logicalthought

Employment Lags the Stock Market

>>There is really no debate about the point that unemployment levels lag the stock market.<<

I refer you to last week's Wall Street Journal:

"The time-worn Wall Street gospel is that employment is a lagging indicator, but that isn't always so. It has only lagged significantly in the recoveries that followed the past two recessions. In the eight recessions between World War II and 1982, payrolls bottomed and unemployment peaked, on average, less than one and two months, respectively, after the recessions ended. Assuming, as most economists do, that the latest recession technically ended in June 2009, this recovery already is looking jobless."

online.wsj.com/article...

Regulating Wall Street Like Las Vegas: Yes We Can

>>... insider trading amounts to criminal theft and it is not a victimless crime. For every buyer of a stock there has to be a seller, and if someone has material inside information about a company, he or she has a decided advantage determining an appropriate price for the security... Insider trading is somewhat akin to card counting...<<

Okay, let's think this through. Suppose that grandpa has decided to sell his Proctor & Gamble this morning, and it so happens that some insider-trading M&A lawyer or banker just discovered that next week a bunch of PE firms are going to band together and make an offer to take PG private. So, the insider trader enters the market with a buy order for $5 million of PG at the same time my unknowing grandpa is a seller. Seeing as this constitutes $5 million of additional buying strength that otherwise (without the insider traders) wouldn't be there, what does this mean? It means a *better* price for grandpa. On the other hand, let's say grandpa wanted to *buy* PG this morning, in which case he'd now have to *compete with* that $5 million of additional buying power. In *that* case, the insider trader will *cost* grandpa a little money. So, depending upon whether you're buying or selling (and whether the insider traders are buying or selling), insider trading itself is actually "price neutral" to the honest anonymous buyers and sellers out there. The *real* reason to ban insider trading is simply that it "smells", and thus will discourage the vast majority of honest folks from participating in the capital markets and thereby render those markets smaller and less efficient. (Of course, when Goldman Sachs only has one down trading day out of every 100, one might start to believe that the markets are somewhat odorous anyway.)

And as for that comment about insider trading being "somewhat akin to card counting", that's bullshit. Someone who counts cards has no more information available to him or her than any other participant at the table-- all he or she is doing is paying close attention to the cards that have been dealt (the same cards that anyone else can see, too) and then making the "highest percentage move" based upon those cards.

Equity Market Bears, Take Careful Note of the Chinese Stock Market

I would like to see the volume bars on this chart... If they're not increasing on each of those days, then I agree with socrateaz in that both charts (especially the first one) look awful "wedgy" to me (kind of like the most recent few days of the SPY, which has been going up on shrinking volume), and thus vulnerable to a large drop. More fundamentally, for folks who believe that "the Chinese consumer" can pull the world out of this mess (and I'm not one of them for at least the next several years, although eventually that might happen), why SHOULDN'T the Chinese market decouple from ours at some point?

Positioning for a Bond Rally

I'm not a "bond guy" but it seems to me that there's something wrong in "bond land", and I smell a huge yield spike right around the corner. Of course we all know the reasons why this "could" happen (the deficit, the money-printing leading to a declining dollar, etc.), but the reason why I think the timing is very close to "now" is the strange action in the bonds this past week. When the Fed announced on Wednesday that it would keep rates unusually low "for an extended period of time", the yield on the 10-year spiked massively HIGHER. What does that tell you?

Consumer Credit Decline Continues

>>The stock market, of course, could care less<<...

...until it *does*... Markets are funny that way.

Better than Expected Initial Jobless Claims

>> Either way, the kind of person who is a bear right now will never be able to make money investing as far as I can tell.<<

Well, you need to work a bit on your perception. As of this moment (11:25 AM on 11/6), I'm up approximately 100% YTD and have compounded approximately 30%/year for the past five years. I didn't initially get short until the S&P hit just under 1090 and thus am doing okay there (despite having recently added to the positions), but made most of the money on the long side in microcap stocks that weren't leveraged to the overall economy. Rather than going back and forth on the data (which can be read either my way or your way), I will very simply lay out my perception of things:

The current economic problems were caused by a massive amount of debt, and until that debt is either worked off or vaporized, this economy can sustainably go nowhere. So, even when the firings dry up to a level of employment that's compatible with greatly reduced levels of revenue, it will be several years before revenue is able to pick up to the point where significant hiring will be required. You, on the other hand, seem to think that an improved economy (rather than one that just "flatlines at the current crappy levels") is right around the corner. I think you're wrong, but if I see some real technical strength in this market, I will be happy to cover my shorts and try again from a higher level... Don't worry, there's no danger of my "going long just at the wrong time", as I'm well aware of how many people were crushed that way in the early 1930s.


