Four Reasons We're Headed Even Higher 130 comments
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As the market continues to trade sideways in August, investors like Doug Kass, Jim Cramer, and Warren Buffett are loudly voicing their opinions on the future direction of this market. Kass went so far as to say that the market has reached a top for the year. Little does he know, he’s just fulfilling my article from back in May that 2009 would be the year of premature top calls. Add Kass to the list. Sorry buddy, I don’t think that’s a list you want to be on. As all of us gather information and make our own market projections, there are a few points of perspective that I would like to throw into the mix.
1-Don’t be fooled by the Geithner bottom. Too many investors are getting nervous about the steep climb we have been on since the March lows. If you remember, the March lows were an anomaly caused by the lack of decision making from Washington. The market was anticipating an imminent solution to the financial crisis but in early March, Treasury Secretary Tim Geithner offered up no such solution. The market tanked. I’m not using those levels as a barometer for how far this market has come. Instead, I’m looking at the massive drop we’ve encountered since 2007. I’m using the Dow 9,034 level that we began the year at. From that perspective, we haven’t had much of a run at all. Are we better off than we were at the beginning of the year? You better believe it. Financial armageddon is in the rearview mirror and we are seeing profitability return to AIG, Fannie (FNM), and Freddie (FRE). Housing has hit a bottom. The rate of decline of economic data is showing improvement. We’re even seeing positive moves upward in durable goods, consumer confidence, housing, etc. In my opinion, a move back below Dow 8,000 represents the re-emergence of a systematic threat to our financial system. Highly unlikely. Whereas a move up to Dow 11,000 represents an orderly recovery that is slowly underway. Highly likely.
2-Buffett’s inflation concerns are legitimate but under control. Ever since the Reagan administration tamed inflation in the early 1980’s, the Federal Reserve has done a wonderful job of controlling it. There is no doubt that the mechanism of rising interest rates does its job to curb inflationary pressures. Fed Chairman Ben Bernanke was slow to lower interest rates in the early stages of this recession because of his own emphasis on inflation. You can be sure he will rise to the occasion when economic conditions warrant. Buffett invested through the 1970’s and will be scarred for life with respect to his constant worry regarding inflation just as we will all be scarred for life with respect to the recent credit crisis. Once you have been burned you will always fear a repeat. Inflation is a legitimate cause for concern because it could derail an economic recovery but I am putting my money on Bernanke that he will do the right thing at the right time.
3-The Government made some wise investments. All of this talk about deficits and debt should be tempered by the fact that the government owns a 78.9% stake in the skyrocketing AIG, an approximate 36% stake in Citigroup (C), an approximate 6% stake in Bank of America (BAC), 79.9% stakes in Fannie Mae (FNM) and Freddie Mac (FRE), 61% stake in General Motors and an 8% stake in Chrysler. It looks like all bailout funds will eventually be repaid with interest.
4-Comparable mania is coming. U.S. consumers have been preparing for the worst since Lehman collapsed last September. We are about to embark upon the one year anniversary of that event and we finally get to compare corporate earnings performance on a year over year basis with the crisis environment of late 2008 and early 2009. The comparisons will only get easier as time goes on and should do wonders for investor confidence. This whole system is built upon a foundation of confidence. Confidence is coming back. Look at the return of speculative investors in the financial sector. These investors are moving from one distressed bank stock to the next. Last year they were shorting them, this year they’re buying them.
We are in the very early stages of recovery. The data isn’t perfect. Don’t expect to see a pretty picture when observing an economic bottom. It’s ugly and it’s supposed to be (employment). But it’s a great time to invest. I won’t be ready to pronounce full recovery mode until the Dow tops 11,000 where it is still 3,000 points below the 2007 highs. Perspective means a lot in this business where so many get lost in the daily minutia. Do you want to be a buyer or a seller in the early stages of recovery? That question is easy to answer if you don’t get distracted by the premature top calls.
Disclosure: Long AIG, BAC and C
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This article has 130 comments:
The Debt to GDP ratio is heading north quickly.
Consumers have taken a massive hit, via their housing equity, lower share values & reduced access to credit.
The economy is deleveraging and will do so, for some time to come.
2 of the 3 major growth drivers (Oil & Population) have both Peaked and are heading south.
Massive increases in Health and Social Security Costs are cruising in our direction, again expanding deficits.
Problems arising from Climate Change and Food production, are also set to interfere with future plans.
Business Earnings are falling dramatically, as bankrupcies rise.
Tax revenues and consumption are both down.
Unemployment and Taxes are both rising.
======================...
So, sure, I don't see any reason why share prices shouldn't go straight thru the roof, into the stratosphere???
With a debt/GDP ratio approaching 100% (and that's on a benign view of the size of the debt) and with a lackluster recovery at best, imho, there are still a lot more twists and turns to the rolling financial crisis ahead.
To compare where DOW starts 2009 vs where we are now is plain ridiculous. Housing is still a big mess and unemployment is all time high and still shedding jobs(however "not as bad as imagined" it is). Look at earnings, all beating low-balled estimates, but most companies missing top line sales.
"AIG ROSE 5.6 percent to $50.50 in New York pre-market trading. The insurer may be UNABLE to repay the government’s $182.5 billion bailout if it sells American International Assurance Co. and American Life Insurance Co. at today’s market levels, Benmosche told the Wall Street Journal in an interview in Dubrovnik, Croatia"
The one area where I doubt the effects will be fully contained is inflation. There's just too much money and added systemic debt to get all its effects collared. The good news is that moderate inflation just drives the price of everything up, including corporate profits and share prices, so I don't anticipate any near-term adverse effect on shares.
Your comment regarding the YOY comparables is very telling. For month after month for two years or more we've been bludgeoned by unavoidably ugly YOY comparisons, as the economy contracted. Even when things start to improve, many miss the boat because they keep looking at the poor YOY numbers and fail to see the curve changing. When YOY finally appraoches a year ou from the nadir, then, suddenly, the comparisons start to look very happy, indeed. I, too, think the market will respond favorably to these kinds of reports that will soon be upon us.
Of course, any positive post brings out the usual doubters. Just a few reposts to some of the comments:
>>I don't really buy these arguments. AIG will pay us back when the dollar is worth 1/10 of what it is now<<
--The government can make a bundle without being "paid back" at all. When you own 80% of the shares, huge gains can be realized from share price recovery alone.
>>As for housing, it is terrible......<<
-- Where housing "is" is not important. Where it's going is. Home sales just recorded their largest monthly advance in history, and even the Case-Shiller numbers, that darling index of the bears, turned positive for the fist time in two years.
>>Inflation is only under control in the fact that total wages are still falling faster than the government can print money and banks refuse to lend. The real efects of the government's inflationary policy will be reflected in the same way Japan had to endure decades of stagnant growth. <<
-- Banks have not been "refusing to lend," a popular mass-media myth. The reality is that both consumers and businesses have been paying down debt and increasing savings, so it's been impossible for banks to expand lending without demand. The comment about Japan demonstrates a lack of knowledge of the facts. Japan has remained in a constant state of deflationary, not inflationary pressure and real interest rates there have hovered at near, or even below, zero for years. Both their policies and results are the antithesis of the U.S., not comparable.
>>How fast that liquidity concern can beat the market over the head we can see in China currently. <<
-- If the U.S. has any liquidity concerns now, it's that there may be too much. This is the inflationary threat. The avaialbility of huge amounts of liquidity, waiting to be employed, as demand increases, has mostly been overlooked while commentary surrounds mistaken notions, like "the banks refuse to lend" or "the banks are insolvent" (the esoteric "paper solvency" debate).
The market cannot go straight up indefinitely, of course, but those who feel that recent moves are all built on false premises and that a new collapse is in the offing will be in for disappointment, I believe.
On Aug 28 06:51 AM Clive Corcoran wrote:
> While I might agree with you that there will be a lot of clairvoyant
> pundits that are likely to be premature in calling the top I think
> you should not be quite so cavalier in the claim that "Financial
> armageddon is in the rear-view mirror"
>
> With a debt/GDP ratio approaching 100% (and that's on a benign view
> of the size of the debt) and with a lackluster recovery at best,
> imho, there are still a lot more twists and turns to the rolling
> financial crisis ahead.
What is funny some folks like pigs with lipstick on them.
I dont see the fundamentals improving much, I am sorry, I just see the pig. without the lip stick.
blogs.wsj.com/marketbe.../
“I think what investors are focusing on and has been driving the stock over the past couple weeks is renewed optimism about a couple issues at the company,” CreditSights analyst Rob Haines said in an interview.
He said the outlook for the sale prices of AIG businesses has gotten better along with the improving market, and it appears businesses are beginning to stabilize.
“One quarter doesn’t mean a trend, but if you look at the last quarter’s numbers, to me and to a lot of investors, it appears the cratering in the business units, the exodus of employees and the difficulty placing business has subsided to an extent,” Mr. Haines said, adding part of that is because AIG hasn’t been in the headlines as much as it was.
