irondoor91

More Weakness, More Volatility

On Oct 31 02:58 AM bob adamson wrote:

> The stock market and investor sentiment have swung widely with the
> rapidly changing perceptions of economic performance over the past
> two years. Performance of different sectors of the market diverged
> significantly through 2007 and first 8 months of 2008 as their respective
> prospects seemed so different. All sectors save precious metals and
> Government securities suffered a major collapse in value during the
> October to March period reflecting the fear of possible economic
> collapse. The simple lessening of that pervasive sense of fear from
> March to October resulted in a dynamic relief rally but little sense
> of attainment or security. Recently that sense of relief has run
> its course and, while anxiety has not taken its place, uncertainty
> about the pace and shape of further recovery is assuming a more central
> spot in investors’ minds.
>
> In short, we’ve been through a lot over a very short span of time.
> Both the economy and our expectations of it (and for the stock market)
> have now reached a wary equilibrium as we search for clearer indications
> where the economy is heading. Consequently, views are now decidedly
> mixed (and subject to rapid change). The best guess is that the stock
> market will move alternatively up and down rapidly within a narrow
> range over the next few weeks until the future direction of the economy
> becomes clearer.

Question:

What was the "future direction of the economy" in July, 2007? Here

Robert Prechter's 'Conquer the Crash': A Forecast That's Still Coming True

Points to ponder regarding Prechter and his use of the Elliott Wave forecasting principle:

. Early in his career, he won a trading championship with a gain of over 400% in just a few months using options.

. He called the bull market of the 1980's and the crash in 1987.

. He put out a "short" recommendation in July, 2007 a few days after Sec of Treas Hank said that the economy was the "best in his lifetime".

. He called for covering those shorts in late Feb 09. This short trade is likely the largest S&P futures point gain in history (800 points) and will probably never be beat.

. He forecast (in April) that the Dow would hit 10,000 in the next uptrend and at the end of the runup investors and the government would decree the bear market dead.

. On the other side of the coin, he was generally recommending shorting the market from time to time during the runup from 2002-2007. He did not see the extent of the "equity mania" generated by the massive credit inflation during this period.

. His latest recommendation was a short in August this year. Obviously very early, by his own admission. One of his publications called a later top on Sep 23rd. Still a bit early, as the market has continued higher.

He is now publicly forecasting Dow under 3,000 in the next leg down, and ultimately under 1,000 before a final bottom. Many commentators say that we are in a new bull market and the sins of the past are over and were solved by government action.

Someone is going to be terribly wrong and the day of recognition is coming ever closer.

Why Another Stock Market Collapse Could Be Imminent

Based on your theory about market manipulation and the massive liquidity available to the PPT, please explain the 50% decline from the Oct 07 top. I assume that the PPT is always on duty.


On Aug 05 09:45 PM vicelord wrote:

> The one thing that you're failing to take into account is the - how
> to put this? - blatant manipulation and propping up of the market
> being conducted in broad daylight through the Supplemental Liquidity
> Provider program being run by GS. Otherwise known as the Plunge Protection
> Team. There were no super computers in 1932; there was no High Frequency
> Trading; there were no Dark Pools and no bottomless barrel of dough
> at the Fed window for the likes of JPM, GS and BLK to pump taxpayer
> money into equities. $4 Trillion so far has bought us a 45-50% rally
> on the S&P (and counting.)
>
> I have been grappling with this question for MONTHS now, after getting
> squashed like a bug in May trying to short too early. I, and I don't
> think ANYBODY, thought it would go this far. We've jumped about 135
> points on the S&P in roughly 2 weeks without even a mild correction.
> So, with that in mind, the question remains - if they can get away
> with pumping the market up this far, who's to say they can't keep
> it up here? Or at lease forestall another plunge to the March lows
> or lower? It stands to reason that if, with all the computers doing
> the trading, and the average retail investor out of the game, and
> volume being what it is, they could get it up this far, they might
> just be able to keep it there. At least make it trade sideways for...
> years? Who knows?
>
> I know it's ludicrous to buy at these prices. Every bit of data that
> comes out is either counter-intuitive to a bull market, or manipulated
> in such a way as to make it seem like a recovery is on the way. (Shit,
> today there was a piece in the Financial Times today about how Prime
> Loans in default or delinquency are up 13.8% from March - June, and
> this was from a study done by S&P itself. These are PRIME LOANS
> we're talking about. Up 13.8% during the same exact time we had a
> 40% market rally. But you didn't hear a peep about it on CNBC. Shocking,
> I know.)
>
> They'll come out with some optimistic unemployment numbers one week,
> and the market will rally 2% on the news that day... and then a month
> later you get an upward revision on those same numbers pouring cold
> water all over any hope. Lather, rinse, repeat. Where does it stop?
> When does it end? Every word that CNBC says or puts into print should
> come with a disclaimer saying they are owned by GE. There are too
> many people with a vested interest in inflating another bubble. Even
> the NYT and the WSJ have to play it cool, lest they end up with their
> stocks trading on the pink sheets for pennies.
>
> My question is can the powers that be that have run up the market
> from the March lows keep it from falling back down? Or is there a
> collapse coming that is inevitable and no one can stop, no matter
> how powerful their computers are or how much taxpayer money they
> have to play with?
>
> I just don't know.

