logicalthought's Comments

I Just Shorted Gold

Fri, 04 Dec 2009 07:51:38 -0500

Hi Kinetics,

Thanks for commenting. As I wrote in that other comment, I'm not brave enough to short treasuries-- not after what Japan (whose debt situation is worse than ours) managed to do with with its own 10-year yield (43 basis points in 2003 and approaching 1% now). I agree that treasury yields SHOULD go up, but that doesn't mean they're about to do so. Re. gold, please see my second comment in this thread (up above), as to how I covered it... I think I'll stay away from that trade (either way) for a while!

Shorting U.S. Treasuries: The Best Trade of the Next Decade

Fri, 04 Dec 2009 07:40:17 -0500

To add to what the Kinetics63 wrote above me, Japan, which has a much higher percentage of debt to GDP than we do, drove its 10-year yield down to as low as 43 basis points (0.43%) in 2003, and is currently working to get it back down to around 1%... So, while you "should" be right, you'd better have VERY deep pockets in case you're wrong.

Equities Are Dead - Long Live Equities

Fri, 04 Dec 2009 07:35:27 -0500

What you have left out of your chart is the equity in one's home, which was traditionally a huge component of one's net worth, and for many folks has now evaporated and often gone negative. If you include that, I think you'll find the current "equity" allocation to be very much in line with historical averages. Meanwhile, the previous unusually high equity allocations tended to come at the peak of bull markets, and at least some of that was probably due not to "active allocation" but, rather, to the rise in the prices of stocks that folks happened to have already owned.

Did Weekly Jobless Claims Really Fall Below 500k?

Fri, 04 Dec 2009 07:19:29 -0500

>>...as the weekly claims figure has dropped from 462,000 Americans last week to 457,000 this week... the... Emergency Unemployment Compensation exploded up by 265,000 Americans.<<

There are no great revelations here, as it seems to me that we're talking about initial vs. continuing claims. In other words, those getting the extended benefits should simply be added to the "continuing claims" rolls, and thus this doesn't affect the "green shoots" argument which says that the "firing" is winding down. The problem is that while I do agree that at some point the "firing" WILL wind down (after all, a certain number of people are needed everywhere just to "keep the lights on"), I think it will be years before net HIRING happens, as (on an economy-wide net basis) there just won't be enough demand to require it. So, the disappointment for the "green shoots" folks will come in the months after the month we finally get a "zero" net job loss report, because "zero" is where we'll flatline for a long time.

Government Debt: No Way Out?

Thu, 03 Dec 2009 21:50:54 -0500

>>...gold is a geopolitical instability and monetary collapse hedge.<<

Personally, I think that gold is soaring because it's become the momentum players' flavor of the day, much the same way that oil hit $150 last year. I do agree that gold (along with an arsenal to protect it) might be useful if there were a complete "monetary collapse", but at least in recent times it hasn't done much during what one might consider to be a "crisis". Here are some specifics:

Crash of '87:
September 1987: Gold averaged around $460 for the month
October 1987 (crash month): The high was $481, and the close was $468.
So there was no significant move.

Operation Desert Storm - January 1991:
In December 1990, gold traded in the $370s and $380s
In January 1991, it spike as high as $403, but closed at $366.
So, maybe there was a slight "invasion blip", but it closed lower post-invasion.

The Asian Financial Crisis - Started May 1997 with the run on the Thai Baht
In April, May and June 1997, gold traded in the $340s.
So there was no reaction.

The Russian Financial Crisis - August 1998
July, August and September 1998, gold traded between the $270s and $290s (with no real pattern)
So there was no correlation.

9/11/01
August 2001: Gold was in the $270s
September 2001: It closed in the $290s, which was also the high for the month.
October 2001: It closed at $278
So there was no significant move.

Bush Jr.'s invasion of Iraq - March 2003
In February 2003 gold traded from the $340s to the $380s and closed in the $340s
In March 2003 it traded from the $330s to the $350s, and closed in the $330s.
So there was no significant move.

So, if Israel bombs Iran and gold spikes "because" of it, I'll be taking a shot on the short side.

I Just Shorted Gold

Thu, 03 Dec 2009 09:55:55 -0500

Retail sales were so awful that I changed my SDS buy-stop to 1119, rather than 1116. The difference in the SDS share price is neglible (probably around 20 cents), but it gives me a couple of points of "slack" in case the old high of 1115.58 gets taken out (which it has, as of this writing) and therefore triggers a bunch of "buy stops", only for the market to reverse as soon as those "buy stops" play out. Of course, even if it does reverse, there's always tomorrow's jobs report to crush my position.