He also said AIG has been rolling off its swap books as expected, and he believes if there was going to be a “cratering” in the swap books, it would have happened a couple quarters ago.
“The fear of need for another government bailout or something extremely dilutive to shareholders is diminishing,” Haines said. “As the value of business units increase, the likelihood for some equity holders in turn increases. … It appears to myself and a number of investors that there is going to be residual value for equity holders.”
But he cautioned how much that value will be is up for debate...
To me the most significant point is that
"AIG has been rolling off its swap books as expected, and he believes if there was going to be a “cratering” in the swap books, it would have happened a couple quarters ago."
About a year ago I had the idea that what these reinsurers should do is compile a database of all the swaps they insured and cancel off matching swaps in opposite directions. That way we would know how much risk they really contain, if any. The fact that the piecemeal approach they are taking shows little residual risk leads to some interesting ideas about the nature of that risk. Apparently it's much more benign than a worst case scenario.
On Aug 28 08:04 AM einstein p fleet wrote:
> AIG was up 10 points because? Was yesterday, buy an insolvent company
> day?
Restaurants and small businesses are down 40%-65%. The consumer is NOT going to spend us out of this recession.
AND it's not unemployment that you should be worried about, it's the growing number of underemployment. People who used to make $80K - $130K are now making $35K-$50K. They don't get counted in unemployment statistics but their buying power has sure eroded.
Listening to some of these "market experts" is like listening to Vince the Sham-Wow guy. Why don't you add him to your list?
"Hey cameraman, zoom in for a close-up on this."
You first need to learn that "data" is PLURAL. Thus, "The data AREN'T perfect."
Additionally, you seem to be sold on your own opinion of the market direction.
On Aug 28 08:26 AM Dave Wrixon wrote:
> In an economy where spending cuts and raising taxes are so politically
> unacceptable to effectively rule them out for the foreseeable future
> ratios of debt to GDP are almost meainingless. Add to this that GDP
> gives little very little indication of wealth generation and Debt/GDP
> ratios are not very meaningful.
So yell and scream and point down as the market goes up. Vent your anger at specific companies because they got help, and watch the stock rise. Have a fit over the current deficit, and forget the history of WWII. When we continue to to lie to ourselves, we will not make good investments.
When others reap the rewards we will say it is impossible, because of @*^%#**&^!!!!!!!
For example, the monetary base -- the raw material for the money supply -- has fallen at a seasonally adjusted annual rate of 8% from early April of this year through mid-August, after soaring at a 187% pace during the previous eight months.
And after ballooning from $100 billion to nearly $1 trillion between September 2008 and mid-May, adjusted reserves have since declined at a 43% clip, to just over $800 billion.
As a result, the Fed's two measures of the money supply, M2 and MZM, have begun to contract. M2 has shrunk at a 3% pace since the middle of June, while MZM, the St. Louis Fed's measure of liquid money, is down by 2% over the same period. "
All of this money is coming out of the markets. they have been going up on very low volume, but they almost have to fall soon. Your market cheerleading is just that. It has little or no basis in substance. Eventually the stock market will head higher. However, it will likely take some time. Over time fundamental analysis makes itself felt. The US markets are over valued now. The S&P500 was trading at 11 X earnings at the March lows. Now it is trading at about 18 X earnings. 15 might be termed fair value. It is over bought.
There has been very little revenue growth. Most earnings wins have come through efficiencies. There is only so much you can do there. The unemployment keeps rising. Unemployed people buy less. Revenues are not likely to go up dramatically soon.
Prechter has called a bottom on the USD due to there being only 3% bullish sentiment (the same as that of the stock markets at the March lows). If the USD rallies, commodities will fall and the US stock markets will fall.
To substantiate, Art Cashin (UBS) recently said fair value for the S&P500 was in the 850 to 880 range. That is a long way from where we are now.
The above are just some of the "real" factors that may mean the US equities markets are in line for a good sized retracement. The kind of unreasonable exuberance you are touting is a lot of what got the housing market in the mess it is in now.
If you by chance happen to be correct, it will only mean that the markets will be in for another horrendous fall. You know the old saying, "the bigger they are the harder they fall".
how do you have a jobless economic recovery?
look at the forest, not the trees.
If I am standing in front of you and you close your eyes, am I still here? Pretending doesn't get it done.
Debt has been transferred from the consumer to the federal government. Banks are still sitting on massive unrealized losses. Half of the insurance companies are probably insolvent. Delinquencies are still rising, continuing jobless claims only drops as people run out of benefits, unemployment is at least 10% with no sign of a pop back, China has become the marginal buyer of treasuries, credit from banks remains tight as they lick their wounds, commercial real estate is going to take a big bite out of regional banks, GDP growth prospects are most likely less than 3% going forward....
So what am I getting excited about? A plummeting dollar propping up the nominal value of the stock market?
That's all there is, so if you don't figure out how to expand your own "nominal" value, you wind up with less "nominal" value and even less "real" value (for those fixated on that measure, whatever it means).
P.S. People who aren't "sold" on their own opinions don't really have one.
That is Great. I personally wont go into my reasonings here because I like to see all the so called experts rant and rave about the new boom and how the recession is over. Okay time will tell.
Okay I will go into a few:
1. I was walking by a building an elderly lady asked if I was interested in renting it. A two story building which the government used to rent for DUI offenders. Poof gone. Just like so many other businesses which are not there. I do see business signs in them by commercial real estate agencies though. That may have some consolation.
2. A good friend of mine has been interviewing with state run agencies for CSI work and she always ranks high but just cant find a job. She has been all over the western region to many cities agencies. Still unemployed....
3. Okay massive dilution of the dollar bill. I would have more faith in Mcdonald dollars to trade because at least you know its wont be diluted with trillions more.
4. Any dollars invested in early 2000,2001,2002,2003 are all under water.
Okay I can go on and on bottom line we are at the end of a wave 2 bear-market rally and wave 3 is about to unfold and this guy will find him self befuddled on what happened.
Stop listening to Jim Cramer. He's an advertisement.
4.
Please write a new article when you sell your long positions in AIG, C, and BAC. Then we will know the truth and I am sure every one here who disagreed with you and was wrong will write a comment affirming you were right. And if you are wrong could you do us the favor of getting a job with one of the major tv networks.
It's all about making money, pride is for fools.
The true bottom would have been one where everyone was saying that they wouldn't touch stocks again (likewise at the true top would be where everyone has an opinion on the stock market - I remember gold at 880 and the newspapers had the information on their front pages - time to sell!).
So - was March the true bottom? I don't think so. Are we out of the recession. NO. It's a depression.
Folks, we are in a bear market rally in a secular and cyclical bear market. Just watch how the S&P is rejecting 1,040 for the nth time. Breaking 1,014 will get us quickly to retest 980.
Disclaimer: Short S&P and long short financials.
The only people in a "depression" are the ones watching from the sidelines that last five months.
On Aug 28 11:52 AM DavidC wrote:
> The March lows were not capitulative in any way.
>
> The true bottom would have been one where everyone was saying that
> they wouldn't touch stocks again (likewise at the true top would
> be where everyone has an opinion on the stock market - I remember
> gold at 880 and the newspapers had the information on their front
> pages - time to sell!).
>
> So - was March the true bottom? I don't think so. Are we out of the
> recession. NO. It's a depression.
On Aug 28 12:21 PM Per wrote:
> This is probably the worst time *ever* to invest in equities. Any
> smart trader / investor has been selling into this top.
>
> Folks, we are in a bear market rally in a secular and cyclical bear
> market. Just watch how the S&P is rejecting 1,040 for the nth
> time. Breaking 1,014 will get us quickly to retest 980.
>
> Disclaimer: Short S&P and long short financials.
It's all about making money, pride is for fools
----------------------...
My mom always said, if yor friend jumps off a building, will you too? Think with your own head.
www.thestreet.com/_yah...
This is a multipart series worthy of your reading time, at best.
Best to all
O
Speculative money do not follow the real economy rules, in the first half of 2009 it was oil, now is stock now, perhaps is TARP money (as it was with oil)
Reminds me of Mark Twain: "Better to remain silent and be thought a fool than to speak and remove all doubt."
On Aug 28 01:02 PM aa44aa wrote:
> The title of your article should be "I can only come up with 4 subjective
> reasons (without any data, just personal opinions) the we might be
> heading (not we're headed, wrong grammer) even higher"
What good is a few billion on the top of the captial structure in equity warrants and dividends when tens and tens of billions just might be leaking out the bottom?
Until the government has FULLY exited these financial positions, and it is made very clear that they won't intervene this way again, then none of the bailed-out financials' valuations (equity or debt) can really be trusted, because they have printing press value built into them.
It astonishes me how many commentators (including the author) miss this fundamental point.
Take a look at the daily and weekly S&P chart and you will see... It's possible that we breakout of 1,040 and run to 1,121 but that's it.
This is the time to sell into strength for the conservative investor and start taking short positions (w/ tight stops) for the trader. G/L!
