Weekly Market Recap: What Year Is This, Anyway?

From now on, I will be detailing each week’s most salient developments in the financial markets via a bullet point rundown on Friday. My hope is that you can skim through this info before leaving the office or checking out for the weekend. Today we are bombarded with information from a hundred different sources. I’m hoping you’ll find this weekly recap to be a one-stop shop to distinguish the most important items from the “noise.”

What Year Is This (2007 vs 2009)?

• Insider selling to buying ratios are the most bearish (MOST selling) since Autumn 2007 (think these guys believe the bull market myth?)
• Corporate debt issuance is at Autumn 2007 levels (companies are raising as much funds as they can from the misguided optimism).
• Investor Intelligence’s survey shows 51% of investors are bulls and 19% bears (again, Autumn 2007 levels).

Stocks Are Cheap?

• S&P 500 is trading at a REAL P/E of 130 based on earnings that include write-downs.
• Typically a 50% rally in stocks occurs two years into recovery from a recession. At that point 1 million jobs have been created, GDP has increased substantially, as have incomes.
• Stocks are pricing in a 4-5% GDP growth next year and 40-50% jump in earnings (what are the odds of this happening?)
• 70% of volume on the NYSE comes from computer trading programs. This week, five stocks (AIG, Fannie, Freddie, CIT Group, and CitiGroup) ALONE accounted for 40% of volume.

Asia Will Save the World Economy?

• Japan just posted record unemployment for July.
• China’s banks have lent out money equal to 30% of its GDP. This has funneled into commodities (pig farmers speculating in gold) and stocks (Shanghai Index is up over 60% this year!)
• Recent reports show that China might actually NOT be buying Treasuries but exchanging their Mortgage Backed Securities and Agency Securities (Fannie/ Freddie/ etc) for Treasuries. This explains why the Treasury market is going strong despite the fact everyone is annoyed at the Fed’s profligate spending.
• China’s GDP numbers are almost assuredly phony (industrial production is down, as is electrical generation).

Comments

[whidbey:]

Well taken. Things are exceeding reality and history.

Still, when a rally starts it can last longer than I can remain virtuous, so I use stops and play with geared funds. Works too.

In the long run, it looks like a disappointment correction is probable some time into the fall months. It will in my work should be shorted. So I will short it. I think it falls back to the lows of March just to test them again before a larger rally starts later, maybe quite a while later.

Aug 28 04:03 PM

[Larry House:]

Thanks, Graham. Useful info. A little dose of reality never hurts--well, it may hurt, but it is good for us. Even in a raging bull market you get corrections after such runups. I am not into a conspiracy theory, but does anyone think the action in AIG, etc. is NOT manipulation? The Big Boys are sucking all the money they can into this market before they short it. Be nimble.

Aug 28 04:27 PM

[market ace:]

Let's give the gov't (ie Goldman) credit here. They are doing something right - The Plunge Protection Team is really on the job and successfully propping the markets up.

The media is also doing its job ignoring reality and repeating every economic lie and phony stat the gov't can produce.

Congress keeps drinking Obama's kool aide and thinks they can spend money forever to "stimulate" the economy and prop up failing companies.

The FED is doing its jobs by artificialy killing interest rates so every retired (or soon to be retired) mom and pop has to become a speculator to try and earn enough to survive or try and recoup their horrible losses. The FED keeps feeding tons of speculative capital to the big banks (with the false hope they might loan it to main street - that doesn't want to borrow it) which also produces more bubbles in stocks as the money has to go somewhere to justify outrageous bonuses. The FED using the old shell game to manipulate its money printing and make it look like foreigners are still buying Treasuries that they are actually buying certainly does earn Benny another term to "calm" the markets and perpetuate a false rally.

So all is obviously well in the land of Wall Street and the US stock markets even if Main Street is crashing and burning as you amply point out.

Aug 28 04:32 PM

[whidbey:]

Larry is asking the right question: what about AIG?

