Financial topics

[Higgenbotham]

I didn't add any interpretation or opinion to the previous post, preferring to just leave the analytical work separate.

It's my opinion that the Fed has been successful in raising the price of stocks. By April 1930, the market had regained half of what it lost. Without the Fed Intervention, the market may have come halfway back up to 1130. The chart seems to support that idea. I had mentioned 1080 as a possible maximum last year.

What's interesting to me from the standpoint of Generational Dynamics is the market has rallied for 520 days 3 times from a low point:

From November 2008 until April 2010
From March 2009 until August 2010
From July 2009 until December 2010

In the first 2 instances, investors lost money chasing stocks after they had gone up for 520 days. Yet, as long as the Fed is making money available, the behavior has continued.

It also seems fair to say that this is a reasonable point in time based on previous patterns of behavior where behavior could change and a panic could begin to take hold. I believe Saturday will mark 521 days, so we'll see what happens after this week.

[OLD1953]

Couple of things I've been thinking about recently.

401K's, by design, pour money into the markets, and it's hard to manipulate it or get it back out. Given the large number of baby boomers set to retire and begin withdrawals shortly, there would seem to be a considerable bias built into the markets for a long term decline. It would seem unlikely in the extreme for Congress to try to reschedule 401K withdrawals to prop up the market a while longer. The voter lashback would be tremendous.

The recent "tax deal" was, taken all the way around, perhaps the worst single piece of legislation proposed in my memory. Democrats and Republicans came together and produced a bill that accomplishes the following:

1. Guarantees higher deficits
2. Further extends unemployment benefits to an unreasonable time frame
3. Weakens social security by decreasing the payroll deduction - this at a time when both parties are screaming that SS is running out of money (it isn't by any normal means of looking at it and the public discussion has been abysmal).
4. Furthers irresponsible tax policies in the name of "stimulation" that can easily be shown to have no relationship to the historical economy. (Happily will I provide proof of that.)

http://www.truthandpolitics.org/top-rates-graph.php (Keep in mind, due to inflation, the personal deduction effectively dropped from 1913, to "catch up" we'd have to increase it to 60,000 dollars. Effectively, everyone has a yearly inflation tax increase due to the diminishment of the personal deduction.)

http://www.frbsf.org/education/activiti ... 8/0801.gif

Anyone that can spot a relationship there is a better man than me. If anything, I could argue an inverse relationship. The argument seems to rely on "I say it is this way so it must be so" rather than any historical evidence.

How do they come up with these things?

[vincecate]

The recent "tax deal" was, taken all the way around, perhaps the worst single piece of legislation proposed in my memory.

In the last 3 generational crises in America they printed too much paper money and people were rejecting it and moving back to real gold. In the revolutionary war and civil war it went so far that the paper money became totally worthless and only gold was money. In the 30s they outlawed gold and with this prevented a return to gold. The Fed's paper money would have failed as they only had 40% of the gold needed for people and central banks to cash in their paper money (I call it the Fed's Ponzi Gold Standard). Today they are once again making too much money (both paper and electronic this time) and people and central banks are moving to gold and silver.

This kind of legislation happens because the generation in power now does not really understand the danger of printing too much money. Reality is about to teach them a lesson. It will be painful for all of us.

John does not agree with me, yet.

[vincecate]

Interesting article in New York times. Democrats have been willing to bail out heavily in debt blue states as much of the money goes to public unions which vote democrat. But the Republicans will be in charge of the house soon. These Republicans and Tea Party guys are not as likely to tax red states to bail out blue states as the Democrats were. So these big blue states could crash and burn, kind of soon.

http://blogs.the-american-interest.com/ ... n-the-way/

Similar to this, Ron Paul and friends don't want to keep bailing out Fannie and Freddie. So this agency debt may be at risk of default and crash. This is a huge amount of debt.

Looks like Ireland may decide to default, which I think is wise. But if they do that probably brings the Euro crisis sooner.

