The Return of Goldilocks?

The rate hike cycle is now officially over.

That’s what I got out of Ben Bernanke’s commentary to the Washington Economic Club.

Econom_20061004202442I was out of pocket/away from the flickering ticks all day yesterday, but reading the reports on why the Fed Chair’s comments launched the markets higher has been an exercise in futility. The short version is simply the Fed Chair sees the economy slowing significantly enough that the Fed is officially out of the way. His highlighting that the sinking housing markets may put a significant
dent in U.S. economic growth in the second half of the year moves the Fed to the sideline.

That strengthens the hope of the rare and mythical soft landing; Color me skeptical.

From a macro perspective, Housing’s slide is real and ongoing, retail has become a mixed bag, savings is non-existent, and the industrials are peaking. That is being offset — but only somewhat — by moderating inflation and falling energy prices, now off some 20% from their peaks.

Reviewing yesterday’s market internals, we did see breadth improve significantly; volume also was better than it has been. Marketbeat ticked off what the usual
suspects are that must be overcome for this to be sustainable: "the yield curve is still
inverted, the Dow Transports haven’t "confirmed" the move, the Russell
2000 has diverged from the Dow, many indices are showing a "double-top"
— and of course, the old standby, that the Dow doesn’t matter anyway."

I am again out of pocket today, but will make up for it with a vengeance this weekend . . .


The Shifting Calculus Of Buying a House
Report Predicts Price Declines In 100 U.S. Cities Over Next Few Years;
October 5, 2006; Page D1

Bernanke Expects Housing Slide To Rein In Second-Half Growth
October 5, 2006; Page A1

Wal-Mart Raises Worry With Cut In Estimate of September Sales
October 5, 2006; Page A2

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What's been said:

Discussions found on the web:
  1. Idaho_Spud commented on Oct 5

    I’m with Roubini – the next Fed move will be a rate cut to stave off the dreaded deflation, as housing pulls the entire borrow-spend economy down the drain.

  2. ss23 commented on Oct 5

    let me understand this..
    In July-Aug, market kept going up and BR was not impressed as he found volume to be weak (O Neal confirmation, perforce, not made)
    In Sep-early OCT market seems to have nice enuff volume and all main indexes are raring ahead and yet BR scoffs at some kinda anamoly..
    All i want to know- BR may be right at the end – But is this the case of BR’s maxim of ” strong conviction loosely held?

  3. lurker commented on Oct 5

    perhaps we here at this blog are the wall of worry???!until we capitulate, this rally has legs, or a pogo stick. I know from sad experience that I often get the itch to go long right at the moment the pogo stick finds a pothole…cash may not be beating true inflation but it helps me sleep at night.

  4. larry commented on Oct 5

    Check open interest in QQQQ putz, compare put and call volume. There are so many people who just sit on puts or roll puts over. I guess another 100 points up in NASD and we may start to see another picture. Meanwhile these puts create technical support.

  5. Bob_in_ma commented on Oct 5

    I am one of the people who have been anticipating a big housing led slowdown, and almost certain recession. But I have to admit the increasing shrillness of some in this camp, like Roubini, is giving me pause.

  6. S commented on Oct 5

    Bernanke and Kohn appear to be playing a game of good cop; bad cop. Bernanke makes comments yesterday about the weak housing market impacting growth that he had to know the market would interpret as “we’re done raising”.

    Then Kohn comes out and says investors better be careful about underestimating the FED’s inflation concerns.

    I wonder if Bernanke and Kohn talk to each other.

  7. me commented on Oct 5

    I like even better professor Siegel in the WSJ today. He is bucking for a Fed position because now he says if you take out tech the S&P would be up. Now that sounds to me like if you take out oil, food, housing, there is no inflation.

    He also tells us what a great index the Dow is and why it is so important. This week, in the same WSJ there was a chart of the D”OW from the last high. A cigarette company, defense and construction make up all the gains for the DOW, while America’s best, GE IBM Walmart, Home depot, Microsoft, Intel, AT%T, Verizon and the rest are worth considerably less than the last market

    My only question of the good professor is whcich one of these 5 funds in my 401K are the DOW. OH, none, the S&P 500 is there but no DOW. So his “Let’;s not downplay the significance of this oldest but moist venerable index of stock market values” rings a little hollow when the average Joe can[t even play.

  8. tjofpa commented on Oct 5

    So the $ is rallying again today even though the ECB raised rates again and signals more to come. Why?
    Because trinket didn’t use the “v” word or because we’re going to get 180,000 jobs tomorrow?

  9. my1ambition commented on Oct 5

    I see it like the Titanic. It all seems quite familiar. You know, the half-way point when half the boat (in this case the DOW) is up and the rest sinking.

    We had that first crack when the ship was torn in half (in this case the Stock Market Meltodown) and now we just have to wait for the other half (Housing) to submerge.

    Then…we wait for in the lifeboats (commodities, foriegn currencies) until the other ships (deflation, higher GDP) come to get us.

