Market Outlook: Watch Out, the Signs Can Be Deceiving

For the bulls, the events of the past several days have marked a major turning point for the U.S. equity market.

Share prices staged their first weekly gain in a month. The Federal Reserve pulled out all stops to save the banking system. Financial shares bounced hard, and inflation fears eased as commodity prices fell back to earth.

In other words, the ducks are all lined up: it’s time to buy.

Upon closer inspection, however, recent developments are less than reassuring. History suggests, for example, that major upside reversals are rarely anticipated before the fact - or at the time. Often, they are not even acknowledged for days or months after a rally has begun.

Yet there was plenty of talk this week about "bottom-fishing," "buying opportunities," and the likelihood of a "bear market bounce" in share prices. Analyst Richard Bove proclaimed that “the financial crisis was over.” A Merrill Lynch survey revealed that money managers were itching to buy “undervalued” equities.

These are not exactly signs of excessive pessimism.

There hasn’t been much “capitulation” by weak hands, either. Apart from the quick downdraft that occurred in mid-January, apparently spurred by hedge fund selling, the decline from the October record peak has been fairly orderly.

Yet the absence of a washout doesn’t seem to phase the bulls. One pundit even went so far as to say that a lack of panic-type selling like we saw last Monday was “another sign that we could be near a bottom.” That takes the cake as far as bullish rationalizations go.

What about the fact that financials were at the head of the pack during this past week’s recovery? Was it because investors were taking advantage of what Bove characterized as a “once in a generation opportunity to buy,” or did it have everything to do with the fact that the most heavily-shorted shares were being squeezed the hardest?

Otherwise, is it actually good news that Fannie Mae (FNM) and Freddie Mac (FRE) can now operate with even smaller capital cushions than they had before? Or that curious financial footwork helped some brokers to beat Street estimates, even though their outlooks remained dicey? Or that the Bear Stearns (BSC) “rescue” could only be solved with the help of $30 billion in non-recourse Federal Reserve loans?

Many bulls also took comfort from the sharp decline in commodity prices, which was seen as a sign that inflation was no longer a concern. Reports indicate, however, that “de-leveraging” by hedge funds and proprietary trading desks played a major role in the unwinding. Instead of being good news, the slump probably means that bursting-credit-bubble deflation is gathering force, which is bad news for share prices.

Of course, what really got the bullish juices flowing recently are the actions of the Fed. From helping to orchestrate a Bear Stearns bailout, to cutting the discount and federal funds rates, to opening up new sources of liquidity for an ever-widening array of institutions, Bernanke & Co. are doing anything and everything they can to try and save the day.

Unfortunately, there’s just one thing missing: good results.

Former Fed vice chairman Alan Blinder, a Princeton University professor, said the following in a Bloomberg report:

He has taken extraordinary measures, things that we haven't seen since the Great Depression. He's working overtime, literally and figuratively, to get this panic under control. But so far, it's not under control.

Arguably, the Federal Reserve is actually making things worse. For instance, rather than bolstering confidence, the central bank’s seemingly reactive and seat-of-the-pants, secretive, and unusually forceful response suggests that policymakers are desperate and behind the curve.

In addition, new liquidity facilities that allow a broad range of unnamed counterparties to swap unknown amounts of mis-rated and overpriced mortgage-backed securities for U.S. government bonds only adds to uncertainty about valuations and the extent of the problems that like ahead.

Finally, people are being led to believe that things are under control, so instead of doing whatever is necessary to prepare for the worst, they are setting themselves up for an even bigger blindsiding than before.

In sum, while bulls believe that share prices are poised to reverse and move sharply higher, the facts suggest otherwise. In reality, what they are seeing is the set-up for the next leg down. Some might call that a continuation point.

Comments

[rdial54]

I agree. I am very cautious at this time. I expect we will see some dips yet. Wish I was more in cash as of December 2007. Should have trusted my gut??

[renecohrt]

our economic system is finished, realize shares, bonds and unnescary
property.

Keep principally to gold and silver, because the system is 100 % imploding

[Kanganomics]

I am in agreement Michael. Right now I am mainly in cash, and will be ready to invest in high quality equities only when we have the full story of the mess that is currently unwinding. I expect some more jitters on the way down as people try to pick bottom. Unlike a lot of the other bears I am shying away from commodities - despite the potential upside I think a weakening US economy could just as easily reduce demand and encourage speculators to unload.

[bhakta]

I agree with Rene Cohrt. The system is collapsing. I don't trust any so-called rally. I believe all the banks, brokers and mortgage companies are in very very deep trouble and either will fail or require massive amounts of new capital. I trust gold, silver, and energy that is not printed on a printing press.

