Media Appearance: Bloomberg TV (11/21/06)

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This morning I’m on Bloomberg TV, from 11:00am to noon, on the show Open Exchange. We will be discussing the Markets, the slowing economy, various sectors, and whatever else comes up.

Some bullet points I hope to hit:

• Since the summer, the Markets have improved technically, although we are starting to see signs the internals weakening, and sentiment is getting increasingly “buoyant.”

As the technicals have improved, the economic backdrop has decelerated further. We have a “slow-motion slow-down.”  The yield curve is now at levels last seen in Spring of 2000. The yield curve inversion is now over 6 months old, and has become much deeper than it was (when previously dismissed).

•  Investment strategy:  We do top down macro work to determine the long term risks, and bottoms up quant/fundie/technical research to select stocks.

We always try to measure risk versus reward. When conditions are good, we get more aggressive (as we did over the summer), and we try to reduce exposure when conditions are less favorable (such as now).

•  What stands out in the markets right now?

1) Long and deeply Inverted Yield curve

2) the high levels of risk taking

3) lots of complacency out there lately.

• A tale of two markets: The Stock market is telling us everything is hunky dory, while the bond market is discounting a major slow down.   This is one of those very odd junctures, where strange things can – and will – occur

Should be fun. . .

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What's been said:

Discussions found on the web:
  1. joe commented on Nov 21

    Looks like Barry is finally throwing in the towel. He says a “slow-motion slow-down” is on the table, which reads the same as a soft landing. We knew he’d come around eventually.

    And now he is saying that the market is technically healthy? Are you implying people should be going long in the face of all of the pessimistic preaching on his blog? Barry is truly confusing to read.

    ~~~

    BR: The slow motion slow down is decidely NOT a soft landing — I’ve been
    writing about it for a year now
    — its the g r a d u a l impact of higher interest rates, slowing real estate, declining consumer spending.

    I have also been writing for some time now that the markets have been technically improving even as the macro economics are decaying. But those technical improvements are the basis for only the shortest of trades — not investments

  2. T commented on Nov 21

    Barry, how do (2) and (3) interact with the fact that the VIX is down at 9.85 today?

  3. Polly Anna commented on Nov 21

    Hey Barry…good hour with Suzy this am. I can’t stomach too much CNBC, but I watch a lot of Bloomberg. Good to see you on there again.

  4. Andrew commented on Nov 21

    Does anyone know if Bloomberg keeps a history of its videos???

  5. bodanker commented on Nov 21

    >> And now he is saying that the market is technically healthy? Are you implying people should be going long in the face of all of the pessimistic preaching on his blog? Barry is truly confusing to read. << What's confusing? Barry said market technicals are better now than they were this summer - not that they're currently healthy. Further, he said they're starting to deteriorate, which doesn't imply (at least to me) it's a good time to open long positions.

  6. jjr commented on Nov 21

    Why does anyone come to this site and expect trading advice? I come here for the big picture. Seriously :p

    When the long-anticipated decline in the stock market does take hold, where will all the trolls go? Will they turn around to pat BR on the back, or will they just slink off under a bridge somewhere?

  7. Josh commented on Nov 21

    joe, I wouldn’t bother with this blog if I were you…you would probably do better with someone who explicitly shouts buy & sell.

    Just buy what others tell you to buy and sell what they tell you to sell. There’s absolutely no reason to want to think about what you’re doing.

  8. vfsv commented on Nov 21

    As a Silicon Valley-centric variant on the yield curve, we track the rate of growth in wafer area shipped vs. the rate of growth in IC sales.

    The “curve” has been inverted for the last four quarters.

    See for your self at:
    http://www.viewfromsiliconvalley.com/id280.html

    Thanks!

  9. B. Lee commented on Nov 21

    One more I would like to add to your list: a housing market which may or may not have bottomed.

  10. ECONOMISTA NON GRATA commented on Nov 21

    First, I think that this is a great site if you are interested in an exchange of information and ideas. If you want to get buy or sell information anywhere, good luck.

    Keep up the good work Barry. I thoughroughly enjoy this site and have picked up some very good pointers which have helped me in my trading. However, I am still licking my superficial wounds from being short S&Ps. A very nice profit turned into a marginal loss, no big deal. Having said that, I have refused to buy and can not buy this rally, I can not find justification, not even in the chicken bones. Having said that, I will clearly state that I am looking for a “new place and time” to re-enter the market from the short side.

    I picked this up from “Economist View” and I found it informative and rational….