As an aside, I took my DUSA stake up to around 24% yesterday, and will bring it up to 25% (and add enough to maintain that) if it goes any lower.

Bracing for Friday's Jobs Report

Thu, 03 Dec 2009 09:02:28 -0500

>>I fully expect the economy to move into job creation some time early next year.<<

I don't. I think we'll eventually (perhaps even over the next few months) get to the point where there's nobody left to fire (after all, every business and government needs a certain number of people "just to keep the lights on"), but there will no real need (on an economy-wide net basis) to hire anyone, either. Thus, we'll flatline (for several years I think) with high levels of unemployment and no additional growth for the economy, and because of that we'll see pretty severe PE multiple compression in stocks. Of course, what I think doesn't seem to be affecting the market much these days!

Market Sentiment Remains Mixed

Thu, 03 Dec 2009 08:54:18 -0500

>>No inflows into equity mutual funds this year. Zero. Three hundred billion into bond funds.<<

Right, and that gets American just about exactly back to their long-term average allocation of stocks vs. bonds (which in recent years had become very skewed towards stocks). So, in light of the high level of employment (and underemployment), severe wage pressure, and the fact that 25% of Americans are under water in their home mortgages, where is any ADDITIONAL investment cash going to come from?

Can Monetary Policy Be Too Tight if the Fed Does Nothing?

Thu, 03 Dec 2009 07:33:56 -0500

>>I would argue that monetary policy was / is too tight...<<

Yes, CLEARLY it's too tight... The Fed should not stop until gold is $12,000 an ounce, the S&P is 457x earnings, and McDonald's of Germany is offering $199 Big Macs.

Reich: Don't Expect Lost U.S. Jobs to Return

Wed, 02 Dec 2009 20:12:53 -0500

>>Heck of a job, Larry, Tim and Ben.<<

This is one problem for which you can't blame that trio of ivory tower idiots. The simple fact is that thanks to the internet and high-speed transportation, a great deal of labor is internationally fungible, and thus will go where it's cheapest. In the long run, anyone without a unique, non-fungible skill will have to work for less in order to prevent his or her job from being off-shored. It's highly unfortunate, but the alternative (high tarriffs) is a terrible "solution" that will only result in retaliation (resulting in job losses for our exporters) and higher import prices for many basic items bought by people who can't necessarily afford to pay more for them.

Bernanke's Date with the Senate Looks Like It Will Be Interesting

Wed, 02 Dec 2009 15:25:36 -0500

>>...in a Journal Community poll that asked whether the Fed should take action to deflate stock, home price, or other asset bubbles, respondents replying yes had only a slim lead of 51.5 percent to 48.5 percent.<<

lol... If they'd asked if the Fed should deflate "whatever assets you don't currently own, but might want to buy", I'm guessing the "yes" votes would've been unanimous.

I Just Shorted Gold

Wed, 02 Dec 2009 11:07:32 -0500

So there was (so far) no follow-through past the 1115s, the volume is light, and the financials are in the red.... Screw it-- I put all the SDS back on (in the S&P 1113s), with a stop at 1116.

I Just Shorted Gold

Wed, 02 Dec 2009 10:14:48 -0500

And there we go at S&P 1115... Now I'm 20% SDS, 20% DUSA, and 60% cash.

I Just Shorted Gold

Wed, 02 Dec 2009 08:49:32 -0500

Okay, I have probably now called the exact (short-term) top in gold, by covering my short at around $1209-$1210 (selling the DZZ at around $11.70).

Current portfolio update:

60% SDS (of which I'll stop out 2/3 at S&P 1115, and look to put it back on in the high 1140s)
20% DUSA (and adding in its pullback to maintain that)
20% cash

As an aside, boy did I f--- up by selling my SNTS a couple of weeks ago @ $4, due to the Plavix-PPI interaction issue. Apparently, the market (for now, anyway) considers that to be a complete NON-issue, and meanwhile the company got approval last night for Merck to market the OTC version of Zegerid. I thought this news was completely expected (no one with whom I spoke thought it wouldn't happen), and yet the stock traded in the $5.70s after hours (and this is BEFORE the key lawsuit ruling that I thought would be the REAL mover of the stock). It looks as if its backing off a bit this morning, but so far it's still over $5.

