2009 Is Looking an Awful Lot Like 2008 63 comments
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Ok, now I’m starting to get spooked.
Long-time readers know that I’ve frequently commented on the eerie similarities between how the financial markets behaved in 2008 and 2009. However, at this point, things are beginning to border on “conspiracy theorist.”
In both years, commodities bottomed first (Jan 23, 2008 vs. Feb 23 2009). In both years, the Feds stepped in with a major intervention in Feb/ March (Bear Stearns ’08 vs. Obama Stimulus ’09). This in turn kicked off a major rally in which both stocks and commodities soared higher together.
Both asset classes began to lose momentum in the early summer with the Baltic Dry Index peaking in late May ’08 vs early June ’09. Stocks and the Baltic then rolled over, falling into July:
June 1-August 5, 2008: Baltic collapses 28%
June 1-August 5, 2009: Baltic collapses 25%
Stocks first followed the Baltic, but then staged a massive reversal due to interventions/ short squeezes. In 2008, this came in the form of the Fannie/ Freddie bailout and the SEC banning cracking down on naked short selling. The actual bottom for stocks was July 15.
In contrast, the July 2009 bottom came July 10: the week Meredith Whitney forecast a short rebound in financials and the Federal Reserve pumped $80 billion into the markets (its first expansion in four weeks). We also got a major short squeeze from various brokerage firms banning inverse ETFs and the SEC jumping in with another move against naked short-selling on July 29.
Thus the short-covering rallies in 2008 vs. 2009 are as follows:
July 15- August 5, 2008: S&P 500 rallies 5%
July 10- August 5, 2009: S&P 500 rallies 14%
In both years, the Baltic Dry Index failed to confirm the stock rally: implying that the stock rally represented a disconnect from underlying economic realities (refer to the above listing of Baltic collapses June-August).
2008: the Baltic doesn’t join in the July party:
2009, ditto:
In a nutshell, the Baltic and the CRB’s drop served as a major warning sign in 2008. These two, more than stocks, represent a clear picture of the REAL economy. The fact that they didn't confirm the stock rally in 2008, meant that soon stocks would return to reality by falling. And this is precisely what is happening today. The Baltic continues downward and commodities are showing some signs of weakness. Meanwhile stocks are highly overbought and in serious need of a correction.
If we continue to follow the 2008 pattern from here, stocks will have a choppy August. We’ll then see a complete unraveling of the market rally in late August/ early September. This will then segue into a nightmarish September-October.
Bottom line: if 2009 continues to follow the 2008 pattern, we are in for a NASTY autumn. The fact that both the Baltic Dry Index AND commodities are not confirming today’s stock rally is a serious warning to the Bulls’ argument that this is a new Bull market.
My advice is to watch commodities and the Baltic Dry Index closely. These two sectors lead stocks on the upside. They’ll likely lead on the downside too. I suggest you watch commodities in particular. These, more than stocks, follow economic realities. So if commodities roll over in a meaningful way, stocks are on borrowed time.
Good Investing!
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This article has 63 comments:
No one, and I mean no one, predicted the swoon into March, the big run up, the dip in June/July, and then a big run up. NO ONE, so I am trusting my gut on this one. I got into cash early September of last year for the same reason.
3% Average US GDP growth rate 2002-2007
-1% Bank deleveraging
-1% 2000’s fluff-liar loans, excess home construction, excess car production
-1% real GDP growth 2010-2020
On Aug 12 10:41 AM Doom Bloggers s**** wrote:
> No its not.
For the BDI you have factor in ship availability. If there are a glut of vessels to charter, the BDI goes down. If the pool of vessels available goes down, the BDI goes up. Shipping has always been a cyclic industry. When rates are down, shipowners scrap vessels to reduce fleets. When rates go up, shipyard order books fill and the glut of new vessels will cause rates to go down.
You cite the SEC cracking down on short selling. Wasn't the ban just on their beloved financial stocks? The elites clearly favor Wall Street over Main Street in blatant class warfare. I am sure their ban was not applied to all stocks.
