Bearish Bloggers Too Optimistic! 23 comments
March 14, 2008
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I've been way too optimistic.
That may come as a surprise to some friends (Paul!) and other blog watchers in the media.
But it's true -- going by the numbers, I was too bullish in my expectations for the indices this year. My mid-year and year end expectations (see this post for the 2008 forecast) was for a 10-15% selloff by mid year (video here).
The market's surpassed those numbers before the first quarter was even over. And, while we are now in oversold rally mode, as of the beginning of the week, just about all of the major US markets were already below my targets for July 1:
There you have it. My biggest flaw: Too Bullish!
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This article has 23 comments:
This was no doubt devised to create wiggle room going into Tuesdays FOMC meeting, where the fed needs to cut 75 to 100 basis points. A secondary benefit out of this bogus number would trigger a sell-off in commodities and shore up the dollar, but i highly doubt those positions will be unwound going into Tuesdays meeting. With any luck, they will all blast off and teach the Federal Reserve a good lesson that honesty is the best policy, and that there will be no easy way out of our current situation.
This deception by our central bank must come to an end. Let's get this recession over with, quick, hard and fast if need be.
And now you are too bearish. Will you be making more confessions down the road?
They have distinctly stated that the u.s. will not fall into a recession. Low and behold, what do we have here? Yesterday, according to the wsj poll, 71% of economists now say we are in a recession.
online.wsj.com/article......
This is the problem with lying incessantly about everything from the seriousness of subprime to well anchored inflation to strong jobs numbers based on a fantasy birth/death model. It all comes full circle and that deception needs an accounting for. It's worse enough that the financials fed us that crock of crap the last six months and greatly minimized the seriousness of their situations, but it turns out that the fed is an even worse offender when it comes to being truthful about the health of our economy and all relevant data supporting their views.
Whats it gonna take for Americans to wake up and see this deception on a massive scale from the president on down to the head of the federal reserve? All these lies starting with WMD's out of the bush administration to Bernanke's crap about money supply, inflation and so forth are ALL ABOUT CASH. They want it from you. By the time we are broke and this country is second rate, the wealthy in the u.s. will be set and won't care much about America's integrity. They are set up with social security and exploited the economic viability of the u.s. to the last drop. Game over.
We have a scary future ahead, particularly those of us who are younger. Those out there not recognizing this now will in due time.
GLD 98.71 +0.37 (0.38%) 20.30B
SLV 203.75 -0.31 (-0.15%) 3.10B
BEARX 6.78 -0.05 (-0.74%) -
FXA 94.05 -0.83 (-0.88%) 215.86M
SIJ 66.86 +1.86 (2.86%) 55.16M
SPHRY 3.00 0.00 (0.00%) 53.91M
GSC 73.95 -0.53 (-0.71%) 163.50M
RSX 48.76 -0.55 (-1.12%) 602.77M
GDX 56.33 +0.28 (0.50%) 929.59M
EESV 0.05 0.00 (0.00%) 22.12M
QLD 65.99 -2.07 (-3.04%) 1.04B
I have long positions, and I have short positions, because I am ambivalent. I trade my longs short term, over week periods, and I harvest my short fund, BEARX, monthly. I have done this for 6 months, and I am lucky. I have profited. The bulk of my investment is in FXA - Australian dollars. It's boring,but it is working. I hope you have profits, too, but if you are really a bull, and as illusioned as I perceive you to be, then I encourage you to study macroeconomics more. When Barry or other smart and prescient analysts, such as Doug Kass or Enzio Von Pfeil get bullish, I suppose you might want to agree with them. They obviously know better than the both of us. The tape doesn't lie, Soprano. Get with it.
BonVivant:
"But, that does not mean you have to shoot down the analysts who have (correctly it seems) predicted the current bearish trends."
Pozhaluista, (please) he said he was wrong for not being bearish enough. It's that simple. The author said in italics: "I've been way too optimistic." Or I could paraphrase his words: "I was not right enough." Hence the comparison to a Russian general pinning metal on his chest.