[jescott418]

I think the markets do little to predict what really is happening. Just look at how oil is going these days. I think the Bearns and Sterns problems indicate how you can look great one day and in the toliet the next. Deception appears to run rampent in the markets these days.
I myself cannot imagine investing in any stocks for fear some rumor or hint at impending doom would crash the stock. The markets also do little to impress the average Joe who does not even own stock. Joe's concern is that is job will be eliminated or that his gas bill will replace his mortagage as his highest bill for the month.

[SergeBirbrair]

re: Deception appears to run rampant in the markets these days.

I don't think you need more proof of that, but I'll post it anyway:
nothingcontroversial.c...
and the saddest part,
those 330+ billions of dollars are not even on the "potential liabilities" books of the major financial institutions. Those "chickens" eventually come to roost too!

[Pasobill]

The Fed has only bailed out Wall Street and the greedy errors of the large banks. By continually printing more and more money for these bailouts the Fed is setting us up for a 1970's type inflation with huge growth in interest rates and continued price inflation in the commodities that the average American cannot do without - food and energy. It is hard to see where the Fed's actions are going to help the people on Main street! And Michael is absolutely right - market bottoms do not happen in a day. the technical damage to this market is so bad it will take a long time to repair. In the immediate past we have been spoiled by quick turnarounds but history shows that real bear markets can last years not months.

[Leser]

Perhaps the next bubble is in gold and silver (which, by implication, would also pop.) The phrase "nothing in excess," the golden mean of the ancient Greeks, may be of use to us in moving forward. That might be a diversification theme.

[TKG]

The current energy crisis (as it is perceived in USA) is nothing new in Europe. There (Europe) the people have lived, and do, with even higher energy prices for many years. It is imperative that here in USA, we must view our current energy crisis and its concequences in our daily life, as a serious hint suggesting that WE MUST change "our way of life" and adjust accordingly. It is a matter of survival.

[Yokohama Kid]

The story I have just read interests me quite a lot. However, I think it is one of the stories anyone can conceive. I do believe what U.S. government has done so far will soon prove to be effective in easing pains the investors have suffered from.

[vrspace]

I would suggest that the mother of all capitulations, albeit a virtual one, took place after the US markets closed on Friday March 14 and prior to their opening on the 17th; reference the predictions of what might have been had the ‘rescue’ not been engineered. Now if only a ‘rescue’ of the housing market would be engineered then we could all get back on that virtual bull…

[the Alfer]

AS the world evolves, markets evolve. It has been 6 months since the first rate cut. WE have had the implosion of BSC. The housing market is a mess. And as we speak we have the de-leveraging phase happening. SIlver down 3.00 in 2 days. Gold down 100.00 in 2-3 days....crude down big also.

nothing get fixed overnight. will there be more negativity? probably. But get ready, good times still to come. Wealth is changing hands. The longs had it for the past number of years, now the shorts are getting their turn. ALL CYCLICAL. Figure out where you think we are in th cycle and go for it!

[Tony Soprano]

Since there is so much angst directed toward the Fed and the US Government, I decided to list some events, not all of them, that had dramatic ramifications on lives, cost and the psychology of our country. I started in 1906 because it’s just a little over a hundred years. Some of the events were world wide but still had a cause and effect on America and the world. As I compiled the list, I could not help but feel the great sacrifices that many American’s have made and what a resilient country, economy and government we have in American that stretches the entire globe.

The 1906 San Francisco Earthquake and fire, registered 8.25 on the Richter scale; estimates range from 700 to 3,000 dead or missing, approximately 225,000 injuries and $400,000,000 in 1906 dollars.

Recession, May 1907-June 1908, 13 mo

Model T, 1908, came into popular usage

Recession Jan. 1910-Jan. 1912, 24 months

Completion of the Panama Canal, 1914 – 27,500 workers are estimated to have died

Recession Jan. 1913-Dec. 1914 23 months

World War I -- 116,708 killed – 33 billion

Spanish influenza, 1918, killed over 500,000 people in the worst single U.S. epidemic.

Recession Aug. 1918-March 1919 7 months

The first radio news program was broadcast August 31, 1920, in Detroit, Michigan

Recession Jan. 1920-July 1921, 18 months

Recession May 1923-July 1924 14 months

Recession Oct. 1926-Nov. 1927 13 months

Bell Labs gave important demonstration of television April 7, 1927

The Great Mississippi Flood of 1927, flooded 27,000 square miles, 246 killed

The Great Depression, Black Tuesday, crop prices fell by 40 to 60 percent, after the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By 1933, depositors had lost $140 billion in deposits.