On Nov 06 10:44 AM thiazole wrote:

> 1. The labor pool was substantially smaller in 1982 than now. In
> fact, the labor pool has grown by 36% since then. Are our initial
> claims data 36% higher (ie 680,000 is 36% larger than 500,000)?
> Nope! The fact that the numbers are still similar in spite of how
> much larger the labor pool has become tells us that labor conditions
> were actually quite a bit worse at the end of that recession then
> they are right now. Also, that was a back to back recession (another
> in 1980) so by the end of 1982, they were pretty much 3 years into
> a terrible labor market, so you can be assured that more benefits
> were expiring back then than now.
>
> 2. Things aren't improving? Unemployment isn't the only thing out
> there. It is as if the bears completely ignore every other metric
> signalling recovery. It is always "different this time". It was
> different all the other times, too, but it is still the same. The
> things we see improving in the economy were the same things that
> improved after almost every recession ended and the things that are
> getting less bad are also the same things that got less bad (before
> they got better) at the end of almost every other recession.
>
> 3. I don't know how you could have missed my 50 other posts, but
> inventories will force employers to hire. They are falling at the
> rate of around $15 billion/month (how many people do you think it
> takes to produce $15 billion/month in goods?). If you don't understand
> how that can be, let me explain. Starting last fall, businesses
> cut labor FAR greater than the economy warrented. As a result, production
> plummeted much faster than consumption. Then the government added
> stimulus dollars to the mix to keep consumption greater than production.
> Is that fake? Not really - consumption is still much less than it
> was 2 years ago. Stimulus isn't keeping consumption at an "artificial
> high" - it is keeping it from plunging into the abyss of depression.
> But, as I said before, it is also clearing inventories and forcing
> companies to hire again. As companies hire, in theory anyway, the
> government should start pulling stimulus dollars as people start
> making money from their new jobs (although I doubt the government
> will pull stimulus in time). It isn't that complicated. It is how
> recessions always resolve themselves to one degree or another.
>
>
> Honestly, you can handwave all you want about how this is fake, but
> the money that people who followed sound investment logic have made
> is real and the money that people who have been calling this rally/recovery
> fake have failed to make (or even lost if playing the short side)
> is also real.
>
> We've been through this before, and I actually agree to an extent
> with your longer term bearish economic outlook. I had a longer term
> bearish outlook on things as early as 2004, but that didn't stop
> the economy from growing between 2004 and 2007, nor did it stop shareholders
> from making money.
>
> The problem with most people who think the way you do, is that you
> usually capitulate at the top. Things are going to get better still.
> That 3.5% GDP rise you saw for the 3rd quarter will be small compared
> to the next two quarters. At some point (sooner than you thing),
> even the most ridiculous bear metrics (like unemployment) will turn
> positive and you will have nothing left to stand on. You can be
> the type of bear who always sees doom on the horizon and sits on
> the sidelines for the rest of his life, or you can be the kind of
> bear who turns into a bull at the top. Either way, the kind of person
> who is a bear right now will never be able to make money investing
> as far as I can tell.
>
> On Nov 06 07:24 AM logicalthought wrote:

Congratulations to Apple's Steve Jobs, Fortune's CEO of the Decade

Steve Jobs is a brilliant guy and Apple makes fabulously creative products (and this is not a short-term call because I don't follow the company at all), but based on the "Sports Illustrated cover jinx principle", it's probably time to sell the stock. For those who've never heard of this, the rationale is simple: It's an extremely competitive world out there, and once you're universally recognized as being on top of it, there's nowhere to go but down.

Better than Expected Initial Jobless Claims

David Van K:

Do you think this statement (from Bespoke) is accurate:
"...it's hard to argue that things aren't at least improving."

If you do, great. Personally, I think it's quite EASY to argue that when there are still massive net job losses occurring, things are not "improving". Let me ask you a question: Let's say you have $100 on Sunday, lose $20 on Monday and then lose another $10 on Tuesday... Did things "improve" between Monday and Tuesday?


