Financial topics

[Higgenbotham]

Second, even among the investors who know that the market will make another major downturn, you have some who believe that they can get in while the going's good and get out before everything goes to hell. Some may even succeed in doing so, but many more will end up hurt and lose a lot of money.

Yup, desperate times result in desperate actions and, since the belief you state is so prevalent among "investors" who are glued to their computers and large trading houses use ultrafast computers to trade, the first stage of that downturn could happen in minutes and wipe out weeks or months of gains in, to quote an advertisement, "about an hour".

[John]

From February 7, 2010:


Greece

Greece is struggling to persuade financial markets it can restrain the
European Union’s largest budget shortfall without outside assistance,
while borrowing costs are also rising for Portugal and
Spain. Credit-default swaps on the debt of all three countries rose to
record highs this week.

European finance ministers said they will help ensure Greece tackles
its deficit and European Central Bank President Jean-Claude
Trichet said the bank is “confident” the country will
cut its gap below the EU’s limit of 3 percent of gross domestic
product in 2012 from 12.7 percent. U.S. Treasury
Secretary Timothy F. Geithner said European officials had committed to
handle Greece “with great care.”

“The message was clearly that the European members of the Group of
Seven have confirmed the substance and significance of the plan put
together by Greece,” French Finance Minister Christine Lagarde
said. “The European members of the G-7 will make sure it is managed.”

http://www.bloomberg.com/apps/news?pid= ... NY95xmqjwM

John

[John]

On Thursday on CNBC, there were several guests called "Squawk Masters"
who supposedly know what's going on. One of them was Ron Baron,
chairman and CEO of Baron Capital, who said that the stock market was
about to take off:

> Because everyone's afraid to invest, stocks are at the lowest
> level, the most attractive level, in my lifetime.

> In the 1980s and 1990s, we were doubling every 4-5 years, and then
> during the last 10 years, the market was up 20 or 30 %, and we
> [were up] 130% something in that range [over ten years], at 7%
> [per year], instead of 14 or 15% per year. I think we're on the
> verge of returning to the opportunities we had in the 1980s and
> 1990s.

I've heard other "masters" talk about a return to the 1980s. How
stupid can these people be? In 1980, the S&P 500 P/E ratio was 6.79,
and had been well below average for 10 years. Today it's at 15.1, and
it's been WAY above average for 16 years. This is simple stuff. You
don't have to understand generational theory to realize that today's
stock market is in NO WAY comparable to the 1980s. These people are
morons.

No, I take that back. Ron Baron and others like him aren't morons.
They're crooks. In a column yesterday by Lee Adler commenting on how
surprised economists are at Thursday's unemployment claims numbers:

> It seems to me that the big surprise is that any economists were
> surprised, but then, knowing how great the economics profession is
> at forecasting, I’m really not surprised. The vast majority of
> economists are either clueless bozos or paid shills, often both.
http://wallstreetexaminer.com/2012/02/0 ... have-been/

I like "clueless bozos or paid shills, often both." I'm going to use
that.

I've updated my graph on the P/E ratio back to 1871:



What's interesting about this graph is that P/E ratios (valuations)
are finally beginning to fall below average, and by the Law of
Mean Reversion, are poised to fall well below average, probably
to below 5.

The other thing that I think is really interesting is that the
intervals between lows are remaining fairly constant. The ratio
reached 5.31 in 1917, was 5.82 in 1949 (31 years later),
and 6.79 in 1980 (32 years later). So if there's a sharp fall
this year, then the interval would once again be 32 years. This
may indicate some kind of fundamental financial cycle that I don't
understand. At any rate, this should be of interest to the
chartists and the numerologists.

John

[aedens]

http://eamb-ydrohoos.blogspot.com/2012/ ... risis.html
Shattered markets.

http://www.youtube.com/watch?v=8iyDZBAFxKE

[Higgenbotham]

The other thing that I think is really interesting is that the
intervals between lows are remaining fairly constant. The ratio
reached 5.31 in 1917, was 5.82 in 1949 (31 years later),
and 6.79 in 1980 (32 years later). So if there's a sharp fall
this year, then the interval would once again be 32 years. This
may indicate some kind of fundamental financial cycle that I don't
understand. At any rate, this should be of interest to the
chartists and the numerologists.

John

There is supposedly a 30 year cycle, so there's an alternative way to interpret this.

We could first start by saying that there is a low in the PE at the beginning of every third decade plus or minus 3 years:

1920 +/-3
1950 +/-3
1980 +/-3

Next, we know that something changed post 1980 where the Fed has stated that they will not allow asset prices to fall into the normal cyclical low. So whereas 2010 +/-3 years should have brought in a PE of 5-10, this time it didn't, at least not yet.

What in fact did happen was the cycle was inverted into an astronomical high due to these Fed actions where the PE hit multi century bubble levels during the 2010 +/- 3 year window, and the bubble is still in force, though earnings based on astronomical government borrowing and money transfers to the large corporations have recently and temporarily bloated the "E" denominator so as to make the PE bubble appear somewhat normal and for valuations to appear somewhat reasonable.

To further confirm this idea, stock prices reached lows every 25 years in 1857 (panic), 1882, 1907 (panic), 1932 (Great Depression bottom), 1957 (steep correction which many considered to be the beginning of a new depression - Richard Russell has written on this), 1982 (post World War bottom in many respects), but not 25 years later in 2007, where stock prices inverted into a multi decade and multi century high.

Going even further than that, on a 75 year cycle, stock prices reach lows in 1782, 1857, 1932, but, again, not in 2007 where stock prices inverted into a multi decade and multi century high.

If this thesis is correct, and I believe it is, stock valuations have a minimum 25 years to deflate into the next cyclical low and probably more like 75 years. People will be buying all the way down.