On Aug 28 12:30 PM Tack wrote:
> Too funny. Almost too recently to mention the "smart traders" were
> saying that the SPX couldn't penetrate 880. Then, it was 940. Now,
> it's 1040 that's "magical."
>
>
>
>
For what it’s worth, my corporation an “Independent Distributor of board level electronic components”, we broker product to tier 1 OEM's and CEM's all around the world, they come to us when they can’t get product inside of lead time through their normal distribution channels. Over the past month, lead times are going waaaay out, DRAM prices are rising, more and more shortages are abound. I'm definitely seeing a turn-around within my industry. Even NPI builds are increasing. My industry is usually a precursor of what is to come and based on these “inside” observations, I see no decrease in demand within the foreseeable future.
Cheers!
and I WANNA go short, but there's no fighting the Fed.
Didn't this guy see the article that came out today on seekingalpha.com that show inside selling is at high levels.
The very people that know what is going on, and has inside information, are selling big time!
Get out while you can!
That being said, back in April I made a statement that the powers that be were going to run this market straight back to 1100 on the S & P simply because they could, and with the help of taxpayer money, by God they did just that.
Though "some" data points have been better than usual the following facts remain and cannot be disputed or rationalized:
Corporate profits were a joke. Decreasing revenue, cost cutting and asset sales are NOT signs of an improving business. Playing the "beat the grossly lowered analyst numbers" are joke and only fools who have CNBC inside their heads are believing it.
Unemployment is God awful and the rationalization that losing 570K jobs last month and 20 million still out of work ( the real number) is an embarrassment.
Consumer spending is not coming back. Not for a decade or more. People had start facing up to that fact. I live here on the north shore of Long Island, New York. It is one of the areas of this country were wealth resides and the power that "really" controls this country lives.
The rich are not spending. Even in some of the most popular and tony towns on the island- there are rows and rows of streets with vacant stores that no long have customers. For rent. For rent. For rent. Consumerism is over, finished. The most people want and care about now are the I-phones and Blackberries. Thats it.
The S & P 500 should be at 750 right now which puts it right at its 25 years continuation trend line dating back to 1978. Of course the markets have gone up and the powers that be can take it to 2000 on the S & P. Hey I am not fighting it.
But by God mark my words:
When those powers that be, coupled with the true acceptance of the population that the consumer is over, done, decide that this market is going to unwind this current government financed stock market bubble, average Americans are going to get destroyed once and for all. Those 401K's that became 201K's in 2008 are going to become 101K's when this is all said and done.
I will of course sell many positions to mom and pop Americans at the highs like you will, (it is the nature of the beast, someone wins and someone loses,) but it is going to be a shame to watch the destruction unfold while Wall Street laughs all the way to the bank.
Populism always demands the scalps of the successful and the prudent. And, placing self-preservation before morals and ethics, the government will oblige.
On Aug 28 12:25 PM Tack wrote:
> The only people in a "depression" are the ones watching from the
> sidelines that last five months.
>
Don't think I do not agree with you. I do.
Even with most of my wealth in ROTH IRA's.
Everything is so corrupt in this country now.
Geithner cheats on his taxes, gets a pass. and is made Treasury Secretary.
Average Americans make the same "mistakes" and they are told to pay, put in jails, kids out on the street.
Time is running out for this country. I just think 90% of Ameircans do not care anymore or are to scared to care.
I would suggest that when securities markets are running on confidence, without what IMO is a solid basis in fact, or even a basis in likelihood, we are really just hearkening back to 2007. Right now the markets seem to be pricing in a "V" shaped recovery, and I am unable to find reasonable basis for that thesis. At least for the moment.
Hence my belief that when the markets are rising on "confidence" for which there is little basis, THAT confidence is a key ingredient in a bubble. Until I have a better understanding of how the issues I not above will play out, I would rather risk missing the early upside than getting killed.
I also note that the author is looking at Dow 11,000 as a confirmation of recovery, suggesting that markets will accurately (and perhaps timely) predict real economic recovery. Please recall that recently markets had predicted endless credit growth, and then financial Armageddon, neither of which came to pass. To make a long story just a little longer, I don't see how the author's "four reasons" mitigate much of the future uncertainty, or our systemic issues. Looking at the economy through the lens of asset markets is a big part of how we got in this mess in the first place.
Nothing the author says addresses this fundamental fact. Until the cheerleaders address this, whether the market continues up or not, does not "prove" anything about their "analysis".
Yeah I'd follow that.
On Aug 28 12:31 PM inthemoney wrote:
> > Since Jason is the one who nailed the BAC calls consistantly making
> tons of money, while most of the moronic 'top 10' commentors on this
> site were the same ones who missed the rally, it's clear who deserves
> more respect.
> It's all about making money, pride is for fools
> ----------------------...
>
> My mom always said, if yor friend jumps off a building, will you
> too? Think with your own head.
Long-term data for 25 countries up to 2006 reveal 195 stock-market crashes (multi-year real returns of -25% or less) and 84 depressions (multi-year macroeconomic declines of 10% or more), with 58 of the cases matched by timing. The United States has two of the matched events--the Great Depression 1929-33 and the post-WWI years 1917-21, likely driven by the Great Influenza Epidemic. 45% of the matched cases are associated with war, and the two world wars are prominent. Conditional on a stock-market crash, the probability of a minor depression (macroeconomic decline of at least 10%) is 30% and of a major depression (at least 25%) is 11%. In a non-war environment, these probabilities are lower but still substantial--20% for a minor depression and 3% for a major depression. Thus, the stock-market crashes of 2008-09 in the United States and other countries provide ample reason for concern about depression. In reverse, the probability of a stock-market crash is 69%, conditional on a depression of 10% or more, and 91% for 25% or more. Thus, the largest depressions are particularly likely to be accompanied by stock-market crashes, and this finding applies equally to non-war and war events. We allow for flexible timing between stock-market crashes and depressions for the 58 matched cases to compute the covariance between stock returns and an asset-pricing factor, which depends on the proportionate decline of consumption during a depression. If we assume a coefficient of relative risk aversion around 3.5, this covariance is large enough to account in a familiar looking asset-pricing formula for the observed average (levered) equity premium of 7% per year. This finding complements previous analysis that were based on the probability and size distribution of macroeconomic disasters but did not consider explicitly the covariance between macroeconomic declines and stock returns.
Just another opinion, point of view from a non partisan group on the long term prognosis for the economy
The mother of all "geddons" is just around the bend, and she's got the entire road blocked off.
Look at any poll on websites and the majority still expects the market to be lower. Load up!
The rally has been driven off the March lows by several misleading factors: 1) the stress tests (not realistic), 2) cheerleading by the Fed ("green shoots" - where are they?), and 3) shallow, incomplete, and incorrect presentation of economic data by mainstream media.
When these factors are exposed for what they are we will be back to March 2009 levels and below.
Didn't you read the propaganda today, I mean headlines. AIG, Frannie & Freddie are zombie corps that will leave shareholders with nothing - that includes the US Gov.
See ya lower than the March lows - this bear is just hibernating my friend!
I admit, I'm long, but nervous as hell about it. I really don't think the March low was "the" low.
On Aug 28 07:09 PM Stone Fox Capital wrote:
> The negativity of the comments tells you everything you need to know
> about investor sentiment and the fact that this market will continue
> to rally. SP500 at 1,200 to 1,300 is where the market is headed with
> little to know resistance.
>
> Look at any poll on websites and the majority still expects the market
> to be lower. Load up!
Without a near-term catalyst for a correction, I would not bet against current market momentum. In addition to this, the stock market could get perverse support if the trend toward higher savings rates continues, because savers will pump money into the stock market. Your case for a fundamental-based rallyseems downright silly.
Also, the notion that "savers," the kind of terrified, disenfranchised types the bears and pessimists refer to, are, also, responsible for the market's advance because they're plowing their "savings" into the market is, likewise, too funny for words. Their money is in savings accounts, money markets or coffee cans.
As someone previously commented, the unbridled pessimism and cynicism demonstrated here and in many other posts is a sure sign that the amrket will advance. The "cw" is usually wrong, and the more people that believe it, the more "cw" it becomes.
Great comments. I think in a way you are touching on the failure of the Efficient Market Hypothesis. I've always been facinated by EMH but at the same time I've always felt there is something very wrong with it. The "capital market lens" that you point out we are mistakenly viewing the economy with has all it's credibility deriving from this flawed hypothesis. Unfortunately it's taught in universities thoughout the entire US. The markets are obviously not "always" rational.
The market is going up at a very basic level due to supply and demand. Supply (shares of stock) has not increased substantially, even with the secondary offerings of many companies, and demand is increasing. People realize that things will get better eventually and when they do, their stock investments will pull in great returns, so demand is increasing. There are not many alternatives with the extra savings: real estate - today not so much, money market - almost no return, bonds - maybe but big risk when interest rates rise next year.
I don't want to give the impression that the market indicators are just noise, but at the most basic level the result of increased demand with almost constant supply is higher prices...no matter what the indicators say.
