Chris Butler_

Are We Seeing a Bogus Dip?

Curve fitting. That's all Paulsen is doing. I can't believe such weak logic has enabled this man to stay in his profession for as long as it has.

His first point about how, historically, rallies do not end after 30 days is absurd. "Real estate never goes down on a national scale." Historicism is dangerous when applied to markets. The market does not care what happened in each of the last 20 recessions. You know what kind of rally ends after 30 days? A 30-day rally.

His second point is essentially don't count the March low because it was caused by a bank run. Absurd again. Since when have technicians assessed the cause of market bottoms and thrown some out because, well, that hardly ever happens. Please. Feel free to revise history if you'd like, but stay away from my money.

Finally, the whole notion of an "alternative bottom," aside from begging for a punchline, is pertinent only to those living in an "alternative reality." The reality in which I dwell and invest makes tops and bottoms that can be verified through the passage of time and they can bee seen with a naked eye on a chart.

For those of you that buy the "alternative bottom" thesis, perhaps you should have "alternatively sold" at the "alternative top" in the S&P 500 yesterday. What? You don't remember when the S&P 500 soared to 2,000? Oh. Maybe that was just *my* alternative reality. My bad.

How Big Will the Market Pullback Be?

Your point about S&P overestimates of earnings over the past two years is a good one. But I do think we need to be a little less focused on historical precedents. This economy is not that of 2001 or 1929. The causes of the recessions in each period examined are not very similar to the causes of this recession.

You have an inventory adjustment in the 2001 recession and the Great Depression of 1929 to 1933 still stirs debate over ultimate causes. At the very least, we can say leverage in the stock market played a significant role. Poor fiscal and monetary policy are viable culprits as well. This recession is the result of a crisis in the housing market, among other things (and exacerbated by an overleveraged consumer).

The government's response to this recession is without precedent. Fiscal and monetary stimulus, I think, have made historical comparisons irrelevent as a guide to the future. As a result, I'm willing to acknowledge that a decoupling between market and economy could persist for some time. Ultimately, though, fundamentals matter and if it ever appears as though the earnings forecasts are in need of revisions across the board, we'll see a significant retreat in stock prices.

At the moment, however, even though I believe that stimulus can take us only so far (with a commensurate amount of pain later), and that earnings estimates have completely disregarded the depth of the problem with consumer spending, a bearish tone seems to ring hollow in the current market environment. I think a more accurate view of investor sentiment will emerge once volume picks up post-summer.

Behind the Income Tax Numbers: Top 1% Paid 40% of Total

Come on. Please tell me you're not this shortsighted. The "rich" don't just pay 40% of total tax on 70% of total income (I'm taking your figure here to be accurate). They also take a bulk of the entrepreneurial risk in this country. The evil rich provide the funding for commerce in this country through equity and debt finance. Creating new economic value through the entrepreneurial process and financing of America's commerce, of course, leads to job creation. If you have a job, you may very well work for the evil rich, at their leisure.

It seems a little strange this has to be explained on a economics, finance and investment forum.

Having said all that, we will always disagree about who pays what in this country. Is 40% too low? Too high? I don't know, but taking capital from the productive class and giving it to the non-productive class - whatever the amount - seems like a waste of capital to me. I grew up middle class and can honestly say that I think having a healthy middle class is good for a country. However, I do not believe such a class ought to be artificially created at the expense of the rich simply for the sake of "evening things out a bit." That strategy has severe repurcussions.

On Aug 02 10:29 AM herbert hoover wrote:

> They may have paid 40% of the taxes but they made 70 percent of the
> income! Not a bad tradeoff in my book.

Obama's Dance of the Seven Veils

Sorry, but one way I measure the effectiveness of any US policy is to see if it "stokes anger worldwide." If the proposal receives angry chirping out of Europe, we're probably on the right track.

I don't even buy the argument that our model of capitalism stokes any global anger at all. Foreign governments sure do buy a lot of our government paper (despite their official proclamations and despite their "anger").

Foreign corporations sure do like selling the US consumer their goods. That must really enrage them.

Foreign countries aren't too "angry" to bend over backwards to offer their cheap labor to our manufacturers.

You're mixing up what foreign governments "say" and what their citizens "do."

The Market Decline Was Expected but Will It Continue?