The Dirty Thirties, longest drought of 20th century. Peak periods were 1930, 1934, 1936, 1939, and 1940. The dust bowl covered 50 million acres in the south-central plains during the winter of 1935-1936.
Labor Day Hurricane of 1935, 400 killed

Recession May 1937-June 1938 13 months

World War II – 408,306 killed – 360 billion

Wartime Controls: 1941-1945 rationed consumer items ranging from sugar to gasoline

The United States developed the first atomic weapons during World War II

Recession Feb. 1945-Oct. 1945 8 months

The UN was founded in 1945 to replace the League of Nations

The Marshall Plan, July 1947 – 13 billion in economic and technical assistance were given to help the recovery of the European countries

On 16 December 1947, William Shockley, John Bardeen and Walter Brattain succeeded in building the first practical point-contact transistor at Bell Labs

Cable television, formerly known as Community Antenna Television or CATV, was born in the mountains of Pennsylvania in 1948.

Israel declares independence, May 14, 1948,

Berlin's Crisis (June 24, 1948 to May 11, 1949) was one of the first major crises of the new Cold War

Recession Nov. 1948-Oct. 1949 11 months

The Soviet Union tested its first nuclear weapon ( Joe-1 ) in 1949

Chiang Kai-shek moves his government from communist China to Taipei, Taiwan (formerly Formosa), where he formally resumed his duties as president on March 1, 1950.

Korean War, July 1951 - July 1953 – 33,000 killed in action

The United Kingdom tested its first nuclear weapon ( Hurricane ) in 1952

Recession July 1953-May 1954 10 months

The Supreme Court rules on the landmark case Brown v. Board of Education of Topeka, Kans., unanimously agreeing that segregation in public schools is unconstitutional – May 17, 1954.

The Suez Crisis of 1956 – was a military attack on Egypt by Britain, France, and Israel beginning on 29 October 1956.
Recession Aug. 1957-April 1958 8 months

Alaska becomes 49th state of the U.S. on January 3, 1959

Hawaii becomes 50th state of the U.S. on August 21, 1959

U–2 Incident of 1960 occurred when an American U–2 spy plane was shot down over the Soviet Union

France tested its first nuclear weapon in 1960 ( Gerboise Bleue )

Recession April 1960-Feb. 1961 10 months

The Cold War, some estimates shows $8 trillion was spent, worldwide, on nuclear and other weapons between 1945 and 1996

The Cuban Missile Crisis, Oct. 1962

Martin Luther King is arrested and jailed during anti-segregation protests in Birmingham, Ala.; April 16, 1963.

Vietnam War, 1963 – 47,378 killed in action

200,000 people join the March on Washington. Congregating at the Lincoln Memorial, participants listen as Martin Luther King delivers his famous I Have a Dream speech. Aug 28, 1963.

The murder of JFK, 1963 Nov

Good Friday Earthquake (1964) In Alaska, it was the fourth biggest earthquake recorded

The Gulf of Tonkin Incident, Aug 1964

China tested its first nuclear weapon in 1964

President Johnson signs the Civil Rights Act of 1964.

Malcolm X, black nationalist and founder of the Organization of Afro-American Unity, is shot to death – Feb 21, 1965

1967 Arab-Israeli War – was fought between Israel and Arab neighbors Egypt, Jordan, and Syria. The nations of Iraq, Saudi Arabia, Kuwait and Algeria also contributed troops and arms to the Arab forces.

The murder of Dr King, April 1968 and Bobby Kennedy, June 1968

The city riots of April, 1968 – 30 cities affected

President Johnson signs the Civil Rights Act of 1968, prohibiting discrimination in the sale, rental, and financing of housing.

Hurricane Camille, Aug 1969, 259 killed

Recession Dec. 1969-Nov. 1970 11 months

Stagflation of the 1970s began

Nixon first imposed wage and price controls on August 15, 1971

World Trade Center ribbon cutting ceremony was on April 4, 1973

1973 Arab-Israeli War or Yom Kippur War – a surprise joint attack by Egypt and Syria on the Jewish holiday of Yom Kippur.

Oil Embargo, Oct 1973 long gas lines

Recession Nov. 1973-March 1975 16 months

Articles of Impeachment of Nixon started
(Approved by a vote of 27-11 by the House Judiciary Committee on Saturday, July 27, 1974.)

India's first nuclear test occurred on the 18th of May, 1974

Deregulation: 1974-1992 this era began when Nixon left office

Home computers start to enter retail markets, in 1977, and becoming common during the 1980s

Bell Labs launches first commercial cellular network in Chicago – 1978

Three Mile Island nuclear power plant crisis, March 1979

The Carter Administration decides to come to the aid of Chrysler Corp, 1979

Mount St. Helens eruption 1980

The US Savings and Loan crisis of the 1980s begins, more than 1,000 savings and loan institutions failed.

Recession Jan. 1980-July 1980 6 months

Prime reached unbelievable 20% in January 1981,

AIDS was first reported June 5, 1981 by the government – It is thought that more than one million people are living with HIV in the USA and that more than half a million have died after developing AIDS.

