Was That the End of the Rally? 64 comments
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For some time, there have been questions about the veracity and the ability for the market to sustain a prolonged rally. Questions have been asked such as: Is it real? Is it safe? Will it turn down again?
Many of the concerns were due to several meaningful components that made up the rally from the devilishly low point in March of 666, reached by the S&P 500 index. Since then, stocks have been on fire and recovered all of the 2009 losses and more. But why so many questions?
For one, volume has always been suspect. Traditionally, a market rally would start slowly and then grow as more participants believed they could put their hard earned money to work to earn a rate of return greater than money market funds or other competing assets. As the rally progresses, more investors become desirous of investing and volume begins to swell. That has not happened this time around, just as it hadn’t during the past few bear-market rallies. As a matter of fact, most of the high volume days came when the markets were down. This is not a sign of a healthy market rally.
This rally has also been classified by many experts as a junk rally. This occurs when the riskiest asset classes significantly outperform quality investments. Some market pundits believe this is the work of quantitative funds going through a massive deleveraging process. These are hedge funds that run mathematical models that predict risk and reward in assessing investment arbitrage opportunities. As a simple example, many quant models look to short (sell) those stocks with the worst fundamental outlook and buy (long) those that are calculated to have a higher level of quality.
(Listen to MSN’s Bill Fleckenstein on TDI Podcast 108: Commodities and Contrarians)
Simple Quant Strategy: Buy the good stocks, sell the bad stocks.
Lately, this market rally has thrown the quant models a curve ball again and again. These models are run by powerful computers making millions of calculations per second throughout the trading day in order to post gains on lightning-fast price aberrations.
To see what was going on under the surface of the market that we usually see represented by the Dow Jones Industrials and the S&P 500 index, we recently completed a study* to find what, if any, difference the market rally has on high volatility stocks as compared to low volatility stocks.
Interestingly, the lower volatility stocks (think of these as the stocks with solid/quality fundamentals) were up a paltry 5-8% on average, with many down during the period. This is once again showing us that we could be in line for a very big change once there is a shift in trend.
More concerning, though, was the fact that the greatest volatility stocks contained mostly financials and a few retail stocks with a smattering of other sectors represented. That grouping had a range of returns of 50-100% and on average was up almost 60%. What this says is that much of the recent rally was made up of the kind of stocks that the very active quant funds had been shorting. This created a need to exit short positions (also known as a short-squeeze), which in turn pushed shares higher, creating the need to continue to cover positions that moved higher than the quant models would allow. The process repeated itself over and over, causing many of the riskiest stocks with the worst fundamentals to overshoot most analysts’ target prices by a wide margin.
An example of how this strategy performed during the March-April rally can be seen by studying the JP Morgan Highbridge Statistical Market Neutral Fund (HSKAX). This is available to the public, while many of the larger quant funds are only available to private clients of investment houses such as Goldman Sachs (GS), JP Morgan Chase (JPM) and Morgan Stanley (MS).
HSKAX objective: The investment seeks to provide a long-term positive return. The fund invests in the equity securities that are undervalued and sells short securities that it believes are overvalued. It takes long and short positions selected from a universe of mid- to large-capitalization stocks with characteristics similar to those of the Russell 1000 index. It may also invest in shares of exchange-traded funds.
From March 1 to April 30, the fund lost 0.65% while the S&P 500 gained almost 11% and the NASDAQ was up just shy of 14.5%.
Many bulls have seen this rally as a result of the green shoots that Fed chief Ben Bernanke proclaimed during a speech in March. These economic reports show that the economy is no longer in a free fall that essentially ground business to a halt during the fourth quarter of 2008. For all of us who want to believe that this is true, we have to agree that great bull markets were not created by economic conditions that were “not as bad as last time.”
Who are we kidding? Growth is the major driver when it comes to corporate earnings and we are clearly not in a growth phase, nor does it appear that we will see any significant and actual growth for several quarters to come. However, we wish and hope for better days. Back-to-back gross domestic product (GDP) numbers showing a contraction of more than 6% are no reason to rejoice, even if the economy is assumed to stabilize by the fourth quarter of 2009.
We need much more than a temporary increase in consumer spending, due to the March-April tax refunds/credits, before we can sound the all-clear siren. Even as the latest GDP report revealed that consumption was on the rise, last week we saw the wholesale report that clearly showed inventories are still in decline and sales are continuing to fall. In other words, the economy is not picking up much at this point.
There are also macroeconomic concerns in play that are being discounted. One of the most important is the disturbing level of unemployment and the realization that it is going to climb for some time to come. While we celebrated the most recent release from the Bureau of Labor Statistics that reported “only” 539,000 jobs were lost, the 8.9% base rate of unemployed and the more realistic U6 rate of 15% is not cause to celebrate and drive stocks much higher. The U6 rate is the broadest measure of unemployment, which includes: total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
As the housing crisis is directly correlated to the rate of unemployment, it is hard to imagine that we will see a quick end to the increasing level of delinquencies and foreclosures. Most economists agree that the first thing that needs to be done is to fix the housing problem, as that is key to correcting the problems within the financial sector.
Banks are still not lending, and who could blame them? As the Case-Shiller 20 index shows, prices for the average house continue to decline at an alarming rate. Recently the WSJ stated that “a drop of 18.6% for February is widespread, with half of markets posting steeper declines than in the previous month.” (Click here for an interactive map of housing prices.)
