Buying Panic?

Several people have specifically asked for my explicit investing thesis, as opposed to the more general economic discussion/market analysis we see on the blog.

It is a fine line to provide stimulating discussion here, while at the same time not being unfair to the people who actually pay for our research and commentary. Anytime research runs in the press (Such as this "Real Estate and the Post-Crash Economy") some subscriber lodges a complaint.

An astute observer should be able to deduce what my general views are from the various posts and appearances. I do not think any of the paying subscribers will be offended if I pull an introductory quote that reveals some additional details from a much longer piece.

This is the intro from yesterday’s market commentary:

"In a seeming paradox, we have a rapidly accelerating market, and a rapidly decelerating economy. Hopes for a rate cut in the face of this asset inflation are pushed out further and further into the future. This is now a trading market, where momentum and trend dominate, increasingly detached from the decaying domestic fundamentals. Global growth remains strong, and despite that – or perhaps because of it – US markets are lagging their overseas peers (see table of global bourses on page 5).

How much further this market can rally is anyone’s guess, but a “Melt-Up” to Dow 14,000 would not surprise us. While overdue for a pullback (see #1 below), the markets have shown little interest in any such activity. Instead, traders seem to want to rally ‘em on any news, good or bad. 

A melt up would likely be accompanied by rush back into equities by the one group notably absent from the current action: the public. As the trading volumes at the major online brokers have revealed, John Q. Public is nowhere to be found in the current market. We suspect that the aforementioned rush back in would be accompanied by a significant spike in Bullish sentiment. Until that excessive Bullish sentiment develops, it is not safe to trade on the short side of the market.

Meanwhile, a “melt up” presents a high risk trading, not investing, opportunity. A melt up inflates the air pocket that has already developed underneath the present environment; only the most nimble traders are capable of avoiding the ensuing danger."

Today’s WSJ had an interesting quote describing Wednesday’s action as a Buying Panic, a characterization I do not disagree with:

"For the next week or two, I would advise investors
who have money that they’re thinking of putting in the market to hold
off," said strategist Al Goldman, of A.G. Edwards & Sons. Mr.
Goldman said there seems to be a "buying panic" this week among money
managers who have come to regret keeping clients’ money on the
sidelines during last month’s gains. "At the end of the day, these guys
are paid to manage stock, not to manage cash," he said."

That oughta hold the little bastards . . .


Next stop, Dow 14,000?   
RR&A, May 2, 2007,com_docman/task,cat_view/gid,26/Itemid,126/

‘Buying Panic’ Drives Stocks As Blue-Chip Rally Goes On
WSJ, May 3, 2007; Page C1

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What's been said:

Discussions found on the web:
  1. Winston Munn commented on May 3

    This just in:

    Tongue-in-Cheek Press, New York

    “In one of the most violent corrections in recent memory, the market spent almost an hour yesterday in the red, prompting an impassioned cry from investors to the Fed to ‘lower rates.’

    In a surprise move, the Bank of Japan, in an emergency meeting, lowered their target rate to negative 1.5%. BoJ president Honda Toyota said, ‘We couldn’t afford a world-wide financial panic. Besides, this shit we print isn’t worth anything and it doesn’t cost us anything to print it, and paying investors to take it off our hands is cheaper than paying for trash service.’

    The Dow closed at 84,970, 2 points off the high of the day on late profit taking.

  2. Charles Butler commented on May 3

    I’m not physically there and I have no doubts that Mr. Goldman knows what the action feels like, but I have a hard time characterizing an S&P that climbs 0.6% and closes at 0.5 points above its previous week’s high as being dominated by ‘buying panic’. Intervals like, say, January to March ’98, yeah. But this?

  3. Charles Butler commented on May 3

    Or maybe somebody changed the definition while I was out picking olives.

  4. Winston Munn commented on May 3

    Tongue-in-Cheek Press, New York

    Financial Edition

    In a speech yesterday to automobile industry representatives, Federal Reserve Chairman Ben Bernanche said, “blah, blah, blah,” going on to say that something somewhere was some kind of risk or benefit but nobody paid much attention as the crab cakes served for lunch were really delicious.

    In Beijing, Treasury Chief Henry Paulsen commented, “yada, yada, yada” and underscored the need for either a lower or higher something-or-other and called on other trading partners to yackety, yackety yack.

