Consider_this

Stocks and Sectors That Could Catch Swine Flu Symptoms

You kidding me?! "A matter of months?"?

SARS was absolutely terrifying and destructive on the economies it hit. Go back and read up on what happened to the local economies, even advanced ones like Hong Kong, Singapore, etc. See pictures of what happened to people's lives.

And it didn't just go away, it returned in a year.

Our best bet is hoping that this not as deadly as SARS -- which dissolved the lungs and organs of the affected people and had an abnormally high death rate. Even post recovery, the loss in lung function is permanently carried by the people it affected.

On Apr 27 02:36 AM HaavBline wrote:

> Like SARS, worst case this will be resolved in a matter of months.
> So if any sector responds sharply to this flu, it would be a good
> opportunity to take the opposite position.

Stocks and Sectors That Could Catch Swine Flu Symptoms

If the flu is an pandemic and spreads to mainland, you forgot these industries:

1. Retail
2. Restaurant
3. Entertainment, esp those with a gathering of people, like theme parks, beaches and theatres.
4. Public transportation
5. Hotel

Basically, anything that cannot be done in isolation and away from groups of people.

I hope it doesn't spread very wide, and I hope it's not deadly like SARS.

The Money Supply and the Stock Market

BOJ wasn't as large as out stimulus package? Only in absolute numbers. From a percent of GDP point of view; it's the reverse. They've been throwing in "once in a lifetime" sized bailouts and stimulus for the past DECADE. Every one of them are once in a decade emergency sized. This is EXACTLY the urgency and (relative) size that's been happening in the USA; we only did it for 2008, and 2009; If Japan is any guide, we'll be doing these "emergency" bailouts until 2018 and counting.

As for the US govt saying they'll embrace inflation? I'll believe it when the govt stops saying that a strong USD is what they seek. The fastest way to "embrace inflation" is to let USD fall. For the record,

Bernake hasn't really taken this stand yet. His helicopter move in Q4 2008 was called out as a bluff by the market. see www.telegraph.co.uk/fi...

Ther bond market knows we have a paper tiger Fed. There's no real power to cause inflation. This is in effect the same as Japanese central banks in the 1990s.

From where I'm standing, we're EXACTLY in the same playbook, in the same play, in pretty much the same theater -- just a lot larger spectacle and much larger numeric digits.

On Feb 23 05:39 PM BS Detector wrote:

> consider this wrote: "Japan pretty much followed our playbook. (Actually,
> more appropriate to say we followed Japan's playbook.)"
>
> Not at all. First off, Japan's fiscal stimulus was never even as
> large as our watered-down one. But more importantly, the BOJ was
> horribly behind the curve on monetary policy. It wasn't until, what,
> 2003 that the BOJ affirmatively embraced inflation as a strategy?
> This is what ended the deflationary period, and this is what Bernanke
> has clearly indicated he would do if needed.

The Money Supply and the Stock Market

"This means that eventually, as it works its way through the economy, there will be more and more money chasing fewer shares, driving up the level of the stock market."

Japan pretty much followed our playbook. (Actually, more appropriate to say we followed Japan's playbook.)

Let see... The Japanese govt soaked up almost 200% of GDP debt via bailouts and stuff. It never 'worked it's way through" the economy for them. Deflation in 24 years and counting still.

We're currently about 60% dept to gdp ratio, so we have a ways to run if 200% is our future.

I'm still holding my breath on the whiplash from Japanese's debt binge on Japanese currency. *THEN* we can talk about USA.

The end of the day... when the means to do monetary transmission is broken; it's pretty futile to talk about debts in isolation. In the end, even if USA govt SOCIALIZE the whole country -- you still don't get hyperinflation. You at best get no more capitalism in the country and a drop in living standards; *AND* the growth of the govt would seem very insane % wise, but when one consumes the other (govt grow; capitalism segment of economy shrinks; ultimately to zero) there's no inflation in anything.

To Reach Bottom, We Need More Good News

You wrote:

I elevated “good news” to the top tier of turnaround indicators, because most of the items others were looking at in their efforts to “call the bottom” just made no sense. Examples:

* Record-setting VIX levels
* MACD indicators
* AAII’s weekly investor sentiment surveys
* P/E ratios
* the length of the bear market
* the depth of the bear market
* the breadth of the bear market
* ancient support levels

How is any of those a bad indicator???? Weren't these also used on the way down, by optimists to constantly defend that "we've reached the bottom"? Now that these are breached, suddenly it's no good for bears to use them anymore?