Recession July 1981-Nov. 1982 16 months

California earthquake 1983

The 87 market crash - Black Monday

Pakistan acquires the ability to carry out a nuclear explosion in 1987

California earthquake, 1989

Recession July 1990-March 1991 8 months

Iraq invaded Kuwait on August 2, 1990

Nikkei stock index crashed by over 30,000 points, the average home near Tokyo cost well over $2 million before the crash in 1989

The Persian Gulf War, 1991 or Desert Storm Jan 1991

Hurricane Andrew 1992 very destructive United States hurricane

World Trade Center bombing, February 26, 1993

The Great USA Flood of 1993

The 1995 bailout of Mexico

East Asian Financial Crisis was a period of financial crisis that gripped much of Asia beginning in the summer of (July) 1997

Intervention in the Former Yugoslavia – March 24-June 10, 1999, NATO bombing of FR Yugoslavia

The International Monetary Fund approves an immediate $5.3bil emergency payment for Brazil to rescue its economy, Dec 1998

IMF protects US banks in Russian bailout, July 1998, Russia receives $22.6 billion in loans

Dot Com Bubble, climaxed on March 10th, 2000 with the NASDAQ peaking at 5132.52

9/11 Attack, 2,974 people died

Recession March 2001-Nov. 2001 8 months, Airline Industry Collapsed

Enron bankruptcy in late 2001, employed 22,000

WorldCom, July 21, 2002, filed for Chapter 11
Iraq War, March 19, 2003 – 4,000 dead

Hurricane Katrina, late August 2005, 1,836 people lost their lives

Start of the Great Housing Recession/Depression or Sub-prime Recession, date to be determined.

[iThinkBig]

The U.S. economic "bubblets" that Greenspan always spoke of are huge boom and busts over 3-4 year periods. You have several bubble poppings simealtaneously so a sharp correction to the numbers of a depression would not be surprising. Depression is not the end of the world. Me and some guys predicted two deep quarters of recession in June, followed by massive stimulus and 3 quarters of low or flat growth then deep recession or depression depending on if Administration does something real on energy independence and like, right now.

It's time to de-regulate our own energy crisis, subsidize bio, nuke, coal liquification drill everywhere without restriction etc. I see some politicians changing their minds to even acknowleding one of the main sources of an economic fix is energy independence. But many are stubbornly asserting global warming policy crap as State Governors speak of building coal & nuke plants and get outvoted on new measures to innovate (gee which party is that I wonder, the Socialist party?).

We must innovate or die but let's innovate and all invest in American energy instead of Arabs, shall we? Seems like they never heard the proverb don't bite the hand that feeds you!

Second, let's get all the Boston VC leaders and students involved with the Fed from Harvard, Wharton School of Business, MIT etc. to get down into the numbers of the credit crisis and subprime and also energy independence. No matter how bad we can fix it but confidence is out the window until these numbers are fully known and acknowledged.

Third, we must rid the system of corruption. This will be the hardest to do as it really is the gov's fault for lifting regulation on banking (always a mess!) and those who committed fraud must do time in the steel pagoda. Can't rebuild an economy with bad, pure greed/selfish management. Management must be incentivized based on performance only (imagine that idea LOL).

[jazzzz]

Great coverage of both sides of the story. But there is still a frightening silence on the issue of rapidly approaching terminal decline in oil supplies. When will energy be the focus of every financial discussion every day? Until that happens, our economy is doomed to fall off a cliff.

[turdfurgeson]

The fact that everyone here seems to be on panic alert tells me it's time to go shopping! Thanks everyone:)

[Soho]

I totally agree with Michael.

Vast amount of money going into the commodities market and then taking profit ... and you say this indicates that inflation is no longer a concern? And you say the financials are recovering and now is the right time to buy?

[galewhitaker]

You can bet the turkeys that are calling the bottom are already long the market. They need one more dead cat bounce so they can get their t%ts out of the wringer. There are no equities that are worth what they were last year before the price of oil tripled. The light the bulls see at the end of the tunnel is really the inflation freight train and it rolling toward them at 100 miles per hour.

[KRANKY]

Oh, there is definitely another leg down, but it will be unequal fo diferent indices. The DOW and to some extent the S&P 500 will be protected because of size. Outflows from still overpriced mid and small caps wll gravitate towards the large caps, especially the consistent dividend payers.
Another mollifying aspect is that, due to computer trading now, the markets are more orderly. In the crash of '87, brokers just stopped taking calls. This created a logjam of sell orders, and the cascade ensued. This may portend that there will be no capitulation sell signal, and we are in for a violent up-and-down roller coaster ride of lower lows and lower highs for the immediate future.

[leh]

Sentiment-wise I agree there appears to be too much agreement that financials will soar out of the gate here and pull the rest of the market with it, but it's a tricky call short-term, especially given the current rally we're seeing in ground zero of this debacle, i.e. the homebuilders.