Why Another Stock Market Collapse Could Be Imminent

Not bad, not bad at all. Congratulations on a lucid explanation of the debt problem.


On Aug 05 04:10 PM User 353732 wrote:

> 1. It is true that at every level of society(individual, household,
> municipality, corporation, county, state, Federal) there is excessive
> debt and this debt must be repaid or repudiated(bankruptcy or inflation
> or combination). Howver, the debt carrying capacity is not zero:
> all debt need not be redeemed; only enough to bring into the correct
> balance 2 relationships:First, the ratio of debt service to income.
> Second, the ratio of debt to assets. At the moment these ratios are
> frighteningly bad at every level of society and at the Govt level
> are getting worse.
> Nonetheless, private and corporate incomes are not going to zero
> even if there is a 10 year depression and of course tax receipts
> are not going to zero although they certainly are and will continue
> to decline. The credit contraction for individuals, households, corporations,
> almost all municipalities and counties,and most states will continue
> until the two ratios are in proper balabce, which could take several
> years. The entire $ 100 trillion of private and public debt does
> not have to extinguished but a third to half (??) surely must be
> discharged or dishonored.
> At the Federal level, the ratios will not be brought into Voluntary
> balance. The ruling bosses believe they have untrammeled power to
> issue unlimited money. Federal debt will continue to grow out of
> all proportion to repay. Therefore, it will not be repaid: it will
> be repudiated by virulent inflation, leading to a loss in the dollar's
> status as sole reserve currency, leading to the inability to swindle
> foreign buyers of US Govt debt, leading to the demise of the US as
> global hyperpower.
> 2.The citizens of the US will eventually pay for the debts of their
> Govt in 3 ways: visibly compressed material standard of living for
> a generation; loss of global status and erosion of national security
> and a sharply extended working life( no retirement for 90% of Americans
> capable of working, even if part time....greaty reduced retirement/healhcare
> and disability benefits for those too feeble or too impaired to work
> )
> 3. Federal Government debt is a far greater threat to the economy
> and the security of the Nation than private debt. A great majority
> of Americans continue to believe that the Govt is external to the
> economy and that it is a bottomless magic well. The Govt, Wall St
> and Media encourage this belief or rather cruel delusion because
> it is the very basis for issuing fantasy money.
> All economic delusions ,of course end, either when the spell is broken
> or when the delusion consumes the entire substance of the deluded.
>
> Reason and self control can end an economic delusion. So can enforced
> and prolonged destitution and servitude.

Cash for Clunkers May Cost Up to $45,354 Per Vehicle

The cars traded in don't necessarily have to be "clunkers". They could be very well-maintained automobiles that don't get the higher gas mileage the government is trying to promote. The qualifications for the rebate are the differences between the gas mileage on the car being traded in and the one being purchased. It turns out that the FICO scores of the customers under this program are higher than expected. It seems to me that these are the smart buyers who would have normally traded sooner or later and who know a good deal when they see one.


On Aug 02 09:41 PM BuyABizInFlorida.com wrote:

> The author is inferring that Edmunds is stating that 200,000 cars
> would be traded in and assumes that they are all "clunkers". However,
> we do not know to what extent they are clunkers, nor do we know that
> they are replace with Government mandated qualified replacements.
> So inferring that they are all clunkers and are all replaced with
> qualifying units that would have taken place in the ordinary course
> of events, we the tax payers are subsidizing these trade-ins that
> would normally occur.
>
> What is "BS" is the actual financial intelligence of the average
> American.

Cash for Clunkers May Cost Up to $45,354 Per Vehicle

Hey dancing dad,

He meant low "gas"-mileage cars, not low "odometer"-mileage cars. Can't you people figure anything out for yourselves rather than commenting before giving it a little thought?


On Jul 31 01:43 PM dancingdad wrote:

> His arguments are like the ones Bush made going into Iraq. First
> note he said 200,000 low mileage cars are traded in a normal 3 month
> period. ( I'm willing to bet a large percentage of the clunkers coming
> in are high mileage ones.) He then assumes that all the clunker cars
> replace all the normal trades (bad assumption). His faulty logic
> leads him to conclude that 222,000 clunkers - 200,000 normal trades
> so we get 22,000 additional trade activity for $1B. All wrong, all
> worst case assumptions.

