author.
>
> There is a vast amount of cash waiting on the sidelines that is yet
> to buy into this market that will provide rocket power boost once
> it starts coming in. It is a matter of when this money will start
> flowing in and not if the money will start flowing. The money that
> the author and his friends have will also come pouring in once they
> realize that you can't fight the trend but given just how much reservation
> the author has about this I am affraid he may be the last one to
> get on the train and left as the bagholder.
>
> What I am saying is that facts can be looked at with colored glasses.
> I could get on either side of the fence and make extremely bullish
> or extremely bearish arguments. I have been wrong in the past when
> I have trusted my opinions and invested contrary to the the trend
> in the market. One day I woke up and realized that fighting the trend
> was a mistake and I will always invest with the trend and from that
> deduce either a bullish or bearsih bias. This is because the markets
> are always right and anyone who argues against it is wrong!
>
> As I keep saying the trend is your friend till the bend at the end
> and there ain't no bend to see at the present my friends. Articles
> like this are healthy in the sense that some doze of bearishness
> is good for the bull market but I urge the readers of SeekingAlpha
> not to miss the bull market and once-in-a-lifetime wealth creation
> opportunity that the market has presented us with.

May 11 12:13 PM

[raytayzmd:]

...eventually, we have to pay the piper -- so to speak...we enjoyed almost twenty years of prosperity...in so doing, we allowed banks to make some loans that perhaps they shouldn't have...on the other hand, had the Federal Reserve NOT started raising interest rates in Fall of 2006 then perhaps adjustable rate mortgage holders would have been able to meet their obligations...and MAYBE those loans wouldn't have gone bad and then maybe institutions using those loans as "assets" against which they could borrow 30 to 1 wouldn't have gone belly up...of course, then maybe we would be having to deal with 30% inflation...maybe we should have forced the economy into a SMALL recession back around 5-6 years ago to clean out the "junk"...but everyone raise their hand who would have supported such a move back then...yeah, that's what I thought...regardless, I'm quite confident we'll cope with the situation and come out basically okay on the other side...just like they have in the other "panics" of the past million years.

May 11 01:26 PM

[History Buf...:]

Raytayzmd,

I think you're onto something here, a good analogy would be the US Forest Service's policy of not letting any fires burn any forests for the better part of a century, so the last several years we've had absolutely horrendous wildfires that couldn't be controlled because there was too much deadwood and undergrowth that dried out and went up like tinder under the right conditions.

Because the Fed wouldn't allow any normal, reasonable correction to the business cycle that would have had any political consequences (such as getting some of our scalawag politicians kicked out of office because their constituents became unemployed) we now have the economic equivalent of the mother of all wildfires. And because the government still won't deal with the consequences of what they've done, they're doing more of it with this "hair of the dog that bit you" approach.

On May 11 01:26 PM raytayzmd wrote:

> ...eventually, we have to pay the piper -- so to speak...we enjoyed
> almost twenty years of prosperity...in so doing, we allowed banks
> to make some loans that perhaps they shouldn't have...on the other
> hand, had the Federal Reserve NOT started raising interest rates
> in Fall of 2006 then perhaps adjustable rate mortgage holders would
> have been able to meet their obligations...and MAYBE those loans
> wouldn't have gone bad and then maybe institutions using those loans
> as "assets" against which they could borrow 30 to 1 wouldn't have
> gone belly up...of course, then maybe we would be having to deal
> with 30% inflation...maybe we should have forced the economy into
> a SMALL recession back around 5-6 years ago to clean out the "junk"...but
> everyone raise their hand who would have supported such a move back
> then...yeah, that's what I thought...regardless, I'm quite confident
> we'll cope with the situation and come out basically okay on the
> other side...just like they have in the other "panics" of the past
> million years.