How does one explain that one? It is a bubble based on the ownership of the stock: the Fed. It is likely being pumped just to see how far it can go before it become obvious that the 29 lines of business AIG runs are really not doing well. Or, is the bet that if they were too big once, they likely are again.

Their favorite fairy god father is still running the Fed.

Aug 28 04:33 PM

[Prudent Man...:]

1987 "Black Box Trading" redux.

Aug 28 04:50 PM

[rosey99:]

Nice piece. Factual and concise. I would love to know how this is happening, I can't see how it is all manipulation or program trading. Someone out there must actually be buying, and buying a lot.

With all of the prop trading going on, it seems to me we should be seeing a lot more volatility. The 30% of volume that is not one sparc-station talking to another must represent actual a good deal of net buying. With insiders selling like there is no tomorrow, I'd be interested in any data that shows where the net inflows are coming from.

Aug 28 08:49 PM

[untrusting ...:]

Nice summary. And it is obvious the market is way overpriced. Also equally as obvious is that GS, JPM, HFT'ers with Fed/Treasury liquidity support can keep running the market up as long as they choose to. The big question is when will they decide to drop the artifical support? That is the multi-trillion dollar question. Wish we knew, but nobody but da big boys knows the real answer to that. We will all find out in due time, but extreme caution is warranted.

Aug 29 12:27 AM

[ArtfulDodger:]

The problem with shorting in this atmosphere is that there are a gazillion dollars sitting on the sidelines. Where is this money going? Surely not CDs? Most of that money is not going into treasuries.

This Fed-created money could prop a marrowless set of bones up for longer than a shorter's cash can last.

Instead of trying to be so much smarter than the entire world, why not simply wait for this pull back (or crash) practically everyone on SA is predicting (and has been predicting since the spring) and then jump in on the bargains?

What I think could really topple this market and the economy is the passage of both the Cap & Trade and the Medical Bills as they now stand, because both have huge tax increases set in them, plus onerous burdens on the productive in our society.

Aug 29 11:14 AM

[TradingChief:]

Yur good! :)

Excellent read, well written, concise, no run on sentences, no beating a point to death, something I am unable to do, I am a professional ranter.

Aug 29 11:53 AM

[derryl:]

I agree with ArtfulDodger about "gazillions on the sidelines". Lots of people failed to buy in during the bottom of March and April and have been astonished to see the market continue to rise for no fundamental reason. You can ride an uptrend and profit by selling high, whether the uptrend is "rational" or not. A commenter on another article pointed out that lots of these latecomers are waiting to get in on the action at any downturn, so their buying in puts a floor on any downtrend. Shorting this market has become the best way to lose money.

Aug 29 06:32 PM

[YoYoMama:]

"From now on, I will be detailing each week’s most salient developments in the financial markets via a bullet point rundown on Friday."

Why? Because last week you predicted a massive sell-off for this week that never happened.

Yet here are the bears, singing you're praises, despite the fact that you've been mostly dead wrong - about market direction, anyway.

I took you off my watch list, because in my book, once you became the Great Karnak, you lost integrity.

No one - not even you - can predict this market. You should have never tried.

Aug 30 08:06 AM

[ArtfulDodger:]

YoYo:

Good points and great comment.

I for one agree with your last two sentences. Why put out the energy trying to predict something no one has been able to do.

For those who can pick the direction of markets go to the CBOT and use futures contracts. The leverage is great and you can make more money than you can imagine.

Give us a call when you're rich as Buffett. Ahem.


On Aug 30 08:06 AM YoYoMama wrote:

> "From now on, I will be detailing each week’s most salient developments
> in the financial markets via a bullet point rundown on Friday."<br/>
>
> Why? Because last week you predicted a massive sell-off for this
> week that never happened.
>
> Yet here are the bears, singing you're praises, despite the fact
> that you've been mostly dead wrong - about market direction, anyway.
>
>
> I took you off my watch list, because in my book, once you became
> the Great Karnak, you lost integrity.
>
> No one - not even you - can predict this market. You should have
> never tried.

Sep 01 01:32 AM