I sat in on an interesting conversation today.
It was with the CEO of a public company ($20B+ cap), a two major shareholders (only slightly disgruntled). I am only a very minor S/H, and was really there as an observer who is well versed in both media and markets. There were 4 of us present.
I made my contributions as to what I thought they needed to do to improve their communications. However, the most interesting aspect to me had nothing to do with me or the firm, and everything to do with the possibility of a recession, and the meaning of yesterday’s record Dow close.
My two cents: First day of quarter often finds fund managers with cash to put to work (thanks to the garbage they had to get off their books before last quarter ended); Also, Dow theorists are noting that the Transports have not yet confirmed this new high.
Lastly, the most bullish thing any market can do is go higher. And new highs means this market has done just that.
~~~
So the topic for the assembled multitudes here is simple: What do the new highs in the Dow mean? How likely (or unlikely) is a U.S. recession? Is there a) more upside to the indexes, 2) is this a suckers rally, or iii. do we not know at this time?
What say ye?
The fed has made in absolutely crystal clear that they are here to bail you out if you are long and wrong. Clearly HFs were frontrunning 1998 and our expecting things to go back to normal. Most EM’sm are up multiples of where they were three years ago, not like the naz at 2000. How much longer are EM’s going to continue? When they turn down its recession.
I say if we were going to have a recession then the market would have continued on down in Aug. As long as oil doesn’t spike over 100% in a years time we probably won’t have a recession.
1)we don’t know at this time or any other time
2)nominally, in the indices we have either:
-a breakout to the upside
-a false breakout, which will reverse
-a head and shoulder type topping pattern in which this new high will not last
-a double top to mirror the double top on the long term S+P 500 charts
3) a market so flooded with fiat money etc. that nominally the markets will never “go down” on any sustained basis..but that leaves our purchasing power f**ked (remember the constant new highs being made in the german market as the mark lost its buying power…)
4) I don’t know what a recession is or how we define it or by what measure we are deciding if we are in one or not or which numbers to go by or whether to believe those numbers even if we knew which ones to go by…BUT I don’t know that many people that are really getting ahead right now…
5)GO YANKEES
the big players probably don’t know either
the easiest thing to do while some of the very biggest work it out is to keep the Dow up respectably
if Citi is in disastrous trouble the Fed will bail it out but at what consequence to the global economy,the market,Citi and its shareholders (historians will note in 29 national city bank led the lemmings to the sea)
back to the bear cave
rgds pcm
My take is recession will begin in Feb. After a lack luster Christmas and end of year sell-off, Jan. will be flat and continue that way until Mar.-Apr. when the retail segment of the only remaining US industry, house buying, get faced with the rate adjusted mortgage and freaks. The spending will stop and not start again until the following Jan.
That’s my take and I’ve set up for just this. My money in the US will sit in cash and the rest will leave this dying country in search of places doing real work.
My take is recession will begin in Feb. After a lack luster Christmas and end of year sell-off, Jan. will be flat and continue that way until Mar.-Apr. when the retail segment of the only remaining US industry, house buying, get faced with the rate adjusted mortgage and freaks. The spending will stop and not start again until the following Jan.
That’s my take and I’ve set up for just this. My money in the US will sit in cash and the rest will leave this dying country in search of places doing real work.
Jim Grant is right about the banking system. If we are going to be capitalists we can’t exclude any sector from failing, but years of mergers and risk concentration have put us in a no win situation. I dont think anyone can make sense of the banks earnings, the brokers earnings, or FNM. The system is insolvent and these are all temporary props by the fed.
If we nationalize the system or hide loses we end up like japan eventually. Thats whats going on right now
The disconnect between the bond market and the stock market has been apparent all year. The stock market listens to earnings’ siren song. It is only when earnings slap down the stock market that the disconnect will be resolved. The cover of the Bernanke put has made the US traders fearless. Reality of realty is yet to bite…
I keep hearing “jobs” and “income” will keep things moving nicely. How do the jobs and income stats factor in realtors, commissioned brokers,independent contractors, and the like who are almost universally hurting? What is the multiplier on this? Stopped in at a local (Los Angeles BMW dealership) rep said sales are “slow..”
Well, nobody “expected” the subprime blow-up except for those who saw friends with $20k annual salaries buy 17 condos with state income. By “nobody” I mean no wall stree types who don’t even know anyone making less than $500k. Now those same people who were “shocked” at the subprime blow up can’t fathom a recession..just keep looking in the rear view mirror and don’t worry about the road ahead..until it disappears in front of you.
The new high means only that there are an awful lot of techies playing this market, and everyone piles-in,(simple Simon says), one direction or the other, but especially on the up-side lately because of what the FED did. We started a reccession in July, and the numbers will prove it going forward. The transports are not confirming the move up because, you need orders, in order to transport something.
By the way…how EXACTLY does the market predict a recession? The “market” being the ollective knowledge of who exactly?
The bond market is run by foreign central banks and that is part of the problem. We cant operate a market based economy when half the participants are not buying based on value, but rather to manipulate this system for nationalist gains. In the end everyone will pay the price. Doesnt anyone find it odd the bond market and currency markets continue to do nothing even as the us cut 50bps. Thats because everyone is caught like a deer in headlights trying to maintain there stupied dollar pegs.
China is so far the past the point of return that when it busts the global economy will shudder. They have been forcing there monetary polciy on the rest of the world.