Of course the SEC also conveniniently dropped the uptick rule in an amazing timing move which accomodated GS in its short selling frenzy that exacerbated the downs I am sure.
1. Goes up on bad news from MSFT, AMZN, AXP's poor numbers results few weeks ago.
2. The investment gurus and analysts who got blind sided by last fall's fall and March low (boy weren't they pessimistic) are now in unison as bullish as ever, even with heck of a run since March.
3. Bears are hiding and appear to be capitulating on short covering. One can say the bears were "early" smart money.
4. Russell 2k has been on a tear. Speculation galore or halcyon days are back?
5. CNBC has special on Dow 9k and Cramer is pounding the table with buys and the lemming retail and professional investors are piling in. So much for the lows we had in Oct/Nov and March.
6. And even Barron's sounding bullish sans Abelson?
7. Historically Sept is the worst month followed by Oct. Just around the corner.
8. Low volume on recent rally in last month or so despite program trading. Volume proceeds price. Lack of volume on follow-thru to S&P 1k and Nas 2k portend downside ahead.
9. Lowry’s Buying Power Index nudges record 1933 low. Few breadth studies are as insightful as those provided by Lowry Research since 1931.
"The key to Lowry’s is not the absolute level of its Buying Power Index. It’s the relationship between Buying Power and Selling Pressure. The span between declining Buying Power and rising Selling Pressure hit a 78-year record distance of 807 on July 8. The wider the span, the more bearish the situation.”
10. Very heavy insider selling. Insider selling to buying is 4.16 to 1 in July compared to 0.76 to 1 in March.
Takeway?
My 2-cents is that we'll see 50% retracement to March low in Sept/Oct.
Well, Graham, on the one hand we have a single global indicator dropping in 2008 and 2009, on the other hand we have the U.S. oriented index of 10 leading economic indicators improving for the last three reporting periods in 2009 and declining in 2 out of the same three reporting periods in 2008. If you wanted to data-mine these statistics I'm sure you could support, as you have, almost any position you wanted to take.
What is it that they say about "figures don't lie..."
Abby Joseph Cohen is bullish = time to short
Well...not if you bought them then.
I suppose if you bought in March they were cheap, but that was a double six's bet.
I've been amazed at the cheerleading of housing and employment figures for the Summer; um...people...isn't Summer when houses are usually bought and people have Summer jobs?
I think you are spot on; things will be scary by Halloween if not sooner.
Cheers,
Eric
I am very bearish and it is wiser to be cautious and stay away from shorting big.
I don't think there will be a crash b/c comparing the BDI with the stock market isn't fair without watching oil prices. BDI won't go up until oil goes up, and at 70$ a barrel oil is relatively cheap; this actually will make a recovery easier. I would argue BDI is a lagging, not leading indicator.
On Aug 12 03:16 PM Susan Weerts wrote:
> Does anyone know how much money still remains in the sideline after
> this rally? tks
On Aug 12 10:40 AM Valley Boy wrote:
> Stock market perceptions will catch up with the fundamentals eventually.
On Aug 12 10:11 PM KYuNit wrote:
> I think we're due for a bullback, but nothing back to March's levels.
> In general extremes happen extreme rarely, things will regress to
> the median. I am still in the camp that investing long term in solid
> companies, with good balance sheets and good, consistent revenue
> is the safest way to go (although this won't get you the money shorting
> or speculating will)
On Aug 12 10:11 PM KYuNit wrote:
> I think we're due for a bullback, but nothing back to March's levels.
> In general extremes happen extreme rarely, things will regress to
> the median. I am still in the camp that investing long term in solid
> companies, with good balance sheets and good, consistent revenue
> is the safest way to go (although this won't get you the money shorting
> or speculating will)
The government and bankers produced bogus accounting to run stocks WAYYYYY up, the reality came in.
'31 to '33 turned out to be the complete depletion, but by then the robber barons had lied their way to replacing their own wealth that was lost in the "crash."