My current strategy is to short the builders hard when they reach their previous highs in Jan/Feb as there appears to be a possible triple top forming that may be a very firm ceiling, and fundamentally you have to be a madman to be bullish on this sector--or willing to wait 3-5 years for your return on any builders that are still in business.

I also plan to wait and watch the financials as they may follow a similar pattern further out in time. In short, the Fed has provided the rocket fuel for a possible sharp extended rally in the banks and brokers, but until this derivatives vampire is fully exposed to the light of day it WILL continue to haunt this sector and thwart any serious recovery. IMO these will all be trader rallies, and very suspect as such, with no firm bottom in sight in the near future.

Interesting that some very smart guys continue to be smacked silly by their way early bottom-picking over the past two months--Bill Miller and Steve Suggerand are two that come immediately to mind--and yet they are STILL buying--and telling others to jump in as well--with all the enthusiasm of a starving mongrel cruising a Burger King dumpster. Miller, in fact, was at some public symposium
in NY crowing loudly about Bear Stearns being a screaming buy the very Friday it collapsed in front of the JPM buyout. This is the same so-called professional who jumped into WM and TMA months ago. Talk about a cold hand!

And Suggerand, who I used to respect, I think may be having a bit of a breakdown--his latest very bullish calls are believe it or not on 1) homebuilders, 2) regional banks (this one I can possibly get behind if the individual bank has a clean loan portfolio), and 3) commercial REITS--gulp!

I'm not sure what you call the opposite of a wall of worry--maybe a mountain of happy horsesh#t?--but these two geniuses are manically shoveling faster and faster as the tide rolls in. I've never seen anything like it, and have to guess it is the result of a potentially lethal mixture of pride and denial. Professional money managers indeed!

[edhui88]

Nobody knows for sure where the market will go from here. All I know is to buy or sell something that I feel comfortable and doesn't require my constant checking on the price. If I find myself checking the price repeatedly, it means I am speculating. Whenever that happens, I'm in trouble.

[clue me in]

tony soprano - your list of historical happenings was a chore to scan through the first time you published it. What's new?

[Tony Soprano]

Mr. Michael Panzner talks about another leg down. Others are saying there will be a reflex rally. Those are general market predictions and fairly easy to make. What I would like to see Mr. Michael Panzner do is make a prediction as to how far down this leg will be. At this point, the longs don't care. Time and history are on their side.

[jazzzz]

It is very frightening that there are many references to the 1987 crash, but seldom is there note that 1987 was also the first time the DJIA broke through 2,000. Yes, cub scouts, you read that right. The first time the DJIA broke through 2,000 was 1987, and the geometrically accelerating market since then is a clear sign that there is a rapidly decreasing correlation between market sentiment and reality. Until more investors are aware of the reality of the current market hysteria, there will be no intelligent discussion on the state of the market, and until there is intelligent discussion of the relationship between energy and the economy, thee will be no awareness of what lies ahead. There are many discussions of alternative energy, but seldom is there awareness of the almost unimaginable scale of the current use of energy and the daunting task of refitting our global infrastructure. Let's start to prepare to scale down our vision of the future.

[johntime]

Mr. Micheal Panzner when was the last time you were bullish? Please respond.

[RW]

Have the large fund managers started buying yet?

[clue me in]

Predictions are easy - however, even when correct, no one believes. If one could truly predict the markets why spread the info? I fear a sage or oracle will invest then divulge thereby profiting from their claim re: the future.

[bylo]

Michael -
I have to say I'm in your corner in this one. IMHO, most of the big banks are rotten to the core and a lot of them will fail, no matter what the fed does. After all, you can't cure too much debt by adding more debt!
Excelent article with many thought provoking comments.

[dink]

leh deserves an acadamy award for the best metaphor!!!!!!!starvin... mongrel cruising a Buger King dumpster!!!!!!!! also I have to agree with you....the amount of horsemanure piling up by so called analysts is enough to make any farmer envious!

[unimpressedpragmatist]

The market has long been manipulated by the power house moguls at the exense of the little investor. It was true in 1929, throughout the 1930's, in the recessions of the 50's, 70's, 80's, 90's, early 2000's, and today. The rich get richer and the rest get screwed! "Plus ca change, plus c'est meme chose".

[kevintx]

leh - great post, the bottom calling seems way premature. The financial stability risks are through the roof. Despite lower P/Es the risk/reward of stocks is still too high now. Bear Stearns forward P/E fell to 0.5. Sorry for the haircut Mr. Miller. An unknown but large part of earnings has been paper shuffling on a growing debt bubble, something near 40% of S&P 500 earnings from financial companies or financial subsidiarys. Millions of homedebtors are underwater on their mortgage and ready to walk. With massive leverage who knows where the next default will happen.

[leh]

"Have the large fund managers started buying yet?"

Read my post--Bill Miller at Legg Mason has been buying financials since last summer for gawdsake--and getting spanked all the way as he "averages down" for his poor investors. Whatever happened to waiting for a bottom to be put in and tested??? Are these guys anything better than cowboy traders?