  10. joe commented on Oct 5

    I’ve been watching to confirm that this rally is reaching the point of “blow off” levels ala late April / early May. I just got my signal. Two days ago I said “this isn’t truly a top until Joe Battapags and Abby Joseph Cohen make their appearances”. We’ve had three straight days of Joe B sightings, and just now AJC was on Bubblevision. The end is near…

  11. M.Z. Forrest commented on Oct 5

    I think the market is saying weak growth/moderate inflation. You look at a DOW company like 3M that has done pretty well, and they are pulling 60% of revenues from overseas. Other manufacturers are in a similar position to benefit from a low dollar. Europe isn’t doing too bad in this rally either. The IBEX has outperformed the DOW since mid-July.

  12. my1ambition commented on Oct 5

    Hey Joe, I liked your “Abby Joseph Cohen appearences” bit but remember, we had a top and we had a crash. Now its the consolidation phase. It takes years.

    Stocks, hang around the 11,000 mark forever, maybe lose a few thousand, people can’t use trading methods they always did, stocks lose interest, we go back to a P/E of 10 and the show starts all over again.

  13. other_ss commented on Oct 5

    I am very confused with strong retail numbers in Sept. With slowdown in residential real estate, I would have expected retail sales to be weak – even with lower gas prices.

    Any insight/theory/comment?

  14. Eddie commented on Oct 5

    When Barry goes bullish, it’s time to sell.

  15. Sherman McCoy commented on Oct 5

    Hey Bob_in_ma- Roubini is an idiot. He’s sensationalizing to tell his research stuff. Maybe he actually believes it- I don’t know- but he’s so caught up in his own thoughts that he doesn’t have anything close to a balanced viewpoint. I wouldn’t label him as being “in this camp” because this camp involves much more conservative thinking. It’s the same for the Dow 36,000 bozos on the other side. Or Bill O’Reilly and Michael Moore in politics. Remember that it’s sales for all these guys, not rational thought- don’t let it get to you.

  16. saviano commented on Oct 5

    economy and stocks are too different stories: in short term anyway no correlation; in midterm quite differing, sometimes even opposed; only in long term they – definitely – go the same way.

    consider this wenn reflecting economic data 1 to 1 to stock forecasts

  17. greyhair commented on Oct 5

    Hey Barry,

    I just wanted to also mention that OPEC announced oil production cutbacks today. Those ought to hit the retail gasoline market …. oh … sometime after early November, at which time the “tax cut” of “lower” energy prices we’ve all been recently enjoying will be gone …….

  18. Richard commented on Oct 5

    rate hikes are definitely over. i think emigrant direct got the same message. they lowered their MMA APY to 5.05% from 5.15%. might be time to lock in some longer term yields if you plan on staying on the sidelines.

  19. Sherman McCoy commented on Oct 5

    More Roubini idiocy:

    His post today takes the cake. It’s here:

    He uses the word “nasty” three times in the opening paragraph. Along with other words you don’t usually see on an analysis blog- “suckers”, “delusional”, etc…

    The point of doing this is pretty obvious. He’s trying to create an emotional impact on the reader. He ought to be using data and analytical arguments to do that, but he’s using brute-force salesmanship instead.

    Plus, he only seems to report the data that serve his purpose. And his logic, when he does try to do analysis, is very tricky.

    Look, I belive in a rational approach to the market- and I think Barry and Calculated Risk are the most rational blogo-analysts out there. The last thing we need is to regard a illogical, tricky salesman as being on the same level just because he gets to the same conclusion.

  20. steve commented on Oct 5

    Well the DOW is heading to 12000 and the NAZ and S&P followed yesterday. All up huge. All you’ve posted lately is how the housing sector is tanking and that the NAZ and S&P aren’t following the DOW. Looks like they are now. In the meantime I’m sitting in cash making pennies a day while people I work with that don’t even know how to check their 401k balances continue to let everything ride. Guess the jokes on me. I listen to Bob Brinker, subscribe to Stephen Leeb’s newsletter, and read this column at least 5 times a day. They continue to be long the market. But I’ve followed Barry’s advice instead and I’ve been out of the market for the last couple of months. I even have a copy of all 3 of his columns pertaining to his market crash prediction. I read it every now and then to see if I missed something. Guess I’ll have to put off retirement for another year. I know nobody forced me to do it but I respected his advice. I still respect his advice but there is no way the market is going to 6800 by the end of the year. Couldn’t you at least come out and say you agree that it won’t happen? No harm in being wrong but it would help if I had some clue about what you see happening for the rest of the year. Are you still advising everyone to raise cash? Would appreciate it.

  21. dl commented on Oct 5


    maybe you can take responsibility for your own finances ???!!!???

  22. Incognitus commented on Oct 5

    The biggest reason the market doesn’t stop going up is exemplified by steve: performance anxiety.

    It has got nothing to do with a “soft landing”.

