Financial topics

[Rammstein]

My Wtf-o-meter is ringing too loudly and I must ask: The endless stream of cfo's, ceo's, coo's, and other ner-do-wells, paraded on FoxB, Bloomburg, and Cnbc mesh perfectly well with the brainless hosts- First we have greenshoots all over the place, which wilt, never existed or simply vanish. The admission of which seemed like real progress. Now, the worldwide recession has simply ended as soon as all the greenshoots went away. Since the folks here clearly understand this to be the horseshit that it is I want to solicit opinions on this: Some percentage of the various company officers actually are drinking their own Kool-aid, which in part has led us to where we are. But how high is that percentage? I realize a significant number of these folks could believe what they are saying- my real question, finally, is how many of these folks realize they are lying?

This was spawned in part watching Cnbc a moment ago while some NJ rep or sen. said layoffs are slowing at the moment the jobs #'s scroll under him showing them up 15,000 to 576,000.... I think you are right John, from a few posts above- the whole world is mad!

R. "does their kool-aid at least taste nice?" Stein

[JonLaw]

What you are seeing could very well be the next stage of Maximum Ruin. It's more about what the bulls are thinking in my estimation and gives them a reason to lighten up and wait for a pullback or wait to get in instead of buying now. I've seen this type of thing before that you're talking about with the pundits. Generally, when a "bull market gets confirmed" in the eyes of the pundits they then begin to hope for a buying opportunity and prep themselves up for that. The idea there is for everyone to get ready to buy the dip. Then when they do the floor falls out from under them. 10% is quite a setup because that's a long way down and will suck a lot of people in.

Just my idea, but my attempt to add to my shorts failed and I will remain with my original position for now. I'm positioned to absorb more new highs but don't believe it will happen at this point. The fundamentals are just too darned heavy.

The entire stock market since 2000 has been one giant exercise in Maximum Ruin.

Inflation is destryoing the value of all long portfolios at a rate equivalent to that of the Great Depression. It's just happening more slowly than 1929-1932. Take a look at Doug Short's charts at Doug Short's Website where he compares some severe secular bear markets.

This secular bear looks like a range bound market, nominally, with severe losses being taken if you look at it from an inflation-adjusted standpoint.

Now that financial collaspe has been at least momentarily prevented, we are probably looking at a greater amount of financial pain, but spread out over a longer period of time.

[Higgenbotham]

The entire stock market since 2000 has been one giant exercise in Maximum Ruin.

Inflation is destryoing the value of all long portfolios at a rate equivalent to that of the Great Depression. It's just happening more slowly than 1929-1932. Take a look at Doug Short's charts at Doug Short's Website where he compares some severe secular bear markets.

This secular bear looks like a range bound market, nominally, with severe losses being taken if you look at it from an inflation-adjusted standpoint.

Now that financial collaspe has been at least momentarily prevented, we are probably looking at a greater amount of financial pain, but spread out over a longer period of time.

Excellent point. In a range bound inflationary environment, over the long term, the longs lose to inflation while the shorts gain nothing.

Doug Short's inflation adjusted charts posted August 19 give a good picture of what is going on as they show the 1930 rebound actually slightly extended ours when inflation adjusted.

I want to add another thing regarding short term patterns and Maximum Ruin. After the 8-9 days of undulation at the 1930 high and the recent action in the present market, there was a slight correction, then a rebound back up toward the highs in 1930 and in the past 2 days, which I am theorizing to be caused by further short covering, which Art Cashin has confirmed. If anyone wants to have another look at the similarity of the daily action thus far to 1930, the daily 1930 Dow chart can be found here:

http://theoptiontrader.com/History-Char ... harts.aspx

Select Index DJI, Year 1930 at the upper right.

[Higgenbotham]

The following is a summary of what I see now that today is over and everything I've discussed in the past month. This will be all I can offer on this subject as all indications are that the bubbles should have reached their maximums from a historical comparison standpoint. This is based on a comparison of this time period to the previous Generational Bubbles that apply (in my view) and can be somehow modeled - the Tulip Mania of 1637, the South Sea Bubble of 1720, and the 1930 rebound bubble in the Dow Jones.

What I'm testing here is whether the current time period will conform approximately to past bubbles based on my studies, which of course could be flawed. I'm presenting a basic overview. The idea in doing this has been that it is the masses of people who generate these various manias with their corresponding price patterns and associated events and that nobody, not even the Federal Reserve or the US government really has the power to change them much.

I began by saying that if this bubble were to extend as far as the South Sea Bubble it would reach a high on July 20 and if it were to extend as far as the Tulip Mania it would reach a high on July 30. Granted, I didn't talk about specific methods but had brought this up because Didier Sornette and his group had used a different method to estimate that the bubble in Shanghai would reach a maximum between July 17 and 27, plus or minus.

The Shanghai bubble reached a maximum on August 4 and has since deflated a little less than 20%. I had been looking for a maximum in New York prior to the maximum in Shanghai and that did not happen but in fact New York reached its high on August 7. New York is still nearly at its high.