______________________...
Karl M.:
"People have to start being realistic, not just optimistic. Many fundamental changes are taking place on every level of our existence, particularly affecting soundness of our financial system in the U.S. Take the ongoing deception from our central bank as an example."
Da, Da, Da, (Yes, Yes, Yes) You bring up some very interesting issues. There are many gray lines that a leader like Bernanke cannot cross. Even if it means not quite telling the truth. You talk about being realistic. Before you can be realistic you have to make a judgment about the matter at hand. Judgment means trying to put the facts together and then coming up an opinion. The opinion can then be judged again, and again, by someone who sees it differently. This can go on for a long time. The markets behave this way all the time.
The other day you said: “I'm sure Barry's gonna have a field day with the latest CPI numbers. More lies and denial from the Fed.” Were you trying to be realistic with this statement? No! You made an assumption (judgment) that an issue was to become true and then Barry (a second judgment) would do so and so with it. Your judgment became clouded by your person feelings with the matter. How can you call for people to be realistic when in fact you cannot do it yourself?
______________________...
sammyg123:
“Tony Soprano - put your portfolio out for all to see and let's see how you are doing? Here's mine:”
Nyet! A dare, I say. Shall we arrange a duel?
No seriously, I am glad you are doing well and I hope the best for you.
You said as well: “When Barry or other smart and prescient analysts, such as Doug Kass or Enzio Von Pfeil get bullish, I suppose you might want to agree with them. They obviously know better than the both of us. The tape doesn't lie, Soprano. Get with it.”
I heard Doug the other night and to me he made an interesting comment in that it would not be easy to be either short or long. Also, Karen Finerman on Fast Money made a very similar comment. I take that be a move to the center. Neutral. In my opinion Barry is still very bearish. Maybe he is expecting the S&P to take another leg down to 1230. Why don’t you ask him? If it does drop to those levels or lower I will adding to all of my positions. I have been adding since January.
The Fed's answer thus far has been to inflate us out of the mess, and that means that what value we have stored in dollars is going to depreciate. Unsurprisingly, the price of commodities and precious metals has gone up - best to use dollars when you can buy something with them. Exports have also increased, due to cheaper American goods. Meanwhile, what we earn buys less, and the financial system is putting a strain on corporate profits and the ability of state and local governments to get financing via auctioning their debt. All of these bode negatively for the economy, and for the stock market. The only way out is creative destruction - the companies holding toxic debt must be destroyed. Bear Stearns is the first victim, and there will be others.
As the shoes drop, and the economic situation deteriorates, which is inevitable, it makes little sense to be buying stock assets that are most likely to depreciate, especially in the face of rising inflation at stores near you. Bear Stearns will be dismantled, and people will lose their jobs. Other financial institutions will suffer the same, just like the mortgage lenders who closed their doors and sent their employees to the street.
Meanwhile, low interest rates are putting upward pressure on inflation. Inflation is a problem that is difficult for the fed to contain, and results from tight monetary policy have a long lag time. Interest rates must be ratched up at some point, and if we weren't in a financial crisis, that is what the fed would be doing, as other central banks in Europe have done. By the time the fed gets around to it, it may be necessary to make a much greater increase to get inflation under control. Rising interest rates will then eat further into corporate profits, as the prime rate increases and what banks are left take a bigger chunk in exchange for lending.
You can debate this all you like, but there is only one reality, and it is bigger, and worse, than what I have described. There is hope at the end of the tunnel, but we are going to have to live through some tough times here. Perhaps you are lucky, and wealthy, and don't have to worry about it. I really hope so.
In Taleb's book "The Black Swan" fat tails refers to the distribution of events i.e. not a Bell or Gausian curve model but an outlier rather than to their duration as you suggested above. Otherwise I am afraid that I am with you 100%
"verge of a black swan event - meaning, and major once in a lifetime terrible financial problem that will have a big tail
I LOVE THIS PAINFUL NEGATIVE STATEMENT -- ITS TIME TO START BUYING. PAINFUL NEGATIVE STATEMENT = PNS – HOWEVER, I DO NOT LOVE PAIN UNLESS SOME GOOD WILL COME OUT OF IT
“The only way out is creative destruction - the companies holding toxic debt must be destroyed.”