On Aug 28 11:52 AM DavidC wrote:
> The March lows were not capitulative in any way.
>
> The true bottom would have been one where everyone was saying that
> they wouldn't touch stocks again (likewise at the true top would
> be where everyone has an opinion on the stock market - I remember
> gold at 880 and the newspapers had the information on their front
> pages - time to sell!).
>
> So - was March the true bottom? I don't think so. Are we out of the
> recession. NO. It's a depression.
It is pretty clear you are new to SA. "things will get better eventually" ? From an investment perpsective there is absolutely no guarantee. There has already been a 25 year span between peaks in the Dow once, it can happen again. Have you ever looked at the Japanese index, now more than 20 years from the last peak.
Even today accounting for dollar inflation......our last peak....was NOT a peak.
And since the indices are constantly changing their stocks by their own parameters, the stocks indices never REALLY recover. Hence your buy statement and logic are incorrect and dangerously flawed.
On Aug 28 11:29 PM No Leaf Clover wrote:
> All the grammar comments are wonderful, except this is not English
> class!!! Try to add some value with insightful market comments instead
> of acting like you are so much better than the rest of us who focus
> on content.
>
> The market is going up at a very basic level due to supply and demand.
> Supply (shares of stock) has not increased substantially, even with
> the secondary offerings of many companies, and demand is increasing.
> People realize that things will get better eventually and when they
> do, their stock investments will pull in great returns, so demand
> is increasing. There are not many alternatives with the extra savings:
> real estate - today not so much, money market - almost no return,
> bonds - maybe but big risk when interest rates rise next year.<br/>
>
> I don't want to give the impression that the market indicators are
> just noise, but at the most basic level the result of increased demand
> with almost constant supply is higher prices...no matter what the
> indicators say.
Then when people go to the bank to get their money (that isn't there) the government will have to close the banks and confiscate gold (again).
On Aug 28 11:05 AM Tack wrote:
> There's a constant rant, in thread after thread, that only "nominal"
> values are increasing and "real" values are falling. Folks, get a
> grip: the only kind of values you hold in your accounts and get to
> invest in are "nominal" values. That's how things are meaured in
> a paper-currency world.
>
> That's all there is, so if you don't figure out how to expand your
> own "nominal" value, you wind up with less "nominal" value and even
> less "real" value (for those fixated on that measure, whatever it
> means).
This massive massive debt load coming out of Washington just takes more and more money from both the individual and business, especially small business.
Yes I agree with you we are currently in a bull run and the market could climb even higher. I went to cash about a week ago and will forgo any upside moves until I start to really see some improving numbers in earnings, inventories, shipping increases, packaging demand increasing and so on. Q3 and Q4 should really be interesting.
We are entering the fall cycle now. We now will get to see what the market is really made of and if it is overvalued.
On Aug 28 07:24 AM redbaron wrote:
> I agree with the author, and the pundits are just part of the wall
> of worry the market continues to climb. Why not get on board and
> enjoy the ride? Eventually, each pundit will do exactly that, helping
> fuel the advance. It is happening each market day, and that is the
> reason the market continues to climb.
You bet we can see changes from beyond your northern border that make us shake our heads in disbelief. The direction the USA is taking politically is absolutely frightening. My friends in Europe have told me the same thing. They are in disbelief even more than Canadians are... because they've seen the face of fascism and tyranny before and thought it impossible to happen in the USA. But happening it is... right out in the open and with no regard for the well-being of the good American people!
You made that statement because you are awake. I respect you for that.
On Aug 29 11:00 AM CecilTexas wrote:
> If you think the market is going down, you are clearly a racist.
I personally don’t spend five minutes a year trying to figure out which way markets are going and don’t really relate to doing it. I don’t really care either—for the most part. Crashes such as we saw last year are few and far apart; as a rule they simply don’t come piling on top of each other.
As I’ve written before on this site, I was once a very foolish boy (now I’m a foolish man), and back in the 1980s when the CBOT began futures trading on indices, I jumped in thinking I could predict the day to day machinations of markets. After only a few days I realized my vew was fallacious. I continued to trade for about four years, but never again grew the hubris to think I could predict market direction.
Therefore, I don’t usually read articles that predict market direction, but there are so very many negative articles on this site that I decided to read this positive one.
I will say that Mr. Schwarz’s points are valid, especially this one: The DOW was around 8400 when Geithner came stumbling out of the blocks and Obama was strafing the economy every time he wagged his tongue. The DOW dropped 2000 points before Geithner could find his tongue and Clinton told Obama to nix the negativity—this was indeed a move that had nothing to do with the economy or business. That 2000 point move was thus no more a move back to normalcy.
That said, let me also say that at this point the majority of stocks I’ve checked out recently do not fit my criteria for buying—but I’m a picky, tight son-of-a-batch. So because I can’t find something to buy doesn’t mean there’s a crash coming.
I am invested mostly in China and Brazil, with only a few US companies in my coop. The problem I see with most businesses in the states is too much debt. This came about in my view mainly because of high corporate taxes—which
are not going down.
Some companies are indeed working their debt down. Others, such as GE, have added massive amounts of new liability to their books. This is why GE’s boss, Jeffrey Immelt, is pushing for a bailout of sorts—urging the government to pass the Cap & Trade Bill which will strongly benefit GE.
Three of the US companies I own, GD, FWLT, and FLR have stable long-term contracts that guarantee them gracious earnings for years out from here. Shareholders should be well rewarded, in my view.
The other two, JCOM and GRMN, have pristine balance sheets, keep bringing the bacon home to momma year after year, and have products and/or services with potential world growth.
I have reasonable profits in all of these, but I’m not selling them, shorting them, or putting stops in on them—not matter what anyone says, unless there is drastic monetary or fiscal policy change.
I urge investors (particularly new and young ones) to learn to search and find companies of this type, buy them when they’re down (or out of favor), and give them a chance to make you some money.
You’ll be much the better off doing this than trying to pick market direction.
Thank you for this article, JS, and your work.
The banks know that all these trillions for Porkulus, International (they have removed all current citizen verification checks, then voted down an (R) sponsored amendment to put them back) socialized health care, supporting terrorists (120 million for Hamas alone), Porkulus 2 (already being talked about, will it be written by the same self described communist Green Czar that wrote the last one?) not to mention repaying the Chinese (has the "transparent" govt. in history revealed the principle amount and terms for repayment?) are going to crush any chance of a legitimate recovery.
They are raising rates and slicing credit limits.
They know that there's only so long we can keep on piling on debt.
They know we will have to borrow money to make payments on borrowed money.
Look at California for the "recovery" that awaits us.
Their house of cards imploded, and the Fed probably has too - they're just not going to tell anyone until after the 2010 elections.
On Aug 28 08:32 AM dual cit wrote:
> This is like saying we are having great weather for the size of the
> town. Show us some real numbers. Just look at our national debt as
> a relation to GDP. The combine it with the consumer debt in relation
> to income. And then housing prices in relation to income has only
> corrected back to close to the norm...certainly not below. Commercial
> real estate has yet to hit the fan. Retailer J Crew has announced
> they are focusing on the catalog rather than opening more box stores.
> No...sorry Jason, I think we are simply recovering from extreme oversold
> levels. But what is going to drive it higher. John Mauldin has been
> right all along...we are in for a "muddle through econony"
On Aug 28 09:08 AM JAMES CARLINI wrote:
> Come on. Stop listening to the CNBC cheerleaders. All you have to
> do is walk out of the house or office and look at how businesses
> are really doing.
>
> Restaurants and small businesses are down 40%-65%. The consumer is
> NOT going to spend us out of this recession.
>
> AND it's not unemployment that you should be worried about, it's
> the growing number of underemployment. People who used to make $80K
> - $130K are now making $35K-$50K. They don't get counted in unemployment
> statistics but their buying power has sure eroded.
>
> Listening to some of these "market experts" is like listening to
> Vince the Sham-Wow guy. Why don't you add him to your list?
> "Hey cameraman, zoom in for a close-up on this."
I wish Bernanke would set an inflation target of 4%/yr, and I wish he would publicize it. That guy is very knowledgeable about what expectations can do. The country needs slightly higher inflation expectations to calm down and restore confidence in the future, and for homeowners to replenish their pensions.
With the 30-yr bond at 4.2%, the inflation expectations are just too low for normal consumption and investment to resume.