  23. Steve C commented on Oct 5

    What I have learned from my 60+ years is there is one and only one “expert” in the stock market that you should depend on. That person is YOU. NO ONE, has any significant edge over a fairly intelligent person who is investing. Rely on yourself, be prudent, don’t be too greedy, and have no fear about jumping in when there’s “blood in the street” and you’ll do fine.

  24. Incognitus commented on Oct 5

    Because of that, if the market gets a good solid reason to go down, there won’t be any bids. People want to buy it now because it’s going up. If it’s not going up, people won’t want to buy.

  25. Michael C. commented on Oct 5

    For me, until this economic cycle turns up again, then Barry’s target is always a possibility. Remember, some people get the timing right, some people get the price right, few people get both.

    When the economic cycle eventually does turn up again, and if we never do get even close to 6800, then we better see Barry fess up because he’s relentless of others. (Or we all better break out the champagne and toast Barry).

    Until then, game on!…

  26. scorpio commented on Oct 5

    Dow still -20% vs euro since 2000, -50% vs gold. not counting inflation. and dont even get me started on S&P or NASD. choose your poison.

  27. Incognitus commented on Oct 5

    There’s one thing about Ponzis most people don’t understand: they work very well until they work very badly.

    The debt pyramid that has been built both on the USA and in lots of other countries is bound to have consequences.

  28. Mark commented on Oct 5

    Echo Steve C’s comments to Steve-

    You don’t have to be in the market all the time, even during rallys like this one, to make good money. But when the market sells off, you have to be strong enough to pull the trigger when what you really want to do is run screaming.

    It has been a long time since median valuations on the SP500 were around and they certainly never got there in 2002 and they aren’t here now.

    Now certain people do not have the psychological profile to invest like this and it is an important point to know. If that is true of you then you need to realize it and choose a different course. There are plenty of ways to remain fully or nearly fully invested and have a portfolio tht weathers storms but participates (some) during the runs. Other portfolios are set for outperformance during bulls but get crushed during bad weather. You can’t have it all ways. The infallible investor/portfolio does not exist.

  29. Mark commented on Oct 5

    From CNBC just minutes ago…

    White House’s Hubbard expects 3Q GDP to be between 1 and 2% and 4th quarter to be weak also….

    If anyone has details they can post them here.

  30. Incognitus commented on Oct 5

    This isn’t about earnings or GDP growth now.

    This is about 2 trillion dollars of new debt being created (and spent) each year. Once that slows down, nothing else can make up for it.

  31. DD commented on Oct 5

    F Paul Volker…..the illusiion that the fed some how controls rates or inflation is BS and F all this fed speak….nap time…..zzzzz……..

  32. steve commented on Oct 5

    I only have the option of picking index funds where I work. Took a big hit in 2000-2003 by holding on. Now I’m too close to retirement to take that chance again. So when he says DOW 6800 can you imagine how someone could get scared out? Do any of you honestly believe the DOW will hit 6800? Most of you I’m sure don’t. At least I say I don’t think it will. 3 months left to drop over 5000 points. Be realistic. I just would like him to say something about the prediction. That’s all. We all come to this site to get investment advice.

  33. lurker commented on Oct 5

    “We all come to this site to get investment advice. ”

    Not me. I come here to read the funny comments and laugh at the quips of Alaska Pete and others. And maybe pick up some trading savvy on the way. Vanguard has a good site for investing advice and good low cost funds too. If you are that close to retirement, why are you trying to time stocks my friend?
    Doesn’t sound like your 401k is set up for swing trading. I wish you well. That I do. Best.

  34. emd commented on Oct 5

    you’re being too hard on steve. i think he has a valid point to question the “cult of the bear” thesis…. if the rah rah bulls are fair game to barry (as they have been for quite a while) then his prediction of 6800 is fair game as well.

    that being said, we are all responsible for our investment decisions.

  35. jkw commented on Oct 5

    If you are a few years from retirement, you shouldn’t be more than maybe 30% in stocks. The rest should be in bonds and cash. There are lots of good web sites and books about asset allocation and how to change it based on how far from retirement you are. If you’re lazy, look at Vanguard’s target retirement funds. They put some mount of effort into figuring out a good asset allocation for them. In about 10 minutes you can find out a reasonable plan of how to change your asset allocation for 5-45 years away from retiring.

    If you’re about to retire and haven’t learned how to time the stock market yet, this is not the time to start. At least not with everything. I’m 25, so the amount I’m risking as I learn how the market works is what most people my age spend on a car (I rely on the subway) and I have time to re-earn it later when I understand the market better.

  36. S commented on Oct 5


    I recall Barry saying at the end of the selling stampede in May/June/July that it might be a good opportunity to establish a trading long position. That was obviously a correct call, and I don’t ever recall him saying he was seeing a sell signal yet (but I may have missed it).

    The longer term thesis he postulated in the Cult of the Bear series resonated with all of us, otherwise we wouldn’t be here. And if the major assumptions underlying his original expectations change, causing him to revise his current expectations, I’m pretty confident he’ll post them here.