As for the employment number, it is nothing to get to excited about. Much of the decline in the report was due to a well-concealed/temporary hiring of 72,000 census workers by the federal government. If it were not for that, we would still have seen a 6-handle last week (600 or more jobs lost). Even though stock markets tend to rebound much ahead of the worst employment conditions during recessions, remember that we need at least 125,000 new jobs created monthly in order to keep ahead of people entering the work force and immigration trends.
Finally, many stocks have apparently overshot their forward valuations as the exuberance of early recovery signs may have painted too rosy of a color to the green shoots. Excluding financial companies, on average stocks that have reported earnings during this season have outpaced analyst expectations by 10%. The trend is showing revenue coming in much weaker and earnings (EPS) better. How is that possible?
It is due to the massive level of cost cutting that has been occurring, particularly the savings from reducing the cost of employment. Think about it for a second: If we assume 100,000 jobs lost in a week at an average cost of $50,000 per employee based on salary and benefits, that is a savings of $5 billion weekly for companies.
* Note: The date range for the study was from March 1, 2009 through April 30, 2009.
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This article has 64 comments:
Who knows? It never made any sense to me in the first place, so how can folks like me be expected to know when it's going to stop? Like I stated in another thread, if the markets make no sense then how can anyone know when to buy or sell? And if I can't figure out when to sell, why in heaven's name would I buy? If I can't be certain my rights as a bondholder won't be trampled by ObamaRattner, why would I commit capital to these markets? This is not merely a rhetorical question.
When someone comes up with a reason for me to withdraw my capital from the Bank of Gaea and commit it to these markets, please call me. Acceptable reasons do NOT include 'because you'll miss the recovery'; I am 51 and I'm increasingly afraid I am going to miss the recovery whether I'm in the market or not.
the inefficient jobs were shed months ago. these continued losses are well into the inner organs of real production capacity. good for giving the unions a wake-up call (which they won't hear), but not so good for our recovery.
jobs are the basis for American consumptions, which we're told is the basis for the American economy right now. Until we start to produce again, and the pricing of our in our (good) companies reflects their fundamental worth (P/Es, etc.), the market needs to continue to correct.
good read,
--ikk
> Also, maybe job loss isn't as important anymore because economically
> inefficient jobs are being shed. A 'new normal. for unemployment
> may be 7-8% instead of the historical average of 4-5%. Having too
> much employment hinders technological progress, and creates inflation.
If you plot unemployment vs recessionary periods, you see that unemployment usually peaks out at the very end of the recession or even several months AFTER the recession is over.
In the chart linked, shaded areas are recessions: static.zooomr.com/imag...
www.bls.gov/cps/cpsaat...
In an economy with consumption accounting for consistently over 2/3 of GDP, a healthy labor market is essential for economic growth. Isn't this obvious?
On May 13 03:00 PM thiazole wrote:
we had pretty good economic growth throughout the
> 80s, yet unemployment was persistantly high during that period as
> well.
On May 13 03:11 PM thiazole wrote:
> Interestingly, if you plot unemployment vs GDP growth, you see that
> GDP growth is highest during periods of high unemployment.
> If you plot unemployment vs recessionary periods, you see that unemployment
> usually peaks out at the very end of the recession or even several
> months AFTER the recession is over.
> In the chart linked, shaded areas are recessions: static.zooomr.com/imag...
>
The most dangerous aspect of this aggressive rally is that there is very little resistance downward, from a technical perspective. S&P ~820 may show a bit, but it's an express elevator down to floor 666 from there. If the brakes don't hold there...
On May 13 02:29 PM SW Richmond wrote:
> "Was That the End of the Rally?"
>
> Who knows? It never made any sense to me in the first place, so
> how can folks like me be expected to know when it's going to stop?
> Like I stated in another thread, if the markets make no sense then
> how can anyone know when to buy or sell? And if I can't figure out
> when to sell, why in heaven's name would I buy? If I can't be certain
> my rights as a bondholder won't be trampled by ObamaRattner, why
> would I commit capital to these markets? This is not merely a rhetorical
> question.
>
> When someone comes up with a reason for me to withdraw my capital
> from the Bank of Gaea and commit it to these markets, please call
> me. Acceptable reasons do NOT include 'because you'll miss the recovery';
> I am 51 and I'm increasingly afraid I am going to miss the recovery
> whether I'm in the market or not.
It seems most here think that high unemployment just means the economy will continue to get worse and as the economy gets worse, unemployment will grow. Well, that is obviously BS, but it is the same argument I hear over and over why this recession will "different from all the rest" and drag out for years. If the recession isn't going to drag out for years, then it is almost over, and if it is almost over, then the stock market has likely already hit its bottom, since the stock market almost always bottoms 6 to 9 months before the end of the recession.
Trying to time the market's moves is futile.
Stock prices have rallied significantly, but they are still FAR below highs that existed in the 1999-2008 time frame.
Time horizon and valuation are the keys.
If your horizon is relatively short (say less than a year or two) then you are not really an investor, and should have little if any equity exposure. If your horizon is longer than two years, history would argue that the optimal time for committing capital to equities is when the current economic metrics look the worst. History shows this unequivocally.
So, unless you can make a credible case to yourself that "this time it is different" (i.e., capitalism in the U.S. is irrevocably "broken" and investors should not expect long term annual returns of at least 6-7% going forward), then the correct question is not "has the market come too far too fast, is this the end of the rally?" but rather "what is the likely long term earning potential of equities, and what would that equate to in terms of an appropriate S&P 500?"