On Aug 28 08:40 AM BPYHO wrote:
> Quite the Nostradomus this author is, after all "it's happening just
> like he wrote in May"... Anyways, as a person who is closing on my
> house today (after 1 year on the market), all I can say is Im taking
> a big loss and the buyers out there are rare. I't's in Omaha where
> unemployment isn't that bad and didn't have the huge surge in prices
> that the rest of the country experienced. We'll get one last kick
> as the 8k credit is expiring in Nov but after that sales will crash
> back down again....
additionally, you're still making the dangerous assumption that the future will resemble the recent past, which seems difficult to justify.
you can't just take a look back at the chart and draw a line between two points and extrapolate without making some consideration of the critical distinctions between the two periods. this market is already trading at 17X trailing earnings, and a lot of companies had decent goes of it in 2008, which should make this back of the envelope number something of a warning sign.
the credit-fueled growth of late will not be revisited anytime soon, especially during a period where bank failures continue to climb, mortgage defaults aren't looking any better, and consumer access to credit remains restrained. almost all of the previous drivers of explosive growth are absent and unlikely to return anytime soon
unemployment will likely reach a secularly high new level in the 6-8% range, growth will likely only in the 2-3% range rather than 4-5%, and its difficult to state the importance of a benign interest rate cycle over the past 25 years. interest rate cycles move at a glacial pace and i think its very likely that we'll see much higher rates moving forward than investors became accustomed to during the mid-late 80's, 90's, and early 00's. multiple compression seems like an almost certainty moving forward, particular as emerging markets continue their shift towards domestic organic growth.
the contributions to GDP made by the financial sector (look at its contribution to corporate profits since 1980) and construction were enormous and you're fooling yourself if you think we can shake that off overnight. bank credit growth is still moving at a snail's pace, not to mention credit card lending and mortgage finance (wait until the effects of treasury purchases subside- if you need a mortgage, apply now)
also, on (3), fannie and freddie are essentially insolvent and sitting on huge piles of toxic assets and will likely need further capital infusions. the combined value of all of those stakes is infintesimal compared to the ruinous entitlements the government faces moving forward, not to mention any added expenditures from a healthcare or energy reform. even if AIG, FNM, FRE, GM, et. al. enjoy run ups of historical proportions and the government can exit at a profit in an orderly fashion (quite the assumption) it wouldnt come remotely close to funding social security and medicare down the line. you're looking for the evidence you want to hear and ignoring the glaring realities of the situation.
With luck, and enough cheerleading from the BubbleHeads of BubbleVision and the likes of Cramer The Pixilated Leprechaun, the Dow might... might... make it to about 10,344, or eke out a headfake somewhere over 10,000 one last time to butter up every last chump including, presumably, the redoubtable and gullible Mr. Schwarz .
What numbers are you looking at, have you checked consumer confidence as of today or even commercial real estate, see below
www.presstv.ir/detail....
Are you even paying attention to the commercial real estate market? Check this
www.gpb.org/news/2009/...
You're full of it, and it shows in that Wall Street Banker smile of yours.
Lets take a look back at some of this authors predictions shall we?
April 10 2008
"Every investor hopes to buy at the bottom and sell at the top. We’re getting close to a bottom in Delta Airlines "
April 21 2008
" It's time to be invested in the new recession"
May 30 2008
"A bottom in financials and the US Dollar, combined with a top in oil, provides a nice foundation for the 2nd half of 2008"
August 13 2008
"With the market now overbought, these negative financial issues present the rationale for a sell-off but it will only be for the short term. The recent market strength was a precursor to a much stronger rally later this fall. Long term, conditions have definitely improved. A stable dollar combined with declining oil will pave the way for foreign investment in US equities. This powerful money flow will provide a boost to fall seasonality that we predict will push the S&P 500 back above 1,400."
September 16 2008
"The capitulation to come this week is required to form a bottom in the financial sector."
WAKE UP, this guy could not pick the winner of a one horse race at Belmont!
On Aug 28 11:38 AM TA wrote:
> Since Jason is the one who nailed the BAC calls consistantly making
> tons of money, while most of the moronic 'top 10' commentors on this
> site were the same ones who missed the rally, it's clear who deserves
> more respect.
>
> It's all about making money, pride is for fools.
Of course, given the long history of inflationary policies of all world governments (Japan soon to follow after today's election), having one's money in "safe" investments or cash will be the absolutely worst place one can be.
On Aug 28 10:36 AM JMBishop wrote:
> Remind me. Why did we have to bail out AIG in the first place...or
> BAC..or C? I don't get it anymore.
This recession or depression is a credit recession and the only other one we can compare it to is the Great Depression (for cause, not how it will play out which will be very different).
Look at this total debt chart for then and now. Notice that total debt didn't peak until 1932. Many thought borrowing a little more might get them through the worst of times until recovery began. Do we face that again with people maxing out credit cards or doing other things thinking "this will end soon?"
www.financialsense.com...
Notice in that chart how long it took to get debt down to where people started spending.
Speaking spending. Consumer spending was normally about 62-65% of GDP. Only massive use of debt allowed the consumer to go to 70-71% of GDP. That day is never coming back. We will be lucky, after a period of over correction, to come back to 62%. That drop in sales tax revenues and profits and tax revenues from profits will kill government budgets for years to come.
The Fed is reported to have said in a recent meeting, "no net new jobs for five years" which sounds about right for this credit recession or depression.
Also, regarding inflation and deflation. Deflation in asset prices, yes. Inflation? That will be driven by global economic forces, not by us. We import raw materials and goods and it will be global demand and the spending of dollars on commodities (that many nations are trying to get rid of) that will determine our prices even if we are in a depression deeper than the 30's.
If the global recovery is an illusion then even commodity prices will fall and the dollar may even appear to rally compared to other currencies. Bottom line, however is that our government is no longer in control of the dollar and its fate and thus, it is no longer in control of whether or not we have inflation in prices.
Food is another issue. There are already rumblings we are facing food shortages globally with the rapidly rising population. Canada has had record crop loss filings. Southern Hemisphere crops have been hit. A wheat rust has hurt Africa and the Middle-east wheat crops.
Thus, our food prices could rise a large amount even though we are in a recession. There are so many things going on that it is very difficult to predict where the markets OR prices will go but, fundamentally, nothing is looking good for the U.S. even if we have global recovery. Our policies are based on flawed monetary and economic theories that we have used for over 70 years.
www.dogsofthedow.com/d...
See how easy it would have been to pay tax on what was actually a loss in buying power? That is one of the reasons "inflation is a hidden tax."
One area I have been looking at is Canadian Oil trusts where the price and dividend goes up as the dollar falls. There are many others, but, the key is find something that protects against the loss of buying power. Don't make the mistake of thinking rising price always equates to a "gain."
Cost of living increases in wages were common but, due to under reporting inflation, workers have lost buying power for 30 years and haven't kept up with real world prices. A Social Security check would have to be 70% higher to have the same buying power as the early 80's.
This is a credit recession and it will take years to work off the debt excess. But, there will be all kinds of investment opportunities.
On Aug 30 12:18 PM Tack wrote:
> No wonder the "average Joe" can't make any money in the market.
> We've been at one of the greatest pullbacks in market history, and
> rather than seeing any buying opportunities anywhere, Joe concludes
> that things can only get worse and worse and that money is best placed
> in a mattress.
>
> Of course, given the long history of inflationary policies of all
> world governments (Japan soon to follow after today's election),
> having one's money in "safe" investments or cash will be the absolutely
> worst place one can be.
>>Look at this total debt chart for then and now. Notice that total debt didn't peak until 1932. Many thought borrowing a little more might get them through the worst of times until recovery began. Do we face that again with people maxing out credit cards or doing other things thinking "this will end soon?"<<
In fact, consumers and business have been paying down debt. That's principal reason why banks can't expand lending, not the supposed refusal to lend to this or that deserving borrower that the popular media likes to tro out on the evening news.
>>financialsense.com...
Notice in that chart how long it took to get debt down to where people started spending.<<
Absolutely the opposite of now, the money supply was contracted from 1929 to 1935, and only returned to 1929 levels by 1939. That's ten full years of reduced and/or stagnant money supply. No wonder we had catastrophic deflation and inability to pay down debt. It's not remotely comparable to current policies or their likely effects.
>>Speaking spending. Consumer spending was normally about 62-65% of GDP. Only massive use of debt allowed the consumer to go to 70-71% of GDP. That day is never coming back. We will be lucky, after a period of over correction, to come back to 62%. That drop in sales tax revenues and profits and tax revenues from profits will kill government budgets for years to come.<<
This, too, will prove wrong because the effects of massive increases in the money supply will amplify the consumption values that apply relatively to GDP. Granted, this will be inflationary, but the reality is that one can only invest to maximize nominal gains.
>>The Fed is reported to have said in a recent meeting, "no net new jobs for five years" which sounds about right for this credit recession or depression. <<
The path that the economy takes will not be (and never has been) controlled by job stats at the margin. The economy will be controlled by the spending habits of the 90+% with jobs, and this behavior will improve far sooner than jobs are added back.
>>Also, regarding inflation and deflation. Deflation in asset prices, yes. Inflation? That will be driven by global economic forces, not by us. We import raw materials and goods and it will be global demand and the spending of dollars on commodities (that many nations are trying to get rid of) that will determine our prices even if we are in a depression deeper than the 30's.<<
Which is it, deflation or inflation? Can't have both. In fact, the entire world has inflated their fiat currencies and we'll see worldwide inflation. The recently popular myth that the rest of the world would prosper while the U.S. declined -- a new paradigm, if you will-- has already been debunked, as world economies, China included, contracted as swiftly as we did. And, either we'll all recover, or we'll all wallow together. Given the huge monetary expansion, recovery, at least as measured in nominal terms, seems unavoidable.