May 11 02:00 PM

[hrut:]

It's amazing to me that after all we've seen there are still authors who so vehemently defend lassiez faire and small government deregulation. Not to mention criticize Obama as though the guy we had for the previous eight years was some sort of economic genius. A million times better than what we had. And citing Adam Smith? Jeez, econ has come a little ways since then. I think John McCain liked to cite the ultra-low-tax countries as shining examples. In the West that means Ireland. You think our economy has struggled, take a look at theirs. What we need right now is balance and reason-based economic thinking, which is what the White House is trying to do. It's not an exact science, but it's better than the faith-based dogmatic (you could say airheaded) approach, and much HEAVIER lobbyist influenced approach of the last eight years. The Justice Dept. has barely looked at an antitrust case for years for chrissake. And for the moment it looks like the worst part of the crisis has been averted. If we'd done what some libertarians had advocated, our financial world might currently be in complete chaos. I'll take this anyday. And in the future, let's not let the banks go all moral hazard on us -- that means real regulation, not letting markets always do whatever they want. Hippies have their utopia, and free market libertarians have theirs, and guess what, neither works in the real world. But I want to add one more thing. People tend to think markets go up because the economy is improving. Generally they do but strictly speaking they go up because enough people think stocks are worth more than they're selling for. Some industries and companies have simply been beaten down too much. Even companies with consistent earnings are trading at very high earnings yields versus safe investments. That's why people buy. If the economy catches up, even better. Dan

May 11 08:19 PM

[dcb:]

would you consider Mr. simon johnso the former head of IMF u=such a freak who wrote extensively in the atlantic about the effect of crony capitalism on this country. I certainly would consider Grantham a freak, or ken rogoff, of joseph stiglitz. you sould like a guy who works for the financial industry lobby. I've no doubt that as more and more press starts to come out about how the system is being abused and the way our country is being held for ransom by this industry there will be many such people out there to shout them down. it was the same tactic used by the bush administration when dealing with anyone who could see through the lies about Iraq. Our government works for the banking industry, pure and simple. I want our government back. I applaud the efforts of people who want to expose the shame of a democracy our country has become.


On May 10 11:41 AM Ranger wrote:

>

May 11 08:26 PM

[dcb:]

5:40 PM With 34% of S&P 500 companies now trading above their price targets for the next 12 months, some analysts say upside from here is limited: "We're going to have a sudden jamming on the brakes of investors' enthusiasm for early-cycle stocks when they realize they made a big mistake." 3 Comments

May 11 08:31 PM

[consumerons...:]

So many people jumping in so many directions. Some think the plane is about to leave the runway. Some just know it's about to crash. Then still others think it's about to turn into a pumpkin.
"You're gonna miss the bull market."
"Don't be stupid. The bear's just faking us out."
Ah, who to listen to? How about nobody? You all see "bulls and bears." I just see THE market. And THE market always has something worth buying - and KEEPING. To me a dividend is like another paycheck - one I don't have to work for. Buy good companies. Don't listen to all the noise and all the idiots telling you buy and hold is stupid. I don't feel stupid several dozen times a year when I cash my dividend checks. Want to beat the market? Why? Just how huge is the number of people trying to do that? Think you're that smart? I bet most of you aren't. Maybe you're clairvoyant. I doubt it. Screw the market. Don't compete with it. USE it. Competing with the market is an idiot's pursuit. Me, I'd rather make money. My "extra paychecks" started out few and small. Guess what? Now there's more of them - and they're bigger. You all have fun trying to foretell the future. Statistically, a whole lot of you won't do real well at it. Go with the flow and make money instead. It's a lot more fun.
Think I make it too simple? I think you all make it too complicated. It's an uncertain world. People, average working people, people like me who're living on $8.75/hour could use better advice than I ever see on these sites. People down here at these income levels probably outnumber all of you. People at my income level can pich pennies til they scream and fight for months to save $1,000. Then the old beater in the driveway craps out and there all that money goes they struggled to save.
Some people should think first about increasing their income so they CAN save more money faster, and to decrease the likelyhood of the old beater in the driveway or something else eating up their savings every time they manage to have any. See, talk about reinvesting dividends does them no good.
The market is always there and the market is always good - if you use it to make your life better. It sure as hell makes mine better. If it's just a game to you, fine. It must be nice to be able to look at it that way.
Now why don't some of you very smart people start writing articles aimed at some of us that don't make enough money TO save any unless we take a new approach and "Think outside the box?"
It's worked for me.

May 11 09:23 PM

[consumerons...:]

Oh - sorry, I could care less about the political crap this time. The title of the article made me think about the MARKET.

