Russ Abbott

Friday Outlook: Commodities, Emerging Markets

Dave I'm confused about the breadth and the S&P. Since the S&P is supposed to represent the broader market more or less, how come it rose so much even though breadth was terrible?

Friday Outlook: Commodities, Emerging Markets

Hi Dave,

For those of us who don't have your background, would you explain how "da boyz" make money pushing the market up and down.

Thanks.

Tuesday Outlook: Commodities, Emerging Markets

Hi Dave, You often talk about "da boyz" and how they manipulate the market. Being somewhat naive about this, would you explain sometime what they got out of doing that. Do they, for example, pump the market up and then sell immediately? Does that work? Or are they trying to change the overall longer term direction? Does that work? I don't see how either one of these is really worth doing.

Thanks.

-- Russ

Is Oil a Bubble? Part One

What I don't understand is why the oil producers aren't taking advantage of the futures market and locking in these prices for themselves. They can't be that sure that this isn't a bubble. And if they are selling into the market, why isn't that having more of a moderating effect?

Blowing the Bubble Bigger

If we could always spot a bubble they wouldn't occur. Every bubble is different. In this case the difference is the uncertainty of supply. Are we at peak oil -- or peak energy, at least for a while? No one knows. And since no one knows, there is lots of fear, which leads to a spike. If the fear is validated, the spike may be justified. If not, it's not. But that's the problem, we don't know -- and the consequences of its being right are so significant.

Recession: The Forgotten Indicia

It's never been clear to me why we care so much about whether the label "recession" applies to a particular situation. (The only real reason we might care is if there are legislated or regulatory procedures that kick in if it does apply. That may be the case. But it's also a special case, and I don't see any of the discussions of whether we are in a recession referring to any of these specifically.)

In general it really doesn't matter what label applies; what matters is what's happening. It makes no difference whether a particular label applies to someone who is (or isn't) out of a job or to someone who makes (or loses) money in the market. What matters are the concrete facts on the ground, not an aggregated label that may or may not loosely summarize those facts.

If unemployment is at 10% but GNP has not declined by 1.5% things are still very bad even though that situation may not fit the formal definition cited in the article.

Let's stop worrying about whether the economy is "in a recession." It's state is what it is. The question for Seeking Alpha is what implications the current state and future direction of the economy have for the markets.

VIX Implied Volatility Surges

Furthermore, the VIX time series doesn't lend itself to traditional option pricing formulas. So the use of those formulas in reverse to compute implied volatility doesn't make sense.

Copper Proves the Commodities Bull Isn't Over - Yet

Sorry, I'm confused. The curve shows prices declining as time increases. That means that if I have copper now, I'd do better selling it now than later. To make it worth keeping until later, I would want to be paid for the interest on the money invested in my stash of copper along with some money to store it. That means that even if spot prices stay the same, the curve should go up, not down. So why does a lower future price mean that prices are going up?

The Liquidity Tsunami

It sounds to me that if you look at what DeLong and Mussa are really saying it is that the Fed has done a good job.

Delong:

<blockquote>If all this isn't enough to keep the flow of funds to finance investment steady and so save America from large-scale cyclical unemployment, I will be genuinely surprised.</blockqu...

So DeLong believes that the Fed has probably saved the country from large-scale cyclical unemployment. That's good, right?

Mussa:

<blockquote>the US economy now needs to undergo at least a near recession if the Federal Reserve's easing is not to be excessive.</blockqu...

Well, we are undergoing at least a near recession. So the Fed's easing is not excessive.

Mussa's primary complaint is that

<blockquote>if the Federal Reserve's highly aggressive actions have really been warranted to protect the economy from substantial harm, then deep reforms of the financial system, including the Federal Reserve's policies and practices, are clearly needed to reduce the likelihood of such problems in the future. </blockquote>

Reforms are certainly needed. But this comment suggests a bit of sour grapes. If the only thing Mussa can find to criticize is that the Fed hasn't yet reformed the system, he must be saying that for now it has done the right thing.

Tuesday Outlook: Commodities, Emerging Markets

When you say that FXI had a "nice tradable bounce off $120," that sounds great in hindsight. But where on that bounce was there a signal to get in?

How To Solve the Housing Crisis Tomorrow

As I understand the plan a homeowner could sell the government $125,000 worth of equity in exchange for the government assuming $100,000 of the loan on the house.

How would the government's equity be recorded? Would it come after all other loans? Would there be an appraisal to assure the government that there is $125,000 of equity? If so, this wouldn't help the people who are under water. (Presumably we don't want to prop up those house prices anyway.) So it would only apply to people who have $125,000 in equity in their houses. Why would someone in that position want to sell $125,000 worth of equity for $100,000?

Wednesday Outlook: Caught in a Holding Pattern

Hey Dave, I too enjoy your posts a lot. I hope you continue to post as often as possible.

-- Russ Abbott

Monday's Options Report: WB, XLF, CNB, ZION, SNV, INTC, MNST

What am I missing? A bear put spread 50/45 for 3.75 on Zion is profitable if Zion closes anywhere below 46.25 when the options expire Friday. Why does it have to sell for more than 45?

Market Sentiment: Good Grounds for a Rally

The sentiment argument is that very strong sentiment in either direction means that everyone (more or less) has committed their resources to a particular direction. So there are no resources left to push further. But in the middle of a move, sentiment might very well be right as increasing numbers of people join in.

Market Sentiment: Good Grounds for a Rally

Is there data supporting a monotonic inverse correlation between sentiment indicates such as AAII and market moves? My intuition tells me that it's the extreme sentiment readings that predict reversals not intermediate readings? Anyone know anything about that?