I agree that gold-backed money won't "help create wealth" and, not having exact numbers, I'd agree with the contention that "there isn't enough gold to pay our bills." But printing money out of thin air actually destroys wealth through inflation. And while printing money out of thin air may pay our bills, we are then penalized by the inflation it cuases - both directly and as a result of a falling dollar. A gold standard will not help us now, but to the extent that profligate credit creation and unabashed & unfunded Congressional spending have put us in this mess, it would have helped.


On Jun 23 12:09 PM joes wrote:

> I went to financialaspirations.com, reads like a lot of the analysis
> that you read from one group that always elevates countries like
> Brazil, China and India as economic threats.
>
> This shows a poor understanding of Globalization and the opportunities
> that are available to the most innovative democracy on Earth, the
> US. But our "American" model of the future has to be a global strategy
> that keeps our friends close and our enemies closer.
>
> The idea that a gold standard would help is beyond funny, and indicative
> of an ancient approach to economics. It won't help create wealth,
> there isn't enough gold to pay our bills so we need to innovate and
> regulate at a feverish pace.
>
> Lucky for us we live in the best place on earth to pursue those goals.

Recession Still Going but Market Is Headed North

While I acknowledge the possibility of a conspiracy with MS and GS, I think it's more likely that most analysts are simply not that good at what they try to do. Even the weatherman is dealing with the physical world, making his or her task comparatively easier than those forecasting human behavior. Also, let's not forget that most of these folks think as a stock sinks toward $0 per share, it's becoming more of a value. So, you tell me. Conspiracy? Or is it more likely the result of poor logic, ineffective tools (math), erroneous assumptions and the difficult nature of the job to begin with? For me, it's easier to believe the latter. Still, a nice SEC investigation wouldn't hurt my feelings.

Short-Selling Hedge Funds Started the Fire

I stopped reading after "Everybody seems to agree that the ultimate cause is greed..." Not everybody agrees that greed was the ultimate cause. I don't.

Personally, I hope that the executives of each and every one of my stocks is greedy. I hope they make hay while the sun shines because tomorrow may be overcast. This isn't a game. Real companies making real goods to satisfy real consumer wants and needs compete every day for every last dollar of profit. If they stumble in any number of ways, they go bust (and get a taxpayer bailout - but that's a different beef). Again, what kind of game do people like you think this is where, like in a game of Monopoly, you decide to take it easy on your little brother because you've already got some choice properties? In the real world, missteps cost people jobs and money.

The day any one of the companies I own decides they've had enough profit for one day is the day I sell them short, move to Texas and hope for secession.

Fed, Treasury Propose the Dissolution of Capitalism

notsosmart-

"Wall St. greed & fraud caused all this"? Really? How so? Bernie Madoff is one fraud I'm aware of. Are you holding out on us? What other frauds can you cite? And what's the total amount of loss/damage caused by each? I assume you're talking about investment banker fraud.

Greed? Nice one. That's such an amiguous term these days that all non-thinking people are swallowing it whole. Exactly what greed caused this? Profit-seeking? And exactly how has this decade's profit seeking been qualitatively different from the profit-seeking of generations before? Do you really want me to believe that people are greedier today than they were ten years ago? I don't even think profit-seeking *is* greed. Aren't profits good? If you've got a problem going after profit, you don't have a problem with wall street - you've got a problem with capitalism so just spit it out.

Come on man. Why is it so hard to believe that bankers made bad bets while going after profit? Isn't this the simplest answer? Oh, and dare I forget the bubbling up of our economy on credit? I wonder what greedy bastards caused that? Oh. Right. That was the consumer, which of course is us. And who was the enabler? Right. The Fed. Your government.

Get off the "wall street done us wrong bandwagon" unless you've got more ammo than "greed." Who gave you your talking points, anyway? Your Sunday school teacher?

Great article, Moon! Spot on, my friend.

John Hussman: Buying Near the Bottom

Responder going by the pseudonym "update":

He's not calling a bottom. He doesn't call tops and bottoms, but rather looks at market conditions on a risk/reward basis. Currently, he's seeing a moderately attractive ratio of potential return versus risk.

Frankly, if I see someone call a top or a bottom in a market, I lose at least a little respect for the author. Such calls smack of palm reading or tarot practice. The difference in Hussman's approach and that of palm readers is that the latter implies deterministic certainty. You go all in or all out. The former implies probabilities. You take measured bets based on the evidence at hand, recognizing the possibility that your analysis could end up being non-profitable.