>>If the global recovery is an illusion then even commodity prices will fall and the dollar may even appear to rally compared to other currencies. Bottom line, however is that our government is no longer in control of the dollar and its fate and thus, it is no longer in control of whether or not we have inflation in prices.<<
Contrary to popular "new thinking," as soon as other world economies started to falter, money fled into dollars, exactly as has happened in the past. Another instance of the wrongheadedness of "this time it's different." Granted, if the world were to sink into some complete mental funk and worldwide depression, yes, asset prices would fall worldwide and the dollar would soar. I sure wouldn't want to make that bet, though, given the currency-printing proclivities of modern governments.
>>Food is another issue. There are already rumblings we are facing food shortages globally with the rapidly rising population. Canada has had record crop loss filings. Southern Hemisphere crops have been hit. A wheat rust has hurt Africa and the Middle-east wheat crops.<<
You have to be kidding. Tomas Malthus was proven wrong 211 years ago. Food production is at record levels and expanding faster than population. Economic and distribution issues will assure thatthe poor and hungry are always among us, unfortunately.
>>Thus, our food prices could rise a large amount even though we are in a recession. There are so many things going on that it is very difficult to predict where the markets OR prices will go but, fundamentally, nothing is looking good for the U.S. even if we have global recovery. Our policies are based on flawed monetary and economic theories that we have used for over 70 years.<<
Prices, of course, will go up. The U.S. and othe world governments have been expanding currency fatser than GDP for many decades. It's the nature of the beast. Inflation is the one sure things that can be bet on, like the sun coming up, or aging, even if we have occasional temporary pullbacks.
It's amazing how so "flawed" a system and policies could have produced such an expansive and emulated economic system over the last 70 years. Even now, while pessimists decry things, there's no sign of anybody abandoning the dollar for any other currency, or even making much of a rush into gold.
In summary, the folks who bet against world recovery, including --in fact, driven by-- the U.S., are going to be left at the station once again.
In regard to Doug Kass, I would not bet against the man begin right. He is very smart and should be taken seriously.
On Aug 28 08:08 AM enigmaman wrote:
You seem to make fun of Doug Kass a bear who correctly called the bottom, a genius but now a clown because he is calling the top.
Now that debt is harder to come by, their are fewer jobs (corporate loans) and therefore a greater number of household mortgage forclosures. At present there is an interesting dynamic linking together Gov't debt, personal debt, taxation, credit, leverageing, etc., to the extent that the next bull market will likely be skiddish. The economies of the 50 states are wiped out, unemployment remains a large detriment to the economy, commercial real estate may worsen in 2010/2011.
If more debt and taxation are needed to correct things, then the expectation is that there is less certainty about the future. Right now investors should be long the markets but more vigilant about knowing when to leave the party, especially where to go once the party's over (bubble pops). The dollar is the current bubble that's bursting, so enjoy the ride while it lasts. I think a huge paradigm shift will be in store if things go south more than during Q3-Q4 2008.
In fact, consumers and business have been paying down debt. That's principal reason why banks can't expand lending, not the supposed refusal to lend to this or that deserving borrower that the popular media likes to tro out on the evening news.
Absolutely the opposite of now, the money supply was contracted from 1929 to 1935, and only returned to 1929 levels by 1939. That's ten full years of reduced and/or stagnant money supply. No wonder we had catastrophic deflation and inability to pay down debt. It's not remotely comparable to current policies or their likely effects.
==============
Yes it is different in what the government is doing but, that doesn't change the problem the consumer has and this is consumer driven and his debt burden is increasing as his wages fall and it is 84% employed or partially employed, not 90% as even the Government admits in its U-6 number and the recent FED spokesperson from one of the Federal Reserve Banks.
As wages fall, the debt burden rises and while we have had an increase in savings, that has fallen again, in part, thanks to debt taken on for "Cash for Clunkers" and now they are going to try and have "Cash for Appliances" if they can get away with it.
Tack
This, too, will prove wrong because the effects of massive increases in the money supply will amplify the consumption values that apply relatively to GDP. Granted, this will be inflationary, but the reality is that one can only invest to maximize nominal gains.
================
That depends on our economy which isn't likely to recover for years. The increase in money supply is not expected to reach our people. If it does, then GDP will also rise, especially due to government spending which is a large portion of GDP. As wages stay low due to high unemployment, expected to increase for at least a few quarters even if we get a temporary bump first, then the inflation will not be due to our having more money but rather due to foreign holders of dollars spending more of them for commodities.
Our government is no longer in control of what happens. Our foreign lenders are. If the FED allows inflation then the dollar will collapse and that means numbers are meaningless as we saw in other hyper-inflationary economies. A senior might get a social security check for $10,000 but it wouldn't buy what a current $10,000 check buys. GDP would soar, but be meaningless.
----------------------...
Tack
The path that the economy takes will not be (and never has been) controlled by job stats at the margin. The economy will be controlled by the spending habits of the 90+% with jobs, and this behavior will improve far sooner than jobs are added back.
==============
That is true. We have had a paradigm shift in thinking with the 78 million boomers and 37 million retirees which is over 1/3 of our population and their spending at close to previous levels is not coming back. Boomers were already approaching the time when they would focus more on retirement and cut spending. This crisis has sped that up. Here is a chart of the impact on each generation in the U.S. regarding spending.
www.financialarmageddo...
Not perfect but, does reflect the major shift in consumer thinking going on.
========================
Which is it, deflation or inflation? Can't have both. In fact, the entire world has inflated their fiat currencies and we'll see worldwide inflation. The recently popular myth that the rest of the world would prosper while the U.S. declined -- a new paradigm, if you will-- has already been debunked, as world economies, China included, contracted as swiftly as we did. And, either we'll all recover, or we'll all wallow together. Given the huge monetary expansion, recovery, at least as measured in nominal terms, seems unavoidable.
===================
Yes we will see global inflation as nations try to spend the dollars they have on commodities and possibly buying IMF bonds as some are doing. We also have the new government of Japan that ran on a campaign of not being as supportive of the dollar.
But, here we will have asset and wage deflation and price inflation which is known as "stagflation." The global recovery isn't likely to pull the U.S. up much due to our 70 years of bad economic and monetary policy which is still being used and continuing to drag us down. As more and more cities and states have to cut spending, the more layoffs will occur. The businesses that sell to the cities and states will be hit hard and so will some of the people that depend on government jobs as this gets worse in states like California. With 57% of the option ARMs and Alt-A's, California, which is 13% of our GDP is facing disaster in the coming year or so.
While the cause of the great depression and this depression were the same, how it plays out will be very different due to the weak dollar and the world abandoning it. Even a high inflation situation means $100-200 oil and that will kill any chance of an economic recovery here. The emerging markets may see their currencies remain fairly stable and thus, not pay that much more for oil but, the nations with too much debt and falling currencies will really pay the price.
As more and more discretionary spending goes for energy, the more layoffs we can expect. It may not take 10 years for the U.S. to get debt under control as we may have massive defaults and bankruptcies with our citizens and companies. But, that isn't here yet. Housing prices will probably take another leg down when the foreclosures being held off the market join those Prime, Alt-A's and Option ARMS that are coming.
------------------------
Tack said
Contrary to popular "new thinking," as soon as other world economies started to falter, money fled into dollars, exactly as has happened in the past. Another instance of the wrongheadedness of "this time it's different." Granted, if the world were to sink into some complete mental funk and worldwide depression, yes, asset prices would fall worldwide and the dollar would soar. I sure wouldn't want to make that bet, though, given the currency-printing proclivities of modern governments.
==================
I was speaking short term as long term the dollar is definitely doomed as more and more nations find ways to stop using it.
Tack said
You have to be kidding. Tomas Malthus was proven wrong 211 years ago. Food production is at record levels and expanding faster than population. Economic and distribution issues will assure thatthe poor and hungry are always among us, unfortunately.
======================
quote
Where’d the Food Go?
Another noteworthy trend is that 7 out of the last 8 years, global demand has outpaced supply. The reason this is possible is because the opposite occurred prior to the current trend. Global food stock piles have been drawn down to make up for the gap between supply and demand. The result of the discrepancy over the past several years has been a decline in global stock piles of grains to 30 year lows. The whole notion of having strategic food reserves is to allow for a safety buffer if there is a supply shock. Current stocks are at dangerously low levels and if there was a disruption in supply, angst would be felt around the world
www.dailymarkets.com/e.../
----------------------...
Even when we have bumper crops in some places we are seeing huge crop problems in other nations, like the wheat rust problem in Africa. Since food is priced by global demand, not U.S. demand, what happens in those agriculture areas in other nations affect us.
quote
Jul 2, 2009
All across western Saskatchewan and southern Alberta, farmers are scanning crop-insurance policies and calculating how short they'll be on payments this year as one of the worst droughts on record parches their land and their bank accounts.
in.reuters.com/article...