  37. Cherry commented on Oct 5

    Retail sales weren’t that strong. They gave “intial” estimates which were overly strong, which has been the norm lately. They did the same think in August. Why you people hate Roubini, he gives the better indicators of sluggish consumption.

    Growth slowed down to .5-1.5% in Q3 2006 and is on the verge of contraction.

  38. joe commented on Oct 5

    One of reasons that Dow 6800 is possible is because of the goofball way it is calculated. Price weighted indexes have special anomalies that don’t effect market cap and equally weighted indexes (which themselves have special quirks). Back in school, I actually recalculated the Dow going back to 1928 as an equally weighted index and the long term returns were much much better on the equally weighted than the price weighted. Here’s one example of why:

    For the last 3-5 years, the best performing stocks have been names like MO, UTX and CAT. these stocks are obviously now higher in price then the worst performers like INTC, MSFT, PFE etc… Also, the best performers are very economically sensitive. So… assume we actually do get a recession, they will be hurt much worse. Since they have higher nominal stock prices, their effect on the Dow will be outsized relative to the other components. (this is roughly so, MO probably wouldn’t be hurt as bad as CAT and INTC probably would be hurt pretty badly, but the larger point holds). Thus due to the price weighted nature of the Dow, it could actually fall much further than it “should” were it calculated in one of the other two manners. In fact, much of the divergence over time b/w the price and equally weighted Dow occured in down years following strong gains when high priced stocks fell and materially hurt the price weighted index.

    Now, will this happen, I don’t know. I’d bet S&P 850 before Dow 6800 but anything is possible. And the timing could be in the next 3 months or the next 3 years. I am willing to bet though that the lows in may-july this summer will be tested and breached at some time in the next 2 years.

  39. Alaskan Pete commented on Oct 5

    All this crying about new highs…meanwhile, I’ve been making mine on the short side DURING THIS RALLY. Opportunities are where you find them.

    Good luck to everyone…bulls, bears, fence sitters contrarians, hookers, trannys, and congressmen alike. I am signing off for a while. Moving back to the lower 48 this weekend and don’t expect to be online for a month or so.

    Fare thee well.

  40. Mark commented on Oct 5

    Welcome back to the Lower 48 Alaskan Pete! I’ll “see” you in a bit then.

  41. HT commented on Oct 5


    DISCLOSURE: I manage my own money–quite a bit actually- and independently came to BR’s few on Macro principles. So far so bad. As others have said, you should get help putting together a diversified balenced portfolio and go sailing more.

    Having said that, BR, as a an entrepreneur I think I see your angle. You have (had?) a conviction in earnest I belive on the market, your smart, went out on a limb a year ago, about a sinking market, got lots of TV time/news/blog coverage [publicist??–just curious], quit Maxxim, and started your own group RCP [coincidently…], of which i assume you own most/much of the equity in
    as opposed to nice salary at Maxxim.

    So, Steve, if Barry nails it [looking bad for both of us], he is the next Guru–money floods into his new company and he is a wealthy[wealthier] man with more Carrera Turbo track lessons [I’d go F430 personally], and a G4 for fun. If he’s wrong, still has more cash than most folks and goes to Joey Battapaglia purgatory for 3 years–but hey, even he survived–sadly-to ride the airwaves again.

    As an entrepreneur, I say smart risk/benefit move BR– huge upside for you if you your call [let’s face it–bet] was right, limited downside [Hey, Joet still has some sharp suits]. Still hope we are both right…


  42. James C. commented on Oct 5

    “you’re being too hard on steve. i think he has a valid point to question the “cult of the bear” thesis…. if the rah rah bulls are fair game to barry (as they have been for quite a while) then his prediction of 6800 is fair game as well.”

    Indeed. BR was very adamant during the spring time that we would have a “denouement” this September/October. He stuck with that view at least into August. Nothing wrong with changing your thesis, of course. But if it continually changes or is pushed back (as is the case here), the thesis deserves carefully scrutiny.

  43. DD commented on Oct 5

    how come we are slaves to foreign governments….we are at the mercy of nations/governments to really don’t care much for us and are sucking the life out of hard working Americans…who have no clue….all you people bickering back and forth…none of it matters…when all hell breaks loose all of you will know. praise ala and tell my mommy i love her….and my sweet german car and um yeah thats it.

  44. Steve C commented on Oct 5

    I am surprised at DD’s comment. How did he get on this site? He needs to be on a geo-political site to discuss Al Quaida, Iran, N. Korea, etc.
    Look, here we’re just interested in investing and the like. All of us are interested in national sucurity subjects – but why discuss it here?
    Listen, when all hell breaks loose internationally and the Dow drops 35% – that’s when I’m going long 100%.