May 11 09:24 PM

[consumerons...:]

Thumbs down? You probably aren't one of the people I'm hoping will read this anyway! I hope some people like ME read this and realize the market can be many different things. Some of you seem to think it's a casino. My message is that people of ALL income levels can also use it to generate what, to some of us, is much-needed extra income and greatly improve our lives! Some of us can't afford to "play" it like it's some kind of game and you have to be "this big" to play or you get squashed. We don't HAVE to play your game. We can USE the market intelligently.

May 11 09:57 PM

[JD*:]

Like the guy said above, I got nothing from this rant.

May 11 11:03 PM

[太阳黑�...:]

Tim,
There is nothing wrong with big government...only dysfunctional government worries me. U.S. government(and many other industrialized nations) has been adding "socialistic" features since the Great Depression. Overall, these safety nets create more value than harms in our society. Free market itself doesn't automatically return to balance. In fact, more often that free market end up in massive gyration and concentration of wealth and resource control . Otherwise, we will never need anti-trust, won't we.

May 12 05:13 AM

[太阳黑�...:]

Tim,
There is nothing wrong with big government...only dysfunctional government worries me. U.S. government(and many other industrialized nations) has been adding "socialistic" features since the Great Depression. Overall, these safety nets create more value than harms in our society. Free market itself doesn't automatically return to balance. In fact, more often that free market end up in massive gyration and concentration of wealth and resource control . Otherwise, we will never need anti-trust, won't we.

May 12 05:13 AM

[Donkey Kong:]

As a professional investor with 25 years of experience, I don't rely on the abstract when it comes to investing. Yes, there are opportunities in every type of market. Jim Rodgers made a fortune in commodities in the bear equity markets of the '70s. CDs or US Treasuries were a great call in the high interest rate environment of the early '80s. CDs and commodities are NOT stocks the last time I looked!! Cetin is hawking large-cap tech, with only POT as benefiting from a high-inflation environment. His advice based on price momentum and basic technical analysis, which is a far cry from investment analysis.

I certainly hope you are not a "real" captain because I would be afraid to serve in your unit or fly on your airplane.




On May 12 10:06 AM captmanning wrote:

> It appears that Donkey Kong is treating math and statistics in the
> abstract rather than as tools for analysis and investing. I was actually
> in the market in the 70s and 80s. "STOCKS" may have been BAD, but
> there were plenty of solid companies that individually were good
> investments. And higher interest rates also means higher deposit
> interest, and during some of those years CDs were available at 15%.
> Some of us did our homework and took advantage of alternatives. And
> prospered.
>
> That seems to be Cetim's message: find the alternative with the lowest
> risk/highest return. But that takes work that most people don't have
> the gumption for. It's far easier to listen to some guru who predicts
> the future.

May 12 12:03 PM

[whisperonth...:]

"The government would show true responsibility by breaking
up those institutions considered "too big to fail," tightening some
regulations on financial institutions while loosening regulations
on nonfinancial institutions, reducing most tax burdens and government budgets, and in general, trusting the people rather
than government bureaus to work the economy and try out
their constructive ideas."

Actually, the government would show much more responsible behavior if it had just stayed out of the market to begin with. If they hadn't decided that homes MUST be made available and attainable to people who couldn't really afford them, the mortgages might not have been left unpaid. The government couldn't keep out then, and it can't keep out now. You get what you pay for, and if you can't pay, you can't have. How hard is that to understand?

May 12 12:22 PM

[sickofthehype:]

Correct, ultimately a new recession was formed based on the high rates to combat inflation - and this is likely to happen again. However, before the next recession will be an inflationary run up once again in equities - the fix is in people, so take advantage of the window of opportunity as it unfolds...


On May 12 07:07 AM Donkey Kong wrote:

> High inflation means much higher interest rates which is BAD for
> stocks and valuations (given the terrible inflation of the late 70s
> and early 80s, stocks were trading at 8x earnings in 1982 as interest
> rates were 13-14%)! I think it's time for YOU to take a basic macro
> economics refresher course, Mr. Math Whiz. As alternative, I will
> pay for your tutoring through the Slyvan Learning Center (you'll
> be like the son I never had).
>
> Also, how are GOOG, MA and V good inflation hedges???? Did you slip
> in the kitchen and crack your head on some Jell-O before writing
> this missive...?