[mkreisel]

Wow, lots of frightened retail investors here!

I think it's time to buy for a 10% rally in S&P.

[vrspace]

I visited Panzer's site and he referenced in one of his commentaries a Barclays Capital analysis of counterparty risk -- The following link is to the full text of that Barclays analysis -- pages 13-15 provide a 'what if ' scenario should a major counterparty default.

https://ecommerce.barc...

Another interesting analysis (referenced in an article by David Merkel) is the current Oaktree Capital client memo

s.wsj.net/public/resou...

[Britishsteel]

The finacials leading the way was a short squeeze based off big boys dumping commodities to sell to sheep and squeezing finacials. its all a manipulation. as long as you have hedge funds with 70-1 leverage and being refused credit till it comes back down to reasonable levels, you will see bear market rallies. According to elliot wave theory we are at the begining of a long cycle down and it can be delayed and orderly deepnding on the enviornment or it can be a harsh and nasty correction. thats all in how the Fed plays it and the public percieves it, but seeing anywhere from 8,000-10,000 dow is very plausible.

[sb-tiger]

Freddie/Fannie – how can you have lower capital requirements when the risks have risen. A totally ridiculous idea, this would backfire putting all tax payers on the hook. The problem with housing is – it is un-affordable. Housing prices must be allowed to come down, but somehow everyone talks about supporting the prices. Lots of mortgage related write downs and bankruptcies and foreclosures are yet to come.

Fed actions are all to support the markets – a very mis-guided concept, a hangover from the days of Greenspan. Fed must allow the markets to adjust. They keep pandering to Wall Street – losing whatever little credibility they have.

Deleveraging is the next phenomena. The super huge volatility must be causing lots of losses to hedge funds, etc. There would be major unwinds, we could see the likes of Aug 17th Quant unwind. Major difference now- market sentiment is strongly bearish and Fed is almost out of ammo.

I would suggest extreme caution - both long and short. Predicting a 1000 point down day - one of these days (or weeks). That may present opportunities- Tech and Infrastructure would be my recommendations. Totally stay away from likes of Financials.

[Britishsteel]

guys follow the link and sign the petition its vital to a free market system.
financialpetition.org/......


Petition To Impeach George W. Bush

We the undersigned agree with and call upon Congress to raise debate, vote upon, and proffer to The Senate the following Article of Impeachment:

"On or about March 16th, 2008, George W. Bush, both personally and through his Treasury Secretary Henry Paulson, caused to be provided to JP Morgan/Chase a bribe(1) ultimately flowing from the United States Treasury in an amount not to exceed $30 billion dollars US, via The Federal Reserve, in order to induce JP Morgan/Chase to assume the liabilities and assets of Bear Stearns and Company at a price not determined in the free market or via public bidding, in violation of the limitations expressly set forth in The Federal Reserve Act of 1913, 12 USC Ch 6."

The Federal Reserve “bailout” of Bear Stearns on March 16th constituted an unlawful act as it was in effect granting a payment of up to $30 billion US Dollars by The Federal Reserve to JP Morgan/Chase as part of the inducement to purchase Bear Stearns and Company.

The Federal Reserve proffered to the world that this was a “loan”, but in fact it is no such thing. A loan that is “non-recourse”; in other words, there is no obligation upon the acquiring company (JP Morgan) to repay the loan should the posted collateral decrease in value or turn out to be worthless, is not a loan at all. It is in fact a payment conditional upon the default of the underlying collateral, and thus, we the undersigned believe, constitutes in fact and in law an act of bribery.

Such a proffering of a public “backstop” would be legitimate when authorized by an explicit prior act of Congress, however, Congress has passed no law authorizing this action. Under the plain language of The Federal Reserve Act, The Fed is authorized to make loans under “exigent” circumstances to non-bank organizations (of which Bear Stears was), however, it is not authorized to make direct payments to “prop up” a failing organization nor is it authorized to make payments to enrich one private enterprise at the expense of another, or at the expense, either potential or realized, of the United States Treasury.

We call upon Congress to force the immediate cancellation of the Bear Stearns transaction as an unlawful act, and should The Federal Reserve and the US Treasury refuse to do so, to bring the above article of impeachment.

(1) Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering , giving , receiving , or soliciting of any item of value to influence the actions of an official or other person in discharge of a public or legal duty .


----------------------...

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[sadpuppy2]

So please help me get this straight.

It is perfectly OK to for an executive of a publicly traded company to go on all the national media and completely ignore his fiduciary reponsibilities by issuing what can at best be called misleading statements.

Then its OK for a group within the Federal government to overstep its charter to provide $30B to take the risk out of one company acquiring a longtime competitor since there was (please choose) a) no time to the due diligence or b) the due diligence was done in anticipation of this very moment.