Market Timing: Either Lead, Follow, or Get Out of the Way

Very good article and probably addresses many of the concerns of us "old heads" out here away from Wall Street where the bonuses aren't handed out by the government. My only advice, learned from bitter experience, is to stay away from the leveraged inverse ETF's. The singles, which I see you favor, are ok to use in non-margin accounts. Give it time.

Equity Risk Premium Levels Suggest March Lows Will Hold

"Earnings" are what the accountants want to say they are. The real cash-in-pocket spendable, investable yield comes from dividends. Not a day goes by without another dividend-cut announcement. Falling prices have been/will be chasing falling dividends in a race to the bottom. Until price declines get ahead of dividend cuts, the market will continue to go down.

The dividend yield on the Dow at the end of the crash in '29 was 16%. This bear is of a greater-degree than that one due to the massive deleveraging that is going to continue to take place. The Dow dividend yield will exceed 16% at the bottom in around 2014.

On the other hand, if all the Dow stocks stop paying dividends, the yield (and probably the P/E ratio) will be infinite.

Bill Gross: Dividend Stocks and Bonds Make Most Sense Now

The two more crowded trades discussed in the responses to this and other articles are:

1. inflation/hyper-inflation is inevitable and is just around the corner.
2. Buy dividend-paying stocks now because the yields are high.

I would like to point out the following bits of data:

. If inflation is either high or coming at you like the inevitable freight train, why has gold not responded? Is there anything that has been shouted from the roof-tops any more than "gold is going to $1500 or $5000" by the pitchmen on TV and radio? Not only do they urge you to buy gold, they want you to buy gold coins or bars. Try spending them at the local grocery or turning them into cash at anywhere near what you paid these hucksters.

. The dividend yield on the Dow 3.36%. This is not even as high as the approximately 4% yield at major tops in the years prior to 1980.

If dividends were to stay the same, a 50% drop in stock prices would bring the Dow's yield back to the aea where it was at the bottoms of 1942, 1949, 1974 and 1982. But, of course, dividends will not stay the same. Companies are cutting dividends and will cut some more. So the falling stock market wil chase an attractive dividend yield. This will not end until prices get ahead of dividend cuts and the Dow's yield goes above that of 1932, which was 17%, or until dividends fall so close to zero that the yield is meaningless.

. The P/E ratio of the S&P 500 was approximately 115 to 1 at the end of the March quarter. What's going to bring it back into line? At major bottoms in the 20's, 40's, 70's and early 80's, the the P/E was as low as the 6-8 range.

. The mutual fund cash/ assets ratio has climbed a bit from its historical low in 2007 (the market's alltime high). At major buying opportunties over the pst 30 years, this ratio has been double where it is today. All these managers are hoping for higher prices ahead, but it is not likely to happen until this presumption is destroyed and they become worried enough to raise cash in the aggregate. When the cash/assets ratio hits 15%, that would represent a bullish buying signal.

Biting the Hedge Fund Hand That Could Save the Economy

Mssrs. Obama, Biden, Reed, (Ms) Pelosi, Emanuel, Kennedy, and on and on ad nauseum. None have ever held a legitimate job, owned or managed a company, developed, implemented and been responsibile for profit & loss. They've never had to give up their own income and borrow money so the company they own could meet payroll. In other words they are capital destroyers, not creators.

Basically, they are useless and interchangeable bloodsucking freeloaders whose approach to governance and reelection is lying to the non-taxpaying public freeloaders that their policies will make their pitiful lives better.

The only thing that keeps the polical class in Washington in power is their ownership and control of the printing press at the Treasury Department and the Fed. One supplies money to the other to buy what the other needs to sell.

But, why would we expect anything different?

Hedge Funds Should Be 'Regulated Out of Existence'? Time for a Reality Check

We manage a limited partnership investing in stocks only. Long and short. Each limited partner receives a daily email from an independent third party firm disclosing our positions and the previous day's trades. Each partners receives, via email, a monthly report from our independent auditing firm detailing the month's activity, costs, fees and performance.

Partners are welcome and encouraged to contact any of these independent sources for more detail and answers to any questions or concerns they may have.

All we do is trade. Full disclosure solves the fraud problems.

Could the Dow Sink Another 50% by 2012?

Where would the price of Gold be if the Dow went down to 3800? Probably around $650, which is where it is headed after making a series of lower highs and lower lows since the top. Dow 3800 is the reasonable next target in Elliott wave terms, after a stab at 10,000 at the end of the current uptrend, of course. The bottom for the Dow, sometime in the period 2012-2014, could be as low as 500 which is generally the low of 1974. All mass manias always completely correct their blowoff 5th waves.

Of course, society as we know it will be completely changed by then. It is difficult to predict what type of governments will exist around the world, or even here in the US.