May 12 12:24 PM

[Donkey Kong:]

Thanks for your Twitter update. YOU were the one who said the futures were SURGING this AM. Why do you use the word SURGING so much? Do you have a lot of pent-up sexual tension?


On May 12 12:43 PM Cetin Hakimoglu wrote:

> I don't day trade. I get the quotes in the morning and then check
> the markets after the close.

May 12 12:51 PM

[Kinabalu:]

Interesting comment considering that the Glass-Steagall repeal bill was signed by President Clinton.


On May 10 10:10 AM Momintn wrote:

> The biggest mistake of all was made years ago by allowing commercial
> banks to become investment banks. Once you allow banks who are regulated
> by the government to trade in risky classes of investment products,
> then anyone could have foreseen the consequence of where we are today.
> And instead of holding these decision makers responsible and doing
> a proper investigation for possible fraud thereby at least removing
> them from their executive position, these same men are regarded as
> advisors to our most highly-elected office. If our government can
> investigate someone's sexual acts, you would think they could investigate
> the people who caused this demise of our stock markets and our economy.

May 12 01:10 PM

[wobatus:]

Also interesting is that JPM is a combination and yet perceived as fairly safe comparatively. LEH, BSC were just i-banks, ML was an i-bank forced to merge with a bank to survive. So combining the 2 things didn't kill those 3. GS and MS were forced to convert to banks.

The model got killed. No one would touch them without explicit government backing.

Wamu and Indybank failed, and they were plain old banks, or s&ls.

Mixing i-banks and commercial banks is not at all what caused the problem. C is a hybrid, but it was just remarkably poorly run.

In short, I don't think repealing Glass-Steagall did it. Indeed, being explicitly regulated may have led to a sense of safety that wasn't there.

But back to the i-banks, going public may have started it. The partners risked their own capital. Once you went public it was all OPM.



On May 12 01:10 PM Kinabalu wrote:

> Interesting comment considering that the Glass-Steagall repeal bill
> was signed by President Clinton.

May 12 03:59 PM

[Hot Richard:]

"So a war on terror is followed by a war on free markets..."

So you guys ready to be anarchists now? No? At least libertarians?! No? Still you remain Republicans and Democrats!

Criminy! I give up on you people.

May 12 05:29 PM

[Frohickey:]

You mean Gramm-Leach-Bliley... signed into law by William Jefferson Clinton (D).

As the annointed One's Chief of Staff Rahm Emmanuel says "Elections have consequences."

On May 10 10:10 AM Momintn wrote:

> The biggest mistake of all was made years ago by allowing commercial
> banks to become investment banks.

May 12 05:34 PM

[A strong do...:]

The market can be played a long time with collaboration amongst the major players. I anticipate some serious fluctuation where the smaller traders that can't guide the market are destroyed and the larger players that lead it do fine... just like the banks. It's akin to gambling. We have the house with seasoned dealers and the small fries coming in to try their luck. The house always makes the bulk of the money, while a little is shifted around the fries until they are foolish enough to go all in. Eventually the house owns everything.

The market is only responding slightly to external pressures because the big guys control the game. When they decide to let it collapse, they will exit and it will. Everything will be on the cheap and they'll buy back in. Rinse and repeat. What better way is there to make money in a recession? Oh let's not forget the best part... on the outside it looks legitimate.

For this rally to be sustainable, we'd have to see real improvement in the economy, not a slowing collapse. Job loss in the US when you don't count the short term census jobs is dismal, and when you add in the adjustments for February and March it's even worse. I think the author is right about the nature of this market and my heart goes out to those foolish enough to play the game.

May 12 05:42 PM

[consumerons...:]

Teach enough people in the lower income levels how they can use the market to ratchet up their income by sensible dividend investing in good companies and see if the damned shorts can screw them out of their life savings then!

May 12 07:29 PM

[Sellputs:]

To all the technicians out there, like myself, the market looks toppy. Hell, we all know this market is overbought on just about every indicator but this does not matter. Retail trading in my mind has really caused this market to overshoot, just like we overshot 20% down during the "crash". Whatever the case maybe, one fact remains, people are tired. When I say people I mean the kool-aide drinkers who believe anything cnbc and the likes tell them.