On Nov 05 07:50 PM David Van Knapp wrote:

> Several times a week, Bespoke posts a simple article like this one,
> including a simple chart or table with the following amazing characteristic:
> It is always based on verifiable statistics and facts. Sometimes
> (as here) they offer a brief opinion or interpretation, other times
> they just present the chart.
>
> All the spin then comes from the commenters. And sometimes it's downright
> foolish, as with the "angling for a spot on CNBC" comment. Just look
> at the titles of the last few articles posted by Bespoke (they're
> listed in the right hand column above, underneath the ads). The articles
> cut both ways. You want a negative chart, take a look at "Percentage
> of Stocks Above 50-Day Moving Average," or "S&amp;P 500 Priced in
> Gold."
>
> I know, the statistics you don't like aren't "facts," they're fabrications.
> OK. For myself, I appreciate these posts, they are informative, completely
> balanced, and it's fun to read the spinners' comments. Helps remind
> me of why EMT is a weak theory, since it is based on all investors
> acting rationally all of the time. Obviously, they don't.

Better than Expected Initial Jobless Claims

You can't make an apples-to-apples comparison, because in 2002 the BLS started seasonally adjusting the weekly claims data. More significantly, you may want to look at the continuing claims data, which peaked at around 4.6 million towards the tail end of that recession. Right now, it's close to 6 million, and that doesn't even include the millions of folks whose benefits have expired. I do agree that the economy will probably improve a tad earlier than will be reflected in the jobless rolls, but I don't think we're close to being there yet. Look at it this way: even if companies have cut themselves to the bone and fired most of the people they're going to fire, they're not going to hire anyone without a significant pick-up in demand, and that just hasn't been happening, except for some very slight sequential improvements over last quarter. So, we could be in a recession for a very long time while EVERYONE'S benefits run out, thereby making the weekly claims numbers look misleadingly "less bad".


On Nov 05 04:11 PM thiazole wrote:

> This is for all the bears who posted above who wouldn't know a V
> shaped recovery if it was wedged in their backside. Below is the
> 4 week MA of initial claims AFTER the official end of the 1982 recession
> (which was a V shaped recovery, and a smaller labor pool). As you
> can see, even 6 months after the recession ended, the numbers were
> still just under 500,000.
>
> 1982-11-06 626250
> 1982-11-13 612000
> 1982-11-20 600500
> 1982-11-27 594250
> 1982-12-04 586250
> 1982-12-11 569750
> 1982-12-18 554500
> 1982-12-25 523750
> 1983-01-01 518000
> 1983-01-08 512250
> 1983-01-15 503000
> 1983-01-22 500500
> 1983-01-29 492750
> 1983-02-05 490500
> 1983-02-12 492250
> 1983-02-19 494250
> 1983-02-26 488750
> 1983-03-05 487250
> 1983-03-12 484500
> 1983-03-19 480250
> 1983-03-26 480250
> 1983-04-02 479250
> 1983-04-09 484500
> 1983-04-16 495750
> 1983-04-23 497500
> 1983-04-30 497250
> 1983-05-07 496750
> 1983-05-14 484000

I Got Very Short Again Today Into This Bounce

The 3x ETFs are awful over time-- I never touch 'em. SDS is actually pretty damn close (within a couple of percent) to 2x the inverse of the S&Ps, even over a fairly long (multi-month) period of time. During the panic days SKF was all over the map vs. its index (the DJUSFN), but it seems to be tracking pretty well these days. I never traded the SKF back when it was in its "prime" (September 2008-March 2009) because it was just too scary; now that I own it, though, I fall asleep dreaming about the possibility of the "scariness" (to the upside) returning.


On Nov 05 04:28 PM Swashbuckler wrote:

> Lots of negative press on the leveraged ETF's, regarding tracking
> error over time. Any thoughts? Enjoyed the post.

The Problem of Where to Invest

May I suggest Beanie Babies? If nothing else, it's better than real estate:

www.nydailynews.com/mo...

Fed Shows a Lack of Confidence

>>Fed Shows a Lack of Confidence<<

I have an even MORE accurate headline:

"Fed Shows a Lack of INTELLIGENCE"

Better than Expected Initial Jobless Claims

Clearly, the "Bespoke" boys are angling for a regular slot on CNBC.

On Nov 05 10:05 AM Shimmers wrote:

> Improving? They are getting worse at a very fast, albeit slightly
> slower, pace.

Breaking Up the Banks: How Likely Is Legislation?

doubleguns,

While I laughed at (in a good way) and recommended your comment, keep in mind that if the public's outrage at the big banks is large enough, calculating politicians may figure they can get more votes by NOT taking money from the big banks, and instead railing against them on the nightly news.

How Trend Trading Compromises the Market

Pricing distortions due to "trend trading" (or any other "technical methodology") create opportunities for fundamental investors with longer timeframes. At the end of the day, the value of a company is determined by its cash flow (or future estimates thereof), so if its stock price gets too far out of whack, some entity (a PE firm or a strategic investor) will come along and buy it.