This has been a awful couple of weeks for me (financially speaking-- personally, which is what really counts [although I admit to having to continually remind myself of that], I had a hell of a tasty meal for Thanksgiving). At one point recently, I was +105% YTD; now, thanks to my tilting-at-windmills short positions, I'm down to around +78%. I know this is still very good absolute performance, but trust me (and with all apologies to Tennyson): It is NOT better to have made and lost, than never to have made at all"

Is It Time for Capital Preservation Mode?

Wed, 02 Dec 2009 07:48:30 -0500

>>When I saw indoor ski resorts and saw that they were building man made islands, I thought that these were crazy things, as I always thought that Las Vegas was a crazy place to invest.<<

The funny thing is, at least Las Vegas has the attraction of GAMBLING... What does Dubai have? I kind of suspect that anyone who could afford to stay at one of those "seven-star" hotels and likes to ski could probably afford a side trip to, say, Killington.

Banks Are Not Lending? So What

Tue, 01 Dec 2009 20:39:05 -0500

>>This has created widespread frustrations which became apparent in an interview with real estate mogul Donald Trump... Trump argued that the economy cannot heal until we have a fully functioning credit market and even suggested that perhaps the government should force banks to lend more.<<

Okay, but if you're a bank that wants to get its money back, you might not want to lend any to HIM!

Keynesians Are Wrong

Tue, 01 Dec 2009 20:34:06 -0500

>>There are a number of past cases... when nominal rates have risen even at a time of deflation. What's more, it seems to be happening in Japan right now.... It's not inconceivable that something similar could happen to the United States. Foreign investors might ask for a higher nominal return on U.S. Treasuries to compensate them for the weakening dollar.<<

Absolutely, but as I can tell you from first-hand experience, this can be very tough to trade, timing-wise. After all, as recently as 2003 (14 years (!) after the Nikkei bubble burst), the Japanese managed to drive down the yield on their 10-year to 43 basis points (.43%)! And even now, 20 years later and with the absolutely massive debtload over there (far worse than ours, relative to GDP), it looks as if they may be able to drive their 10-year down to 1%. Even the most VIRULENT anti-Keynesian has to admit that the guy was right about one thing: The market can stay irrational longer than you or I can remain solvent!

Strong Free Cash Flow in 2010 as U.S. Companies Crimp Capital Spending

Tue, 01 Dec 2009 20:22:26 -0500

>>"Improved efficiencies in both capital and operational spending are expected to lead to strong 2010 free cash flow growth, in spite of generally muted revenue growth expectations.<<

Gee, I didn't realize there was anyone left to fire, or any machinery left not to buy.

Liquidity Pumps Still Set to 'Full Power'

Tue, 01 Dec 2009 19:19:52 -0500

Great article... I'm starting to think that my recently acquired, Fed-fighting short positions are among the dumbest moves of my long life in the markets. On the other hand, perhaps it's a good contrary indicator that earlier today, I was actually hoping the S&P would take out its recent highs and hit 1115 so I could get stopped out of a big chunk of my SDS and be put out of (most of) my misery. Of course, the S&P never quite made it... After all, markets never do what you want them to do, even when you want them to help you lose money!

I Just Shorted Gold

Tue, 01 Dec 2009 10:48:22 -0500

Quick update: I set my DZZ stop at 11.75, which should correspond to a gold price of roughly $1205, thus allowing for a couple of bucks worth of $1200 "buy stops" before a potential reversal. So far, though, this trade is certainly giving me a "golden spanking" (which, although painful, is certainly far less disgusting than a "shower").

Dubious Investment Strategy: When the Train Leaves the Station You Have to Be on Board

Sun, 29 Nov 2009 09:51:43 -0500

>>...a great trader has to be able to trade the market and make money even when it's not cooperating with his own thoughts about valuations.<<

What you can do in a situation like this is be short the overall market (via ETFs) and be long whatever stocks you can find whose fortunes aren't dependent on the strength of the overall economy. (For me, these tend to be small cap drug or device companies, but there are other "oddball" stocks around that may work just as well.) Thus, as long as those companies continue to run their businesses properly they should rise with the overall market (hence offsetting the losses from your short ETFs), and yet when the market finally tanks, they shouldn't get hit too badly (as long as they're economically non-correlative) and, in fact, may even keep going up as investors look for anything that manages to grow in a tough environment.

Why I'm (Cautiously) Optimistic About the Future

Sun, 29 Nov 2009 09:28:59 -0500

I think that 20 years from now, life will be a lot better in terms of what counts the most: health. Medicine marches onwards, and there's no question that the type of breakthroughs alluded to by the author (stem cell therapies, for instance) will result in healthier and longer lives for most of us (as long as healthcare "reform" doesn't remove the incentives for drug companies to invest in new products, of course).

