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  • This Is When The Bear Growls [View article]
    To paraphrase John Hussman (whom you likely hate): You can feel like a fool now or like a fool later.

    It's not necessary to catch the top perfectly to realize the downside risk in this market likely exceeds the upside risk. The questions are: When, how deep, and how fast. I have no idea when though there are plenty of potential trigger events. I suspect the S&P500 could go back to around 1100 (meeting a longterm trend from 1980s and 90s. I am fairly sure the initial drop would have to be very fast to catch all the smarties with automatic trailing stop losses and the overly-margined crowd. On a slow drop, everyone will just await the various Fed mouthpieces to walk up and deliver their calming message of confidence. So, whatever happens would need to be fast and deep enough to cause panic that runs ahead of our ability to catch it. After the first panic, things will be calm for awhile then the subsequent drop should be relatively slow a la Japan's lost (two) decade(s).
    Jun 20 11:00 PM | 3 Likes Like |Link to Comment
  • Market Crash?: Why I Would Love One [View article]
    Not really. But I would envision loss of world reserve status as one of the biggest threats to infinite borrowing priveleges and a market that always bounces back. Depending on how long it takes the IMF to move towards an SDR (I believe they are pushing for the 2015 meeting but probably not before 2016). Because Congress did not increased its allocation to the IMF this year, they were given a warning for the next major meeting.). If that doesn't happen, increasingly more side deals like the $400 million China-Russia gas deal will be arranged. The endless fontier mentality and resulting poor demographics is already in play but the process is quite slow and relative to growth and immigration in the rest of the world.

    So, what kind of shocks could accelerate either of these trends or slow them down? Clearly the Fed losing control over its current tapering leading to a fast rise in inflation and interest rates would kill the govt's ability to service the debt and lead to a default of some sort. Probably any major geopolitical shock leading to a 30% increase in the price of oil (Iraq is as good a candidate as any), leading to too high inflation which the Fed controls by raising interest rates, etc. Anything that makes the US less immigration-friendly (this would be a slow process), leading to too few young working people paying to support to many seniors on Social Security. Energy independence leading to too few dollars being circulated in the world leading to loss of petrodollar reserve status, etc.

    In order to slow down or reverse these trends, the US would need to become a manufacturing, high-employment powerhouse again (likely need wage deflation to achieve that). Increase world trade. Share the wealth better without losing companies to globalization.

    So, I think there are many risks to the next downturn not rising back up quickly, if at all. But maybe that's just me. I just wonder how Japanese investors in 1988-89 felt and how exuberantly confident in their country's ability to inovate and grow forever they were.
    Jun 15 08:38 PM | Likes Like |Link to Comment
  • Market Crash?: Why I Would Love One [View article]
    Ah, the US stock market has recovered from every dip in history but, for example the Nikkei has not and remains some 60% below its late 1980s peak. So, maybe the markets in the US have had a huge and unusual advantage over the past 100 years. I can think of two: the growth of a huge frontier society (and the immigration that comes with that) and the petrodollar (only since 1970s). If either of these is at risk then the stock market's past resiliency could also be at risk. Sometimes 'it's different this time' can mean different bad, too. One needs to ask oneself if there are any deep structural changes in play. That said, I suspect you're right, but perhaps for only one more time.
    Jun 15 08:13 PM | Likes Like |Link to Comment
  • John Hussman: We Learn From History That We Do Not Learn From History [View article]
    The difference is between the Investors Intelligence survey (of 130 advisory letters) and the AAII survey of their 160,000 independent members (of whom about 300 respond). The advisors are currently about 60% bullish but independents are more neutral. The II survey has a long contrarian history.
    Jun 11 01:38 PM | Likes Like |Link to Comment
  • Investor Sentiment Is Average Rather Than Complacent [View article]
    The Investors Intelligence Sentiment Index report that Hussman quotes is (from II website): ... a reflection of the recommendations of over 130 independent stock market newsletter editors. It originated in 1963, and includes only newsletters not affiliated with brokerage houses or mutual funds.

    Here's their methodology:This can turn into a somewhat subjective exercise, but there have been only two editors [Mike Burke & John Gray]
    over the past 28 years for continuity. We aim to follow the advice the newsletter is providing their subscribers when we read them.What are they
    telling reading to do? If they have a list of stocks to buy now they are bullish, if they say sell everything and raise cash they are bearish.
    Correction is shown by a list of stocks to buy, but at lower prices. Our judgement comes in if they are trying to be ambiguous, with quotes that could support either direction. Here we compare their current position
    with what they said previously, looking for changes. After this, if we still cannot figure what their advice is, we rate them neutral.

