Financial topics

[Higgenbotham]

Just a remark: I don't remember the first panic you noted, and I cannot find it on any chart, can you help me to find it.

To find this panic, you will need a December 2009 futures chart because the panic started on the evening of November 25, 2009 after the markets closed for the Thanksgiving holiday. The panic continued until the futures markets closed for a few hours on Thanksgiving. When the futures market opened again on Thanksgiving evening, the panic continued. By the time the regular stock market opened the day after Thanksgiving, the panic had abated, so the full extent of the panic does not appear on any chart of a regular stock market index like the Dow Jones.

What is important today is "Is the bear market rally" a "bear market rally" and has it topped, any other question, for me is irrelevant, so don't panic (panic doesn't help to think).

Clearly, unless January 6 was the top, it hasn't topped. I think 99.9% of all people are assuming that they have 24 hour news, they have an Internet connection, and they can set stop loss orders to get out of longs or stop orders to place short positions that will be executed. The only thing I can say to that is if the panic comes and if some computers lock up as they did during the flash crash, and if some of the exchanges shut down and some don't as they did during the flash crash, and if the phones are jammed or the crash starts at night so nobody is answering the phone, and if the orders are lost in the system and nobody knows what did or didn't get executed or what the exchange may or may not cancel as also occurred during the flash crash, it's only then that those 99.9% will realize they were wrong. And they will panic and many will jump out of their skyscraper windows or commit suicide. Everyone thinks we saw the crash already, but I don't agree because the above hasn't happened yet to any great extent. And nobody knows for sure if it will happen or when it will happen or if the market has topped or when it will top, or what's relevant or what isn't relevant. We may have ideas, but that's about it.

One general guess I'd have is the longer the panic can be put off compared to previous cycles (like the 1930 Great Depression rebound), then the closer it will occur to the top and the faster it will occur. Another general guess I'd have is that looking at what most others are saying or doing as far as how to protect themselves in the event of a panic (for example, always place stop loss orders and you will be OK) will not work. Can you imagine how many stop loss orders will need to be hit all at once if everyone thinks the solution to protecting themselves is to stay long and have stop loss orders in? Who will be there to buy if there are very few limit buy orders to compensate?

The May flash crash occurred only 10 calendar days after the April high. If I had to guess, if the real crash comes, it might happen even less than 10 calendar days from the previous high. Since January 6 was the previous high, it might therefore occur before January 16. Oops, that would be this week, wouldn't it?

[Higgenbotham]

Just a remark, don't mix the SSEC indice (the one you make reference to) which is used as a SPECULATIVE Index (see blog of Michael PETTIS on seekalpha, who is one of the best professor on the chinese market) and a "true" index like the FXI, for example, which hasn't topped yet.

Wow, you've said a mouthful here. I tried to read Pettis to get the essence of what he is saying. I found it so off the wall I had to quit reading, so if I get any of his ideas wrong, please correct me.

First, I'll discuss why I referenced the SSEC instead of the FXI and why I think the SSEC is the proper reference. Then I'll discuss Pettis.

The SSEC is the index for the shares traded in mainland China. Foreigners can't trade those shares. So the SSEC properly reflects the regulatory environment and the attitudes of the Chinese toward their shares. The FXI, on the other hand, is an ETF traded on the US exchange. It isn't traded in China. It's not really an index, but is an ETF that includes 25 of the largest companies in China. The FXI reflects the value that Americans and other foreigners place on these shares.

I'm interested in what the Chinese shares are trading at within China and by the Chinese. As I noted back in 2009, the Chinese took steps to curb their stock market bubble, whereas the US took steps to encourage their stock market bubble. The reason the FXI is overpriced is the Fed created money can be used by Americans to speculate on foreign issues that are traded on US exchanges.

If I understand Pettis correctly, and please let me know if I don't, he is saying that the Chinese are speculators who don't really understand how to value stocks, whereas the Americans are able to value the Chinese shares more properly. If that's what he's saying, it's laughable. It's like a laugh so hard you roll off your chair and onto the floor kind of laughable. First of all, the dividend yield on the FXI is something like 1.5%. That's bubble territory. Nothing else needs to be stated other than that to say FXI is in a bubble. Second of all, Americans who are blindly throwing Fed created money into anything and everything are the speculators, not the Chinese. Americans have no idea what's going on in China and they have no idea how to value Chinese stocks, or any stocks.