  45. jcf commented on Oct 5

    HT, always bracing to hear the views of a seasoned man of the world, cutting to the chase (or cueing the Fat Lady). I think of Charley in “Death of a Salesman.” But I suspect a lot of us bought into BR’s macro views because they dovetailed with those we were already inchoately forming, but a lot more cogently and coherently and never neglecting contrary views. He raised a fallen banner and multitudes fell in behind him, voluntarily, and most, I’m sure, are wiser for the choice. We listened, agreed or disagreed, because here was a voice that focused, with incisiveness and unmistakable sincerity, what we already believed and, I’ll bet in most cases, still do. This hasn’t prevented me from going long here and there & keeping ears open to divergent views. I like those who have the courage of their convictions and disdain waffling. This is leadership. Regardless of how the DJIA finishes 2006, The Big Picture has helped make this a fascinating and educational year for this investor and Barry can be proud of his honest, never dogmatic evangelism. (Punctuation and spelling leave more to be desired.) He never claimed infallibillity. I for one will still be paying close attention to his perspective next year regardless.
    I kinda see him at the wheel of a Lamborghini.

  46. HT commented on Oct 5


    think i said as much. my post was meant to say he had a conviction [which i shared–think i still do…] and went for it to maximize “upside” across the board [publicity, new company etc] — not to mislead investors, but to take a stand–unpopular at the time–and go for it– on multiple fronts. No beef here, but some will-are be[ing] burned [maybe me too, but by my own free will and analysis–plus my november puts have not heard the fat lady sing yet…]

    Congrats on going and staying long– I did so with commodities until the summer, but cut equities way to soon– but that has always been my “weakness” in to early out to soon. Makes me money–just less so and some Homer S. “doh”s– thanks for comments

  47. jcf commented on Oct 5

    Wish to helll I hadn’t gone long on GLD three months ago.

  48. James C. commented on Oct 5

    “I like those who have the courage of their convictions and disdain waffling. This is leadership.”

    In which case Dick Cheney would have it in spades. :)

    Barry has maintained a fairly cautious (some would say bearish) view since at least well back into 2005 when he was penning denouement pieces regarding the months or year ahead. Thus far this thesis has proven wrong (though it always seems less wrong when we’re experiencing volatile markets, as we did during the spring/summer months), and if you’ve played it too safe for the last 12 or 18 months, you’ve underperformed.

    That said, I happen to think BR provides some of the most interesting/provocative thinking on the markets and economy, and his linkfest is always an eclectic hoot.

    So, take it all in, but don’t get too attached too any one view.

  49. whipsaw commented on Oct 5

    As usual, I am aghast at these times when somebody posts a “But BR said it was going down so I was in cash and it went up instead!” cry for help. That’s pretty pathetic, whether you are nearing retirement or not. So you only made 5% without any risk? Please, lose the daytrader outlook for profits if you are not daytrading. Your capital is intact, you should have made a reasonable return on it, and even if you were a member of Barry’s paid site, nothing is for sure.

    I don’t mind admitting that I’ve been caught leaning the wrong way in this, but not because I blindly follow Barry’s opinions about anything, altho I respect them. I read a lot of stuff written by a lot of people with differing views within the limits of someone who has a Real Job to attend to as well. BR’s general notion of a dramatic decline in the markets due to macro issues is solid enough and it doesn’t really matter what the exact percentage is or whether it happens before the end of the year in my view.

    But if you ask yourself why the indexes are going up in the face of generally bad news, then you may very well come to the conclusion that they should not be so they are being pushed artificially. Succo attributes this to foreign central banks, but my own guess is that it’s mostly Helicopter Ben and the Plunge Protection Team that he testified that he knows very little about. No worries, their work will be done after the erections in November, which is about the time that “the market” will decide that there is an oil problem after all.

    But I will look at the NFP numbers tomorrow which should suck and if futures go green, I will dump my SPY puts and buy QQQQ calls to ride the wave. Then I’ll buy them back once the hysteria appears to be ending.

  50. George commented on Oct 5

    The longer term thesis he postulated in the Cult of the Bear series resonated with all of us, otherwise we wouldn’t be here.

    How true. Like a few others, I listened to the bearish voices in my head and made a substantial move to cash during the summer lows. I’ve been thinking about why Barry’s blog resonates with me, and it goes something like this: I’m annoyed by what I see as irresponsible fiscal and monetary policy practiced by my government, as well as the irresponsible behavior of a lot of consumers. So the petty tyrant/angry demigod in my head (picture dogbert here) says “a pox on all of thee!!!” lightning bolts… I really wanted a crash, so it was easy to buy into the cult. Maybe I should pay someone who’s dumber than me but sane to run my money. Oh well, Barry’s still a good read and he has a fun crowd here. Welcome back, AP.

  51. ~ Nona commented on Oct 5

    “Wish to helll I hadn’t gone long on GLD three months ago.”

    jcf, I feel your pain.

    I think Barry is very likely right about a reversion to the mean. This means lower prices overall, including on the DIA…soonish. As smart and sharp as Barry is, neither he or anyone else, knows the day that stocks will begin their reversion.

    I’m over 50% in cash.

    Do I wish it were less right now?