In comparing recent days in our market to the April 1930 high, we can see some similarities and some slight differences. Basically, all the statements from top economists and politicians are similar. I won't run through a list, but the similarities are very striking. For example, Hoover made a statement in May, 1930 which reads almost word for word like a statement Obama made in his weekly radio address recently. Regarding price action, which I think is important, this undulating action I talked about occurred for 7 days at the 1930 high and 10 days at our recent high (if it is to be one). This was followed by a fall out of the "range of undulation" of a similar percentage followed by a retrace back into the range. Today, this retrace has come back into the range by a nearly indentical percentage as occurred in 1930, but the difference is that the day that happened in 1930 the Dow was repelled out of that range and closed lower whereas today our market only backed off a bit out of that range and closed higher overall for the day.

What I'm observing in all of these comparisons is that today's bubble is more stubborn than previous Generational Bubbles. It has more staying power in all instances of comparison. However, my bet is that the Federal Reserve and the US government can slightly alter but cannot ultimately defeat the forces of nature.

I just doubled my short position and we will see what happens. My plan was to take half a position right before the projected dates (which I took on the afternoon of July 17) and to take the other half after receiving confirmation in my mind that the bubble has reached its maximum. If I am wrong, then I will be slightly ruined and that will probably help prove the theory that everyone loses in a Depression no matter what. As of this minute, I have lost 4.8% of my net worth and therefore Maximum Ruin is proving to be correct so far in my case.

Another small note I should make. There may be a reason why the market closed higher today whereas in 1930 it did not on the similar day I am looking at. It would be because this is options expiration week and the dynamics of options expiration often cause the market to rise into expiration, which is tomorrow.

Good Luck to everyone in surviving this Depression.

[wvbill]

The following is a summary of what I see now that today is over and everything I've discussed in the past month...

Good Luck to everyone in surviving this Depression.

Just wanted to say I have been reading all your posts with interest. Please continue to post. And, thank you very much for sharing your information and insights.

Like most here, I feel the next leg down is near and it will be brutal. Timing is always the problem. I continue to hold inverse index funds. A move somewhat higher (DOW 10,000 ish) would not suprise me, but neither would a collapse at any time.

Thanks for your posts.

Bill

[Higgenbotham]

Just wanted to say I have been reading all your posts with interest. Please continue to post. And, thank you very much for sharing your information and insights.

Like most here, I feel the next leg down is near and it will be brutal. Timing is always the problem. I continue to hold inverse index funds. A move somewhat higher (DOW 10,000 ish) would not suprise me, but neither would a collapse at any time.

Thanks for your posts.

Bill

I agree with what you're saying about timing. It's a big risk. Everything I know about history and fundamentals says this market is going lower. On the other hand, everything I know about chart reading and technicals says the market is going higher (like tomorrow). Obviously others can see that too. I've said about all I can think of to say about history. The rest is seat of the pants (trading in and out if necessary) and I have a feeling it is going to be very difficult.

I will continue to post here and there. Thanks for your comments.

[aedens]

http://www.pimco.com/LeftNav/Featured+M ... bourne.htm :example

Commodities will stress the dollar "has been" which will Give a headache to no one for there leveling process to order. We have noted Pension Group's Moving to Fixed have we not?
We have noted Dramatic shift in Commodities Brokers being hired have we not? SDR will happen if we like it or not since the Fed will " has been " causing decoupling and the data we are all seeing lately reflects this since they are a handmaiden to others and not to the people of the letter who warned us to this effect much earlier. The call put ratio is leaning hard as of late doing what to players on the market given obvious Volume plays on the index. Next few month's appear to be a freeze frame pivot to hedge risk and not in Dollars again. The Consumers is doing what. Nothing... but dug a foxhole also as of late as some should. Higgy is correct when the floor opens again good money will be lost since this is only a Political Economy and that mindset cannot build value but they had to enter as the gatekeeper must. Capital will have to go where it is best treated only to return as another master. The stage has been already set in this secular trend and really Washington is the catalyst to this meltdown as are all Governments in history who inhibite freedom and acountability of contract. Hadrian understood older stragem to pragmatic survival to enable balance but tearing us down is political disconnects and many have watched this ensue for decades to avarice ongoing ad nauseum. Going into detail only states the obvious on monetary discussions on the attributes of currency debasement in a Civilization or any for that matter in time. Based on current fundamental's it is a study of futility given the fulcrum of the middle to balance cannot be established in the society of entitlement or ever can be for long. If you cannot fix one thing you cannot fix anything. Strangled from within some may say but attitude to pause is a lost concept to begin to repair and heal within the confines of any Civilization is rare since it is not in there way. The enemy is within and we know the course it holds. As stated sold Equity and now at 2% since there is no redress in this democratic malaise. The reason is plain so the grass roots have been burned on the road to serfom of there own choosing in many area so enjoy your current time under the sun before the top crushes the bottom since we cannot support it. The tide is going out not in yet and the beltway eats there own so you are on your own. Given shifts in production's based resource allocation's we shall soon see who regards hard choices to be made soon to demographics of there own citizens or serfs to be abandoned to a quart of wheat for a days pay. Freedom is a price you cannot give since it was given so rationing is the effect and consequences of severe stress from historical avarice again.
Of course, it can be changed.