If you look at many mainstream companies, and consider that current price levels appear to discount long term profit growth rates of low to mid single digits, or less, then you find equities are still pretty attractive if you have a longer term (2+ years) horizon.
It is likely that at some point there will be a pullback given the speed and magnitude of the rally over the past 8 weeks. History also strongly suggests that our economy is pretty resilient, and that earnings for U.S> companies will be considerably higher in 2011-2013 than in 2009. I believe that patient investors will be amply rewarded for accepting current headline risk because past difficult economic periods have uniformly been followed by exceptional stock returns over following 5 and 10 year periods.
Of note -- money market assets approximate 50% of TOTAL U.S. equity market capitalization, versus much lower cash to market value ratios on average over the past several decades.
There is nothing wrong with holding cash or treasuries if you are unable to accept the uncertainty and volatility that are normal aspects of the stock market. However, using traditional valuation metrics against recession-level earnings is misguided; trying to ballpark what normalized recovery profits will be accompanied by average valuation levels 3-4 years would likely lead to a fairly optimistic assessment of the opportunties at present in U.S. stocks today.
On May 13 03:55 PM User 413438 wrote:
> An alternative viewpoint --
> If your horizon is relatively short (say less than a year or two)
> then you are not really an investor, and should have little if any
> equity exposure. If your horizon is longer than two years, history
> would argue that the optimal time for committing capital to equities
> is when the current economic metrics look the worst. History shows
> this unequivocally.
>
> So, unless you can make a credible case to yourself that "this time
> it is different" (i.e., capitalism in the U.S. is irrevocably "broken"
> and investors should not expect long term annual returns of at least
> 6-7% going forward), then the correct question is not "has the market
> come too far too fast, is this the end of the rally?" but rather
> "what is the likely long term earning potential of equities, and
> what would that equate to in terms of an appropriate S&P 500?"
Wait... someone needs to have money to buy things.
Ah yes... government.
Wait... government needs to collect taxes from somewhere.
Ah, no they don't - to the printing presses we go! Keep shedding US employers, prosperity lies ahead!
Let me as you something? When have we ever seen the endless job cuts and economic downward spiral that you fantasize about? We have had equivalent job losses before, even fairly recently (mid 70s), yet the economy always rebounded. Why is that? Why doesn't your theory that once employers start cutting jobs that eventually everyone will be without work hold up in real life?
> An alternative viewpoint --
> If your horizon is relatively short (say less than a year or two)
> then you are not really an investor, and should have little if any
> equity exposure. If your horizon is longer than two years, history
> would argue that the optimal time for committing capital to equities
> is when the current economic metrics look the worst. History shows
> this unequivocally.
>
> So, unless you can make a credible case to yourself that "this time
> it is different" (i.e., capitalism in the U.S. is irrevocably "broken"
> and investors should not expect long term annual returns of at least
> 6-7% going forward), then the correct question is not "has the market
> come too far too fast, is this the end of the rally?" but rather
> "what is the likely long term earning potential of equities, and
> what would that equate to in terms of an appropriate S&P 500?"
>
Your scenario may be correct, and it may not be. As I stated in my earlier post, I disagree vigorously with your time horizons. In my view the only historic event of comparable magnitude is the Great Depression. Stocks hit their lows at nearly -90% off their 1929 highs. This time around the necessary flush out of malinvestment has been thwarted; mountains of good money have been sent after bad, and genuine recovery has thus been prevented. After the 1929 event, the Dow had many false rallies which included many choruses of "Happy Days are Here Again". It took more than two years to reach a bottom that time, with intervention until that bottom paling in comparison to now. I do not believe we have reached a bottom. We have certainly not reached anything approaching full disclosure or transparency. How can I commit capital when there are so many obstacles to transparency in such a large segment of the market? If I were an insider or on someone's 'friends and family plan' that would be another matter.
On May 13 04:30 PM SW Richmond wrote:
> On May 13 03:55 PM User 413438 wrote:
november and december popped out a bit, but in a different way, not bottoms. this isnot a short term way of looking at trades. you will see same thing october 2007 peak.
the pop this way may not be exact top or bottom, but works for trading.
see same thing with dig on recent move.
last may, right b
On May 13 03:55 PM rope789 wrote:
> An alternative viewpoint --
>
> Trying to time the market's moves is futile.
>
> Stock prices have rallied significantly, but they are still FAR below
> highs that existed in the 1999-2008 time frame.
>
> Time horizon and valuation are the keys.
>
> If your horizon is relatively short (say less than a year or two)
> then you are not really an investor, and should have little if any
> equity exposure. If your horizon is longer than two years, history
> would argue that the optimal time for committing capital to equities
> is when the current economic metrics look the worst. History shows
> this unequivocally.
>
> So, unless you can make a credible case to yourself that "this time
> it is different" (i.e., capitalism in the U.S. is irrevocably "broken"
> and investors should not expect long term annual returns of at least
> 6-7% going forward), then the correct question is not "has the market
> come too far too fast, is this the end of the rally?" but rather
> "what is the likely long term earning potential of equities, and
> what would that equate to in terms of an appropriate S&P 500?"
>
>
> If you look at many mainstream companies, and consider that current
> price levels appear to discount long term profit growth rates of
> low to mid single digits, or less, then you find equities are still
> pretty attractive if you have a longer term (2+ years) horizon.<br/>
>
> It is likely that at some point there will be a pullback given the
> speed and magnitude of the rally over the past 8 weeks. History
> also strongly suggests that our economy is pretty resilient, and
> that earnings for U.S> companies will be considerably higher in 2011-2013
> than in 2009. I believe that patient investors will be amply rewarded
> for accepting current headline risk because past difficult economic
> periods have uniformly been followed by exceptional stock returns
> over following 5 and 10 year periods.