    SURE DO!

    But I also recall that before the tech debacle, I was in cash for about a year. I began to feel rather foolish…until the day I didn’t feel foolish at all.

    I have a feeling that this period is going to end for me on that same sad/happy note….

  52. jkw commented on Oct 5

    It seems somewhat unfair to rate BR based on his guess last December as to where the market would be at the end of this year when he himself said that such estimates are pretty useless. His first half estimate was basically correct. The second half isn’t over. His ongoing commentary has been pretty good. If you look at his actionable market calls, they have been profitable. He just about called the top in May. What he has been saying since July is basically that the market will go up for a while, but the internals are weak and at some point it will decay very quickly. His suggestion was to go long with well-placed stops, or stay in cash if you aren’t comfortable with how to place stops or don’t want to watch the market closely. His analysis was that risk is very high right now, not that the market is about to meltdown.

    At some point, I’m sure he will issue the call to short the market. Based on his record so far, I would expect that call to be within a few days of the market peak. I’m not currently subscribed to his pay site, so I won’t get that call until possibly a few weeks later. For now, I am more interested in learning how to model the markets than I am in making money (and the fee is 2% of my annual income until the student rate is announced). BR and some of the commenters here (including the old regulars like B, Bynoceros, AP, whipsaw, and Mark) are providing an excellent running commentary on the market for free. If you listened to the call to get out of the market in May and you got a good rate on your cash, you’re probably almost as well off as you would be if you had stayed in the market. If you sold everything at the end of June, don’t blame BR. He didn’t tell anyone to do that. He said the market would retest the highs, which I didn’t believe until it happened. He could be wrong about the market falling 30%, but he has a good track record and he hasn’t said that the market has started falling yet (unless he just announced it on the subscription site). BR made a prediction 12 months out and is probably only off by 2-3 months and has updated as time passed to say that things are being pushed back.

    If you want a good statement about how absurd this rally is, read the comment by ac in the post. If you still think this is the beginning of a new bull market, go long on full margin. The rest of us will enjoy profiting from your margin-call forced selling when the market starts collapsing.

  53. Michael C. commented on Oct 5

    If one is astute, one will always notice that the big threads questioning Barry’s posture always occurs near a short term top.

    I’m guessing this time is no different.

    And as Fleck stated in his last commentary, in 1973, the market went on to new highs during Sept-Oct only to see a 20% haircut one month later.

    The big picture is the disconnect between the stock market and economy. Heck, now its even a big disconnect btwn the stock market and the bond market. If one is wrong on the timing, then time may be long enough for the underlying economy to repair itself.

    We shall see. I’ve been in this game long to know that hardly a days go by when you can’t note the disconnect between the stock market and the economy one way or the other. Even when they’re both going up, there are always people saying the market is still going up faster than warranted.

  54. M.Z. Forrest commented on Oct 5

    To beat the horse dead:

    If someone is 5 years from retirement, 100-200 basis points isn’t going to make a difference.

    At 5%, a million becomes: 1.27 million (compounded)
    At 6%, a million becomes: 1.34 million (compounded)
    At 7%, a million becomes: 1.40 million (compounded)

    The amounts amortized over 30 years amount to $6.8K, $7.1K, $7.5K per month respectively. In other words an extra 4% for 1% additional return and an extra 10% for 2% additional return. If you lose 10% due to bad luck and taking on too much risk, you are looking at $4.8K/m. I know which scenario I would fear more.

  55. brion commented on Oct 5

    “Wish to helll I hadn’t gone long on GLD three months ago…”

    Glad to hell i went long GLD 2 months ago….on the fx trading game with $100k play money…;)

    i love the BP. I’ve learned quite a bit about investing in general (the terminology to start as well as general investment strategies/interplay of rates/commodities/politics)
    It’s all fascinating to me personally as i am descended from a long line of investing illiterates…. My forbears worked toward their gold watches and pensions (how quaint)-saved $ and lived within their means.

    In THIS century, i feel financial acumen is a necessity. (should be taught in grade-school really “Wagering 101”)

    For now, I’m completely cool with cash.
    I KNOW this rally is the last gasp of a Right-wing regime that has been completely built on bullshit, smoke and mirrors.
    First come the mid-terms….then here comes the judge.

  56. whipsaw commented on Oct 6


    I mostly agree with your political sentiments, but would observe that if you are actually putting real money on the table, they need to be kept out of your trading decisions. Any macro analysis has to involve politics to some degree which is fine, but placing bets has to be a little less idealogical I think. And you have to be open to the idea that you are wrong in the short term and will either bail with the loss or set up counter-trades to buy some time if that is the problem.

    To put it mildly, I think that market behavior over the past 3 months has featured a “loss of transparency” which basically means that manipulation beats analysis every time. That may or may not end in November, but until then I am not expecting natural market forces to have much to do with anything.

  57. DenverKen commented on Oct 6

    George (above) said: “I’m annoyed by what I see as irresponsible fiscal and monetary policy practiced by my government, as well as the irresponsible behavior of a lot of consumers.”

