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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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