>
> Of note -- money market assets approximate 50% of TOTAL U.S. equity
> market capitalization, versus much lower cash to market value ratios
> on average over the past several decades.
>
> There is nothing wrong with holding cash or treasuries if you are
> unable to accept the uncertainty and volatility that are normal aspects
> of the stock market. However, using traditional valuation metrics
> against recession-level earnings is misguided; trying to ballpark
> what normalized recovery profits will be accompanied by average valuation
> levels 3-4 years would likely lead to a fairly optimistic assessment
> of the opportunties at present in U.S. stocks today.
next about 840, then about 750 which I think we will be able to make a long term up move on. (s&p that is)
who knows, it's just a guess, but get to the 2002 lows again and I think big money will jump in.
I don't know, could easily be wrong. but you aren't going to see big money go in again without a sig pullback.
watch base metal prices. they lead a rally and should tell you something.
On May 13 04:09 PM thiazole wrote:
> Exactly! It is sad that investing 101 common sense has to be presented
> as "an alternative viewpoint" here. The Dow is only up about 1500
> pts from its recent bottom and down about 6000 pts from its recent
> top, yet people are so obsessed with the downside potential that
> they would rather miss the opportunity to make the very large amount
> of money associated with a market recovery (which will happen sooner
> or later regardless of who is right in the short term) than risk
> the much smaller downside risk associated with retesting the bottom.
>
We may go backwards, I have said before I think to possibly 7500, is that the end of the rally? No
Markets traditionally trade on an outlook 6-9 months into the future, you also need to consider that very few companies now are 100% dependent on the US economy, most are at least partly global.
Given that is a fact the 6 to 9 month outlook for the global economy is not so bad Yes there maybe be short term fall-backs. great entry points to invest in sound companies.
Is the Dow reflecting the value of the USA economy today? No. it is not supposed too!
For all the people who think we are about to turn the corner and happy times are just around the bend, I have to say just one thing: The American consumer has never before in history been this leveraged and indebted. And for an economy that has recently been 70% dependent on consumer spending, that is not a good sign!
If I'm reading some of this speculation correctly, this whole rally could have been caused by a short squeeze on the quants engineered by Goldman? That would explain the poster who thought it was just the big guys "picking each others pockets".
On May 13 06:01 PM Cetin Hakimoglu wrote:
> green shoots
>
> photos5.pix.ie/80/E5/8...
On May 13 05:07 PM dcb wrote:
> not true some have shown 30 year cycles, you are assuming norm since
> 1982. you could have held for 10 years and netted almost no return.
> look how long japan has gone down. what wa the return during the
> depression years, if you bought after the crash when the markets
> had about doubled (I believe) you dropped further and it took many
> years to get back gains. please note emerging markets up about 86%
> since march. that sound much more like a bubble than sustainable
> recovery to me. (ie) those returns in that period of time remind
> me much more of the bounce after the crash than the slow steady gaisn
> we saw after 82, or after the 3rd bounce from the 2002 recession.
> I'd say this market leap look like the second bounce from the 2002
> recession.
Also, many recession are preceded by record numbers. As I recall, the stock market was more over valued in 2000 than any other year in history. It wasn't the end of the world, and there even still plenty of opportunities to make money in the stock market when that bubble popped (and the market was still historically over valued until just recently). You think everyone has to fully correct at once, but it doesn't. Inflation and a weak dollar will reduce the effects of debt over the next 5-10 years until it isn't a major issue any more.
On May 13 05:36 PM History Buff 24/7 wrote:
> Some interesting posts here ...
>
> For all the people who think we are about to turn the corner and
> happy times are just around the bend, I have to say just one thing:
> The American consumer has never before in history been this leveraged
> and indebted. And for an economy that has recently been 70% dependent
> on consumer spending, that is not a good sign!
>
> If I'm reading some of this speculation correctly, this whole rally
> could have been caused by a short squeeze on the quants engineered
> by Goldman? That would explain the poster who thought it was just
> the big guys "picking each others pockets".
>
BOO!! MADE YOU LOOK!!
On May 13 04:28 PM Cetin Hakimoglu wrote:
> A lot of people fall for the full employment is good myth.
>
> Here's what you have to remember. When companies cut jobs they are
> cutting the jobs that are inefficient. Those are the jobs that cost
> the company more money to too keep on the payroll than is produced
> in return by the employee. The person who lost his job has the option
> of either applying for a government handout, improving his technological
> proficiency (so he find find a job that is efficient), or starting
> a business to provide services that people need. the first example
> hinders innovation and creates inflation. The later two option enable
> the advancement of society through the development of new technologies.
>
>
> What about buying things? Those who are in the upper echelons of
> society such as entrepreneurs contribute the most to consumer spending.
> The richest 20% of households account for nearly 40% of consumer
> spending. it is in the government's best interest to create a tax
> environment that benefits these people, because they not only create
> most of the efficient jobs, but consume the most, too. They also
> pay the most taxes.
>
> By having a high unemployment rate people have an incentive to seek
> employment that advances society.
>
>
On May 13 06:01 PM Cetin Hakimoglu wrote:
> green shoots
>
> photos5.pix.ie/80/E5/8...