------------------
There have been several articles on that crisis in Canada so I won't belabor it. But, we have problems in Argentina, Australia, Africa and other places that may (still too soon to get an accurate picture) that overwhelm any bumper crops and corn is not the grain that will drive this.
sed on flawed monetary and economic theories that we have used for over 70 years.<<
Tack said
It's amazing how so "flawed" a system and policies could have produced such an expansive and emulated economic system over the last 70 years. Even now, while pessimists decry things, there's no sign of anybody abandoning the dollar for any other currency, or even making much of a rush into gold.
======================
Actually we have been in decline for most of that time but, debt has kept the illusion alive. We started borrowing $1 for each $1 of GDP growth in 1968. By the 2000's it was $6 for each $1 of growth and now it is infinity as the private sector can never grow enough to be able to pay enough taxes to get out of this crisis.
The most obvious signs were in infrastructure and buying power. The infrastructure is ranked "D" by the Society of Engineers and is still declining. We build new stuff but, can't maintain it adequately and this includes sewer, water, bridges, roads, rail, airports, energy grids, dams, etc.
The other sign is the lost buying power and destruction of the middle class.
quote:
Because Social Security payments are indexed to inflation, government statisticians suppress reported inflation, and thus their need to increase monthly SS checks, by arbitrarily eliminating from their calculations products that are rising too quickly in price. If they were adjusted for the true cost of living, today’s Social Security checks would be 70% higher and the Federal deficit would be exploding.
www.financialarmageddo...
Because of that under reporting, wages rose to reported "cost of living" and not to real price increases resulting in more and more people using debt or cutting corners, like taking a higher deductible in insurance on cars and health or buying cheaper plans.
Nation after nation is abandoning the dollar. We all know of China and its non-dollar trade agreements they are making but, even in S.A. it is going on.
quote:
Brazil and Argentina have signed a deal that will let the two nations do away with US dollar as an intermedium in their bilateral trade.
The agreement was signed by Brazilian President Luiz Inacio Lula da Silva and his Argentine counterpart Cristina Fernandez de Kirchner on Monday in Brasilia.
The accord is viewed as an important step toward a common currency among the members of Mercosur -- a South American trading bloc comprising Argentina, Brazil, Uruguay, Paraguay, and soon Venezuela.
www.presstv.ir/detail....
----------
Iran, of course, has already abandoned the dollar and the UAE is looking at creating its own currency to sell oil in to avoid the dollar. Brazil, China, Russia and India are buying IMF bonds to get rid of dollars. China is also making non-dollar oil contracts with nations that are developing new fields. They lend development money in return for guaranteed supply to keep the oil of the spot market.
Then you have the calls by several nations for the SDR's issued by the IMF to begin competing with the dollar. The IMF that made 100% of its loans to developing nations in dollars has started to use other currencies.
There is nothing backing the dollar but a little hope that the U.S. can create a miracle and get out of this crisis. It can delay it and maybe even delay it for a year or two but, without reforms, it is doomed.
----------------------...
Tack said
In summary, the folks who bet against world recovery, including --in fact, driven by-- the U.S., are going to be left at the station once again.
=================
I sure hope you are right but, the global analysts I hear on foreign news at night don't seem very optimistic due to our deficits that we can't tax or grow out of. Even our own government accountants have warned Congress four years in a row (before this crisis even hit.
quote:
Further, GAO’s audit report also included an emphasis paragraph for the 3rd consecutive year (repeated in the 2008 rept.) noting that the nation’s current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary to address the nation’s large and growing long-term fiscal imbalance.
...the federal government’s current fiscal policy is unsustainable. Continuing on this imprudent and unsustainable path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our domestic tranquility and national security.
www.gao.gov/new.items/...
----------------------...
The CBO's projections aren't any better either with them saying interest on debt will quadruple in any attempt to curb inflation and that amount would be higher than the current receipts for Corporate and individual tax revenues combined.
Bernanke in his Jan. 2007 testimony warned Congress as well of the dangers of depending on foreign loans.
quote:
Some fraction of the additional debt would likely be financed abroad, which would lessen the negative influence on domestic investment; however, the necessity of paying interest on the foreign-held debt would leave a smaller portion of our nation's future output available for domestic consumption. Moreover, uncertainty about the ultimate resolution of the fiscal imbalances would reduce the confidence of consumers, businesses, and investors in the U.S. economy, with adverse implications for investment and growth.
www.federalreserve.gov...
-------------------------
We have been repeatedly warned ever since Nixon made the deal with the Middle East that we would protect nations that sold oil only in dollars, that this was adding risk that would some day come back to haunt us. Only two of those middle east nations didn't promise to always sell oil in dollars. Iraq and Iran. But, now, the UAE is looking for a way out as the dollar is too risky for their taste. If they have to create a new "oil currency" then they will or they may go with SDR's, some believe.
I think we will know a lot more within a year.
Honestly now people; even if the markets do go higher, is that a good thing?
Is it sustainable? No.
Will the average investor get burned yet again? Yes.
Will that be a good thing? No.
We celebrate only when the Snake Oil Salesman have left town and our money isn't buying cocaine and alcohol infused tonics.
Are we still allowed to say bad things about GE or Immelt? Not sure if that right was recently suspended.
On Aug 29 12:53 PM ArtfulDodger wrote:
> JS and Fellow Investors:
>
> I personally don’t spend five minutes a year trying to figure out
> which way markets are going and don’t really relate to doing it.
> I don’t really care either—for the most part. Crashes such as we
> saw last year are few and far apart; as a rule they simply don’t
> come piling on top of each other.
>
> As I’ve written before on this site, I was once a very foolish boy
> (now I’m a foolish man), and back in the 1980s when the CBOT began
> futures trading on indices, I jumped in thinking I could predict
> the day to day machinations of markets. After only a few days I realized
> my vew was fallacious. I continued to trade for about four years,
> but never again grew the hubris to think I could predict market direction.
>
>
> Therefore, I don’t usually read articles that predict market direction,
> but there are so very many negative articles on this site that I
> decided to read this positive one.
>
> I will say that Mr. Schwarz’s points are valid, especially this one:
> The DOW was around 8400 when Geithner came stumbling out of the blocks
> and Obama was strafing the economy every time he wagged his tongue.
> The DOW dropped 2000 points before Geithner could find his tongue
> and Clinton told Obama to nix the negativity—this was indeed a move
> that had nothing to do with the economy or business. That 2000 point
> move was thus no more a move back to normalcy.
>
> That said, let me also say that at this point the majority of stocks
> I’ve checked out recently do not fit my criteria for buying—but I’m
> a picky, tight son-of-a-batch. So because I can’t find something
> to buy doesn’t mean there’s a crash coming.
>
> I am invested mostly in China and Brazil, with only a few US companies
> in my coop. The problem I see with most businesses in the states
> is too much debt. This came about in my view mainly because of high
> corporate taxes—which
> are not going down.
>
> Some companies are indeed working their debt down. Others, such as
> GE, have added massive amounts of new liability to their books. This
> is why GE’s boss, Jeffrey Immelt, is pushing for a bailout of sorts—urging
> the government to pass the Cap & Trade Bill which will strongly
> benefit GE.
>
> Three of the US companies I own, GD, FWLT, and FLR have stable long-term
> contracts that guarantee them gracious earnings for years out from
> here. Shareholders should be well rewarded, in my view.
>
> The other two, JCOM and GRMN, have pristine balance sheets, keep
> bringing the bacon home to momma year after year, and have products
> and/or services with potential world growth.
>
> I have reasonable profits in all of these, but I’m not selling them,
> shorting them, or putting stops in on them—not matter what anyone
> says, unless there is drastic monetary or fiscal policy change.<br/>
>
> I urge investors (particularly new and young ones) to learn to search
> and find companies of this type, buy them when they’re down (or out
> of favor), and give them a chance to make you some money.
>
> You’ll be much the better off doing this than trying to pick market
> direction.
>
> Thank you for this article, JS, and your work.
It makes no sense to pump up so much money in to naked stock. All this does it blows another bubble. And when this one blows, the previous one will seem like a walk in the park.
What U.S. needs is to extend the credit to small and medium companies, put the money in government supported industries. That will make U.S. factories, and manufacturers work again, and start exporting. It will also provide employment.
That is where the money is, not from blowing up bubbles and hope the economy will recover.
All I see now in Alan Greenspan words is "irrational exuberance".
Are you holding to your convictions with AIG down 9% and C down 5%. BAC not hammered too bad though.
One of the most well-reasoned and best-presented pieces of logic I have encountered in the "sensitivity group" that is otherwise known as SeekingAlpha.
On Aug 29 12:53 PM ArtfulDodger wrote:
> JS and Fellow Investors:
>
> I personally don’t spend five minutes a year trying to figure out
> which way markets are going and don’t really relate to doing it.
> I don’t really care either—for the most part. Crashes such as we
> saw last year are few and far apart; as a rule they simply don’t
> come piling on top of each other.