You always needs to look at a crash with leading indicators; but you need to look at a recovery with lagging indicators TO CONFIRM THE RECOVERY IS REAL.

Japan had multiple false leading indicators that they've recovered from deflation. It's almost a once per year or once per two year event; and yet they're solidly in their 24th year of economic decline.

Unless you're a volatile loving speculator, I don't see why you need to whiff at the first "possible" scent of recovery. There'll be many false recoveries and false bottoms before the final climb up.

Obama Throws $75B at the Housing Crisis

You assumed that the "little capital left" is actually real and not fantasy. A lot of the banks are holding onto that fantasy, which drags on this crisis and prevents purging and recovery.

This will force the banks to swallow their pride and *REALIZE* that their fantasy capital isn't there anymore. This is trickle up mark to market.

This part of the bill (the cramdown) is a very good thing!

As Tanta on Calculated risk have said it better than I could:
"I am fully in favor of removing restrictions on modifications of mortgage loans in Chapter 13, but not necessarily because that helps current borrowers out of a jam. I'm in favor of it because I think it will be part of a range of regulatory and legal changes that will help prevent future borrowers from getting into a lot of jams, which is to say that it will, contra MBA, actually help "stabilize" the residential mortgage market in the long term. Any industry that wants special treatment under the law because of the socially vital nature of its services needs to offer socially viable services, and since the industry has displayed no ability or willingness to quit partying on its own, then treat it like any other partier under BK law"

On Feb 18 10:58 AM Trane250 wrote:

> By allowing bankruptcy judges to wipe out mortgage principal, mortgages
> will only be available through government entities or with a huge
> downpayment. Moreover, the wiped out principal will destroy what
> little capital is left in the private banking system. That capital
> will have to be replaced with newly printed U.S. fiat money. Ditto
> for the new securities that Fannie and Freddie will issue.

Obama Throws $75B at the Housing Crisis

Because the fixed rate people are typically the most prudent buyers. If you had to only include people who did not buy a home to speculate or to use mortgage as an affordability vehicle, then the fixed rate people are the ones you want to target.

In some ways, more percent of people who used ARM, OPTION ARM, Neg Am, stated income, etc assumed that "houses always goes up", signed on way bigger houses than they can afford or are speculators in some way; so are not good candidates for bailout.

Not that I agree with his approach / strategy, but at least this is what I'm reading from it.

Economy Still in High Risk Mode: Throw Away Crystal Balls and Short-Term Thinking

The theory of Diversification essentially depends on balancing away isolated risks (in individual stock, individual sectors, individual countries, etc) and ultimately trusting in the growth of the complete whole system -- the HUMAN CIVILIZATION stock, if you will.

Of course, if, as a whole, human civilization is growing, then Diversification will show yield.

What I don't understand is, what happens when there's:

1. A systemic risk that's infected the whole system?
2. An increase in social instability, war and crime from a historical LOW?
3. A "peak" in viable market size overall. In essence, Mainly due to demographics (and possibly credit), the short or mid term maximum purchase power of the world has been reached. (Countries or populations with no purchase power doesn't much contribute to this "market size")

I fail to see how Diversification deals with any of these.

If really boils down to whether you believe that we're in any (or all) of the 3 scenarios globally or not. If you do, then you believe in Diversification.

Personally, I feel like since a Black Swan event has occurred. I'm *still* trying to gauge the complete Black Swan outcome.

Would you predict the outcome of a "meteor hitting earth" event using convention data of even the worst volcano eruptions recorded in history?

Cycles, Recessions, and Looking Forward

Nothing goes straight up; Similarly, nothing goes straight down, not even in the 30s.

Right now there is too many shorts and too much pessimism in the market.

I agree the general direction is down, but recent action market action is too extreme, and can be explained if you assume majority of the market is now short or trying to run to safety.

This implies there'll be a "short killing short" squeeze event soon. It would lend (false) credibility to people shouting 2nd half recovery while simultaneously killing all the short profits.

Only when the market truly factors in optimistically expects 2nd half recovery, will we have our final leg down.

Even then, we're not anywhere close to the final showdown yet. Just look at how Japan's stock market swing and swooned.

This is a long war and each individual battle doesn't decide the outcome.

Consumers Buy Into Disinflation

Response to Hervert Hoover,

Inflation of prices of items (not produced in the country) without corresponding increase in *WAGES* of people is actually deflationary.