MORE ‘PNS’ AND I MUST SAY I REALLY LOVE THE WORD DESTRUCTION, ITS SO PAINFULLY BULLISH. ALSO, I’M BEGINNING TO SENSE A FEELING GLEE IN YOUR DIRE PREDICTIONS. THIS IS “PPNS”, PAINFULLY POWERFUL NEGATIVE STATEMENT
“Other financial institutions will suffer the same, just like the mortgage lenders who closed their doors and sent their employees to the street.”
MORE “PNS”, YOUR PIECE IS BECOMING A LITTLE REDUNDANT BUT I’M GETTING THE POINT
“Meanwhile, low interest rates are putting upward pressure on inflation. Inflation is a problem that is difficult for the fed to contain, and results from tight monetary policy have a long lag time.”
THE SECOND SENTENCE IS A BIT CONFUSING TO ME AND IF YOU DON’T MIND I WILL REPHRASE IT FOR YOU: Inflation will be very serious and very difficult for the Fed to contain. When the Fed does start to fight inflation and tighten monetary policy it will take a great deal of time. Time that we may not be able to afford.
“You can debate this all you like, but there is only one reality, and it is bigger, and worse, than what I have described. There is hope at the end of the tunnel, but we are going to have to live through some tough times here. Perhaps you are lucky, and wealthy, and don't have to worry about it. I really hope so.”
THANKS FOR YOUR CONCERN – I APPRECIATE IT. I HOPE THE BEST FOR YOU AND OUR NATION AS WELL.
In my heart of hearts I feel and know that the Fed is doing the right thing. A serious recession would be very ugly and this is why the Fed will try every tool they have. If a string of banks go under and we dip into a very bad recession unemployment could rise to 10 percent or “God forbid” 20 percent.
This could bankrupt the NATION over time. Deflation can be much more destructive than inflation.
Inflation hawks and dollar hawks all say that the Fed is destroying the NATION. To me what the Fed is doing is the less of two evils. I’m not happy about it.
Jan Hatzius (gs) was asked on Bloomberg, Friday, about the crashing dollar. He said it was normal for the currency of a country to devalue when it’s going into a recession.
Below are two stories about our choices concerning this financial crisis. Basically, its about the two poison pills and which one should we take. They are both fictional. One simple and one complex and from another blog and blogger (NoFate) on this site.
First story:
"Here is an analogy ...your teenager has maxed out their credit cards and is to a point they can no longer make payments. You step in as a co-signer and get the limits on the cards doubled.
Is this the right decision? This is what the Fed did for the banks yesterday. from NoFate
Second Story:
The son does use a credit card but instead of spending it on himself he wants to lend out the money and become loan shark. His idea is to lend out as much money that he can. In the mean time people that he is lending out to all live on an island. The island depends on a dike system to keep the island from going underwater. The dikes take an enormous amount of power to run. The islanders are taxed a lot to keep the power going..
The loan business is slow starting and the son wants it to grow much faster. His rich daddy is still backing him up and thinks his son is remarkable. The son's new business plan offers loan owners interest in a new waterfront country club if they barrow more. They see it as a steal and it makes them feel rich so they barrow more. His new business plan is a success for many years. The new country club is well under construction. Most of the people on the island are happy and think they have it made. The son pockets a good deal of wealth but he always wants more and more.
As more time passes, the cost of the power to run the dikes starts to increase rapidly. Sadly some of the islanders become sick. The doctors on the island suspect the Avian virus. Some even die and others cannot work. Unemployment starts to rise dramatically and the power for the dikes continues to rise.
Not all of the islanders owe money to the son. Many are still wealthy and never liked what the son has done and they are very much concerned about the rising cost to power for the dikes. More time passes and construction cost for the country club increases as well. Construction on the project starts to slow down. Many on the island start to become angry.