On Apr 05 11:28 AM Mutual Fund Wealth wrote:

> Personally I don't see the Dow going down at all and certainly not
> 50%
> If the market sunk to anywhere near the 3800 mark I can't imagine
> how high the price of Gold would go...
>
> Mentioned on my web page awhile ago that I believe the Dow will settle
> around the 8,000 mark and I believe proceed upwards from there. It
> seems experts-analysts-finan... gurus can't see or predict anything
> past yesterday, so I believe my predictions to be pertinent.
>
> Doug T
> www.mutualfundwealth.com/

Time in the Market vs. Timing the Market

Institutional managers and mutual fund managers are operating on other people's money. Their investment policy statements and prospectuses require them to be virtually fully invested. They should and generally do get market returns, less expenses, over time. Those returns over the very long term should, and usually do, match the growth of the economy, plus some amount of "risk premium" for stocks, which are expected to be more volatile than bonds.

This "buy and hold" approach makes sense to the vast majority of academics and investment consultants, since their recommendations and analysis is based on the so-called "efficient frontier" of Modern Portfolio Theory where all investment decisions are rational.

What has happened in 2008 undermines this theory and analytical approaches when it is revealed that investors are making decisions based, not on rational expectations, but on herding and survival instincts.

There is a profound difference between how people make "economic" decisions and and "financial asset" decisions. In makig economic decisions, such as the purchase of basic needs, commodities, etc, individuals will increase their purchases as prices go down, assuming they have a present or near-future need or desire for the product. As demand increases, suppliers can gradually increase prices until demand is reduced. There is a point at which supply and demand are in balance. The recent example of the market for gasoline is instructive in this regard. Even though many "experts" predicted $200 or $300 per barrel oil, it was clearly unsustainable for long at much above $100 or $2.50 per gallon for gasoline. People have actually learned that they can adjust their lives to less driving. Demand may be permanently impacted. But, demand could begin to increase even during this recession as prices have come down to much lower levels that will encourage usage. This was also reflected very recently in the uptick in sales of pickup trucks and SUV's.

The effect of rising prices in financial assets is not a reduction in demand or an increase in supply, but an actual increase in demand, and increased supply of all sorts of new financial assets (such as CDO's, CDS"s, real estate, etc) which drives prices even higher, for stocks and real estate for example as investors fear missing out on the profits and increases in their financial assets that higher prices bring.

When prices fall, as they have since October 2007, there is a decrease in demand and an increase in the selling of all financial assets other than the most safe ones, which begets even lower prices. "Value" investors are forever frustrated with this fact, since to them a lower stock price makes for even better values. But this is to no avail, as people do not actually "consume" stocks and have no real "need" for them unless the prices are going up. They see the herd buying during a run-up and assume that others know something that they don't: namely there is a rush to buy since the price is going up so there must be value and they see the increased demand there. The reverse is true when prices are going down. The herd believes there is no value there and everybody wants to sell in order to get out and avoid further losses.

This is classic psychological herding behavior, rather than the rational behavior envisioned by the academic theorists of Modern Portfolio Theory.

One should ask to see the actual portfolios and trade sheets of the trustees and individuals who are running institutional assets and mutual funds. The results will likely surprise you.

Non-Recourse Loans: Positively Counterproductive

John Lounsberry:

Let's deconstruct your scenario. Your retiree's home was "worth" $300,000 two years ago. Though what he thought it was worth 2 years ago has nothing to do with the present, let's look at the situation anyway. If we assume that he bought the house 30 years ago and enjoyed 5% annual compound appreciation, he paid $69,413 for it in 1977. If it is now worth only $200,000, his annualized gain was 3.59%, or roughly the annual inflation rate. He has enjoyed appreciation while having the benefits and control of ownership. His house is paid off. It is a residence, not an investment and he has a roof over his head as long as he lives and doesn't screw up the rest of his retirement funds.

Many retirees had a stock portfolio that was 50% higher a year ago. They could have sold at any time, but now they want bailed out? Give us all a break!

I propose the following solution: Have the government pay off all single-family ower-occupied mortgage debt. The banks would then have no toxic assets on the books and they are free to lend again. Homeowners would have no mortgage debt, increasing their cash flow significantly and instantly improving their balance sheets. Homeowners would also have no mortgage interest deduction, thereby increasing their income tax bills to both the state and federal governments.

Banks could then make new decisions on lending under newly stringent guidelines. New mortgages could be full recourse. Money could flow from home refinancings or equity lines. The economy and the markets would quickly recover.

We might as well do it this way, since Congress is going to piss the money away anyhow. The problem is that homeowners have no lobbyists representing their interests.

Stanford International Under Scrutiny

In the Bernie Madoff scheme of things, this is a gnat-bite. Unless you are an investor in their "certificates".

By the way, are those insured by the US Govt?