    Meanwhile labor statistics released by the BLS were “same old, same old”, either higher or lower or the same as either last month or the previous year but no one really paid too much attention as the markets were set to open and the numbers were going to be ignored anyway.

  5. erik commented on May 3

    seems that the concensus is for a “melt-up” to 14K.

    people, what do you think we just had from below 12K? seems to me that even the bears have abandoned ship and see further irrational gains going forward.

    still have to say that the bigger surprise would be for significant weakness here rather than after a telegraphed melt up.

  6. Donaldo Rodrigues commented on May 3

    If John Q Public starts jumping in the market in a big way, I’d think the Dow would go way past 14,000.

  7. dr. risklove commented on May 3

    agree with erik.. it seems like all the well-known bears are saying it’s likely to go on for a while longer.

  8. Bear Mountain Bull commented on May 3

    If Circuit City and Ford are any indication, I’m not sure that the ‘public’ has any money left to buy stocks.

    And the reports are that money has been flowing OUT of mutual funds – maybe the public has ‘wised up’, and is smarter than Wall Street gives them credit for.

    Nah, that can’t be.

  9. Rich Berger commented on May 3


    After reading your post, I am still in the dark regarding your “investment thesis”. What has been your investment strategy since 2000, what have you been investing in and how have you done?

  10. Winston Munn commented on May 3

    It’s not about “guessing” whether the market will go up or down or “rooting” for one or the other to occur, but in trying to make some sense of the risk/reward ratio of the different sides.

  11. costa commented on May 3

    So now people are saying John Q Public is going to join in. With what money, the public has not been saving, increasing debt and can not lean on thier Homes for money. So where will this money come from?

  12. RW commented on May 3

    Maybe it’s just me but people who keep looking for someone to be right about predicting market direction and chide those who aren’t sound like nagging wives: It’s always a bull market somewhere and it’s always a bear market somewhere and the only thing anyone has to do to be right is to find the side of that market where the money is made so their real purchasing power is better than it was the week before.

  13. Barry Ritholtz commented on May 3

    Who wants me to cut and chew their food for them?

  14. erik commented on May 3

    give barry a break. christ. he is by far the bravest man in the blogosphere. doing what he does takes guts, very easy to monday morning quarterback.

  15. Barry Ritholtz commented on May 3

    Thanks Erik —

    I find it easier to delete and ban trolls like that than respond to the same stuff over and over.

    IP Address — name Xracer — Buh bye

    The disclosures make it pretty clear what this site is, and how much crap I am willing to tolerate. I could go the waty of the weasels — zero comments allowed — but thats pure cowardice.

  16. John commented on May 3


    Cut it? Well, sure; okay. Chew it?! Dunno ’bout that…have you had all your shots?


  17. costa commented on May 3

    Barry got agree with Erik, love the site. Also love the LIRR Commuter from hell.

  18. rebound commented on May 3


    I agree about a melt-up, and the 14,000 number is interesting for a number of reasons (Psychology, chasing a mythical return, a round number, and so forth). Perhaps the melt-up is already pretty far along, and waning. I have to wonder where the public is going to get the money to invest and that their capacity to participate might be limited. But who knows. Crowds do CRAZY things.

    BTW: Thank you for sharing content from inside your subscription service. It’s a real treat every once in a while. I think you are always going to get some complainers from the people who subscribe, but it really shouldn’t warrant much attention. It’s simply good business to provide free content from time to time … as your blog readers are most certainly potential customers. Every business under the sun does “promotions” from time to time, so it is really no big deal. You don’t pimp your service here nearly as much as you could on this blog, and I think the vast majority of people respect you for not “whoring” your wares :-) I think you handle the service vs. blog balancing act very professionally.

  19. Barry Ritholtz commented on May 3

    In yesterday’s piece, I discuss the bullish and bearish factors.

    The most American Association of Individual Investor’s sentiment poll falls into the contrary indicator camp: It now shows a mere 28.5% of respondents as bullish — the Bears are 54.3%.

    I do not recall another instance of this Bull/Bear ratio at the same time that markets were hitting all time highs . . .

  20. ferd mertz commented on May 3

    perhaps the public can’t borrow yen or increase derivatives exposure or reap coupon pass proceeds etc. to get its hands on free hot money. AND MAYBE the public has reached a point of EXHAUSTION in participating in debt financed asset bubbles.

  21. Winston Munn commented on May 3

    Sorry if this a repeat, but it seems to pertain to the debate of how much John Q. can do to support the markets.