Better yet the $30B does not a) recompense the shareholders who not only include pension funds but also widows and orphans, b) does not guarantee jobs for the seemingly overpaid and under attentive employees (who will soon need mortgage relief) and c) since no one knows whose mortgages have just been guaranteed, not a single homeowner got any relief either... and oh yes d) we now own $30B of stuff that not only nobody wants but nobody knows what it is....

Flitting past any suggestion of moral hazard, lets move on to outright immorality in the form of collusion once again amongst publicly regulated companies. Can anyone please explain how enough investors got themselves organized within a few hours to drop a supply of physical gold greater then that held by China or the European Central Bank some 20% in value in a few hours? While miraculously the financial institutions rose by a near equivalent percentage in those same few hoursthough there was no change in their condition?

So ya - lets ask George to leave, but only if Dick goes too - and when do we get to see the minutes from Dick's meeting with Big Oil way back when anyhow?

[lewisrosenbaum]

what i can't figure out is whether or not the fed is going. to nationalize the accumulated mortgage debt on the balance sheets of the banking institutions in a final desperate maneuver to get credit flowing again. is this possible and if so will this produce real inflation not the kind where a shrinking monetary base is being shunted into balooning commodity prices?

[goatfarmer]

The experience of Asian banks after the 1997 financial crisis might be instructive. In the case of banks in Hongkong, the rebound was quite swift. But in the case of Thailand, most banks made a swift rebound after a year, only to fall for a second bottom lasting 8 years. Some banks have not returned to their 1997 levels, after 10 years. Which category would the US banks fall into? Check out some charts on my site.

[pimptacular]

Guys I hate to say it but the bull run is over...bear market was confirmed last week via S&P chart analysis. We are over due for a correction; yes I said correction and I do know where we stand year to date. Do not believe the hype, mom and pops are going to get crushed. Think your getting a cheap stock; think again! Major hedgies are not buying into this market; MM and inverse ETF's are the way to go. Can not believe I just said that, and I was and will alway be a bullish investor when applicable. Feel free to respond!

[Marol]

Umm.

1. Mr. Soprano, thanks for your list (and the associated work), which I haven't seen before. I'm saving it to read and think about.

2. Britishsteel -- your link doesn't work. There are other petitions for impeachment, BTW, on various grounds. Some for both Bush and Cheney, and some are supported by prominent and respectable Members of Congress.

3. IThinkBig: I thoroughly agree that we need alternative, renewable and safe energy sources -- a big job, to be sure.

Global warming, I'm sorry to say, is real and it is also very complex, like the concept of ecology. We desperately need to deal with it. If the summer is warm, one of the poles could be ice-free next summer, with attendant worldwide ocean level rise, submerging of island nations (already begun), increased ferocity of storms, and on and on. These changes will probably be irreversible. What we don't need is a rush to any half-baked solution that we don't think through -- for example, the ethanol disaster. If anyone here's not aware, it's adding to worldwide food price increases, including countries already facing famine; and it takes more energy to produce than it saves.

There is no reason why we can't conserve lots more energy. It will cost, governmentally and individually, but the "payback" will be fast, and huge. Put another way, it's a great investment, and a lot safer than the current market. There are also lots of related business opportunities.

A long time ago, I lived a while in Sweden. A very cold country, with long distances between cities and lots of nighttime. Although their energy usage per person was half of ours, their usual standard of living at that time was noticeably better than ours is even now. We could learn a lot from such places.

4. Finally, as long as I'm on my soapbox, I would like to point out that the brunt of "healthy" corrections and even depressions will be borne by average people, probably worldwide. As for Americans, most of the middle class has savings in their homes and at least partly in the market, and the working class will be affected indirectly. What people can't cut too much is shelter (at least some form of it), energy for warmth and necessary transportation, and food. And the food that is going up the most in price is exactly that which poor people already depend on -- pasta, bread, tortillas, rice, cereal, cheese, eggs (30% last year) and of course vegetables and fruit. The cost in medical care and emotional problems is also enormous.

In other words, something it's very easy to forget while we focus on these fascinating and complex financial discussions: while corrections may be good for the market and traders with discretionary investment, they are far from healthy for most people. Recessions and depressions cause very real suffering.

[Briggsy]

What persuaded me that the bull was over is what CME was able to buy NMX for. In a so-called commodities boom. Nope, all you have to do is look at the weekly charts for the major indicies. And may I suggest you start with the undaunted FXI.

[robert.bohrer]

Although no one knows what is going to happen, last week's volatility is almost sure to be a more frequent occurrence than ever before. My money is on DOW 10k or below. I am no longer comfortable with holding gold, as I cannot decide whether the inflation, stagflation, or deflation camps are correct, so I am shifting assets from gold to shorts, cash, and stable, high yielding DRiPs.

Tony Soprano: apparently, you are still an idiot.