My contention has been for a long time that most of our "fundamentals" are based on China and not America. Our GDP for the past decade appeared to increase but when you take into account the FACT that the number of American made widgets is the smallest it has ever been, then it becomes apparent our economy is made up of Chinese made product, resold for a few bucks here. But the entire sale is counted as American GDP.
This disconnect between reality and Washington/Wall Street has finally reached the point of no return. No matter how they manipulate the numbers, the reality is right there in front of our faces IF we would just open our eyes and SEE IT.
Correction is coming this year or next, but the real disaster won't hit until the middle class Bush tax cuts expire, forced health insurance and Cap & Trade hits.
Our only hope is that the correction comes first and the panic keeps Washington from creating these economy killing laws.
But I doubt it. Good luck to us all and while I still hold cash, I doubt it will be worth much to our suppliers (China) once the debacle of using debt to get rid of a problem caused by debt hits us full in the face.
2. The crowd and economists or experts are often wrong.
3. The worst is over. Recovery may be slow, but many will regret sitting on the sideline, waiting and waiting. Many of you already missed the first run up, do you want to miss the # 2 and #3? The way you guys are spreadng fear, there is alot of caution in the market. So I don't think it will crash again.
4. We cannot catch the timing, so it's better to invest near the bottom or after recovery is confirmed, like right now and sit through for a few years.
It's alright if you don't agree, but I'm doing that, still sitting on my paper profit, when everyone say the worst has YET to come at the beginning of this year, why are you buying, you stupid??. I just laughed....wait and see what happened.
On Aug 12 11:32 AM Mad Hedge Fund Trader wrote:
> fdv. Welcome to the “square root” shaped recovery. That is the likely
> shape of the recovery curve we can expect over the coming years.
> If you back out what I call the “2000’s fluff” of excess car production,
> liar loans, using the home ATM for serial, annual refinancings, excess
> consumption, unneeded home construction to account for the new frugality,
> US GDP growth drops by 1%. Chop off another 1% for deleveraging in
> all its forms, including lower leverage ratios, the end of the collaterized
> debt markets and credit default swaps, ultra high junk yields, bond
> ratings for sale, and the new conservatism of CFO’s and auditors.
> That leaves you with the 1% growth rate that Japan has seen for the
> last 20 years. That means falling standard of livings, an unemployment
> rate permanently stuck at German style double digits, endemic deflation,
> a collapsing dollar, a comatose real estate market, and moribund
> stock markets. Where are the 37 million jobs going to come from that
> American needs over the next decade? If your kid is going to graduate
> from college soon, or cash out from the army, he better start learning
> Mandarin.
>
> 3% Average US GDP growth rate 2002-2007
> -1% Bank deleveraging
> -1% 2000’s fluff-liar loans, excess home construction, excess car
> production
> -1% real GDP growth 2010-2020
As I said in previous posts, I do think we will ultimately get some heavy upward resistance if we get to Dow 12,000 or 13,000 in the next year or so bc many people will cash out for getting around what they had before the bear market of late 07- march 09. I do actually wonder what the idiots who have not added money to average down this year are thinking now? It's probably a lot of, "yea, well we could have of had a great depression 2", but we didn't and you missed out big time..
Susan...lets see...(mumbling....sub... 40+% portfolio loss...subtract 20% loss in home price, wiping out equity...add in bear rally since March.....hmmm...carry the 2...) by my calculations, about $5.73.
On Aug 12 03:16 PM Susan Weerts wrote:
> Does anyone know how much money still remains in the sideline after
> this rally?
Add in, the money printed by the Fed, plus the money given out to banks. Increase that by the money for stimulus boondoggles. Don't forget to recognize the millions given to Wall St traders.
While that is all taxpayer losses, the total gross money amount is about equal to the money there before all this theft of the public hard earned net worth. It is just a shifting of wealth from the average American, as usual.
HChang wrote:
1. Stock market leads the economy or improving fundamentals, not the other way round as someone mentioned here.
2. The crowd and economists or experts are often wrong.
3. The worst is over. Recovery may be slow, but many will regret sitting on the sideline, waiting and waiting. Many of you already missed the first run up, do you want to miss the # 2 and #3? The way you guys are spreadng fear, there is alot of caution in the market. So I don't think it will crash again.