    From Russ Winter:
    “From 1998-2005, housing prices doubled nationwide and tripled (or more) in hotsy-totsy places like FL, CA, AZ, NV, etc. For the VAST majority of Americans, their home is the single largest financial asset they have and not by a small margin. At the recent peak, something like 70% of American households “owned” a home, while only 50% of households own any stock at all.

    For the half of American households that own stock, the VAST majority own an extremely small amount dollar-wise compared with the “value” of their homes. The top 1% own about 33% of all stocks. The top 10% own nearly 80%. The bottom 80% own about 20%. And the bottom 50% own 0%.”

    Unless you can start charging IBM stock to your Visa card, I don’t see John Q. making much imapct.

  22. John commented on May 3


    That’s because the public has finally wised up, and even if they hadn’t they’re tapped out; you can put a lot of things on the credit cards you recently HELOCed off, but stocks aren’t really one of them.

    I continue to think this rally is about the BigMoney trying to get Joe & Mary Retail to come running to hold the bag so the BigBoney can head out to the Hamptons with a nice looking 1st half P&L; it’s kept going this long because the “gullible” public refuses to cooperate.

    Then again, I’m just a guy with a few bucks to trade and a massive distrust of my own species; what do I know?

  23. erik commented on May 3

    put the investor’s intelligence survey in context. when was the last time the dow rallied consectively as it has recently…1929. do we have aaii numbers back then?

  24. kevin commented on May 3

    As Winston points out in his comment, when we talk about “the public” we are talking about tremendously wealthy households (the top 10% own nearly 80% of all holdings).

    This is not John Q Public, this is Theodore Winston Public III. And over past couple years, ol’ Teddy has moved a bunch of $$$ into hedge funds and alternative investments, only to see them perform mediocre (at best!), while plain vanilla equities are on a tear. What do you think old Teddy says to his money manager…?

    “SUZIE, why are my holdings doing so badly when the market is going gangbusters??!!!”

    Guess where Suzie shifts some money to…

  25. djharaldb commented on May 3


    What I really want to know is, which way are ladies hem lines heading this spring??

  26. Granville commented on May 3

    Bears: “its a friggan buying panic”

    Bulls: “We’re is a friggan bull market, Don’t fight the trend, Buy!”

    Chocolate or vanilla, whatever puts money in your account, go with it.

  27. John Thompson commented on May 3

    My feeling, as with most edumicated Americans, is, we are being allowed/forced to massively endebt ourselves to develop the rest of the world. And rich guys make money off that.

    But the rich guys like birds and bees and nature (and stuff). So the ultra rich gals are the last standing after this boom and where does that put the non rich Americans? Bad spot, but using less carbon dioxide?

    So, is the rest of the world able to decouple and loving this?
    I think so.

    But hey, at least we have Hollywood (and Hawaii and cool buildings in New York and cheap tourism in Florida). Too bad if security will become a nightmare.

    Or maybe, Kurzweill was right. The techno world will allow the US to grow alongside its debt. We will innovate an end to disease and aging and the rich globals will flock to the US for a medical Renaissance. Better be. Hope the fake money continues.

    Or, maybe, the rest of the world will gradually deflate us by continuing to invest in our much less productive society so they can sell their junk money at discount and dump their dollerz someplace (WSJ says this happening less now. Do you believe that??).

    Anyway, I sure hope Kurzweil is right. I need a mito flush.

  28. Fred commented on May 3


    Thank you very much for this post. I totaly respect your reponse, and do now have a much better grasp of the “view from your perch”. You’re a sharp cookie, and we certainly appreciate all the (tireless) work you put into this site. It is an excellent blog (obviously).

    I hope you didn’t take my request with mal intent. None was intended, and I apoligise if it came across that way.

    Good hunting!

  29. TheFinancialPhilosopher commented on May 3

    Did anyone see the article in the WSJ today regarding MasterCard’s 70% profit gain? The WSJ writer, Lingling Wei, says: “Mastercard’s results have been bolstered by strong consumer spending, despite the housing slowdown…”

    I say that much of MasterCard’s surge in profts are not DESPITE the slowdown but BECAUSE of it! MEW is tapped out and consumers are turning to credit cards to perpetuate their lifestyles; the economy keeps moving; companies remain profitable; and assets keep shifting to stocks.

    In financial markets, everything begins and ends with the consumer. We just do not know the precise moment the disconnect from reality will unwind until after the fact.