I do not believe the Fed has the power of manipulating anything exept on the short term, its actions are mostly psychological.
Yes the range 1010-1040 is VERY important, and if the "panic" is before or after that level it has to be interpreted in a different way.

I'm sympathetic to what you are saying because I used to think the same thing. But us folks who trade futures for a living know that Fed created liquidity is gunning the market because we can see it happening right in front of us. For many months, almost all of the upward movement in the stock market was induced by night movement in the futures contracts. And there are very specific signs of successful manipulation. For example, in late August, economic reports were coming out before the market open and futures contracts were being bought upon their release. Traders know the normal rhythm of markets. When those reports were released, as bad as they were, somebody was immediately buying large volumes of futures contracts without delay. This never happens. Normally, traders wait a few seconds to digest the report and gage market action. There were some comments about this by traders who have decades of experience in the futures markets and the manipulation was stated as a fact, not an opinion, as well as projections as to how much effect it would have, and those projections were substantially higher than I believed. They turned out to be true. I can find references if you need them.

Another thing I noted today was that Jim Rogers, who has been an outspoken critic of Fed policy and who has characterized the dollar as "a terribly flawed currency", has stated that he is long the dollar and believes it can go higher for weeks or months.

I'm not so sure that Jim Rogers has a very good score in anticipating the markets.

The dollar story is something very complicated, part of the value of the dollar comes from the number of its aircraft carriers abroad (this is part of the value of any "money" for the past 3000 years, don't look at only at the economical value, this would be only PART of the problem)
Regards

I'm not a fan of Rogers. About a year ago, he was comparing the demise of the dollar to the demise of the pound. I believe others here were quoting him. I believe I stated that Rogers was way off base if he was making that comparison because the devaluation of the pound has been going on for decades and most of it occurred well after World War Two, in other words, well into the First Turning.

What's interesting about this to me is apparently Rogers has figured out he was wrong. And since a lot of people follow Rogers because he is very charismatic, they may have second thoughts.

[vincecate]

What's interesting about this to me is apparently Rogers has figured out he was wrong. And since a lot of people follow Rogers because he is very charismatic, they may have second thoughts.

About a year ago when the dollar had been going down fast for a long time he said he was investing in the dollar, even though it was a "terribly flawed currency". He said that when things fall very far very fast they tend to bounce. I thought he was gambling on short term against his long term understanding. Turned out he was right and the dollar went up.

Anyway, I doubt he has changed his long term view of the dollar.

[burt]

I think 99.9% of all people are assuming that they have 24 hour news, they have an Internet connection, and they can set stop loss orders to get out of longs or stop orders to place short positions that will be executed. The only thing I can say to that is if the panic comes and if some computers lock up as they did during the flash crash, and if some of the exchanges shut down and some don't as they did during the flash crash, and if the phones are jammed or the crash starts at night so nobody is answering the phone, and if the orders are lost in the system and nobody knows what did or didn't get executed or what the exchange may or may not cancel as also occurred during the flash crash, it's only then that those 99.9% will realize they were wrong. And they will panic and many will jump out of their skyscraper windows or commit suicide. Everyone thinks we saw the crash already, but I don't agree because the above hasn't happened yet to any great extent.

You describe here a "systemic crash", this could happen (and this "should happen" because of the nature of the instable system the humans built) but WHEN, nobody has any idea about that (between today and 20 years from now).

A "usual crash" is like the one we saw in 2008, it didn't had "much" consequence.

On my point of view we are in the midst of a systemic crisis, and the govenments hasn't done anything to solve it, so a worse situation is in front of us: For the banking system within the next 5 years (evaluation of M. Roth, old president of the national bank in Swizerland).
The trouble is that we are no more in a Stockmarket crisis, no more in a banking crisis (with asia real estate bubble and a slow economic growth this will comme again, not yet(I hope)), NOT in an economic crisis (event with a high unemployment), but in a Sovereign Debt crisis, and this are very special crisis which last for a while, because they mean a conflict between Borrowers and Creditors, conflict which can be very tricky.

And nobody knows for sure if it will happen or when it will happen or if the market has topped or when it will top, or what's relevant or what isn't relevant.

