Financial topics

[OLD1953]

A little scrap from Kipling, that keeps the time scales of change in perspective.

In August was the Jackal born,
The Rains came in September,
"Oh such a fearful flood as this"
Said he, "I can't remember".

[Higgenbotham]

I've been posting these updates for a couple reasons. One is to see if the theory of Maximum Ruin would hold. Another is to create a record of what happens when somebody speculates.

Well, Higgie, the S&P 500 finally closed well below 1080.

Should we start calling you "Right way Higgy?"

John

I don't think you should yet. I stopped using the "Wrong Way Higgy" designation a couple weeks ago when my loss dropped well under 10%.

Loss is back up to 11%. Saved almost 2.5% with some good trades.

[boomman0]

Hi,
I am new here.

Is there a fundamental reason why state and local governments need to borrow from the credit markets?

They can always tax, right?

Alternately, can state and local government borrowing be viewed as taxing future citizens/residents/townspeople ?

Thanks,


Bejoy

[VinceP1974]

Hi,
I am new here.

Is there a fundamental reason why state and local governments need to borrow from the credit markets?

They can always tax, right?

Alternately, can state and local government borrowing be viewed as taxing future citizens/residents/townspeople ?

Thanks,


Bejoy

I vaguely remember learning that the Constitution bars the States from accumulating debt... but then I went looking for such a provision and all I can find is this about Bills of Credit.... So i'm probably wrong.

Article 1 Section 10 - Powers prohibited of States

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit;

So my response here is probably useless.

[John]

Dear Bejoy,

> Is there a fundamental reason why state and local governments need
> to borrow from the credit markets? They can always tax, right?

> Alternately, can state and local government borrowing be viewed as
> taxing future citizens/residents/townspeople ?

Yes of course there's a fundamental reason why state and local
governments need to borrow from the credit markets.

The fundamental reason is that taxing makes people pay actual money,
and has a political cost. But borrowing money is completely free
money that never has to be paid back, since you can always borrow more
money to pay back the money you borrowed previously.

John

[John]

Dear Higgie,

> Loss is back up to 11%. Saved almost 2.5% with some good trades.

Today is the one-year anniversary of the beginning of the bull market.

There was a pundit on CNBC this morning who said that for decades it's
never been the case that a full year passed without a 10% correction.

How long can this go on?

John

[Higgenbotham]

Dear Higgie,

Today is the one-year anniversary of the beginning of the bull market.

There was a pundit on CNBC this morning who said that for decades it's
never been the case that a full year passed without a 10% correction.

How long can this go on?

John

That's interesting that this is the first time in decades that a full year has passed without a 10% correction. I didn't know that. Will have to look that up.

The S&P has been moving up 2% per month since the early May high. Of course, we would have expected a strong bounce from the March low, but the strength and duration of the 2% per month trend is surprising.

This last runup actually got a bit above that 2% trendline. I had been able to keep even with that since November, keeping my loss near 8% at the trendline, but have recently fallen a bit behind again.

To me, the market looks tired. Indicators are very overbought and sentiment is extremely bullish. As an example, the ISEE all securities index today is at its highest level since the bull run started one year ago. Oh, and mutual fund cash levels are near record lows.

It seems like almost all the shorts have been chased out or aren't posting anywhere. I talked to a broker today and he said he does not know one person besides me who is short. That has only been the case 2 other times - at the July 2007 high and the January 2010 high that now may not turn out to be a high.

As for how long this can go on, I think it depends on the economy at this point. If the economy can turn around and begin to grow in the range of 3-4%, then this may be able to go on a lot longer. It seems like we're at the crossroads now.

[John]

Dear Higgie,

> To me, the market looks tired. Indicators are very overbought and
> sentiment is extremely bullish. As an example, the ISEE all
> securities index today is at its highest level since the bull run
> started one year ago. Oh, and mutual fund cash levels are near
> record lows.

I realize that what we're talking about here is visceral perceptions,
but I don't see it this way at all.

First, I would point out that the market has seemed "tired" in the
sense you're talking about since last summer. It seems that every
week some pundit comes on and says that the bull market is tired or
the market is tired, but somehow it never stops.

I don't see the market as tired at all. What I see is a market that's
manic. Sure, maybe it has bloodshot eyes, and it's lost the spring in
its step. But it's drinking coffee and taking amphetamines, afraid
that if it falls asleep then the body snatcher pods will take over,
and it'll spiral even further into insanity.

So the question I keep asking myself every day is this: How long can
it pump itself up with drugs to keep going, and what will happen when
the drugs finally stop working?

John

[OLD1953]

It's certainly unusual, though I think a good deal of this market spasm upwards for the last year has been due to noplace else to put the money. Retirees (such as my brother) who totally believe in the "buy and hold" thing, people who truly believe in "capitalism", though most couldn't define it on a bet, university and state pension trustees who lost a bundle and are gambling with the remainder - they are all in there and that's propping up the market. When there is another real drop, they'll pull out, all at once, and it will be a horrible crash.

But the point is that there isn't anywhere else to put the money. Treasuries and bonds aren't paying crap. Neither are commodities for the most part. Foreign markets are a joke now, they are up because the US is up or because their govt's are buying stock or pumping in money in another way, and everyone knows it. Most items are priced to the minimum now, unless it's something you MUST have, and then it's gouging time.

The question of how the US will have any kind of recovery in a real sense, with a large percentage of the workforce un or drastically underemployed is yet to be answered. Apparently the stock market is now supposed to be divorced from any sense of real world performance or profits, except that it isn't. Reality has this nasty way of bulling in, and it's going to do exactly that. When? Damfino. It's hard to see how it can be much longer, but I thought that last fall. Personally, right now, I'll bet on the "curse of October".

[Higgenbotham]

Dear Higgie,

> To me, the market looks tired. Indicators are very overbought and
> sentiment is extremely bullish. As an example, the ISEE all
> securities index today is at its highest level since the bull run
> started one year ago. Oh, and mutual fund cash levels are near
> record lows.

I realize that what we're talking about here is visceral perceptions,
but I don't see it this way at all.

First, I would point out that the market has seemed "tired" in the
sense you're talking about since last summer. It seems that every
week some pundit comes on and says that the bull market is tired or
the market is tired, but somehow it never stops.

I don't see the market as tired at all. What I see is a market that's
manic. Sure, maybe it has bloodshot eyes, and it's lost the spring in
its step. But it's drinking coffee and taking amphetamines, afraid
that if it falls asleep then the body snatcher pods will take over,
and it'll spiral even further into insanity.

So the question I keep asking myself every day is this: How long can
it pump itself up with drugs to keep going, and what will happen when
the drugs finally stop working?

John

The characterization applies to the past 2 days. There was basically no followthrough to Friday's move up this week. Typically, there has been followthrough higher after a day like Friday, or at least a wider range more active trading day. Monday's range in the S&P 500 of about 4.5 points was the smallest in about 3 years. Also, most Mondays have been big up days but yesterday broke that pattern. ETF volumes (specifically SPY, being the most actively traded ETF) on Monday were the lowest they have been this year and only exceeded the lackluster holiday trading volumes. Given all the bullishness, I can only conclude that the bulls are tired and not buying. It also seems likely that Friday's runup was due to short covering more than actual buying.