    It’s nice to be a long-term investor…


    BR: We recommended Mastercard (MA) on PBS on the PBS’ Nightly Business Report with Paul Kangas and Susie Gharib back in January for that EXACT reason …

  30. mhm commented on May 3

    “Mastercard’s results have been bolstered by strong consumer spending, despite the housing slowdown…”

    I can add a personal view: all my credit cards limits were raised recently. I barely use them and didn’t ask for it. But people stretched out would “benefit” from it right away (and boosts MC’s bottom line).

  31. TheFinancialPhilosopher commented on May 3

    On a another personal note from my end, I’ve noticed a significant increase in zero percent “teaser” rate offers from credit card companies in my mail box. Three years ago, the terms were for as much as 18 months. Now they’re about 12 months. Things that make you go hmmmm…

  32. John Thompson commented on May 3

    I go back and forth in my head.

    It seems there are so many reasons for investors to park their money “someplace” but where would that be? There is a huge margin investment and derivatives risk. Our suspicion about the world bubble in developed world real estate, (which is pretty much fact). There are the Chinese and Indian economies, “overheating” and depending on us continuing our irresponsible debt cycle.

    Is this the perfect BS feedback loop or is there a basis for the flow to continue? Please, tell me yes.

  33. ferd mertz commented on May 3

    john thompson has it right. everything is overpriced. which is worse: u.s. treasuries, u.s. dollar cash, or gold, which will probably take a decent hit if these bubbles ever burst, or even correct. well, a swift hit to stocks and the helicopters will be dropping money. after all, with this much debt in the system, it’s inflate or die.

  34. Winston Munn commented on May 3

    Could one of you bright minds explain to me this anomaly: energy companies made record profits last year; however, capex is down while stock buybacks are up; yet, insufficient refinery capacity is driving up the price of gasoline; but energy costs exagerate inflation and is therefore discounted by the Fed; in the meantime Congress, despite the November elections’ stout anti-war sentiment, cannot find the votes to stop the war in Iraq where there just happens to be a lot of oil; and the president and vice-president are both ex-oil men.

    Is this what is meant by vicious circle?

  35. donna commented on May 3

    Gotta get the greater fools in there to be left holding the bag….

    “Hey, the market is so great! Buy now!”

    Uh-huh. And two years ago, you could make a killing flipping houses….

  36. ac commented on May 3

    As they say, things come in 3’s. 3 decades, 3 global booms. Will this be the end of the party and a decade of darkness or roboot ala 1991 and 2001?

    Interesting that the US isn’t leading this one, we are more realistically in recession but everything is being propped up globally. The complete opposite of the 90’s lol.

  37. Fred commented on May 3

    “insufficient refinery capacity” = NIMBY

    Don’t forget that a tough stance against rogue countries actually freed up future supplies from Lybia.

    “The announcement by Lybia to allow international weapons inspectors and to abandon its weapons of mass destruction programs clearly reflects the chilling impact of the arrest of Saddam Hussein, the invasion of Iraq and Libya’s longstanding interest in having U.S. and U.N. sanctions removed,” said CBS News Foreign Affairs Analyst Pamela Falk.”

    <<"Libya's foreign minister, Mohammed Abdelrahman Chalgam, stoked oil companies' hopes of a return to Libya when he told reporters in Algiers on Monday that Libya hoped to attract oil investment by American companies. Mr. Chalgam said that American companies could help Libya eventually double its oil output. ... 'We currently produce 1.5 million barrels per day and we aim to increase the oil output to 3 million barrels per day in 2020,' said Mr. Chalgam. "This month, the National Oil Company of Libya reached a $100 million agreement with a group formed by Woodside Petroleum of Australia, Repsol of Spain and Hellenic Petroleum of Greece to develop several oil fields. The deal was Libya's first since United Nations sanctions were lifted last September. Brazil's state-controlled oil company, Petrobras, said this month that it was in negotiations with Libya for an exploration venture." "Libya remains an alluring point of ambition for American oil companies. It has proven oil reserves of about 29.75 billion barrels and its location in North Africa makes its transportation expenses to Europe less costly than from other places. "And while Libya is not expected to rapidly increase its oil production, it might eventually become one of a number of countries, including Iraq and Russia, that could help reduce the dependence of the United States and Europe on oil from the world's largest producer, Saudi Arabia. "Libya, for its part, has signaled that it is eager to strike new deals with international oil companies. The economy remains heavily dependent on the oil industry, with oil shipments accounting for nearly all its export revenue and about a quarter of its total economic output.>>

  38. Winston Munn commented on May 3

    “Libya remains an alluring point of ambition for American oil companies. It has proven oil reserves of about 29.75 billion barrels and its location in North Africa…”

    And how terribly convenient it is to have enemies to fight in North Africa.