*FOLKS anything hitting CNBC, whether it maybe a popular market theory or sentiment, is old news!! Ill admit i have CNBC on when i am trading, but not for stock tips or insightful drivel. I keep it on in CASE some ridiculous news is first broke on CNBC, like the BS news on a takeover of Sprint SK Telecom Merger, i believe it was later summer 2008. This news came out around noon and it sent Sprints stock flying, only to drop back like a rock after Gasparino corrected himself, scammers. Rant over.
Anyway, the reason i bring this up is, do you own due diligence because if you do not you may get stuck holding the bag when the smart money turns this market around. CNBC = wanna be smart money but is always late to the party.

The reason this market is tired comes down to retail trading being shaken out of the market, possibly because people stuck in these 3x bear products havebeen horrificly beaten down in the near term are losing interest. People who are not seasoned traders, or those who have been forced to trade because they are looking to clear up a wash sale are getting worn out with this daily grind. Bids are beginning to lighten up and volume is getting lower, possibly signaling people simply cant sustain they must stop. When this happens the market will fall, the kool-aide drinkers will sell in a cascade.

May 13 12:59 AM

[Peter Cooper:]

Buy some gold and silver this time for downside protection, this will be the replacement for bonds as a safe haven, see:
arabianmoney.net/2009/.../

May 13 02:21 AM

[kmf:]

I totally agree about not allowing commercial banks to become investment banks, money managers and enter other obscure businesses. Allowing themto enter other businesses just adds to the conflict of interests that exists on Wall Street.

During this crises, with all the programs introduced to straighten out the banking system, has anyone heard about the program to to restore banking to it's more simple form so that they are not "to big to fail"? No! and you know why - fear that would start another run.



On May 10 10:10 AM Momintn wrote:

> The biggest mistake of all was made years ago by allowing commercial
> banks to become investment banks. Once you allow banks who are regulated
> by the government to trade in risky classes of investment products,
> then anyone could have foreseen the consequence of where we are today.
> And instead of holding these decision makers responsible and doing
> a proper investigation for possible fraud thereby at least removing
> them from their executive position, these same men are regarded as
> advisors to our most highly-elected office. If our government can
> investigate someone's sexual acts, you would think they could investigate
> the people who caused this demise of our stock markets and our economy.

May 13 09:05 AM

[wobatus:]

OK, my 2 (thus far) negative recommenders, how is what i said wrong?

Bear Stearns was just an investment bank. Same with LEH. Same with Merrill. None of them were hypbrid commercial/investment banks, yet they were the poster boy "fails."

What did Morgan Stanley and Goldman do? become banks proper.

How were Merrill and BSC "saved"? Shotgunned into mergers with banks.

Not saying this helped said banks.

But all the i-banks are gone. None of them were post-Glass-Steagall hybrids, but none exist as investment banks any more.

And banks that had nothing to do with investment banking also tanked.

So repealing Glass Steagall didn't cause their downfall. The answer to these questions, what caused the collapse, isn't "Glass-Steagall was repealed." There were a lot of factors.

Further, there are investment bank/commercial bank hypbrids in other countries besides the U.S.

I agree that commercial banks or that side of business, with insured deposits and now explicit government backstops, needs effective regulating. I just don't know that saying you can't do both is the be all answer. Does that imply that our i-banks can just be cowboy risk mongers?

In any event, if you have pure investment banks and pure commercial banks both failing, and in fact representing the most glaring examples, it is hard to say repeal of Glass Steagall caused the problem.


On May 12 03:59 PM wobatus wrote:

> Also interesting is that JPM is a combination and yet perceived as
> fairly safe comparatively. LEH, BSC were just i-banks, ML was an
> i-bank forced to merge with a bank to survive. So combining the 2
> things didn't kill those 3. GS and MS were forced to convert to banks.
>
>
> The model got killed. No one would touch them without explicit government
> backing.
>
> Wamu and Indybank failed, and they were plain old banks, or s&ls.
>
>
> Mixing i-banks and commercial banks is not at all what caused the
> problem. C is a hybrid, but it was just remarkably poorly run. <br/>
>
> In short, I don't think repealing Glass-Steagall did it. Indeed,
> being explicitly regulated may have led to a sense of safety that
> wasn't there.
>
> But back to the i-banks, going public may have started it. The partners
> risked their own capital. Once you went public it was all OPM.<br/>
>

May 13 05:47 PM

[seanmac:]

I am not expert on economy or finance.