Feels like the big crisis is getting closer.

[OLD1953]

Red state subsidies from the federal government tend to be military related. Most of the "red" states get quite a bit more from the federal govt than they pay out in federal taxes. If the states do revolt against federal tax collections, as John has indicated they might, the "red" states will suffer as much or more than the blues.

[vincecate]

If the states do revolt against federal tax collections, as John has indicated they might, the "red" states will suffer as much or more than the blues.

The Soviet Union just sort of vanished and the individual states were on their own. If a similar thing happened in America, how the individual states would cope is an interesting question. If the USA falls apart then the US dollar vanishes, and we can assume the world financial system is in chaos.

I think Texas and Alaska have enough oil that they would be about the best off. The states that produce food are probably next best. After that things could be really really bad. States with big cities with lots of people supported by the Federal government (say Washington DC) would be devastated.

If you were thinking of moving anyway, this could be something to take into account. Or maybe even enough reason to move.

[Higgenbotham]

I've updated the numbers I posted on the previous page (285).

If the current run in the stock market matches the previous 2 521 day runs, today will be the high. As of now, the S&P 500 is at the highest level it's been since the crash.

Call buying has returned to the record level of April 2010. Check out the ISEE web site for more info. Look at the "Equities Only" chart for comparison.

If this is near the final top of the market, it's possible the market will get a bit more manic and overshoot in time and price, or just hang before falling. It wouldn't surprise me to see 3 more days of this. On the other hand, it wouldn't surprise me to see this end any minute. Insanity isn't all that predictable but if it does turn out in this case to be repetitive and predictable within days, that would be pretty good. So far, this study has been pretty much spot on. Did I think it could happen a third time? No, I did not.

[vincecate]

Call buying has returned to the record level of April 2010. Check out the ISEE web site for more info. Look at the "Equities Only" chart for comparison.

If this is near the final top of the market, it's possible the market will get a bit more manic and overshoot in time and price, or just hang before falling. It wouldn't surprise me to see 3 more days of this. On the other hand, it wouldn't surprise me to see this end any minute. Insanity isn't all that predictable but if it does turn out in this case to be repetitive and predictable within days, that would be pretty good. So far, this study has been pretty much spot on. Did I think it could happen a third time? No, I did not.

Very interesting stuff. To me the bond yields going up kind of confirm that things are getting dangerous. Really looks like we are getting close to a stock market crash. My guess is that March S&P puts are far enough in the future at this point.

[Higgenbotham]

Very interesting stuff. To me the bond prices going up kind of confirm that things are getting dangerous. Really looks like we are getting close to a stock market crash. My guess is that March S&P puts are far enough in the future at this point.

Agree about the bond prices. If I had to choose a month for the puts, I would choose March too.

Ten minutes ago, the S&P 500 hit to within 4 one hundredths of the updated number on the previous page and has come down a bit. This is my best guess as to where the top of this market will be found. Probaby won't be this easy, but there it is - time and price.

[vincecate]

Very interesting stuff. To me the bond prices going up kind of confirm that things are getting dangerous. Really looks like we are getting close to a stock market crash. My guess is that March S&P puts are far enough in the future at this point.

Agree about the bond prices. If I had to choose a month for the puts, I would choose March too.

Ten minutes ago, the S&P 500 hit to within 4 one hundredths of the updated number on the previous page and has come down a bit. This is my best guess as to where the top of this market will be found. Probaby won't be this easy, but there it is - time and price.

Thanks.

In my above comment of course I meant bond yields going up. Somewhere there was a survey and an amazingly small percentage of people understand bond price movement when interest rates change. This is simple and basic. It reminds me of Keynes saying that, at least in the 30s, only 1 in a million really understood inflation. Today I think the fraction of people who understand inflation is much much higher, but the fraction that really understand hyperinflation may be like 1 in a million. I think in the coming years people will be learning more about this.