Current Market About to Lose Momentum - Gundlach 19 comments
an article to
-
Font Size:
-
Print
- TweetThis
TCW Group Chief Investment Officer Jeffrey Gundlach said at a June 2007 Morningstar conference, "The subprime market is a total unmitigated disaster and it's going to get worse. The delinquency rate is still climbing. At the same time, the ability of people to refinance is also going down. It's just not a very attractive situation." The S&P 500 traded at 1,500 back then.
On Wednesday, in a conference call titled Too Good to Be True, Gundlach said of the current market that it was about to lose momentum, and advised selling on strength when the S&P 500 is over 1,000.
"You've made 90% of the money you're gonna make in this rally," he said. He thinks much of the economic data that people are calling green shoots is just the temporary result of unsustainable government spending. "We're basically borrowing money and calling it economic growth. It's not real economic activity."
About the much-praised Cash-for-Clunkers program, he said, "Deflation is so strong that you can't even sell cars unless you slash prices 20% through government subsidies." He also thinks commodity deflation lies dead ahead, saying that "a turning point is close at hand in these markets."
He's also worried about debt defaults: "We're standing on the edge of a major default wave. Defaults are the elimination of dollars. You could eliminate so much actual wealth that this could be the source of a strong dollar rally."
To see the slides of his presentation in PDF format, click here.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
Top
StockTalkers.-
1
David Fry
-
2
Cliff Wachtel
-
3
Mike Havrilla
-
4
David White
-
5
Hedged In
Top StockTalkers » -
1
Last year oil prices rallied to record high despite world-wide economic problems and recession in USA.
And this year the stock markets around the world are rallying to sky high P/E ratios despite the unresolved consumer debt problems, declining housing prices in USA, and increasing unemployment.
The last two times prices crashed soon after they went up. And it doesn't take a genius to guess what's likely to happen this time around too. The only question is how high stock prices will go before they crash.
With so many unresolved debt problems in the economy and rising unemployment rate, very few companies are in a good position to increase their profits a lot. And without a big increase in profits, current P/E ratios can't justify long-term investment in the stock market.
Which means that as soon as stock prices stop going up, then they will start going down. Because it doesn't make sense for investors to hold their shares for a long time at such low yields. Their only profit is the increase in prices. And they have no incentive to hold, once prices stop going up.
Defaults made dollars vanish and thus each dollar is worth more. The Treasury and FED are not going to step in as these defaults mount. The FED is already $2T invested but the private debt size is $50T with a good chunk of it about to default. This is a wave too big to be held back by printing or borrowing more dollars.
It was a no brainer especially if it wasn't your money at risk in the first place. Currency risk some people said? Baaar Humbug!
Of course it all ended in tears last year when the currency did a 4 standard deviation move in a few weeks and took everyone for a serious hair cut.
Now here we are again only this time its equities. Take a mil (if you’re a Goldman or a Morgan its going to cost you......well lets just say... nothing to you sir!) and bung it in the market..anywhere will do....and guess what you make 10% a month. Not bad!
So the worry here is this trade could run a while.
So when is it going to end? well here are some things to watch out for...
Large holders will buy put protection rather than sell out in the open market so the vix will diverge.
The Administration, the treasury and the Fed will all be congratulating themselves and patting each other on the back for what a fine job they have all done at saving the economy and indeed the free world.
The postman will have a tip on a hot gold stock that's about to fly. Or a health care stock that's a good investment because its defensive and should do well even if the market goes back down again....
Bears who have been absolutely sure the market is going down and have been short since July will finally concede, throw in the towel and decide they better cover and wait for a 50 or 61% retrace and then really belt it!
Emerging markets will be the first to run for the exit..and since (in those countries) the exit is much smaller than the entrance there is likely to be a pile up!
I mean what else would you expect from a fixed income investment manager?
It's the same thing with PIMCO folks since March 09.
In their defense, I think they are just capitalizing on general fear and uncertainity - and they know that this fear strategy works in their favor; so they are just doing what they are supposed to be doing.
In the same note, we should be doing what we are supposed to be doing - our due diligence.
" Bankers on Wall Street are suffering from “over confidence” and are “myopic” in the face of a continuing financial crisis"
“You go to Wall Street, the people feel the crisis never happened,” “It’s not only over-confidence, it’s over- myopic. This is too much.”
Zhu said that the financial crisis, which intensified last year after the bankruptcy in September of Lehman Brothers Holdings Inc., seems “not over yet.”
‘Cliff Drop’
“It’s sort of stabilized from cliff drop,” Zhu said. “But the real economic crisis has just started.”
Yes the real economic crisis has just started - debt repayments with interest, all the poor investments that Govt is making now. To get repaid on the GM investment the GM stock value has to go upto $67B- much higher than GMs peak of $57B in 2008.
Over the past two or three months, the market has been giving me a similar feeling as if we are riding on the steepest roller coaster ever. It is like we are climbing the steepest part of it and listening to the "Clunking" noises. We all know what would happen after the noises and reaching the top. But what I do not understanding is the fact that this time it is the collaborate effort created by central governments around the world and the biggest and most powerful bankers - to push us over the edge and thinking they can just walk away from it.