In terms of (admittedly less important) material things, though, I think it will be much more of a mixed bag for Americans, because as long as knowledge and labor are fungible, third world living standards will continue to improve while first world standards continue to stagnate and perhaps backslide a bit, until eventually (on average) we all meet somewhere a bit below where we are now. So, the days of the average American having a boat or a vacation house or a new car every three years may be behind us for a very long time, but we'll still have cars that work, roofs over our heads and plenty to eat. And meanwhile, on the bright side, electronic gizmos that didn't even exist 20 years ago (the Internet, flat screen TVs, 3G cell phones, etc.) will continue to get better and cheaper. As someone (Buffett?) once said, the average middle class American today has a FAR more comfortable life than even the wealthiest people in the world did just 100 years ago. And anyone with an entrepreneurial bent, a good idea and a strong work ethic will still have a chance to build a business and, if it works, buy that boat, second house, and as many new car as he wants.

Spending, Durables: Basically, Stuck

Sat, 28 Nov 2009 08:07:57 -0500

As Chris Coonan comments above, the unemployed don't buy durable goods. Perhaps equally important, though, is that because the credit card companies all seem to have raised their rates on unpaid balances to 25% or more (even for folks with perfect credit), NO ONE (employed or not) will buy much of anything unless it can be payed for with cash, and we all know how tight cash is these days.

The author points out that personal spending appears to finally have flatlined (i.e., stopped getting worse). If so, this is completely consistent with the "L-shaped" scenario, by which at some point the economy stops getting worse, but doesn't necessarily get better. If this is the case (and I believe that it is), there's no way that the S&P 500 will be able to maintain its current multiple of 17x to 18x run-rate earnings of $63 (based on Q3 annualized), as 17x to 18x is a GROWTH multiple, not a "flatlined" one.

Best Black Friday Forecast in 5 Years

Fri, 27 Nov 2009 12:47:43 -0500

Every year on "black Friday" the TV commentators talk about "how jammed the parking lots are" (including last year, which was awful). What counts is SPENDING, so think of it this way: If each person spends just 5% less than last year (as in: "Hmmm, maybe I'll buy a $95 sweater instead of a $100 one, and a $19 toy instead of a $20 one"), the results will be considered to be AWFUL.

Think the U.S. Economy Is Headed Toward Inflation? Think Again

Thu, 26 Nov 2009 11:13:18 -0500

Okay, I will answer several commentators here at once:

De Kirk wrote:
>>Even if the dollars depreciate, the consumer will learn just to live within their means.... Deflation occurs once people start to reduce debts and start saving.<<

Davewmart wrote:
>>One way or another, living standards are going to decline.... Prices will still rise, but won't be matched by pay increases. So you have rising prices but are still in a deflationary environment, not an inflationary one.<<

And "Mr. Big" wrote:
>>...at the end of the day, inflation really is a monetary concept.<<

I think that at the end of the day, we may have both "inflation" and "deflation" at the same time; i.e., "inflation" in dollar-denominated items that are internationally fungible (such as commodities and finished goods that are made using commodities) and "deflation" in domestic services that are non-fungible. So yes, the inflationary component of this is clearly caused by monetary policy (as there's plenty of slack capacity out there and, I think, will continue to be) and the deflationary component (primarily wage pressure and things such as real estate prices in U.S. areas not desirable to foreign buyers) may co-exist with this.

This is why I think the "extend and pretend" policy a lot of banks are following in regard to their underwater loans is doomed to failure; to paraphrase Keans, "the real estate markets will remain depressed longer than those banks can remain solvent."

And as for move4ward's comment about inflation not being a problem here because of dollar-denominated imports from China (via the dollar-linked yuan), if the Chinese continue to link their yuan to the dollar then there could be substantial price increases for the commodity inputs used to manufacture those goods, and those increase will have to be passed along to U.S. consumers. And, on the other hand, if the Chinese revalue their yuan, well, that will mean higher prices, too.

This is why Bernacke and Timmy Boy are shooting themselves in the foot by paying nothing more than lip service to a strong dollar, because it's a strong dollar that will help make life livable for all of the wage deflation we're destined to suffer.