    George, I have recently come to the same conclusion regarding my affinity for doom and gloom and the bearish case.

    I was raised by depression era parents to save, save, save. Postpone material gratification to be prepared for ‘a rainy day.’ Avoid debt. These lessons have served me well.

    So when I see people/markets/governments doing the EXACT OPPOSITE and seemingly NEVER paying the price…it totally pisses me off! And, just seems WRONG.

    Meanwhile since about 2002 I have been reading the guys at Comstock Partners, Fleckenstein and others, who never change their ‘the bear is just around the corner’ postulations. well…I’m STILL WAITING. but…I still think at some time there will be a day of reckoning… maybe it will be years away and play out in a way none of us has even considered.

    You can read, study and educate yourself of econonmic theory and history and still not get the timing right. There is a degree of luck in all of this.

  58. diva commented on Oct 6

    M.Z. Forrest – thank you for that post! I shall print it out and keep it handy….. just to keep my ‘greed’ in check at all times.
    I’ve been in mostly ‘cash’ since the Apr/May time frame… and am very happy with my risk-free 30 day 5.3% these days.
    I can sleep at night!

  59. brion commented on Oct 6

    whipsaw- I like your posts and “Lower 48 Pete’s” the best here…
    I’m personally conservative, a family man and not inclined to swim with the sharks though.

    Micro Investing seems like a Pirandellian nightmare to me in this political climate, an attempt to outfox the fox foxers….a clusterfox in other words….;)

    “Regulation” is a 4-letter word to most Rethuglicans. Regs are just the ref in the game….but right-wingers know full well that Regulations are brought into existence because someone somewhere sometime back…. swindled-cheated-lied-stole-conned and drove people like me AWAY from the crap game of the Markets, depriving honest businesses of capital, hopeful investors of higher return and scam artists of the Wild Wild West.

    YOU know all this….
    jes’ a long winded way of saying yes, i have confidence that this latest round of the neo-confidence con game is concluding.

    You and i KNOW in our bones that we’ve been living through one of the most corrupt periods in american history and the only investment i’d feel safe in making right now is in Shredder stock.

  60. kennycan commented on Oct 6

    50+ comments running about 75% to attack BR because he’s wrongly bearish or defend BR even though he’s been wrongly bearish. Just waiting for someone to use profanity here in order to sell the last longs down.

    Is that a bell I hear ringing?

    Each qtr GDP lower than the last and this qtr expected to be + or – the 1% level.

    Markets can stay irrational longer than you can stay solvent. Let’s summarize some data here: Record highs on one index, with poor breadth in the face of decelerating GDP and LEI’s, and a deflating housing and construction industry. When I hear a bunch of commenters jumping up and down yelling “Be Long or Be Wrong” it sounds like an irrational attitude. Wonder how long this one will last before it goes “POP”.

  61. Mark commented on Oct 6

    Some really fine posts above.

    People I feel your angst if not your pain. I have a large cash position on myself and the rest is so conservatively allocated that it may as well be cash! However, until the Big Breakout Day (Tuesday) these market internals have sucked. Tuesday saw much much broader breadth and volume on another strange “reaction to the news” day. I do not see NFP denting the Teflon Coated Bulls so it’s on to 12000 and beyond as far as I am concerned. It isn’t until the week of 10/16 that I see a string of economic data that could threaten the bull case and very likely not reverse until that GDP number comes out late in the month (1.5? 1.7? 1.9?). Since Hubbard pre-announced it I am betting it is BAD. No reason for him to do so otherwise. He wants to get the number out there so that it is old news by then.

    Everyone is acting like they should never be expected to underperform the market. Ridiculous! As my latest and finest example I underperformed the market (SP500) in 2003 by HUNDREDS of basis points. And that was a hell of a bull reaction off the bottoms!However, I kicked its butt in 2001 and in 2002 by being defensive so was net WAY AHEAD when the accounting was done. In 2004 I underperformed slightly again as I was too defensive. In 2005 I beat it handily. Being defensive during this period of overvaluation has allowed me to 1) sleep at night and 2) WAY outperform. Since I believe we are in a Bear Market (why else are PEs being slowly crushed? That’s definitional. New nominal highs on one index mean nothing.) I will continue to be defensive and measure my results peak to peak, not cherry picking some artificial point in between. So for this last month and a half the market is making a fool of me. FROM TIME TO TIME IT IS GOING TO DO JUST THAT. If you own mutual funds, ETFs, or a portfolio of stocks that are not a closet index HOW CAN YOU RATIONALLY EXPECT OTHERWISE?