  39. Fred commented on May 3

    What’s your point Win? I was sharing an overlooked answer to your query.

    You DO want lower oil prices, and fewer terrorists, correct?

  40. wunsacon commented on May 4


    >> Don’t forget that a tough stance against
    >> rogue countries actually freed up future
    >> supplies from Lybia.

    Has nothing to do with being “tough” on rogue countries. On the Bush adminstration’s side, this was a deal to secure more oil supplies and a talking point for domestic consumption. On the Gaddafi side, he got out of the doghouse! Finally, he can leverage his oil resources again and not miss a booming, booming market for oil. All for a dusty stockpile of mustard gas that he never could’ve used anyway. For Gaddafi, it was a sweetheart deal, one he would’ve made even if Bush didn’t invade Iraq.

    Bush and his supporters present this as one of the “benefits” of invading Iraq. But, with so much money at stake selling oil these days, Libya would’ve made a deal anyway.

    The mustard gas stockpile was a token to make the deal politically acceptable to right-wingers. (As a test, imagine if Clinton had done it. Wouldn’t you ‘ve viewed it as a weak move? Why negotiate with a known terrorist?)

  41. Eric commented on May 4

    “And while Libya is not expected to rapidly increase its oil production, it might eventually become one of a number of countries, including Iraq and Russia, that could help reduce the dependence of the United States and Europe on oil from the world’s largest producer, Saudi Arabia.”

    So you’re saying we don’t need Saudi Arabia anymore since we can just put our trust in Russia? We’d be trusting them a lot more than they trust us.

    Americans are optimistic by nature, which is generally a good thing and has generally been a good thing for America. But just believing that something is possible, or right, or good, or worth the price in the end, doesn’t make it so, even if the President himself says it. The President can be wrong about things, and he can also mislead the country (knowingly or not). It is possible for bad things to result from our poor decisions, only to be followed by worse and worse things, with no one to save us but ourselves.

    Is it right to obtain cheaper oil by supporting oppressive regimes? Is it good to have cheaper oil–since this will only increase consumption–when eventually countries like Russia, Iran, Saudi Arabia will have all of the remaining supply?

    And lest we get too excited about Libya’s 30 billion barrels, remember that the planet uses 80 million every day, which means one whole Libya every year.

  42. Alex Grey commented on May 4

    I think that the strong increase in the stock market averages is holding up consumer spending in the face of declining house prices. So we won’t see a full blown recession until the stock market turns. This may seem a bit paradoxical as you would generally expect an impending recession to cause the stock market to turn.

    However, the stock market can become disconnected from the economy if it is in a bubble – which I think it is. Margin debt on the NYSE it is rapidly increasing is a parabolic increase similar to what was seen in 2000 and this is the key factor driving the stock market. In fact nominal margin debt is above the peak in 2000, while margin debt indexed by the CPI and GDP (neither is ideal, best would be the value of securities on the NYSE) is approaching the 2000 peak. Furthermore, the market seems heavily dependent on increasing margin debt. The weakness in the stock market from late February -mid-March was associated with stabilising margin debt (i.e. no increase). This leads to the following chain of reasoning:
    1) margin debt cannot increase in a parabolic fashion for very long;
    2) spikes in margin debt have not been followed by plateaus in the data series going back to 1959 but rather declines;
    3) The spikes in margin debt in 2000 and now dwarf all previous spikes;
    4) 1) and 2) suggest that the stock market will turn fairly soon unless margin buyers are replaced by other buyers e.g. institutions. This seems unlikely as institutions are not likely to re-enter the market after a substantial gain driven by such a large increase in margin debt. 3) suggests that the turn could be substantial
    4) When the stock market falls and it may fall precipitously, there is likely to be a strong reaction on the part of consumers who have been living fairly precariously for quite a while (first depending on home price appreciation for their savings; now switching back to dependence on the stock market).

  43. beanieville commented on Mar 9

    Do you think solars bull market will be 4x bigger than the internet bubble?

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