Being Thankful for Bullish Economic Data

Thu, 26 Nov 2009 09:24:39 -0500

>>we may finally be seeing stability in the housing market that will point to sustained economic growth.<<

Let's say you're right and we're seeing "stability". (Personally, I think there's another 10% or so to go on the downside, but let's set that aside for a moment.) "Stability" means that prices stop going down, but it could be YEARS before they can substantially move up, and meanwhile, 25% of the country (I think that's the latest stat) will still be underwater in its homes (as I assume these are relatively new mortgages and thus these folks won't be paying down much principal for a while). So, why will we necessarily see "growth" rather than just "crawling along on the bottom stagnation"? And without "growth", do you really think the S&P 500 can maintain an 18x run-rate PE multiple? I don't.

>>the employment picture is looking better with initial jobless claims dropping much more than forecast to 466,000.<<

The commentator above me (cayman) is spot-on: This is STILL a massive loss of jobs, and at SOME point, sure, the losses will stop, but that doesn't necessarily mean that net hiring will begin. Even in a "years crawling along on the bottom" scenario, there will be a point at which net job loss finally hits zero... and stays there long enough to cause pretty severe multiple compression in stocks.

$59 Billion Dubai Debt Default Could Have Much Wider Implications

Thu, 26 Nov 2009 09:11:48 -0500

I hope that no one on Wall Street has spent his or her 2009 bonus yet, because I guarantee you that this time, no one in Congress (who wants to keep his or her job) will vote to bail out ANYONE.

Think the U.S. Economy Is Headed Toward Inflation? Think Again

Thu, 26 Nov 2009 09:06:32 -0500

>>To have high inflation in this country... Either we need to have rising wages... or... some external shock invalidating the profit expectations of firms, leading them to raise prices.<<

What about a declining dollar leading to higher dollar-denominated commodity prices, thus raising food, energy and raw material costs for the U.S. consumer while-- as the author states-- the high unemployment level simultaneously holds down wages? This is a recipe for stagflation and, as I posted elsewhere a week or so ago, could soon bring back that relic from the 1970s known as the "Misery Index":
en.wikipedia.org/wiki/...

Is the "Dollar Down - Stocks Up" Relationship Finally Decoupling?

Wed, 25 Nov 2009 20:27:45 -0500

Well, I think the problem is that if they kill their export business, they will have a new revolution on their hands (from the hundreds of millions of then-unemployed) long before they have the chance to become the "sole economic superpower". But I'll tell you what-- if you want to talk about "reasonable people disagreeing", here's a REAL outlier of a position on China:
ftalphaville.ft.com/bl.../

On Nov 25 08:12 PM Swashbuckler wrote:

> logicalthought and Northern Dancer----I believe that China has already
> decided to abandon the yuan-dollar peg in favor of a new reserve
> currency. All that remains is the timing. I formerly believed and
> stated for the past couple of years that they would be committing
> economic suicide to bail out of dollars. I have recently concluded
> just the opposite. What do we owe them, $800 trillion? I believe
> they buy commodities the world over and then pull the plug. I am
> not well versed in monetary policy or international economical relations.
> I reached my conclusions on my own. But I have done much reading
> on the subject over the past several months. The person whose opinions
> I am most closely aligned with on this matter, although her IQ probably
> has me covered by 50+ points, is a poster here, named Freya. Her
> comments on SA regarding China, posted on 4-28, 5-03, and 11-08 are
> my own thoughts, in a manner beyond my ability to express them. Again,
> any conclusions I have on the matter were arrived at on my own. But
> her posts reinforce my own opinions. Keep in mind, she is stating
> primarily what China CAN do. My thoughts are that China WILL do what
> they CAN do. My thoughts are that China will sacrifice themselves
> to whatever extent they deem necessary in order to arrive as the
> sole economic superpower. Which is not to say I am correct, as I
> have been wrong many times. Time will decide. Nothing wrong with
> reasonable people disagreeing about a matter such as this. Respectfully,
> Swash.

Is the "Dollar Down - Stocks Up" Relationship Finally Decoupling?

Wed, 25 Nov 2009 19:18:49 -0500

swash,

I don't necessarily agree re. China massively dumping the dollar. They're WAY too export-dependent to do anything to deliberately drive the dollar down further-- if they did, the worldwide pressure for them to abandon the yuan-dollar peg would be unbearable.

On Nov 25 06:48 PM Swashbuckler wrote:

> Northern Dancer---I think China is headed down the same road as Russia,
> with regard to the USD. And not a damn thing we'll be able to do
> about it. When China pulls the plug, I believe it may precipitate
> a collapse in our economy which will in turn devastate our society.
> It won't bother Beranke and the people who sold us down the river;
> they'll still have their penthouses and Porsches and hookers even
> though mainstream America will be shot to shit for many decades.
>