    Can Anyone Steer This Economy?, by Michael Mandel, BusinessWeek Online: …This will come as a rude shock to … newly enfranchised leaders in the Democratic Party. Sure, they’re likely to have the power to pass legislation, including boosting the minimum wage. But … [t]he broad-based drop in incomes is being driven more by the … intensification of global competition. And there is little Democrats can do to reverse these trends. … Globalization has overwhelmed Washington’s ability to control the economy. …[L]evers of economic policy just don’t work as well as they once did.

    As recently as 10 years ago, the U.S. economy was still relatively self-contained. Then-Federal Reserve Chairman Alan Greenspan … could be sure that the U.S. economic machine would eventually respond when he called for higher or lower rates. Tax and spending decisions made in Washington could set the course for growth, while economic events in the rest of the world … were felt as minor bumps.

    That has changed. …[T]he U.S. is more open to the global economy than ever before… Greenspan and his successor, Ben S. Bernanke, have found this out the hard way. To restrain economic growth and cool the housing market, the two Fed heads have raised short-term interest rates 17 times since 2004… But even as the Fed tightened up on the domestic money supply, foreign investors made up the difference.

    As a result, the interest rate on 10-year government bonds today is 4.6%, exactly where it was in 2004, when the Fed started raising rates. Good news for home buyers who want mortgages. Not so good news for the policymakers trying for a soft landing.

    President Bush encountered a similar problem. His huge tax cuts poured hundreds of billions into the economy… [T]he fiscal stimulus generated far fewer jobs than anyone expected, as more and more production headed overseas. “Traditional macro policies are less effective than they used to be,” says Robert S. Shapiro, a top economic adviser to President Bill Clinton who now runs a Washington economic consulting firm. “We don’t know how to ensure strong job creation and strong wage growth anymore.” …

    Best Regards,

    Econolicious

  11. Robert ben Kline commented on Nov 21

    Top- down, bottom up. I know what that means on a balance sheet. For instance, whast’s more improtant, sales or earnings. What does that mean for ecomomic analysis? Where’s the top and bottom on a technical analysis? I think of it as a gestalt! Unless, bottoms-up is a free fall bear. Bottoms up is more common in a bar room.
    Please explain

  12. joe commented on Nov 21

    who’s the new troll that stole my name? i feel like MarkM, the poster formerly known as Mark.

  13. ari5000 commented on Nov 21

    Barry —

    What do you think of this theory?

    Suppose I were a fund or GS and I had access to unlimited money. After pushing the markets up — couldn’t I insure that the markets remain up until December by

    1) buying equities in bulk
    2) all the time purchasing put options for protection – expiring in January

    Then in Jan. I could sell the stocks and unwind the whole position. But this way — there is no correction until at the earliest Jan.

    To do this — I would need a LOT of liquidity. Now where could I find a few trillion to play with?

  14. HS commented on Nov 21

    If i ever hear a pundit say” well, we missed the rally totally since the summer, it really caught us off guard”
    I will immediately sign up for his newsletter. honest.

  15. Polly Anna commented on Nov 21

    Andrew:

    Bloomberg has been getting better with their A/V postings since they redesigned their site…

    http://www.bloomberg.com/news/av/

    You can also search transcripts and play older videos there if you know what you want to search for.

  16. whipsaw commented on Nov 21

    per ari5000:
    ” What do you think of this theory?

    Suppose I were a fund or GS and I had access to unlimited money. After pushing the markets up — couldn’t I insure that the markets remain up until December by

    1) buying equities in bulk
    2) all the time purchasing put options for protection – expiring in January

    Then in Jan. I could sell the stocks and unwind the whole position. But this way — there is no correction until at the earliest Jan.

    To do this — I would need a LOT of liquidity. Now where could I find a few trillion to play with?”

    hmm, well if an utterly inept president had finally given up and tossed the keys to the treasury to the guy who was running GS and had been mining China on top of that for years, I don’t think that finding the liquidity would be a big problem. That might very well lead to the market suddenly taking on a parabolic rise immediately thereafter and bypassing anything resembling a seasonal low while some remarkable futures/cash arbitrage occurred.

    But I wouldn’t think that the players would be buying puts in that environment, they would be selling them since they didn’t have much to worry about anyway and that seems to be the case. The problem is with the unwinding part- if a little chump like me liquidated everything over the course of 10 minutes, neither of my brokers would even notice, while getting rid of huge positions would be very costly and noticeable by the market as a whole even over the course of a month.

    I don’t know, maybe they just buy puts as they dump the stock and don’t care whether it looks funny? Or maybe they don’t sell at all, maybe things just go sideways for a while overall and they focus on M&A (which Richard Russell is speculating may be the replacement bubble for the housing bubble)?