It's not hard to envision why if wages don't have inflation, price inflation ends up deflationary overall.

In the end, true inflationary spiral can happen only if WAGE is also inflating.

My problem is that with global arbitration of wages; and production capacity of GOODS and ENERGY is outside of the country; and outsourcing controlling wage increase domestically; the only way you can get into an inflationary spiral within the USA; is if USD complete depegs with the rest of the world and goes into a downward spiral.

However, that kind of inflation-attempt would happen with a high price: Cutoff of foreign goods and energy (too expensive); Cutoff of govt funding; Removal of USD as a reserve currency.

Because we will lose (reasonably priced) energy and foreign goods, whether the economy will end up collapsing completely, thereby skipping wage increase (to increase wage, you need to have functioning economy and jobs), or be able to go into an inflation period, is unclear.

This is the part that inflation scenario arguments that I cannot find. In pre-globalization days, it is possible to have Germany style chaos; In modern integrated era, WHAT IS THE MECHANISM to achieve overall wage gain?

Consumers Buy Into Disinflation

According to Wikipedia: Disinflation is a decrease in the rate of inflation.
Deflation is the opposite of inflation. Therefore, under the usual contemporary definition of inflation, 'deflation' means a decrease in the general price level.

Interesting thing this article pointed out: the rate of inflation according to the graph / analysis above, has gone down 7.7% since spring.

Consider that overall inflation was running previously at 5.4% rate, and 4.9% in this month; we don't really have a lot of leeway to give before the overall inflation is zero or negative.

If that happens, that will be the first even deflationary period since the 1930.

Ultimate Economic Showdown: China vs. the U.S.

China's exchange "PEG" with the dollar hasn't changed, despite USD raising almost 20%+ in a short time. It has gradually floated "up" from 1 dollar = 8 yuan at about Jan 07, to about 1 USD = 6.8 today.

This acts as a double whammy against it's exports: (A) It's export did not become cheaper from the USA's perspective even as USD climbed. It's exported goods are just as equally expensive as a few months back, if not more so. (B) The yuan increased relative to other countries, like EUR or rest of Asia, which makes these regions consume less goods from China.

Also consider that the Chinese govt has scaled back the tax benefits of exporting.

And yet, the yuan is still relatively pegged against USD and shows no sign of reversing it's climb against USD. What does this tell you?

It says that China is intentionally weaning off it's export dependence. It's yuan, as it gets strong, will one day no longer need to "PEG" to USD. A strong currency will also start to serve boost domestic consumption power.

In this backdrop...

Try pricing the China's stock market value against other measures: like EUR, Gold, etc. And you'll see that Chinese stock market didn't really drop as much as the above graph suggests.

That's pretty impressive for an Emerging Market country.

Cheapest Valuations in Decades Will Trump Panic Selling

Too many "buy" articles out there. Look at what yahoo, marketwatch, seekingalpha is publishing.

Too many knife catcher. The proper contrarian play would only occur when nobody wants to talk about it, not when you have so many bottom callers writing articles like this.

Wait 3 years, perhaps we can talk then. (Japan's deflation was 18 years, so a wait of 3 years from now, DOW's high in Mar still being 14000+, is pretty aggressive! Maybe should even wait 5-8 years!)

Another Bloodbath?

gabe:

What is the fundamental driver for US growth in your upcoming boom?

Until you can answer that question, what you've described is only market psychology guesses.

1. Consumers are tapped out.
2. Housing as a growth engine is done, we've miraculously build so much houses that demand will be sated for a long time. Boomers are past their prime home-owning demographic peak and is going to downsize/cash-out going forward and act as a net drag on home values.
3. Export as a solution is completely toast. Rest of the world is in turmoil and cannot import our products with their demand nor buying power.
4. Debt as a money-infusing mechanism is done. We'll be lucky if it doesn't blow up in our face, let alone provide an engine for growth. A cousin of debt is the mandatory govt obligations (aka Social Security, Medicare) is also going to become a net drain on resources from the economy.
5. Boomers are moving more and more into sunset years, and that engine of net demand gain is becoming more a net demand drain.

Until you solve the fundamental economics problem, everything else is just building castle in the air.

Another Bloodbath?

With the above happening in real time.

I hear things like:

Equities/Gold/House/Ha... Asset is King.

all the time!

Unless there's mass delusion out there or I'm not invited to smoke something great.

What gives? (beyond random hope)