What is relevant or irrelant depnds on if I'm trading, if I'm working, if I am a friend of the government, If I'm rich or if I belong to the middle class.
I think a "usual crash" is very relant for people in Bengladesh, where they bet their shirts on the Stock Market.

One general guess I'd have is the longer the panic can be put off compared to previous cycles (like the 1930 Great Depression rebound), then the closer it will occur to the top and the faster it will occur.

Yes but it doesn't give any rule to protect yourself

Another general guess I'd have is that looking at what most others are saying or doing as far as how to protect themselves in the event of a panic (for example, always place stop loss orders and you will be OK) will not work. Can you imagine how many stop loss orders will need to be hit all at once if everyone thinks the solution to protecting themselves is to stay long and have stop loss orders in? Who will be there to buy if there are very few limit buy orders to compensate?

Using stop don't work anymore for a while now (at least 10 years), computer are programmed to go and fetch your stop orders, and on top of that if there is a crash generated by computers, stops cannot physically be executed. They only way to handle short panics is to have an algorithm inside our heads to handle them, never put a stop in a system... (this is 1970 technic)

The May flash crash occurred only 10 calendar days after the April high. If I had to guess, if the real crash comes, it might happen even less than 10 calendar days from the previous high. Since January 6 was the previous high, it might therefore occur before January 16. Oops, that would be this week, wouldn't it?

Yes BUT what would trigger it, and why a "real crash", there are too much pessimism around (this is a contrarian thinking), the real crash will come when ANYONE will assert that we "have build a new world", this is not now.
On my experience (?) panic at the top are NOT dangerous, they become really scarry when they are in the middle of a bear process (as it was in 2008).
May flash crash is just the proof of "never use stop" and "never trade the days your nerves are not ok".
But, for technical reasons I'm waiting for a strong correction (5% just to say) and then up again, we'll see...

[burt]

If I understand Pettis correctly, and please let me know if I don't, he is saying that the Chinese are speculators who don't really understand how to value stocks, whereas the Americans are able to value the Chinese shares more properly.

It is not the way I see things, Chinese ARE speculators, they like to gamble, they are optimist about the future.
And the point of view of Pettis (I do not know if he is right or not) is that the access to the market behind the SSEC index is for people who want to speculate.
He never said that foreigners can better understand the Chinese market, but that there are other indexes who reflect better the Chinese stock market... Your point of view?
I like reading Pettis because he gives different views as the one from the main media, I never forget that he is professor in Pekin, so he cannot say anything. Why do you think he is so wrong?

First of all, the dividend yield on the FXI is something like 1.5%. That's bubble territory. Nothing else needs to be stated other than that to say FXI is in a bubble. Second of all, Americans who are blindly throwing Fed created money into anything and everything are the speculators, not the Chinese. Americans have no idea what's going on in China and they have no idea how to value Chinese stocks, or any stocks.

-a- Thanks for the information, I never calculated the dividend yield on the FXI
-b- Nobody has any idea on how to value the stock market, anyone if betting on China and India, this is a VERY dangerous territory, because almost nobody understand the politics and the economy in these countries (for example I read nowhere that China iS a feodal country (but I followed a very clear conference on China), and being feodal means a lot of corruption and a very peculiar economic system which can work ONLY if people think that you are in expansion and at the same time the "king" can manipulate ANY account...)

I'm sympathetic to what you are saying because I used to think the same thing. But us folks who trade futures for a living know that Fed created liquidity is gunning the market because we can see it happening right in front of us. For many months, almost all of the upward movement in the stock market was induced by night movement in the futures contracts. And there are very specific signs of successful manipulation. For example, in late August, economic reports were coming out before the market open and futures contracts were being bought upon their release. Traders know the normal rhythm of markets. When those reports were released, as bad as they were, somebody was immediately buying large volumes of futures contracts without delay. This never happens. Normally, traders wait a few seconds to digest the report and gage market action.
There were some comments about this by traders who have decades of experience in the futures markets and the manipulation was stated as a fact, not an opinion, as well as projections as to how much effect it would have, and those projections were substantially higher than I believed. They turned out to be true. I can find references if you need them.

Yes please, but what you describe here was written by Greenspan (in the 90's if my memory is good) on what he was ready to do to manipulate the market(if my memory is good he used that word).
So what you say precisly here, can be stated as a fact.
The only point is: the "real market" (high volume) has no obligation to follow the manipulation, that is why I said that the Fed has not the power to manipulate the market.
So the question becomes (for me): "Why does the market follow the manipulation of some actors of the market?"