4. We cannot catch the timing, so it's better to invest near the bottom or after recovery is confirmed, like right now and sit through for a few years.
It's alright if you don't agree, but I'm doing that, still sitting on my paper profit, when everyone say the worst has YET to come at the beginning of this year, why are you buying, you stupid??. I just laughed....wait and see what happened.
If you go back and read news and commentary by experts and regular people the scenario is identical.
You could take the commentary, change the date and heading, and people would not be able to tell that it was from 1930.
The political cartoons too, but the clothing is dated. Same stuff.
On Aug 13 09:29 AM TeresaE wrote:
> If you compare '29/'30 to '08/'09 the similarities are striking.
>
>
> The government and bankers produced bogus accounting to run stocks
> WAYYYYY up, the reality came in.
>
> '31 to '33 turned out to be the complete depletion, but by then the
> robber barons had lied their way to replacing their own wealth that
> was lost in the "crash."
>
> My contention has been for a long time that most of our "fundamentals"
> are based on China and not America. Our GDP for the past decade appeared
> to increase but when you take into account the FACT that the number
> of American made widgets is the smallest it has ever been, then it
> becomes apparent our economy is made up of Chinese made product,
> resold for a few bucks here. But the entire sale is counted as American
> GDP.
>
> This disconnect between reality and Washington/Wall Street has finally
> reached the point of no return. No matter how they manipulate the
> numbers, the reality is right there in front of our faces IF we would
> just open our eyes and SEE IT.
>
> Correction is coming this year or next, but the real disaster won't
> hit until the middle class Bush tax cuts expire, forced health insurance
> and Cap & Trade hits.
>
> Our only hope is that the correction comes first and the panic keeps
> Washington from creating these economy killing laws.
>
> But I doubt it. Good luck to us all and while I still hold cash,
> I doubt it will be worth much to our suppliers (China) once the debacle
> of using debt to get rid of a problem caused by debt hits us full
> in the face.
On Aug 13 09:43 AM HChang wrote:
> 1. Stock market leads the economy or improving fundamentals, not
> the other way round as someone mentioned here.
> 2. The crowd and economists or experts are often wrong.
> 3. The worst is over. Recovery may be slow, but many will regret
> sitting on the sideline, waiting and waiting. Many of you already
> missed the first run up, do you want to miss the # 2 and #3? The
> way you guys are spreadng fear, there is alot of caution in the market.
> So I don't think it will crash again.
> 4. We cannot catch the timing, so it's better to invest near the
> bottom or after recovery is confirmed, like right now and sit through
> for a few years.
> It's alright if you don't agree, but I'm doing that, still sitting
> on my paper profit, when everyone say the worst has YET to come at
> the beginning of this year, why are you buying, you stupid??. I just
> laughed....wait and see what happened.
The US economy, and it's "fundamentals", is more about China than the USA.
On Aug 13 09:29 AM TeresaE wrote:
> My contention has been for a long time that most of our "fundamentals"
> are based on China and not America. Our GDP for the past decade
> appeared to increase but when you take into account the FACT that
> the number of American made widgets is the smallest it has ever been,
> then it becomes apparent our economy is made up of Chinese made product,
> resold for a few bucks here. But the entire sale is counted as American
> GDP.
>
> This disconnect between reality and Washington/Wall Street has finally
> reached the point of no return.
On Aug 12 02:02 PM aaavoid wrote:
> It's all about market psychology. If the government can manufacture
> such a phenomenal rally since march low, why don't you think they
> can control the damage this time by controlling the media? Unless
> something major gives like big drop in housing prices, or major spike
> is oil price or sudden big movement in the dollar, I really doubt
> we going to drop that much down. Remember, any bad news can but put
> forth by the media in any way they wish to make it look not so damaging.
> It's all about positive spin.