    I personally consider the market to be VERY risky here. Because I look at the same data that the bulls see and see something different. It’s not that I don’t expect the market to occasionally “look through the valley of lower earnings to see brighter days”, but I see the valley as being TOO WIDE for that to rationally happen this time. Six quarters of ADMITTED “below trend” is TOO LONG. That is when the market struggles. That is when it reprices. So we’ve got some PE expansion occuring here in a market that is not cheap by historical standards (anyone believe forward looking PEs are accurate? 30% too high is the norm I think. I am betting even more in a slowing economy). So I sit and wait. And I ask myself the question “If you did not have a portfolio and had the equivalent amount of money represented by its valuation today, how would you position it today believing what you believe is to happen in the next 90-120 days, not what has happened in the LAST 30 or 60 days with the markets?”. Takes jealousy, greed and performance envy right out of it.

  62. Barry Ritholtz commented on Oct 6

    To clarify my position, I did make a Bullish call on June 13, and then again early August.

    In September, I said use the rallies to raise cash.

    I am not yet short — but am looking to move that way over the next few weeks.

    I put usnow at Mid February 2000 . . .

  63. Mark commented on Oct 6

    Well that is an interesting comment Barry ( I put usnow at Mid February 2000 . . . “) and gives me some pause because as you know there was a little consolidation in mid-Febraury 2000 on the S&P as it based at 1330 then a huge blowoff move in March to an intraday high of 1550 or so. Then came a move down til June and a mid-year low (1360). A retest of the highs at 1530 came in September. Then, finally, came your “denouement” into late December lows at 1250s.

    That calendar reference puts your lows out 10 months from now (August). That calendar reference puts the highs here out in late November and suggests they could be 10% higher. As always, what am I missing?

  64. cornerkick commented on Oct 6

    The discussion above shows, I believe, the importance of examining your own biases when you invest. One can almost always find data points to reinforce prejudices that we have regarding the economy. And for many bears, there seems to be a political aspect to their outlook of the market.

    In the 90s, republicans didn’t have a problem riding the market higher because they usually said that Clinton didn’t deserve any credit for it (whether true or not). Now, however, it seems that for some on the other side, the economy can’t be doing well because Bush and the “rethuglicans” are in charge. (“How could an idiot like that manage the economy well? It must be about to collapse!”) And the more that it does well, the more apocalyptic some of the predictions become.

    This isn’t to say that housing won’t cause a deep recession and tank the market, but if so it won’t have anything to do with Bush or either party and would have happened the same way had Kerry won. But I think that investing either because of political feelings or other general “value-based” views (“We are living beyond our means!” “We are too dependant on foreigners!”, etc.) isn’t wise. The “Day of Reckoning” might come, but it might not come for 10 years.

    I happen to believe that we will see a fairly soft/bumpy landing next year, which is why I am a regular reader of this site. When it comes to investing, I always try to challenge my views. Since I am fairly bullish, I read this site, other bear sites, gold bug sites and the like to challenge my own assumptions. And if Barry can convince me of his views, I’ll be glad to go short. I think that the worst thing you can ever do when investing is to only listen to people who agree with you, which is what I suspect some here might have done.

    As always, of course, we are all completely responsible for our own decisions. If you act on advice that turns out to be bad, you have no one to blame but yourself.

  65. brion commented on Oct 6

    Cornerkick-I just that i believe the economy has been “doing well” because Bushco have allowed their donor base to “externalize” this glorious economy on the backs of taxpayers (and their children,grandchildren,great-grandchildren etc)

    An already obese Military-Industrial complex mega fattened? check

    Corporate Welfare for already obscenely profitable corps? (think bill oil & pharma) check.

    Ghastly expensive gratuitous “bill me later war”? Check.

    Pension funds allowed to implode. The environment left undefended. Schools left unfunded and “Left behind”. New Orleans left to fend for itself. Bin Laden left alive. Our soldiers left unprotected. American workers left out in the cold in this new gilded age. check check check check…

    I don’t see anything that’s come out right from this g.d. right-wing cabal. Have you??

    The stock market has only very recently moved up after after 6 years and billions upon billions of artificial stimulus ($ finally fleeing housing for equities??)
    That should tell you something.
    More smoke more mirrors more b.s.

    The full faith and credit of “these” united states.

  66. E-Jay Ng commented on Oct 8

    This time it’s different. We must recognize that … because the Fed has got it just right … enough inflation rhetoric to quell inflationary expectations, Fed funds rate at exactly the right spot to guarantee a soft landing, and US corporations very strong and healthy with loads of cash on their balance sheets.

    The only soft spot in the economy is housing, which does not matter because even if there is a significant slowdown there the rest of the US economy will compensate for it.

    Global liquidity is still plentiful and investor confidence has seldom been stronger. Asia is still roaring and the US dollar is holding up well because interest rate differentials more than compensate for the laggard effects of current account deficits.

    In short, none of the headwinds facing the US economy matter in the longer term, and all the good factors for the US economy are still there. That’s why the DOw is at all time highs and the S&P has broken out of its May 10 peak. Even the NASDAQ has made a splendid recovery and is in a position to challenge, and then surpass its May 10 peak.

    Market internals do not matter because price action dictates everything. If price action is allowed enough time to catch up with internals, then internals will not matter.


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