The trouble is that we have, in the next lines, to jump into the theory of the manipulation, and this becomes very quickly paranoid and very personal.

My own opinion (but please this is only MY opinion) is that the "banksters" buy stocks, we are in very low volume since mars 2009, and the only winners are the banks (and some companies who make "Mergers and Acquisition"). This gives them a better look.
The idea would be to go to the point whre the mutual funds will buy a lot of stocks, and this will be the top...
This is only a guess...

But this is NOT what I call a manipulation, this is part of the Poker Game that the stock marklet is... May be these are only words.
People (in the media) looks very naive and very inexprimented about human reality, 95% of the players loose in gambling on the stock market, and I find the number interesting.

What's interesting about this to me is apparently Rogers has figured out he was wrong. And since a lot of people follow Rogers because he is very charismatic, they may have second thoughts.

Yes and? could you please end your idea, it could be of great help.

[Higgenbotham]

What's interesting about this to me is apparently Rogers has figured out he was wrong. And since a lot of people follow Rogers because he is very charismatic, they may have second thoughts.

About a year ago when the dollar had been going down fast for a long time he said he was investing in the dollar, even though it was a "terribly flawed currency". He said that when things fall very far very fast they tend to bounce. I thought he was gambling on short term against his long term understanding. Turned out he was right and the dollar went up.

Anyway, I doubt he has changed his long term view of the dollar.

Thanks, if he's traded the dollar before in a similar way, then this fact is less important because people will know the dollar still fell again later after he said it would bounce.

I could tell from reading that article that his long term view hasn't changed.

[Higgenbotham]

You describe here a "systemic crash", this could happen (and this "should happen" because of the nature of the instable system the humans built) but WHEN, nobody has any idea about that (between today and 20 years from now).

This is the interesting question because John and I and some others think it must happen "soon" from a generational standpoint. From the generational standpoint, it seems to me that we're long past due. Of course, others have said that it's already happened. Even if those of us who think it hasn't happened are right, it may be the fact that so many think it already has happened that is holding it back.

The only point is: the "real market" (high volume) has no obligation to follow the manipulation, that is why I said that the Fed has not the power to manipulate the market.
So the question becomes (for me): "Why does the market follow the manipulation of some actors of the market?"

I believe you've stated the point exactly right. I've predicted several times since July of 2009 that the mass of people would reject Bernanke's manipulation as the crisis grew, but that's been totally wrong. I leaned toward the idea that Congress would not confirm Bernanke early last year I think it was, but they did. This question is one of the keys to whether someone properly understands the dynamics of what is happening and it's been proven that I don't understand it. I understood why the herd followed the Hunt Brothers or Greenspan, but why the herd is following Bernanke at this time in history, I don't understand. Again, it may be because the vast majority believes the crash has already occurred and the crisis is behind us.

[weak stream]

This may sound like a rater simplistic comment, but since governments and central banks are all in then the various stock and bond markets are simply trading "government faith". The only thing, in my opinion, that will stop this faith will be rising interest rates on sovereign debt. Unlike the '70's era where the societies' capacity for further debt accumulation was quite high ( and it took high teens interest rates to shut things down) this time that interest rate threshold will be far lower, say, upper single digits.

[Higgenbotham]

This may sound like a rather simplistic comment, but since governments and central banks are all in then the various stock and bond markets are simply trading "government faith". The only thing, in my opinion, that will stop this faith will be rising interest rates on sovereign debt. Unlike the '70's era where the societies' capacity for further debt accumulation was quite high ( and it took high teens interest rates to shut things down) this time that interest rate threshold will be far lower, say, upper single digits.

Perhaps people are thinking about it like they did in the past Generational Crisis when they bought war bonds during World War Two. Uncle Sam said the US needed its citizens to buy bonds and they did. Now Uncle Ben says it's important to keep the stock market higher and people are going along with it.

[weak stream]

Higgenbotham, good point. Although I would add that back in the '40's, people's motivation was to defeat evil and this time the motivation is simple monetary gain. Even if the effect of the greater Ponzi will enslave their own children. GenX is a very sad, unfortunate lot.