[Higgenbotham]

This probably merits its own post:

The DOE reported Wednesday that total fuel demand in the U.S. fell to 17.6 million barrels a day last week, a 12-year low.

I've already stated my belief as to the preponderance of factors that are causing this, but only time will tell since at market and economic turns there is always maximum uncertainty, maximum obfuscation and maximum plausible explanations for extreme data points. So we wait.

[aedens]

http://findarticles.com/p/articles/mi_m ... ntent;col1

[Higgenbotham]

http://eamb-ydrohoos.blogspot.com/2012/ ... risis.html
Shattered markets.

I see the sheeple in Europe are waking up, and reading this article gave me some hope. I've copied some points out of this article that I have hit time and time again, as well as a comment made at the end of the article indicating how the current era may come to an end as the upheaval moves into high gear.

Regarding his comment that this is a political crime the world has never seen before, as I've stated countless times previously, the last variation of this that was equally destructive was last seen in 14th century Europe and he demonstrates understanding of that essential fact in later paragraphs, as well as the process of the cannibalism of the periphery. This is not politics or "isms" of any kind - it is fact, though obviously presented from his particular political leanings and vantage point. I would prefer to think of it in terms of the process by which a hegemon, in this case the United States, expands its global reach. But overall, very well done.

It is a political crime that the world has never seen before, that is the private banks were allowed to borrow money from foreign loan-sharks to fund the internal housing market.

Since Aristotle and ancient Rome, everyone in antiquity knew the notion of loan-sharking. From the impoverished aristocrats of the Middle Ages –who led “crazy” lives up to the moment they were taken down by loan sharks- up to the modern poor wretches with the housing loans, they were all victims of the same method.

This is how loan sharks appeared to be “investors” and they turned the Stock market into a Casino. But in Casinos, chances are with the one who has the most, therefore, it was just a matter of time for the poor wretches to fall in the trap as they did not understand that it was the loan sharks who made prices go up to make them invest their money. Greek banks and the international loan sharks took from the people thirty trillion drachmas in just a few years. Politic leaders not only did not protected the Greek people but forced them deeper into poverty. They allowed the social security funds as well to “gamble” in the stock market and leave it with huge damages. They allowed the banks to lead the naive people –who lost their savings- to take new loans so that they make “split” ...and other loan sharks’ and crook’s “exotic” inventions.
Leaders are accomplices in this crime ...consciously accomplices, since they allowed private banks to get in all economic fields totally uncontrolled.

They “were exported” in the form of “investment”. Where were so much money invested in? But in Hitler. Why is that? So that he flattened Europe and with their new overprofits they could build this up as an “investment”. This means that Hitler and the American money lost with him were the normal cost of an expensive “bulldozer” that would free up new land for “building”. And this is what happened. Europe was built up with American dollars ...it was built with the newly printed dollars ...it was build with the American loan sharks over-profits that should they have stayed in the USA, they would have caused a new crush.

It was then that they decided the great “trick”. Which was that? To bring down the Eastern Block and to “Reunify” Germany. What was in there for them? They would “export" the dollars of the West in total outside the Western countries. They would find a new investment area to “unload” their money before it would “blow them up”. They would do over there exactly what they did the next day after the war in the ruined Europe. Tons of money would be required for this, so it would give them the chance to “blow up” even more the American real-estate “bubble”, since they needed incredible quantities of money to proceed to their undertaking.

People should start getting ready for great trials ...for International Courts, where the current loan sharks shall give account. Monetarism criminals should sit on the same benches that once sat Nazi criminals. Rothschild, Rockefeller, Greenspan, Bernanke, Trichet, Soros, Buffett –and other “kids” of the loan sharking- should not sleep calmly from this point on. So, should also do their Quisling-type partners ...all the traitors who undertook power supported by the Monetarists and exercised leadership at the expense of their people ...Merkel, Sarkozy, Barroso, Zapatero, Papandreou and others.
The world is getting “awake” from “narcosis” and pity to the one who shall be found to have made the wrong at the wrong time ...pity to the who “sedated” them to “rape” them ...pity to the one who shall be found holding the criminal “tube” ...pity to the one who threatened the future of the human kind.

[Trevor]

No, I take that back. Ron Baron and others like him aren't morons.
They're crooks.

Morons, crooks; no reason that they can't be both at the same time.

One of my big concerns at the moment is: How many Credit Default Swaps are there for Greek debt? I never seem to get a definite answer. I've heard estimate as low as 2-3 billion to as high as 100 billion. Now that investor in Spanish and Italian bonds are buying them with increased frequency, it tells us that despite the lowered prices on their bonds that they're still getting nervous.

To further confirm this idea, stock prices reached lows every 25 years in 1857 (panic), 1882, 1907 (panic), 1932 (Great Depression bottom), 1957 (steep correction which many considered to be the beginning of a new depression - Richard Russell has written on this), 1982 (post World War bottom in many respects), but not 25 years later in 2007, where stock prices inverted into a multi decade and multi century high.

If the mentioned 25 year cycle is correct, that means that when the stock prices finally do fall, it's going to be even lower than it would have been otherwise. This bubble has gone own for over 16 years, much longer than the one in the 1920's.

[aedens]

http://eamb-ydrohoos.blogspot.com/2012/ ... risis.html
Managed expectations from group dynamics has many unintended consequences in the dismal science. I had a brief conversation on this topic and just left it as an over arching theme since they do not know or for that matter even care to get it in there academic career pressing forward. We have watched this process unfold in scale and the passage of time does not diminish the experiment of the zone. I asked another and they warned when half the truth is known nothing can be done since under a total lie then all are under.
http://www.youtube.com/watch?v=-dxZ1MoyXNA