[John]

Dear Higgie,

One thing that's definitely going on is that it almost seems as if
nothing has been going on.

The Sri Lanka civil war is over. The only news about the Darfur war
is the so-called peace negotiations. Israel and Gaza are arguing
about what happened in their last war. Pakistan refugees are
returning to their homes in Swat Valley. There have been major
suicide bomber attacks in Iraq and Afghanistan, but no one cares with
Obama, rather than Bush, in office.

The big stories of the last couple of weeks have been the hurricane
that hit Taiwan, the Afghan elections, the release of the convicted
Lockerbie bomber, Ahmadinejad is putting a couple of women in his
cabinet. These are important stories on a regional basis, but they
have little geopolitical significance.

The same kind of thing is true in the financial world. Q2 corporate
earnings are down 28% from last year. But earlier estimates were
that they would be down 35%, so a massive 28% fall in earnings is
taken as good news. The use of "operating earnings" have become
common and unquestion, even though they're analytically meaningless.
Every tiny bit of good news is emphasized, while the underlying
realities are being totally ignored.

In fact, if you look at what happened last summer, it was almost the
same story. The stock market was little changed all summer. Nothing
happened until after Labor Day, when the Fannie/Freddie and Lehman
crises broke at the same time.

That's just how things are in August. Everyone is on vacation or
taking the day off. Everyone is on auto-pilot, and even terrorists
can't break through the calm.

So it's quite possible that the current situation will continue at
least until Labor Day. After that, things should start moving along.

Sincerely,

John

[Higgenbotham]

Dear Higgie,

One thing that's definitely going on is that it almost seems as if
nothing has been going on.

That's just how things are in August. Everyone is on vacation or
taking the day off. Everyone is on auto-pilot, and even terrorists
can't break through the calm.

So it's quite possible that the current situation will continue at
least until Labor Day. After that, things should start moving along.

Sincerely,

John

We all know about September 3, 1929 marking a top, but look at this more recent history noted in 2003 by Peter Eliades.

(Today may be the day they gun for the 1016 level and take it out so I will need to be at full attention, but we are definitely in the time band for historical peaks today and Monday.)

"While most people view the last 2 weeks of August as vacation weeks, over the last 16 yrs important turns have taken place then:

August 25,1987 - the exact top prior to the crash..
August 23,1988 - low has never been returned to..
August 24,1995 - low has never been returned to..
August 19,1998 - top preceding 18% plunge in 2 weeks..
August 31,1998 - important market bottom..
August 31,2000 - 2 days before all time high..
August 24,2001 - end of rally, market drops 22% in under a month..
August 22,2002 - exact rally top, market drops 21% in under a month.
(Courtesy of Peter Eliades of Stock Market Cycles.)

Four out of the last five years have seen a major turn in August. As I glance over my shoulder at the screen, I notice that we are near the highs for this run. Just food for thought." - JM

http://www.darecapital.com/news/030829_news.htm

edit: John, in looking over the charts for these years, I don't see Eliades comments as being all that valid. August 25, 1987 was an all time high preceding the Crash of 1987 and there was a sharp drop in the market in August of 1998 but it was preceded by a July high. Other than that, I don't see the dates he mentioned as being all that remarkable because many were peaks that occurred after the market had already been falling.

Probably the most valid historical example of something going down in August was the August 24, 1857 failure of Ohio Life mentioned later in this thread. We know that at least one of the larger banks is now "officially" insolvent according to a recent Bloomberg article (due to revised accounting rules) and FDIC is sitting on their hands because they don't have enough funds to absorb the mess. I can envision a possible situation where one of these institutions simply doesn't have enough cash to transact business or a situation where other institutions refuse to accept payment from one of these institutions. This could result in a lockup of the payments system as aeden and I were discussing. Of course the response to that would be, who would have ever thunk it?

[JonLaw]

I agree with what you're saying about timing. It's a big risk. Everything I know about history and fundamentals says this market is going lower. On the other hand, everything I know about chart reading and technicals says the market is going higher (like tomorrow). Obviously others can see that too. I've said about all I can think of to say about history. The rest is seat of the pants (trading in and out if necessary) and I have a feeling it is going to be very difficult.

I will continue to post here and there. Thanks for your comments.

The fundamentals have been working quite well over intermediate and longer timeframes since 2000 and I expect that they will continue to do so until the debt mess is ultimately resolved through either default or extremely severe inflation.

As long as there is an indirect $23 trillion bid under the stock market, I would expect the technicals to be more accurate in the short run. A switch was flipped in March 2009. I have only taken losses in short funds since that point.

I'm not interested in betting against the market in this environment. We already had a market crash/financial panic and the first recession, of what could easily become a muli-dip recession, is in the process of ending. The odds seem to favor the longs, so I am speculating accordingly.

I see no reason to bet against this market in the short run until I see signs of a significant technical breakdown.