On May 13 04:38 PM Cetin Hakimoglu wrote:
> Not all of that consumption is retail though.
Always on the wrong side of things, aye?
On May 13 02:31 PM Donkey Kong wrote:
> You really are a dope.....
When companies ship jobs overseas, it is typically because the labor force of the companies receiving those jobs are willing to tolerate a much lower living standard than what we currently enjoy. One reason we don't tolerate such a living standard is precisely
because we consume as much as we do. Again, this has no correlation with efficiency. The correlation is with cost of living. If you want our cost of living to compare to the cost of living of emerging economies, we will have to lower our consumption. This will lower our GDP. Your stocks will go down. You will be 'wrong'.
Shipping jobs overseas also has no correlation with human capital - Asia has some of the brightest doctors and engineers in the world working for about 10% of the wages of doctors and engineers in the US. Getting an education would not help your situation - your job will be outsourced anyway:
mdsalaries.blogspot.co...
askville.amazon.com/av...
Average annual starting salary of cardiac electrophysiologist in the US:
$300-400k
Average annual starting salary of cardiac electrophysiologist in India:
$20-30k
Therefore, your argument about increasing consumption, increasing unemployment, and somehow having these two factors increase GDP IS THE HALLMARK OF UTTER STUPIDITY.
The solution, since you care so much about the health of our economy, is to do some research, find out exactly what the problem is, and solve it. It is certainly not to make up a story as you go and jam it down the throats of those surfing a public website day after day, week after week, month after month. In fact, what you are doing reflects that you neither care about the people who follow your advice, nor care about the health of our economy. All you care about is advancing your misbegotten opinion at the expense of anyone foolish enough to read it and believe it.
Cetin, shut the hell up already. Get the f*** out of here.
On May 13 04:28 PM Cetin Hakimoglu wrote:
> A lot of people fall for the full employment is good myth.
>
> Here's what you have to remember. When companies cut jobs they are
> cutting the jobs that are inefficient. Those are the jobs that cost
> the company more money to too keep on the payroll than is produced
> in return by the employee. The person who lost his job has the option
> of either applying for a government handout, improving his technological
> proficiency (so he find find a job that is efficient), or starting
> a business to provide services that people need. the first example
> hinders innovation and creates inflation. The later two option enable
> the advancement of society through the development of new technologies.
>
>
> What about buying things? Those who are in the upper echelons of
> society such as entrepreneurs contribute the most to consumer spending.
> The richest 20% of households account for nearly 40% of consumer
> spending. it is in the government's best interest to create a tax
> environment that benefits these people, because they not only create
> most of the efficient jobs, but consume the most, too. They also
> pay the most taxes.
>
> By having a high unemployment rate people have an incentive to seek
> employment that advances society.
>
>
If there was any justice in this world, then for every person that would believe in your opinion, a 10 pound boulder dropping on your head would about cover the damage you would have caused that poor soul.
I actually suspect that as the dollar weakens substantially more that the US will become the nation where all the work is outsourced, and we will also become a major exporting nation. In fact, because the dollar will be so weak, we won't be able to compete well for our own goods. We will see very low unemployment, but we just won't have the purchasing power to maintain the current standard of living (or at least to improve our standard of living). Eventually in doing this long enough, our debts will be paid. It will be an interesting contrast and will hopefully purge the ridiculous notion that jobs = economy. If jobs were really so important, we'd mandate a reduction in efficiency. Stop using tractors for farming, and everyone would be employed - but the economy would still just get worse, obviously.
On May 13 11:12 PM I am NOT Ned!! wrote:
> If you
> want our cost of living to compare to the cost of living of emerging
> economies, we will have to lower our consumption. This will lower
> our GDP. Your stocks will go down. You will be 'wrong'.
>
> Shipping jobs overseas also has no correlation with human capital
> - Asia has some of the brightest doctors and engineers in the world
> working for about 10% of the wages of doctors and engineers in the
> US.
On May 13 11:37 PM thiazole wrote:
>
> I actually suspect that as the dollar weakens substantially more
> that the US will become the nation where all the work is outsourced,
> and we will also become a major exporting nation. In fact, because
> the dollar will be so weak, we won't be able to compete well for
> our own goods. We will see very low unemployment, but we just won't
> have the purchasing power to maintain the current standard of living
> (or at least to improve our standard of living). Eventually in doing
> this long enough, our debts will be paid. It will be an interesting
> contrast and will hopefully purge the ridiculous notion that jobs
> = economy. If jobs were really so important, we'd mandate a reduction
> in efficiency. Stop using tractors for farming, and everyone would
> be employed - but the economy would still just get worse, obviously.
>
>
> On May 13 11:12 PM I am NOT Ned!! wrote:
>
Your argument about the dollar would probably be a result of our current monetary policy. As much as I agree with all of your other observations related to it, I completely disagree that jobs do not equal economy.
Jobs do equal economy. I agree that GAINFUL employment is key, but the fact is that people must be employed in order to have any income to spend. Regardless, it seems that no matter what we do, anything and everything that can get outsourced, will get outsourced. One day, even things like medical care may be outsourced. Without a manufacturing base, or some sort of base of production, I'm afraid our economy will stagnate.
And, to address Cetin's point, if all of those auto workers get a master's degree in electrical engineering, will they get gainful employment at Silicon Valley? Probably not, because high-tech has been one of the chief out-sourcers in our country.
www.businessweek.com/t...?
chan=technology_techno...
If you read this article beyond the title, you'll see that outsourcing is alive and well - and that was back in 2006.