Really just the straw on the camel, though. My sense of this market is that it is levitating in the sky for no fundamental reason that is clear to me. To paraphrase Buffett, I don't understand it, so I'm out for now
1) Graham, your charts point out the similar shapes, but not the magnitude. the 2008 peak seems to be at a price nearly 3 times the peak in 2009. This alters the analysis i think. how do you respond to this.
2) Kinabalu: What is this index of 10 leading indicators? Am I missing something?
On Aug 12 02:06 PM Kinabalu wrote:
> "I’ve frequently commented on the eerie similarities between how
> the financial markets behaved in 2008 and 2009."
>
> Well, Graham, on the one hand we have a single global indicator dropping
> in 2008 and 2009, on the other hand we have the U.S. oriented index
> of 10 leading economic indicators improving for the last three reporting
> periods in 2009 and declining in 2 out of the same three reporting
> periods in 2008. If you wanted to data-mine these statistics I'm
> sure you could support, as you have, almost any position you wanted
> to take.
>
> What is it that they say about "figures don't lie..."
Now Hara Guru Obama is going to export his green sprout so that he can import the napa auto parts right on the nafta trade rout to be assemble in the U.S.A but the Chinese are wanting our debt to be no longer pay down in our dollars but in their wanes. Paper dollar does not pay up nothing and you say. There is a conspiracy.
I thought this was the Seeking Alpha site! I must have stumbled into the Comedy Club auditions by mistake.
Current: Bull 51% Bear 33%
9/25/00 (top) Bull 62% Bear 25%
9/23/02(bot) Bull 24% Bear 47%
10/8/07(top) Bull 54% Bear 25%
3/2/09(bot) Bull 19% Bear 70%
These figures seem to indicate that the mkt is close to a top and/or due for a good sized correction.
On Aug 12 11:30 AM predictorman1000 wrote:
> I am moving towards cash. My gut (well, a synthesis of a ton of stuff)
> says that things "don't feel right". I like all the technical analysis
> but if you look at a bunch of sources (even within SA) they are all
> over the board. I follow Graham Summers because he makes a good straightforward
> case, and it supports my gut.
>
> No one, and I mean no one, predicted the swoon into March, the big
> run up, the dip in June/July, and then a big run up. NO ONE, so I
> am trusting my gut on this one. I got into cash early September of
> last year for the same reason.
On Aug 13 09:29 AM TeresaE wrote:
> If you compare '29/'30 to '08/'09 the similarities are striking.
>
>
> The government and bankers produced bogus accounting to run stocks
> WAYYYYY up, the reality came in.
>
> '31 to '33 turned out to be the complete depletion, but by then the
> robber barons had lied their way to replacing their own wealth that
> was lost in the "crash."
>
> My contention has been for a long time that most of our "fundamentals"
> are based on China and not America. Our GDP for the past decade appeared
> to increase but when you take into account the FACT that the number
> of American made widgets is the smallest it has ever been, then it
> becomes apparent our economy is made up of Chinese made product,
> resold for a few bucks here. But the entire sale is counted as American
> GDP.
>
> This disconnect between reality and Washington/Wall Street has finally
> reached the point of no return. No matter how they manipulate the
> numbers, the reality is right there in front of our faces IF we would
> just open our eyes and SEE IT.
>
> Correction is coming this year or next, but the real disaster won't
> hit until the middle class Bush tax cuts expire, forced health insurance
> and Cap & Trade hits.
>
> Our only hope is that the correction comes first and the panic keeps
> Washington from creating these economy killing laws.
>
> But I doubt it. Good luck to us all and while I still hold cash,
> I doubt it will be worth much to our suppliers (China) once the debacle
> of using debt to get rid of a problem caused by debt hits us full
> in the face.
It is not often that we hear the truth about these market
reality warnings. I have observed this irrational rally and
agree wholeheartedly with your projection.
Again, thank you for the advice.
E. Tippett
Chicago, Illinois
The widely published Conference Board Index of Leading Economic Indicators. Description here:
en.wikipedia.org/wiki/...