    The AAII Sentiment Survey is taken from their () members and measures: the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. Only one vote per member is accepted in each weekly voting period. (from their website).

    I think the AAII has over 160,000 members, but they are individuals and not advisors. It looks like both surveys are voluntary and neither of them publish what percent of their members participate in any one survey. AAII says this about its methods: The survey is open to all members, though a weekly email is sent to a rotating group of members reminding them to participate. Results of the survey are automatically tabulated by our database and published online early each Thursday morning. Prior to the year 2000, members responded by physically mailing a postcard back to the AAII offices. Response rates vary, though we would consider fewer than 100 votes to be low and more than 350 votes to be high. We do not track long-term response rates, though during the first four months of 2013, an average of 315 members took the survey each week.

    It's up to you which of these two you beleive is more reliable.
    Jun 10 06:06 PM | 1 Like Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Russia doesn't have to wait for the winter. The pipelines do not have enough capacity to supply all the need on time. So Ukraine needs to pipe in NG all summer long and fill its storage. So, the threat is in play right now. If no agreement is reached and gas is shut off, the writing is on the wall. There is very little grace period in these neogitations.
    Jun 10 10:20 AM | 4 Likes Like |Link to Comment
  • Doom & Gloom Sells [View article]
    Does it sell any more than unicorns on cocaine?
    Jun 8 08:22 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Time For A Market Breakout? [View article]
    The markets clearly broke out on the ECB actions and promise that it will have their back (adding QE into the mix sometime over the next six months if things don't improve in Europe). The market knows that QE has almost no effect on the actual economy so things aren't going to improve in Europe so QE is coming, as promised. QE is great for banks, though, and it's good for equity investors as more retail investors are pushed into equities.

    In the meantime the Fed is concerned that the equities market might be blowing a bit of a bubble and would like to let off a little steam. But now that the ECB is helping that bubble to blow a little bigger, is the Fed's concern increasing? Or are they content to let it carry on? If Q2 GDP doesnt't come in as expected the Fed could be in big trouble; if it works out according to estimates, no problem with letting the bubble continue.

    The ECB actions were intended to weaken the Euro (without the ECB actually saying it intended that because currency manipulation is a no no in the G20). But the immediate result was quite the opposite; the Euro strengthened. Was that just a one-day covering of shorts or investors feeling that the ECB has removed risk from the market.

    How unhappy can China be now that their Euro investments have dropped 3-4% in value shortly after increasing their reserves in that currency? Now that Europe has joined the race to the currency bottom, what will China's and Japan's actions be to defend their own desired reductions in their currencies?

    Finally, is the fact that major market indices continue to rise under low volume while record numbers of stocks are below their 52 week highs a sign that the bull is continuing? Or is it a sign that the big institutional investors are getting out of everything that doesn't have an effect on the major indices, leaving those stocks until last, while they continue to lure the retail investor in? If you were in charge of investing tens of billions in this market, would you continue to charge in or quietly slip out?
    Jun 8 11:57 AM | 3 Likes Like |Link to Comment
  • Bold ECB Plan Fails To Quell QE Talk [View article]
    The bond markets might not share the view that Draghi's action were enough, but the stock markets continue to climb relentlessly higher (despite the lousy economies). The markets are saying the economy won't be happy until they get QE, but QE has not significantly helped the US economy (ex the stock market) at least not to the point where everyone feels growth is booming again. Yet stocks keep rising anticipating that QE will come so that Europe can join the US, Japan and China in the game. So, I guess the lesson is buy, buy, buy! Especially European stocks. Because they will keep going up as long as the economies suck and they will suck for a long time.
    Jun 6 07:50 PM | Likes Like |Link to Comment
  • Acta Non Verba [View article]
    But if Treasury yields go down even further as EU investors flee the Euro and the USD increases, wouldn't that simply lead to even greater stock prices while exprt revenue decreased? That sounds like the EU blowing one giant US bubble. Would the Fed stand for that and how might they combat it, if not?

