Are We There Yet? Not Even Close. 21 comments
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Given the events of the past few days it is once again time to examine the immortal question posed by children and traders alike, “are we there yet”?
Nope, not yet, we aren’t there yet, not even close. The bottom hasn’t been found in the credit markets or the stock market and, unfortunately, we still have a way to go.
I am not sure when the bottom will be found but we will know we are getting there when the U.S. economy makes it for 60 days without a run on a financial institution. After 60 days without a major financial crisis I will write “Hey kids, we’re there”. But until then, the trip continues.
When we get “there” I hope we don’t look back on the good old days of high leverage and spending beyond our means and wish we could go back to that simpler time; a time before mark to market accounting and accountability. I hope “there” is a happy place where the U.S. has a future because we have low unemployment, high productivity, low deficits and lots of investment and savings. But then again, I still believe in the tooth fairy.
In June I wrote that we weren’t there yet because we flunked the “60 day test” and because Lehman Brothers (LEH) and other banks and investment banks “would have expired but for the unbelievable work of Bernanke”. I started getting terrible hate e-mail. So, I started using a food tester before I ate.
A little later in June I was on FOX Business Network and repeated that we weren’t there. Later that day several people that with uncontrollable anger syndrome called me on the telephone and randomly shouted obscenities at me. So, I stopped opening my own snail mail.
A few weeks later I wrote a series of blog articles on money supply and its implications that were published on Seeking Alpha. I suggested that economists were “making up data” that didn’t exist and Fed policy was going to result in credit rationing. I was called names on blogs and received comments from “on line screamers” who believe in screaming often, loud and with nasty language. So, I had my kids start using my wife’s maiden name at school.
But, despite the threats, the name calling and the blog screams, we weren’t there in June, July or August and still aren’t there in September. And, Fed policy that caused credit rationing didn’t include rations for Freddie (FRE), Fannie (FNM), Lehman (LEH) and, now, AIG (AIG).
Since June when I first suggested that we had a way to go, the Dow, the S&P 500 and the NASDAQ are down approximately 7.80%, 9.43% and 9.08%, respectively.
I’m sorry we aren’t there yet. And, I don’t like it when people call me names. I am sorry that so many people have trusted senior executives at their companies and those executives have let them down. I am sorry the regulators have let us down and I am sorry that investors are losing money.
But, we still aren’t there yet and until we have 60 days without a financial crisis we aren’t going to be there.
For non-professional investors who want to play the market, I have some advice. Before buying stocks you need to answer a more fundamental question: Red or black?
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This article has 21 comments:
RED or BLACK?
an imperfect reference to a 'Crap Shoot', only he referenced roulette.
The Fed is asking for the Treasury to create more bills, which is being spun as Fed weakness when it is just trying to supply the banking system with securities it wants to hold. But it is still dumb. They should instead be buying corporates outright in open market operations, leaving all of it as freshly created high powered money. Tons of them, and concentrated on whatever the target de jour is.
The real ammo they have is the 11% spread between short treasury rates and intermediate term financial corporate rates. And they won't make any progress until they start acting like a profit seeking arb with unlimited firepower, and simply force that spread to close by bidding the hell out of it until it does, quantity unlimited.
You keep buying and holding while I sell and you'll be rich in 50 years.
Thanks!
I suspect by the end of the year - but I have little data to back up my assertion.
Thoughts?
one is using the IMF highway: balance your budget, lets free FX adjust your trade imbalance, accept the GDP free fall and provide some unemployment subsidies, the second one is drive to Zimbawe road,
turn left in Bolivia Circle, stop to buy some broken pies at your friends retail post, ask for some loans from your pals overseas and send back some bonds with greetings. First is black, the second is red, you tell us were are we now.
Well I'm gonna call you one: Correct!
One of my largest frustrations is the 30- and 40-something "investor class" that (still!) believes that every drop in stocks is a buying opportunity. They can't wait to call a bottom where there is none. This thing is gonna take a long time. Look at the Nikkei starting in 1990 if you need to understand just how long a "long time" is. We have used up the magical bottomless pool of free money; we tapped it to bail our way out of the last 3 crises: 1987, Tech, and 9/11. THERE IS NO MORE MONEY. The federal government is arguably the most bankrupt "company" today, and it is being relied upon to bail out the other bankrupt companies. All have engaged in deficit spending and leverage; time to pay up.
Today is the first of many "supplemental fundings" by Treasury. They did a paltry $40 Billion. The fed and Treasury have spent or committed $900 Billion. Gold smells ink jugs being pried open, and it smells like blood in the water.
Also, I am not presuming to give professional traders advice in this blog article. This is for retail investors only who have a job during trading hours and are just looking for a simple rule for when they should start buying mutual funds and other diversified investments again.
Thanks for reading and thanks for caring enough to comment.
Your predictions sound so much like those "oh here's peak oil" or "oh investment banks are trading below book value let's go shopping" analysts folks who are carrying their belongings in carton boxes.
The end of the tunnel is not the when confidence comes back. It is rather when all have lost faith and Buffett, private equity and sovereign funds come in.
Of course, by then you and half the lower Manhanttan expese accounts would have evaporated into the hot air you sold us in the first place.