>
> As I’ve written before on this site, I was once a very foolish boy
> (now I’m a foolish man), and back in the 1980s when the CBOT began
> futures trading on indices, I jumped in thinking I could predict
> the day to day machinations of markets. After only a few days I realized
> my vew was fallacious. I continued to trade for about four years,
> but never again grew the hubris to think I could predict market direction.
>
>
> Therefore, I don’t usually read articles that predict market direction,
> but there are so very many negative articles on this site that I
> decided to read this positive one.
>
> I will say that Mr. Schwarz’s points are valid, especially this one:
> The DOW was around 8400 when Geithner came stumbling out of the blocks
> and Obama was strafing the economy every time he wagged his tongue.
> The DOW dropped 2000 points before Geithner could find his tongue
> and Clinton told Obama to nix the negativity—this was indeed a move
> that had nothing to do with the economy or business. That 2000 point
> move was thus no more a move back to normalcy.
>
> That said, let me also say that at this point the majority of stocks
> I’ve checked out recently do not fit my criteria for buying—but I’m
> a picky, tight son-of-a-batch. So because I can’t find something
> to buy doesn’t mean there’s a crash coming.
>
> I am invested mostly in China and Brazil, with only a few US companies
> in my coop. The problem I see with most businesses in the states
> is too much debt. This came about in my view mainly because of high
> corporate taxes—which
> are not going down.
>
> Some companies are indeed working their debt down. Others, such as
> GE, have added massive amounts of new liability to their books. This
> is why GE’s boss, Jeffrey Immelt, is pushing for a bailout of sorts—urging
> the government to pass the Cap & Trade Bill which will strongly
> benefit GE.
>
> Three of the US companies I own, GD, FWLT, and FLR have stable long-term
> contracts that guarantee them gracious earnings for years out from
> here. Shareholders should be well rewarded, in my view.
>
> The other two, JCOM and GRMN, have pristine balance sheets, keep
> bringing the bacon home to momma year after year, and have products
> and/or services with potential world growth.
>
> I have reasonable profits in all of these, but I’m not selling them,
> shorting them, or putting stops in on them—not matter what anyone
> says, unless there is drastic monetary or fiscal policy change.<br/>
>
> I urge investors (particularly new and young ones) to learn to search
> and find companies of this type, buy them when they’re down (or out
> of favor), and give them a chance to make you some money.
>
> You’ll be much the better off doing this than trying to pick market
> direction.
>
> Thank you for this article, JS, and your work.
If this is true, one of us is living on another planet in a parallel universe. Not even sure which one of us at this point, though.
On Aug 28 07:24 AM redbaron wrote:
> I agree with the author, and the pundits are just part of the wall
> of worry the market continues to climb. Why not get on board and
> enjoy the ride? Eventually, each pundit will do exactly that, helping
> fuel the advance. It is happening each market day, and that is the
> reason the market continues to climb.
There's a clear difference between us and Wall St.
We take opportunities given to us by others.
Wall St. MAKES opportunities, at the expense of others.
On Aug 28 03:32 PM Archman Investor wrote:
> At S & P 700 I added to existing positions in a big way. I am
> an investor who sets my sight on 10 year time horizons. For instance
> my portfolio is current at 2009 levels while the average American's
> portfolio is back at 1999 levels. I do not gamble and look for consistent
> returns over time. I have succeeded thus far.
>
> That being said, back in April I made a statement that the powers
> that be were going to run this market straight back to 1100 on the
> S & P simply because they could, and with the help of taxpayer
> money, by God they did just that.
>
> Though "some" data points have been better than usual the following
> facts remain and cannot be disputed or rationalized:
>
> Corporate profits were a joke. Decreasing revenue, cost cutting and
> asset sales are NOT signs of an improving business. Playing the "beat
> the grossly lowered analyst numbers" are joke and only fools who
> have CNBC inside their heads are believing it.
>
> Unemployment is God awful and the rationalization that losing 570K
> jobs last month and 20 million still out of work ( the real number)
> is an embarrassment.
>
> Consumer spending is not coming back. Not for a decade or more. People
> had start facing up to that fact. I live here on the north shore
> of Long Island, New York. It is one of the areas of this country
> were wealth resides and the power that "really" controls this country
> lives.
> The rich are not spending. Even in some of the most popular and tony
> towns on the island- there are rows and rows of streets with vacant
> stores that no long have customers. For rent. For rent. For rent.
> Consumerism is over, finished. The most people want and care about
> now are the I-phones and Blackberries. Thats it.
>
> The S & P 500 should be at 750 right now which puts it right
> at its 25 years continuation trend line dating back to 1978. Of course
> the markets have gone up and the powers that be can take it to 2000
> on the S & P. Hey I am not fighting it.
>
> But by God mark my words:
> When those powers that be, coupled with the true acceptance of the
> population that the consumer is over, done, decide that this market
> is going to unwind this current government financed stock market
> bubble, average Americans are going to get destroyed once and for
> all. Those 401K's that became 201K's in 2008 are going to become
> 101K's when this is all said and done.
>
> I will of course sell many positions to mom and pop Americans at
> the highs like you will, (it is the nature of the beast, someone
> wins and someone loses,) but it is going to be a shame to watch the
> destruction unfold while Wall Street laughs all the way to the bank.
Disclosure: Long AIG, BAC and C<<
I want to be a buyer in the early stages of a recovery. I'll be all over stocks in about 2013. That's about 15 years from the 1998 levels we're at now. Big picture is that market cycles typically last about 15 years or so.
There are no good shepherds: they fatten the lambs and sheep to shear and eat them.
As investor sentiment approaches 90% bulls, being claustrophobic and disliking crowds, wouldn't now be a fine time to take money off the table and sit on the sidelines watching the mania on light volume, few advancers vs. decliners, and markets bumping their heads against resistence lines?
I appreciate your comment very much.
I believe this site was created for investors/traders to help one another in what is a very tough vocation in which we all need help.
That's why I lean toward helping young and new investors---and others if I can, but I also need help to survive and sometimes thrive.
Thus, I want a variety of articles that go with my views and against them---and especially against my views, in case I've missed something.
For this reason I don't understand all the animus against any of SA's writers---no matter what their view.
I think it's more political than investing oriented, but I'm not sure. But it seems to me to waste a lot of energy.
Anyway, the best to your investing and thanks again for your kind words.
On Aug 31 11:04 AM Tack wrote:
> Artful:
>
> One of the most well-reasoned and best-presented pieces of logic
> I have encountered in the "sensitivity group" that is otherwise known
> as SeekingAlpha.
Thank you for the kind comment.
You may be right. Speaking the truth could have recently been suspended, or may be in the future. But I didn't get the memo on Immelt and GE.
Raising 4 daughters for real? I wish you well with your investing; you need it!
On Aug 31 12:16 AM raising4daughters wrote:
> Nice commentary.
>
> Are we still allowed to say bad things about GE or Immelt? Not sure
> if that right was recently suspended.
Really good comment and really well said.
Thank you for it. I hope everyone reads it and takes note of it. After all, are we not trying to help one another with our comments---not hurt?
On Aug 31 04:22 AM rick12345 wrote:
> A well researched and well thought out analysis. It's about the most
> intellegent thing I have read on Seeking Alpha in months. As usual,
> people will tend to forget the facts of the past in a vain attempt
> to predict an unkown future. In this situation it stems from an immediacy
> to justify their present action (or in this case, inaction) with
> regard to investing money on the Stock market. If others are willing
> to invest in this market, then so let it be, but do not critique
> them for expressing an opinion. Criticism, after all, based on fact
> is readily justifiable, whereas crticism based on opinion is merely
> slander.
Rather than 90% bullish, the current sentiment is only 34% bullish and 48% bearish, a particularly good contraindicator against any collapse and a rather bullish signal, in fact.
Check for yourself: finance.yahoo.com/news...
On Aug 31 11:59 PM puravidavid@yahoo.com wrote:
> The markets were designed by insiders for the benefit of insiders
> at the expense of outsiders. In the face of top and bottom line headwinds,
> why will the insiders stay long when they can take their profits?
>
>
> There are no good shepherds: they fatten the lambs and sheep to shear
> and eat them.
>
> As investor sentiment approaches 90% bulls, being claustrophobic
> and disliking crowds, wouldn't now be a fine time to take money off
> the table and sit on the sidelines watching the mania on light volume,
> few advancers vs. decliners, and markets bumping their heads against
> resistence lines?
On American Association of Individual Investors and Investors Intelligence surveys: 51% of individuals were bullish on 8/13 and advisors were 52% bullish on 8/25, with Inv. Int. bearish only 19.8% last week. I was referring to last Friday's DSI (trade-futures.com) of 89% stock bulls.
On Sep 01 01:09 AM Tack wrote:
> It always helps to state facts, rather than nonsense.
>
> Rather than 90% bullish, the current sentiment is only 34% bullish
> and 48% bearish, a particularly good contraindicator against any
> collapse and a rather bullish signal, in fact.
>
> Check for yourself: finance.yahoo.com/news...;.v=1
>