When I started in the business, it was when Japan just started its decades long recession; and Mexican Peso was devaluing at 1% per day before it finally collapsed. Maybe a war or terrorist attack is being structured to shift our focus away from the roller coaster ride and of course the blames. Or a trade war is imminent so the other side would be responsible for...sucking up all the commodities and dumping the cheap products on us. Better yet, set them up so they'd be blamed for the next ride down.
My final analysis lies with - how do we get out of this mess. First of all, the greenback printer is cranking 24/7 so the sucker foreign governments can take them in bulk. The foreign government do not have any faith with the greenback so they turn them into commodities as soon as they get their hands on it. Now their stockpile of commodities are extremely inflated in prices but the foreign government wouldn't care because in time they will use them or sell them. While the greenback is loosing valuation like the Peso in the 90's, the CEOs fake the economic recovery since the overseas revenue is highly inflated due to currencies mark-to-market adjustment and therefore... Stock market should rally. The bottom line is - in order to do all of the above we probably need Mr. Madoff as strategic advisor since he is the most qualified person in the media's eyes to structure these deals.
Differentiating between "real" economic activity and "keynes" economic activity is an interesting endeavor during such times, but first the money has to GO somewhere into the broader economy and be put to work before we can look at the situation and say "Hey, that's unsustainable, one group of workers is just digging holes while the other is filling them right behind them".
Oddly enough, all this foot dragging and parking of billions will mean that the flood of stimulus has been cut down to a trickle, which coincidentally is being reflected in the jobless numbers and the slow pace of achieving a bottom in a long recession.
LOL, Washington is now secretly longing for inflation - and for the logjam to break, both of which will allow their keynestone kops plan to unwind.
The delay is the darkest of ironies on a galactic scale.
The truth is that demand will be far less than it has been during the past two economic expansions. That is the way it should be. The savings rate will rise, unemployment will settle in at around 6% to 7%, incomes will be below what they were during the past decade and familes will eschew the $40,000 Tahoe in favor of a $24,000 crossover, mini-van or sedan, none of which can be built profitably in a UAW plant. Bye-bye GM and Chrysler.
I am not saying that the equity markets are in for a sharp correction, only that we have already seen the sharpest rally. It is slow going from hear with periodic setbacks.
This rally is simply a reaction to offset the brutal decline from Oct 2007 to March 2009. For now the trend is up and it makes no sense to fight the tape. Buoy mentioned above that some stocks have great yields - they are about to get a whole lot better as prices head lower - until these same companies start cutting their dividends.
On Sep 12 08:46 AM Duude wrote:
> I've been anticipating a big correction since early Summer. What
> I didn't anticipate was the ever readiness of money managers to keep
> shoveling money into the market to counter their own late timing.
> I should have realized that self-preservation comes before logic.
> No sense in fighting the tape. I can imagine plenty who held their
> nose as they dumped billions more in. The question is when will the
> music stop? At what level of participation need we see before buying
> on the dip becomes sell on the rally? If this market hangs till end
> of month, October should bring plenty of selling.
Oh yeah, non-workers and union workers believe it too.
And, we will march dutifully back to the polls (well a small percentage of us will) and vote the same criminals in to keep it flowing. For now.
On Sep 11 09:24 AM KFC007 wrote:
> This makes perfect sense. Anyone thinking you can change the course
> by printing more money or distributing tax dollars in subsidies on
> new cars has to be in a world of his own.
Instead of our government and the Fed protecting us from a Communist country that has wanted our destruction for decades, they are doing everything in their power to help them destroy our way of life.
Guess they think their Chinese Overlords will allow them to keep their millions and lifetime pay and benefits.
Joke will be on them. Suffering will be on us.
On Sep 11 05:32 PM Fighting Yoda wrote:
> Bank of China Ltd. Vice President Zhu Min in a Bloomberg Television
> interview today:
> " Bankers on Wall Street are suffering from “over confidence” and
> are “myopic” in the face of a continuing financial crisis"
> “You go to Wall Street, the people feel the crisis never happened,”
> “It’s not only over-confidence, it’s over- myopic. This is too much.”
>
> Zhu said that the financial crisis, which intensified last year after
> the bankruptcy in September of Lehman Brothers Holdings Inc., seems
> “not over yet.”
> ‘Cliff Drop’
> “It’s sort of stabilized from cliff drop,” Zhu said. “But the real
> economic crisis has just started.”
>
> Yes the real economic crisis has just started - debt repayments with
> interest, all the poor investments that Govt is making now. To get
> repaid on the GM investment the GM stock value has to go upto $67B-
> much higher than GMs peak of $57B in 2008.
On Sep 11 08:58 AM buoy wrote:
> Some stocks have great yields.
On Sep 11 11:32 AM Be Rational You Morons wrote:
> Mr. Gundlach is also the portfolio manager for TCW Total Return Bond
> Fund (seekingalpha.com/symbo...), so his opinions should
> be normalized by his marketing instincts/efforts.
>
> I mean what else would you expect from a fixed income investment
> manager?
>
> It's the same thing with PIMCO folks since March 09.
>
> In their defense, I think they are just capitalizing on general fear
> and uncertainity - and they know that this fear strategy works in
> their favor; so they are just doing what they are supposed to be
> doing.
>
> In the same note, we should be doing what we are supposed to be doing
> - our due diligence.
Watch the fun and play it for money. Short everything, but go long the dollar. the boat is finally loaded sufficently on the wrong side so the only money to be made is a long dollar trade.