    Do you think the ECB and Fed are cooperating at all or are they just heading down the road to 'beggar thy neighbor' policy wars?
    Jun 4 10:03 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    John Hussman in the first third or so of a recent Wine Country Conference presentation ( second one down) discusses why reversion to the trendline isn't really a measure of reversion at all. Your final method using reversion to a predictive model is somewhat better but the model doesn't seem all that great. I don't know if that would alter anything about the way you analyze your expected return on gold but it seemed like maybe it should. That said, I also have no idea what price to expect for gold and am also long the overly beaten-down mining sector.
    Jun 2 09:57 PM | 1 Like Like |Link to Comment
  • Recent Changes At The Margin Suggest Bulls May Be Gaining Ground [View article]
    The forest was quiet...maybe too quiet.
    May 25 03:08 PM | Likes Like |Link to Comment
  • Strength in Macau paces Wynn Resorts again [View news story]
    Interesting piece I read recently about how gambling establishments in Macau are being used by wealthy Chinese to get their money out of the PRC. While there are limitations on money transfers, if money is sent out to pay legitimate debts (including gambling debts) that's okay. So, apparently people arrange to lose big at the tables (that's not hard) and then are given their money back by the club, in return for a good-sized fee of course. How long before this activity is heavily investigated by China is anyone's guess. Until then, party on!
    May 1 04:36 PM | Likes Like |Link to Comment
  • Stock Market Crash Is Imminent - Part II: How You Like Me Now? [View article]
    Dave - I appreciate your kind (I think) comment earlier and could even see that some of Markos' thinking might seem a bit Russi-phobic. However, you seem to think that Putin can do whatever he wants in Ukraine and no one will do anything. If Putin really agreed with you, I'm sure troops and tanks would be in Kiev right now. Clearly there are legitimate threats on both sides and things could get out of control in a way that threatens current market stability. Would you not agree? In which case, I tried earlier to outline why Putin has not yet marched into Kiev (what's he waiting for if he wants the place so darn bad?). I also tried to give some flavor as to dates that might play a crucial role in decisions on both sides.

    I agree that the west will mostly bluster a lot when push comes to shove but sanctions are stinging Russia a bit and could hurt more. Still, I believe Putin is moving carefully so he can say that really big sanctions are unjustified.
    Apr 29 08:00 PM | Likes Like |Link to Comment
  • Stock Market Crash Is Imminent - Part II: How You Like Me Now? [View article]
    Overall a good analysis, but I have one criticism and a few points to add.

    You said "I reiterate that the answer for Ukraine stability is NATO forces on the ground in Eastern Ukraine in large numbers, eventually replaced by U.N. peacekeepers. That's the only thing that will keep Russia out in my view." Given that Russia initiated its actions when Ukraine started leaning towards a decidedly Western (i.e. non-Russian, not even neutral) orientation, threatening to put NATO right on its doorstep, nothing would escalate the situation to full-out war faster than to move NATO troops into Ukraine. Guaranteed Russian invasion to follow.

    I think the only thing that has deterred Russia from walking into Ukraine to date is money and politics. The goal is to inflict bloodless pain on the west and a de-facto takeover of much of Ukraine to shore up their new Crimean territories. Ukraine owes Russia money, a lot of money. Gaxprom is owed at least $2.8B for past NG purchases and has just submitted a bill for $11.4B more based on a "take-or-pay" contract violation. Meanwhile, the IMF, EU and USA have all promised to send money to Ukraine, presumably to pay their creditors (largely Russia) and avoid default. Given recent capital flight from Russia and Western sanctions, I'm sure that Putin would love the irony of being paid great gobs of money by the West just before he invaded.

    Secondly, despite John Kerry's claims that Russia is orchestrating the pro-Russian forces in Ukraine, no damming proof or smoking gun has yet been approved. Not even the kind of evidence that was used to justify America's invasion of Iraq to prevent Hussein using his WMDs. So far, relatively small armed groups are effortlessly taking control of important cities in eastern Ukraine and calling for votes on independence from Kiev. Ukraine soldiers and police seem reluctant to engage these "terrorists" in any meaningful way. It looks a lot like a largely bloodless coup, laying ridicule at the feet of the "legitimate" leaders in Kiev.

    Here's a few dates that will play large in Putin's plans for Ukraine:

    May 7 - The deadline Gazprom has given Kiev to pay its gas bill or face consequences.

    May 11 - The proposed date for referenda in eastern Ukraine. Any attempt to stop the referenda by armed forces will not be viewed favorably by Moscow.

    May 25 - The date for the national election in Ukraine to elect representatives in Kiev. Will armed rebels in the east allow an election for western politicians? How will Kiev react if they are blocked? Will they still be able to claim legitimate representation?

    May 22-25 - Elections will be held across Europe for representatives to the European Parliament (law-making body of the EU). Some polls indicate as high as 31% popular support for Euro-sceptic party members. This would almost be certain to weaken Europe's fiscal situation even more and certainly would reduce their resolve in dealing with Russia and the Ukraine. Putin will be reluctant to provide strong EU supporters much of a reason to vote for a stronger Europe by acting before this date. However, current European leaders will escalate pressure on Russia prior to this to make themselves look stronger and more important.

    This is not to provide any objection to your overall thesis. I think investors in the US and European equities markets would be foolish to ignore the financial risks coming out of the current Ukraine situation. It's not all about us.
    Apr 29 07:13 PM | 7 Likes Like |Link to Comment