"There would have been a lot more than 147,000 jobs created here, but our companies are having difficulty finding Americans with the background," - read between the lines, i.e., a low-wage background. Our colleges and universities are the best in the world, so it is unthinkable that skill set is what this guy's talking about.
In the ever-present search for cheap labor, where will high-tech jobs get cut first? You got it, probably here. At the very least, if they do cut them overseas, you can rest assured that jobs that weren't cut here will be off-shored soon enough.
On May 13 11:37 PM thiazole wrote:
> It will be an interesting
> contrast and will hopefully purge the ridiculous notion that jobs
> = economy. If jobs were really so important, we'd mandate a reduction
> in efficiency. Stop using tractors for farming, and everyone would
> be employed - but the economy would still just get worse, obviously.
>
Dollar devalues. Job outsourcing ceases, or at least slows. Dollar devaluation leads to the relative rise in commodity prices. Therefore goods become more expensive and consumption drops. Unemployment increases due to consumption dropping.
I hope you see we're talking the same book. In order for jobs to be in-sourced into America, we'll have to accept a standard of living BELOW China and India. We will have to erase 50 years of progress. That is not desirable.
Regarding efficiency, in China and India, they DON'T use tractors for farming, and everyone IS employed in the countryside at subsistence levels. That is what we are competing with. One worker here produces what 100 workers in China produce, but that is simply not enough - those 100 workers are paid less than the one American worker. Efficiency is NOT the issue here. So, unless you want to return to subsistence levels, I'd find another solution.
On May 13 11:37 PM thiazole wrote:
On May 13 04:58 PM dcb wrote:
> may be end rally, 1st real test is about 880. I'd expect an up day
> tomm, to try and bounce of this, or if futures lower to trade up
> during day.
> next about 840, then about 750 which I think we will be able to make
> a long term up move on. (s&p that is)
>
> who knows, it's just a guess, but get to the 2002 lows again and
> I think big money will jump in.
>
> I don't know, could easily be wrong. but you aren't going to see
> big money go in again without a sig pullback.
>
> watch base metal prices. they lead a rally and should tell you something.
On May 13 03:54 PM thiazole wrote:
> My point is the same as your points, but you have to think about
> it before it makes sense. You have the greatest GDP growth right
> after unemployment peaks out - and the worse the unemployment, the
> greater the growth tends to be. Why? Because the labor pool is
> vast and will accomodate massive growth in the sectors which have
> the most potential.
>
> It seems most here think that high unemployment just means the economy
> will continue to get worse and as the economy gets worse, unemployment
> will grow. Well, that is obviously BS, but it is the same argument
> I hear over and over why this recession will "different from all
> the rest" and drag out for years. If the recession isn't going to
> drag out for years, then it is almost over, and if it is almost over,
> then the stock market has likely already hit its bottom, since the
> stock market almost always bottoms 6 to 9 months before the end of
> the recession.
Hell, I'm not telling you to pull out, and congrats if you made money on it. I don't really care what the market does to be honest. no matter what way it trades i can do OK. I made a total of got out about the 20th. made two trades of double inverse stocks at that point and made 18% on those (twm) dug. together more that he 30% rally. when it comes back down I'll look for the entry point I want. I also made a side trade on dbb at a bit over 13 up to 15.
the futures will be very low tomm, which means a poss. entry point. I'll give it a shot and see how the action runs. told a guy to short emerging markts sunday night. didn't make the trade Monday AM, my fault.
if you don't want to see, don't, but after this big a gain keep your longs and trade the short side. we as we drop I trade the long side. This am small trade dig, I caught the bounce up for a few percent for the day, that's fine with me.
the goal is for everyone to make some money. I don't know when you put ,money into play. you have to make your own choices.
In truth I think the NYSE is going to do whatever goldman wants it to do. on that particular day. I know they can't keep it up forever. all signals, currency, commodity, etc pointed to the move down. oil now at 60 points to a move down esp when the pro's say it should be below 50.
markets for stable long gains don't go up that fast, and having watched it a few times I certainly can tell you that when you start looking at your statement and can't believe your gains because you think it is so easy it is usually time to bail.
On May 13 07:41 PM thiazole wrote:
> It is a 34 year cycle with 17 years up and 17 years sideways. Even
> during the 17 year bear (sideways) the market STILL recovers from
> the recession lows. There is no example where the market crashed
> from a recession and stayed there for several years. The best time
> to invest is always in the middle of a recession, whether that is
> during the 17 year bull or the 17 year bear. The closest recession
> to this one during a 17 year bear cycle was the 1974 recession (very
> deep, energy and housing related, and global). Look at the charts
> from 1974 -1976 and compare them to what we've seen so far. Yes,
> once the market recovered to the previous highs, it didn't go anywhere
> until the 17 year bull started, but it still went back to the previous
> highs. Ironically 1974 was the 9th year of the 17 year bear just
> like 2008 is the 9th year of the current 17 year bear.
On May 14 01:50 AM dcb wrote:
> I don't disagree at all. just saying too far, too fast. it was a
> traders rally, not an investors rally. I'll stick with my 750 target.
>
>
> Hell, I'm not telling you to pull out, and congrats if you made money
> on it. I don't really care what the market does to be honest. no
> matter what way it trades i can do OK. I made a total of got out
> about the 20th. made two trades of double inverse stocks at that
> point and made 18% on those (twm) dug. together more that he 30%
> rally. when it comes back down I'll look for the entry point I want.