The actual index is here:
www.conference-board.o...
On Aug 13 05:36 PM sugarfree wrote:
> message to Graham and Kinabalu:
>
> 1) Graham, your charts point out the similar shapes, but not the
> magnitude. the 2008 peak seems to be at a price nearly 3 times the
> peak in 2009. This alters the analysis i think. how do you respond
> to this.
>
> 2) Kinabalu: What is this index of 10 leading indicators? Am I missing
> something?
On Aug 13 09:29 AM TeresaE wrote:
> If you compare '29/'30 to '08/'09 the similarities are striking.
>
>
> The government and bankers produced bogus accounting to run stocks
> WAYYYYY up, the reality came in.
>
> '31 to '33 turned out to be the complete depletion, but by then the
> robber barons had lied their way to replacing their own wealth that
> was lost in the "crash."
>
> My contention has been for a long time that most of our "fundamentals"
> are based on China and not America. Our GDP for the past decade appeared
> to increase but when you take into account the FACT that the number
> of American made widgets is the smallest it has ever been, then it
> becomes apparent our economy is made up of Chinese made product,
> resold for a few bucks here. But the entire sale is counted as American
> GDP.
>
> This disconnect between reality and Washington/Wall Street has finally
> reached the point of no return. No matter how they manipulate the
> numbers, the reality is right there in front of our faces IF we would
> just open our eyes and SEE IT.
>
> Correction is coming this year or next, but the real disaster won't
> hit until the middle class Bush tax cuts expire, forced health insurance
> and Cap & Trade hits.
>
> Our only hope is that the correction comes first and the panic keeps
> Washington from creating these economy killing laws.
>
> But I doubt it. Good luck to us all and while I still hold cash,
> I doubt it will be worth much to our suppliers (China) once the debacle
> of using debt to get rid of a problem caused by debt hits us full
> in the face.
Wrong. Jan 2008 - July 2008 saw a 20% decline in the S&P 500. You can call a tiny blip in the middle of this a 'soaring' of the stock market, but that would be quite an exaggeration. Check out the SPX chart during that time frame.
This year's stock market performance is very different from last year's. While last year's autumn collapse was several years in the making, this year's prediction of such is based on the lopsided rally we've experienced since March and the subsequent calling of a correction.
Whatever, say whatever you want to prove whatever point you want to prove. Fact is, we've reached the same conclusion - be careful this autumn.
They are COMPLICIT.
Just as they are COMPLICIT in creating the largest nation of pillpoppers anywhere.
They BENEFIT from their bullshit with higher advertising revenues.
Grandpa told me to follow the dollar. The "news" is bought and paid for.
Our publicly-educated serfs just can't figure that little detail out.
On Aug 13 01:01 PM Sunnsea wrote:
> The "government" isn't controlling the rally unless you want to call
> Goldman's takeover of the government the government. Their program
> trading fueled by TARP and other Fed money is controlling the market.
> Media is a clueless adjunct to what is really going on. The author's
> analysis provides us with some guidance as to the end of this fake
> rally.
Though I have fundamental problems with Warren Buffet and his "strategy," I do agree with this statement, "if we keep it up our children will be sharecroppers paying taxes to both China and the US."
Beginning to seem more like prophesy than a flippant remark.
On Aug 14 06:33 AM Obewan wrote:
> You might find a Chinaman running the US in 12 mths. When you owe
> $2t and you can't pay it back there needs to be something to repay
> the debt. Not even sure the US would be worth $2t now anyway.<br/>
that we've got an echo bubble of 2008, no surprise.
Unfortunately, none of the underlying economies have
been fixed...the liquidity has all gone into the markets
rather than the real economies. US, China, UK........
same deal everywhere. It's pretty laughable that
anyone is interpreting any of this as a bull market.
On Aug 15 03:02 PM Bull Run wrote:
> The full impact will be felt after Labour day weekend. March lows
> will be retested..
On Aug 15 03:02 PM Bull Run wrote:
> The full impact will be felt after Labour day weekend. March lows
> will be retested..