[Briggsy]

Stable DRIPs? You are building in quite an assumption there. What exactly exempts the stock of these companies from the long drop, especially if their dividends need to be cut? Just trying to make the case that we are headed for a point where you will look at the value of what you thought was safe and ask "for the love of God how is this possible??!!"

[nevket240]

For sanities sake Marol go to www.climateaudit.org/ and check out the amount of outright FRAUD that AGW is based on. Its a scam . The environmental equivalent of SubPrime. The earth is heading for a mini ice-age. CO2 ran out of influence on the atmosphere way-back. Thats why the owner of the Weather Channel wants to sue Gore for fraud. Because it is.
The climate temperature has peaked, like the market and will be b heading lower in steps ,in tandem. AGW is a fraud!!!

regards.

[Tao]

We can't take the chance that global warming is not caused by what we are doing. It is too crucial. For our financial interests and health, we need to use alternative energy and cut back on the dirty coal type fuels.

Gold prices had to have been manipulated last week. Too many are happy holding gold.

This market is too confusing for anyone to deal with using common sense or reason. It is unstable. So is my portfolio. For the first time, I don't have any idea of what to buy or sell.

Housing is too high, so why are the gov and Bernanke propping it up? They should have given those who have subprime loans either a rollback of prices and given a lower interest rate just to the borrowers. They didn't have to bring interest down for everyone. Interest is a source of income for many and a source of taxes for the government.

[Lance]

dink: it wasn't a metaphor; it was a simile

[loben]

1. Cramer called it a bottom last week after 3/18/08. Then I looked at the LAST TIME he called it a bottom...Nov 30, 2007. So I wouldn't put any stock in his bottom calling.
2. You have to look at WHO is calling the bottom and WHY. Of course, the govt wants you to buy things again, including stocks. They are using "some" journalists to shout their story. And some journalists may be thinking they are "doing it for the greater good".
And they might have 401K's and other long positions they are worried about.

[xuxu]

scawy! Who knows what to think these days. All bets are off.

[siliconvalleygambler]

I agree, there's hardly anything to feel bullish about. A mortgage officer at Bank of America (we're trying to refi) told us that NOTHING that Fed has done since last November is working for real estate. There is no one buying jumbo loans, so the bank has to keep any loan that it makes on its books. As the result, they have tightened up the standard so much that hardly anyone qualifies. We asked him about the raised limit of conforming loans, supposedly up to $730,000 or so. He said BoA hasn't adopted that policy. (So much for the Congress doing all it can to help.) Contrary to what you see in the media, the mortgage rates remain high.

So my conclusion is that Fed is doing the great job of helping the buddies at investment banks to protect the world financial systems from the meltdown that was basically created by Fed's policies and manipulations, as they are supposed to do. So the stock markets may see a tradable bounce or two on the way down. Nothing has changed on the main street.

[poorslob]

The so called buyout of BSC should be enough to scare investors to death . Government intervention i.e. manipulation of finacial markets should not give us a warm and fuzzy feeling . I am not taking the bait that the bottom is in, I dont care what the pundits on cnbc say. Everyone wants the finacial crisis to be over and the economy to return to "normal" . First there has to be a finacial cleansing.I suspect that when it is over we will all be a lot closer to the bottom rung

[Aviator]

The present "energy crisis" as well as global warming are both elaborate hoaxes. Look VERY carefully at who is promoting such ideas and why.

I agree largely with the author's analysis on market direction. Certainly, the study of market history is important but many comparisons are unwarranted as we no longer operate in the free market. Moreover, the indices are scarcely indicative of economic reality in America. The money supply has exploded under Messrs. Greenspan and Bernanke and they have inflated everything under the sun. They will fight to the death to reflate the markets. They will ultimately fail and our currency will probably be destroyed.

[vaduz]

lets hope the bulls will prove right

[jcrash]

So, of the 54 some posts, about 50 say the sky is falling.

Come on guys.

[User 168053]

I think the stock market is a crapshoot, emphasis on crap, and I dont think any one really knows what is going to happen. I havent watched CNBC for a t least 6 weeks till this morning and it was as if I hadnt missed a day. The bottom is set, we had 2 up days after a bad drop yadda yadda, Buy in.

The energy issue is more about geo political stability than global warming. The bottom line, the spectre of $5 a gallon and thousands of armed forces casualties to protect and deliver crude from dodgy Arab states should be the driving force for innovative energy policies - not too much rain and dying polar bears.

[dallen]

oh no!, The Sky Is Falling

[damienh]

Maybe people should start looking at the fundamental (i.e Home Price and Consumer Spending) in the coming weeks/months before being so Bullish.

[GoldIsKing]

What will happen with Gold and other precious metals? Isn't inflation still stalking out there? Tell me why I shouldn't load up on more gold right now, or why it can't go to $2,000 per ounce...