    At any rate I am making a little money off of QQQQ and SPY calls and my single stock straddles are beginning to get green, albeit from directional moves rather than increased volatility. I think that the best posture is to avoid betting against the oligarchy and assume whatever level of long risk you are comfortable with. The end is nigh, but nigh does not have a month or year defined at present.

  17. blam commented on Nov 21

    The invisible hand is not about to disturb the market before the thanksgiving weekend kickoff of xmas shopping.

    There have been ugly Decembers on the books. Holding the market at these levels with a cooling world economy is not a growth strategy for the crime families. They’re either going to jack it up more or dump it. On the other hand, the NASDAQ bubble found liquidity for years before it collapsed. Who knows ? The invisible hand does.

  18. whipsaw commented on Nov 21

    per blam:
    “There have been ugly Decembers on the books. Holding the market at these levels with a cooling world economy is not a growth strategy for the crime families. They’re either going to jack it up more or dump it.”

    Agreed, but I don’t see them dumping it until the democrats are sworn in and there is somebody to blame, so my guess is that long index positions are pretty safe until January options expire. Or, more likely, until the FOMC meeting at the end of January- if xmas sales go like I imagine they will, that meeting will have to result in a rate cut or we will see a pretty dramatic drop.

    But I’ve underestimated the hand before, so who knows?

  19. Eclectic commented on Nov 22

    Ever experienced this?:

    …You’re watching two teams play each other, one of which is without question the better of the two and would most likely win 6-10 of every 10 games. However, for whatever reason known only in the stars, the usually inferior team has everything going right for it at the time, maybe for a few moments as you realize it’s happening, or for a quarter or two, or for the balance of one entire game or match possibly.

    It is something tangible that you can almost touch and feel, almost taste, and you can rely on it, but for that tangible moment only.

    Isn’t that just as real an experience as one in which the logical perception of what a market’s behavior ought to be can be so wrong in predicting what it does?

  20. toddZ commented on Nov 22

    anyone know what’s going on with GM? I don’t have a trade on, but it’s a stock I watch closely. Someone is aggressively selling shares.

  21. Eclectic commented on Nov 22

    Here’s a recap of the world picture:

    “Ethay Orldway Igbay Icturepay”
    “Das Große Weltbild”
    “Международная Большая Картина”
    “El Cuadro Grande de todo el mundo”

    1 – Worldwide excess of productive capacity having manifested itself temporarily in a commodity boom.

    Commodities + Value-added Labor = Currency = Exchange = Locale

    2 – Worldwide shortage of d-e-m-a-n-d.

    3 – Domestic U.S. Cap Ex l-i-q-u-i-d-i-t-y t-r-a-p with a coincidental boom in domestic consumer demand (these are two elements that can not co-exist normally).

    Thus Demand must be e-x-c-h-a-n-g-e-d (executed) at the point where m-o-n-e-y is created… and that is at the physical location of its creation via mechanical or intellectual labor… and that’s marginally happening at an accelerating rate outside the U.S.

    [I generally associate the U.S. as being a part of the industrialized “West” but not in all situations.]

    The Federal Reserve Board has n-e-v-e-r ever in its history faced this problem before, and it does not have the tools to solve it or prevent it from w-o-r-s-e-n-i-n-g… regardless of Mr. Bernanke’s trendy sentimental apologia to Milton Friedman and Anna Schwartz.

  22. Philipp commented on Nov 22

    What is Ex Liquidity Trap at the point where money is created?

    To much money printing?

    Anyways, it seems that there is a lot of money on the sideline. Where is that money going? I don’t think it is headed to housing or stocks. Bonds are not really interesting, taking into account hidden inflation, so where the hell will all that money on the sideline go???!!!

  23. Eclectic commented on Nov 22

    A domestic capital expenditure (cap ex) liquidity trap is one in which, generally regardless of interest rates, new plant and equipment in the U.S. is not being replaced or newly expensed… marginally of course.

    When interest rates can’t drop low enough to stimulate cap ex domestically, a liquidity trap develops because industry anticipates that the cap ex will not be productive domestically, even with low rates.

    Plants that are not servicing the ‘D’ and ‘A’ components of EBITDA will be temporarily ignored as long as variable production costs are covered at those plants by the ever-declining sales revenue.

    When sales eventually drop low enough that not even variable production costs are recovered, those plants close and take their phantom employment down with them.

  24. HS commented on Nov 22

    ok barry sign me up

  25. Mike commented on Nov 23

    The yield curve has been inverted for “just” over 4 months now, not 6 months. It first inverted on July 19th as I wrote about on my blog.

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