k_denninger

Is This the Start of a Bear Market?

I believe there is a significant chance we are about to see "down a lot."

The 200DMA, as mentioned, is a good marker.

Take a look at the Russell 2000. That would be the definition of "down a lot" starting, and when one major index rolls over like this, the others <b>usually</b... (but not always) follow.

Therefore, I believe it is prudent to take protective steps. But then again, I thought that was true a while ago. Now it appears that we may be facing exactly the scenario that I believed was coming.

Valuations are actually quite expensive, if you take out the radical underperformers since January. Remove the financials from the S&amp;P and you'll find that the overall P/E is quite high. On the Nasdaq its even worse.

Reality is that there has been a big LBO "PUT" on the market for the last year or two. This is disappearing. Therefore, you must now go back and re-evaluate what is a rational valuation for the market <b>without</b... that PUT.

When I do that, I find myself staring at a 20-30% downward adjustment from where we are now.

Another Perfect Storm Brewing: Government Underwritten Contingent Liabilities

The problem with property insurers is that they don't actually <b>underwrite<... their policies - they just say "yes" or "no" without regard to the actual risk they're taking!

For example, no homeowner policy covers flood. You want flood, you buy it through the FEMA-administered program, even though a regular company handles the transaction.

During Andrew most structures that failed did not meet code. Many were built after codes were toughened <b>but the builders did not actually meet the new codes anyway.</b> The insurers didn't know this because they didn't bother to come out and look!

They also take no notice of loss history in a given storm profile.

For example, my home (on the coast) has been through two major hurricanes - Opal and Ivan. It took zero structural damage from either. These were solid Cat 3 hits. Yet I am offered no different rates than someone who lost their roof during either of these storms due to THAT house not being built as well.

When I buy auto insurance my actual crash history is taken into account in setting rates. How come the loss history of my <b>specific</... home, when it has weathered similar events in the past without damage, isn't taken into account when I am offered homeowners?

This sort of "zero-underwriting effort" problem is a big part of the mess and why it can't be fixed easily. To solve this you have to actually do the work, and nobody wants to.

Insurance is inherently about spreading the risk of <b>unlikely</... events across large populations so as to make everyone's premium affordable. If an event is likely, then insurance will cost almost as much as what you're insuring!

The practice of creating "pup companies" that are state (or even area!) specific so as to allow them to be cut off if they take a loss violates this precept and leads to states assuming the burden. While not all areas have hurricanes, they do have other hazards - we get few if any tornadoes here that do significant damage, as the tornadoes that form around here tend to be very weak (F0) and at worst rip up some trees and tear off shingles. Go inland a bit and you find F3-F5 tornadoes that level entire villages.

We don't have earthquakes - but California does, and the New Madrid fault (near St. Louis) historically HAS. The next one there is going to be ruinous.

In short, national companies should be forced to write nationally or not at all. Is it fair to spread the risk of a hurricane among those who are inland? Absolutely, just like it is fair to spread the risk of a TORNADO or EARTHQUAKE among those who do not live in areas particularly prone to those hazards.

To those who say "oh they'll just leave", are you now trying to tell me that Allstate and State Farm will just go out of business? This needs to be a <b>national</... thing, not a state thing. These firms are inherently engaged in Interstate Commerce - regulation ought to come from the federal side - and while we're at it, let's get rid of their anti-trust exemption too.

That assumes anyone is actually interested in seeing the problem fixed.

Ben Bernanke's Fed Offers Investors False Reassurance

I agree entirely.

I've been following this on my blog at market-ticker.denninge... for quite some time.

The same-store sales picture is not unexpected. All you had to do is read the credit card issuer's financials during earnings season, then the credit report.

Duh. The home ATM machine is closed, so now we're charging up the credit cards.

That ends badly - very badly - when the consumer bangs up against his credit limit and can't refi it into the house any more!

Strong Earnings Season (So Far) Has Pushed Markets Higher

Its rather clever to have a market that has had its "G" cut by half, doubling the PEG ratio, but it still goes up.

Howzat? Well, earnings were growing 16% last year. Now they're growing 8%. If you believe in efficient markets, the indices should be <i>declining<... not advancing.

The problem here is that our wonderful government schools teach people only to read headlines - not the actual data. For example, the jobs number this Friday. Looked somewhat-good, right? Wrong. The household survey showed we <b>lost</b>... a quarter-million jobs! But you have to read beyond the headline to know that......