But I still felt there is some bias in this article.

The author so easily criticized the present government, but did he has any clue if without government's bailouts and other urgent actions, where our economy would have led us to? A possibility of falling off the cliff?

Why criticized this new administration when all the troubles were created and started by Bush administration?

It is unluck for any president after eight years of Bush.

May 13 09:44 PM

[Kinabalu:]

Wobatus -- don't feel bad. I got three negative votes for barely suggesting there might be some internal contradictions in Momintn's post. He probably has multiple sign-ins.


On May 13 05:47 PM wobatus wrote:

> OK, my 2 (thus far) negative recommenders, how is what i said wrong?
>
>
> Bear Stearns was just an investment bank. Same with LEH. Same with
> Merrill. None of them were hypbrid commercial/investment banks, yet
> they were the poster boy "fails."
>
> What did Morgan Stanley and Goldman do? become banks proper.
>
> How were Merrill and BSC "saved"? Shotgunned into mergers with banks.
>
>
> Not saying this helped said banks.
>
> But all the i-banks are gone. None of them were post-Glass-Steagall
> hybrids, but none exist as investment banks any more.
>
> And banks that had nothing to do with investment banking also tanked.
>
>
> So repealing Glass Steagall didn't cause their downfall. The answer
> to these questions, what caused the collapse, isn't "Glass-Steagall
> was repealed." There were a lot of factors.
>
> Further, there are investment bank/commercial bank hypbrids in other
> countries besides the U.S.
>
> I agree that commercial banks or that side of business, with insured
> deposits and now explicit government backstops, needs effective regulating.
> I just don't know that saying you can't do both is the be all answer.
> Does that imply that our i-banks can just be cowboy risk mongers?
>
>
> In any event, if you have pure investment banks and pure commercial
> banks both failing, and in fact representing the most glaring examples,
> it is hard to say repeal of Glass Steagall caused the problem. <br/>

May 14 12:17 AM

[Finance Fan...:]

Its almost an oxymoron, a bull market that few are buying. The lack of volume confirms our current waffleing stage in this rally. However, to be considered a true "bull market" I believe the volume needs to be much more stronger.

May 14 06:22 PM

[Valley Boy:]

Whisperonthewind, it sounded from your reply that you were
referring to the Community Reinvestment Act of 1977. Some
have mentioned this act as the acorn of our current oak of housing
troubles. The intention of the act was to prevent redlining of low-
income neighborhoods in regards to lending availability and
practices by banks. The problem with the act was that it did not mandate the banks to add to the strengths of their reserves. Tightened regulation for additional bank reserves would have gone hand-in-hand with mandated legal requirements regarding housing
discrimination. Another possibility would have been to have left the banks alone in the act but to increase the availability of public housing or the use of public housing vouchers. In any case, 1977 was a time of overenthusiastic legislation and much of it was not well thought out. Similar scenarios are going on currently.
Sorry to take so long to reply; I ran off to Vegas to attend
The Money Show.

May 15 02:37 PM

[commoinsens...:]

I believe that the previous admin was for the most part responsible for this mess. The "ownership society" was incredibly stupid. I also believe that Mr clinto also let the horse out of the barn with dergulation in the late 90's and that the current administration is sadly not doing the right things by llistening to Geitner and summers. They should have let the "to big to fail" banks fail and let the responsible banks mop up the mess. If TARP or others were to be spent they should have gone to the more responsible banks and to help borrowers in trouble.



On May 10 09:45 PM FWallace wrote:

> LillyM
>
> Just what are you smoking or are you just stupid?
>
> Do you really believe that our current President is the source of
> our problems today? I'm sorry but please get a clue... this mess
> was created and therefore started several years ago, in fact why
> not blame our previous adminstration for the problems we're facing
> now... and praise our current adminstrations for their efforts and
> the challanges they are forced to deal with to help get us out of
> this fiasco.

May 20 01:22 PM