> I also made a side trade on dbb at a bit over 13 up to 15.
>
> the futures will be very low tomm, which means a poss. entry point.
> I'll give it a shot and see how the action runs. told a guy to short
> emerging markts sunday night. didn't make the trade Monday AM, my
> fault.
>
> if you don't want to see, don't, but after this big a gain keep your
> longs and trade the short side. we as we drop I trade the long side.
> This am small trade dig, I caught the bounce up for a few percent
> for the day, that's fine with me.
>
> the goal is for everyone to make some money. I don't know when you
> put ,money into play. you have to make your own choices.
>
> In truth I think the NYSE is going to do whatever goldman wants it
> to do. on that particular day. I know they can't keep it up forever.
> all signals, currency, commodity, etc pointed to the move down. oil
> now at 60 points to a move down esp when the pro's say it should
> be below 50.
>
> markets for stable long gains don't go up that fast, and having watched
> it a few times I certainly can tell you that when you start looking
> at your statement and can't believe your gains because you think
> it is so easy it is usually time to bail.
>
>
>
On May 13 03:27 PM Whippet wrote:
> I'm in the process of making a deposit to the Bank of Gaea (if by
> that you mean a cigar box in a plastic bag underneath the northernmost
> peony in my yard). Seems like the only safe place for long term
> investments right now...
>
> The most dangerous aspect of this aggressive rally is that there
> is very little resistance downward, from a technical perspective.
> S&P ~820 may show a bit, but it's an express elevator down to
> floor 666 from there. If the brakes don't hold there...
Not an idiot. But I have hope for more upside, now or later, as there is previous 4th wave attraction above 9,000
(better be, as all my shorts aren't in yet!) : )
I rise in support of dcb on timing. I made a freaking fortune timing last year, after two years of careful lurking.
Don't know Why people can say "no one saw it coming" with a straight face. The Austrian school warned of this sort of thing 100 years ago, and the particulars 70 years ago. Congressman Paul & Robert Prechter sounding (different sorts of) alarms for 20 years. Meredith Whitney, Roubini . . . heck, even that crank Krugman saw it coming.
But I must contradict dcb on "the NYSE will do whatever Goldman wants it to do". The market is vastly bigger than even Goldman, and I have lived long enough to see federal market ops get overrun.
Thiazole, I think you assumption re the devaluation of the $US is wrong. For our purposes, it is Relative devaluation that matters, and shortly every other major currency will be falling faster than the $.
Further, I find the assertion that liquidation "caused" the last depression patently false, as a severe bank panic in 1920, met with No government intervention caused a severe but Brief recession. it was government attempts to artificially inflate prices (started under Hoover, magnified expo under FDR) that made things Soooo bad. Just like this time.
And it matter little what they try to do with money supply now, as everything they through will sit, or rot in bad loans. Von Mises did not equivocate as to the eventual fate of credit inflations.
SW, always a pleasure.
Whippet, thank you for explaining "Bank of Gaea"
is too complicated to analyze. one has to wait and see what support
levels in the correction are maintained or violated. this is a wait and see. if the correction is small we have a better than 50% that the market saw its low for now. look back at 2003 and the first move and
correction off the bottom. even with a small move down, there may be a period of flatness until more confidence builds.
On May 14 01:50 AM dcb wrote:
> I don't disagree at all. just saying too far, too fast. it was a
> traders rally, not an investors rally. I'll stick with my 750 target.
>
>
> Hell, I'm not telling you to pull out, and congrats if you made money
> on it. I don't really care what the market does to be honest. no
> matter what way it trades i can do OK. I made a total of got out
> about the 20th. made two trades of double inverse stocks at that
> point and made 18% on those (twm) dug. together more that he 30%
> rally. when it comes back down I'll look for the entry point I want.
> I also made a side trade on dbb at a bit over 13 up to 15.
>
> the futures will be very low tomm, which means a poss. entry point.
> I'll give it a shot and see how the action runs. told a guy to short
> emerging markts sunday night. didn't make the trade Monday AM, my
> fault.
>
> if you don't want to see, don't, but after this big a gain keep your
> longs and trade the short side. we as we drop I trade the long side.
> This am small trade dig, I caught the bounce up for a few percent
> for the day, that's fine with me.
>
> the goal is for everyone to make some money. I don't know when you
> put ,money into play. you have to make your own choices.
>
> In truth I think the NYSE is going to do whatever goldman wants it
> to do. on that particular day. I know they can't keep it up forever.
> all signals, currency, commodity, etc pointed to the move down. oil
> now at 60 points to a move down esp when the pro's say it should
> be below 50.
>
> markets for stable long gains don't go up that fast, and having watched
> it a few times I certainly can tell you that when you start looking
> at your statement and can't believe your gains because you think
> it is so easy it is usually time to bail.
>
>
>
And keep in mind - there are two lessons to be learned from the Great Depression:
1. It shows us what NOT to do.
2. It shows us how incredibly stupid policy makers have to be in order to have a Great Depression.
There has never been a depression like it before or since in the US. There is a good reason for that. All the people who claim that this is a repeat (and remember, people were making the same ridiculous claim during the 2001 recession even though that was nothing more than a blip) need to do a little more studying of the Great Depression before trying to spread their neurotic anxieties causing others to make stupid decisions.
On May 14 04:23 AM Jasper M wrote:
> Thiazole, I think you assumption re the devaluation of the $US is
> wrong. For our purposes, it is Relative devaluation that matters,
> and shortly every other major currency will be falling faster than
> the $.