Taxes receipts to pay for the power for the dikes starts to diminish. Some of the islanders want to raise taxes to pay for the power. The islanders that are sick are not paying taxes. A meeting is called. The meeting is a failure and the son goes into hiding. However, the islanders come up with another plan but still many on the island do not like the newer plan as well.
The newer plan requires the islanders to barrow more money but from the mainland. The wealthy on the island do not like this plan because it will require them to pay more taxes in the future. However, some of the middle class people on the island become restless and crime increases.
The islanders are at a serious crossroad. Damned if they do and damned if they don’t. Many on the island say the island will sink completely underwater if new monies are not borrowed. Others do not agree and feel the island will be fine without the additional debt.
I will let your imagination do the rest.
Tony Soprano
I remember the 1999-2000 tech bubble, the 9/11/2001 attack, Enron, Worldcom, and Katrina, and so do you.
I remember in the early 90's the dollar was depreciating against the Italian lira. That was really bad but no pun intended.
I remember in 73 - 74 American's were saying that their children would not fair as well as they had. It was a very tough time.
I remember in the early 60's to 68, the Cuban Missile Crisis, the assassination of Kennedy, Vietnam, the murder of Dr King and Bobby Kennedy. Then came the riots across our nation. This was a very dark and gloomy time and when I first started buying STOCKS!!!
GOD BLESS AMERICAN, AND ALL OF OUR LEADERS, AND ALL OF OUR PEOPLE AND ALL OF OUR ARMED FORCES.
Many including myself are really feeling the heat with higher food and energy prices. Most every other country on earth reports inflation numbers realistically, and are taking steps to keep it in check. Their data is consistant. The U.S. data is not, and i don't believe the majority of Americans buy those numbers for a second.
Point is, the fed has in the least been minimizing the seriousness of our economys problems and in all probability flat out lying about the more serious issues (inflation, health of the economy, etc.), moreover, only after indisputable facts surface do they recant and make any admission or begin working it into policy. No preemptive policies, only firefighting and uttering postdictive nonsense which does nothing to stay ahead of the curve.
Regarding Barrys feelings on that report, i wasn't suprised at all with his response. Take a look. That is a very minor side issue, my opinions may seem "unrealistic" but so are investors expectations all the time, and if i seem too "judgmental", that is just a function of being an investor. You make judgements on every trade based on a constant flow of information including numbers coming out of the federal reserve. Then, you put your money to work based on your first impression of that "judgement" and hope its not your last.
"Bear Stearns Bailout Was `Finger in the Dike,' Historians Say
By Elliot Blair Smith" Bloomberg.com
It points out how every single Fed or Treasury intervention has worked going back to 1914. We have one hell of a brilliant system. Never, ever, sell America short.
As for the black swan event, I think I have that concept down pretty well. Taleb argues that RISK isn't distributed along the gaussian bell curve in just a part of the book. The basic thrust of his argument, with which I agree, is basically that bad and good sh&t happens, and it is impossible to predict due to the fact that our tiny little human minds can only handle and analyze a limited amount of information at a given time.
Bullish dogmatists, such as our respected Soprano, are like turkeys being fed. They expect to be fed regularly. Then Thanksgiving comes, and at dinner time, they get "chopped." Taleb saw this in his career. The majority of desk traders that he worked with were "turkeys," so to speak. Their pattern of success reinforced their own beliefs and they became ignorant of the things that ended up destroying their careers as traders. That's why I think that dogma serves no purpose. Permanent long positions have risk that no one can see or predict. Short positions are even more risky most of the time.
I see the argument that going long seems smart since everything is so cheap. I just think that things are not cheap enough. I'll be a bull later, when the economy rights itself. That's a long time from now, IMHO.
Talib outlasted all of his coworkers in the markets, with substandard returns in good years, but monster returns during the crises. Personally, I am sure we all want the best of both. This might be impossible.
Black Swan is an excellent book and I highly recommend it. Taleb's other book, fooled by randomness, is also excellent.