> Further, I find the assertion that liquidation "caused" the last
> depression patently false, as a severe bank panic in 1920, met with
> No government intervention caused a severe but Brief recession. it
> was government attempts to artificially inflate prices (started under
> Hoover, magnified expo under FDR) that made things Soooo bad. Just
> like this time.
> And it matter little what they try to do with money supply now, as
> everything they through will sit, or rot in bad loans. Von Mises
> did not equivocate as to the eventual fate of credit inflations.
>
>
> SW, always a pleasure.
> Whippet, thank you for explaining "Bank of Gaea"
>
>
On May 14 10:11 AM thiazole wrote:
> Oh yeah, and while I agree that the dollar will hold up in the short
> term, I'm talking about over the next 10 years. The dollar will
> eventually creep its way to 1/2 or maybe even 1/3 its current value.
> Like I said, that is good and bad. Other countries will start sending
> jobs here because our labor will be so cheap, and that means everyone
> will be working. On the other hand, because the dollar will be so
> devalued, things like automobiles and oil will be relatively expensive
> compared to what they are now. As a result, instead of countries
> importing goods to the US, we'll be exporting our goods to the countries
> will better valued currencies. That means that we will be effictively
> poorer even though everyone is working. But it also means that we
> will move to a big trade surplus which will allow us to move to a
> big budget surplus and pay off all our debts. THAT is the cost of
> all the debt we have, not a 10 year depression or whatever other
> ridiculous nonsensical garbage I keep hearing. How would entering
> a 10 year depression pay off our debts? It wouldn't. It makes no
> sense. That is like saying the cost of an individual who has too
> many debts is losing his job and living on the street. No, the cost
> is working twice as hard and spending less so he can pay his debt
> off.
Oh...and the post! I quite liked it. This has been a traders rally, at least in the US. It will be interesting to see how China and Brazil respond to this correction.
So, yes, I do think wages have a good chance of stagnating there for the next 10 years.
On May 14 11:46 AM thiazole wrote:
> And so you just think that salaries will stagnate in Asia over the
> next 10 years? Really? Have they stagnated over the previous 10
> years to imply that is where it is going? Everything is trying to
> move toward equilibrium - trade AND wages. If China can do it cheaper
> than everyone else, that means that we need to reduce our cost of
> labor and China needs to increase their cost of labor.
Much of the criticism of Cetin has been the fact that he called several bottoms on the way down (and he deserves criticism for that), yet so many of you are calling tops on the way up (exactly what this thread is about) even though the Dow has yet to see more than two consecutive down days since the March 9th bottom. Again, hold yourselves to the same standard. Eat some humble pie when you are wrong instead of acting like the bulls are just crazy and the market makes no sense. It obviously makes sense to the bulls, or they wouldn't be bulls now, would they?
I'm frankly amazed at his persistence. I do not understand how this benefits him at all. One 'benefit' of direct attacks against him is that his comments are now disappearing.
On May 14 12:13 PM kelm wrote:
> What amazes me about the comment stream is the majorities inability
> to simply ignore the village idiot. It used to be we had Rolex and
> he would say something that didn't warrant a response every time.
> Everyone just gave him a thumbs down and that was that. Eventually
> he drifted away. This guy however has really gotten under all of
> your skins. Stop playing his game - ignore him if he bothers you,
> you'll feel better.
>
> Oh...and the post! I quite liked it. This has been a traders rally,
> at least in the US. It will be interesting to see how China and Brazil
> respond to this correction.
On May 14 01:04 PM I am NOT Ned!! wrote:
> There is still a labor pool in China alone of 900 million people
> living on subsistence. If India ever gets itself organized, there
> are another 800 million people there.
>
> So, yes, I do think wages have a good chance of stagnating there
> for the next 10 years.
>
> On May 14 11:46 AM thiazole wrote:
"We must not leave the rural population of some 900 million outside the dynamic economic development drive. Prosperity should be shared by all social members who have contributed a lot to the reform," said Fan Gan.
www.chinagate.cn/engli...
It was originally a rough estimate, but I believe you get my point. As jobs are in-sourced into China, their overall living standard will increase, but that does not mean that engineers or factory workers will be paid more - merely that more of the population as a whole is 'gainfully' employed. What that means for us is that our competition in the labor market will stay very competitive.
This is why I Don't want Cetin banned - there may come a time when the bearish case is unpopular (maybe not for many, many years, but Someday). I want my ursine-leaning descendants to be able to roar Inside the house.
It's not his point of view, but his insistence upon with it (over 2000 comments now in under 2 months) with zero factual basis. There needs to be some sort of amicable solution for everyone, not just Cetin.
On May 14 01:29 PM Jasper M wrote:
> "First, they came for the Cetins . . . "
Possibly the fundamentals may replace the falsehoods but I think we dip to 7500 at least first.
Excellent analogy re Jar Jar.
There used to be a prolific, one-note poster named Rolex. Very like Cetin, maybe just a smidge more sophisticated. Eventually, people just ignored him. And he does not seem to be about anymore.
I think we don't Need to Do anything about him. The coming year(s) will absolutely humiliate him, to the point where he will not show his face.
It seems to make sense.
The market as a whole doesn't have the feel of a free market, but rather a manipulated one on a short leash. If you guess the manipulation, you probably can make money, if that's your only goal.
My feel was to get out of the market last week, but I am still in with my unwieldy mutual funds. Hope to convert to a broker account for ETF trading/investment.