I’m developing a new model for investing. Builder confidence at an all time low – BUY! Over 50% of those polled by WSJ think recession likely – BUY! Negative job growth – BUY! Big banks tanking – BUY! I could keep going. I’m thinking a good investment strategy right now might be to leave my laptop home and go spend 6 months in southeast asia. I’ve already cashed out my stocks (not quite $20BN). Or, to spend years away and then come back to buy more real estate.
Of course with the way the dollar is going I may have to make that a 3 month vacation.
financial markets have been disconnected for years:
we get 17 interest rate hikes, and long term yields go nowhere.
the fed funds rate goes down, and LIBOR goes up.
wheat, oil, corn, sugar, milk are near record price levels, and the inflation rate falls below 2%.
we lose 4000 jobs in the last employment report, and the unemployment rate stays unchanged.
at this point, having an up market in a recession would make perfect sense.
Have we ever had a recession when 45% of financial advisors see it in their crystal balls?
We will not have a recession simply because there are way too many boneheads out there predicting it. When the number of bearish boneheads approaches 20-25% then I will start worrying about a recession.
In addition, the last two recessions (1990-91 and 2001) were very brief (only 8 months each). Moreover, in 2000 we had the stock market bubble, but nowadays we do not have any bubbles in stocks; on the contrarily, the stocks are undervalued — just load up the truck and enjoy the US corporations making money for you. God Bless America!
Why is everybody so stressed out like a recession is the end of the world or Armageddon?
I would be more scared sitting on cash than to be invested in stocks. I do not understand how the Armageddon-Dude can sleep at night with 100% cash portfolio. Nowadays, you need to have the nerves of steel to be 100% in cash.
I personally believe that this is a sucker’ rally. Nouriel Roubini has written about a similar rally in the spring of 2001 before the market wised up the underlying economic problems and dropped like a stone. While I’m not equating that economy with this one, the market comparison is interesting. The post can be found here: http://www.rgemonitor.com/blog/roubini/ (the 10/02/07 posting)
My analysis of price action leads me to believe that we will take out the July highs – barely – and then roll over. Additionally, this rally has been very weak. Volume and breadth have both been poor and 900 of the 1500 points have come on the back of Fed cuts.
1. The 8/16 intraday reversal: There’s a lot of talk that the next day’s discount rate cut was leaked to one or more of the banks, spurring the reversal.
2. The discount rate cut was deliberately done before the open in order to hang out short call/long put index options positions. These options expire at the open, so there was likely a great deal of short covering that day. (Incidentally, I thought that was disgraceful on the Fed’s part. It is absolutely not their responsibility to bail out/manipulate the markets. Whatever the market is going to do – up or down – let the market decide. This is supposed to be a FREE market, right?)
3. 300 more points on the Fed funds cut.
4. All other rally days have seen poor volume.
Added to the weak market internals are the underlying economic problems, a weak dollar, rising commodity prices (and inflation) and a housing collapse that is gaining steam, and I feel that we will eventually take out the August lows and trade significantly lower.
Of course, that’s just my opinion. I could be wrong.
America is for sale, and foreign buyers are doing their Xmas shopping. There will be a tipping point where use of the proceeds from debt (in the aggregate) becomes a negative multiplier.
With de facto asset deflation, the only logical hedge seems to be equities, in essence, recycling of petrodollars, chinadollars, & fed liquidity into corporations that can raise prices and presumably protect a store of value.
So can the Fed keep cutting until the election, postponing the arrival of the tipping point? The stock market did quite well from ’83-’90 as the S&L crisis limped to resolution.
I am rethinking by bearish equity position, as these things always take longer than expected to play out. Aside from Merrill & UBS, I see noone else doing a kitchen-sink quarter, so all of these credit losses are going to be recognized Japanese-style, over dozens of quarters.
The market has accurately predicted three of the last ten recessions; a moderately better record than that attributed to professional economists who have exhibited a lamentable proclivity for erring on the other side, accurately predicting at least twelve of the last three recessions.
The amusing conceit of prediction markets aside, maintaining purchasing power in a time of decreasing real wages requires investment in assets other than work: Now that real estate is no longer an option for most that leaves equities with the usual additional option or three for elites; it’s not really different in China or Zimbabwe or just about anywhere else when it comes down to it so I think the markets could stay propped up for awhile longer.
The really fascinating thing is I’m making good money both long and short, here and abroad, and at least half the time I can barely explain why it worked operationally much less strategically or macro-economically: Think I’ll be going fishing pretty soon now.
Ecclesiastes was right.
When do these job cuts show up in the U.S. employment data?
http://www.reuters.com/article/marketsNews/idUKN0241510520071002?rpc=44
Really, over 87,000 announced job cuts and nothing is showing up in the federla numbers. Are they just announcing these lay-offs to get a boost in their stock prices? Or to placate the market/shareholder some other way? Does anyone police this activity? Where the hell is our fair,and transparent capitalist system headed??? Big money just keeps on rigging the system to suit them.
My guess is marginal new highs in the next 30 days on S&P and Nasdaq. A bull trap. The realization will come soon that its going to take a while for these rate cuts to work.
short term, we have plenty of momentum and are absorbing bad news like its nothing! At some point in future, we are going to have some sort of headline shock that will hit the market. Not sure what it will be, but it will happen. Too much baked into stocks right now, its best to call in profits then take the downside risk.
I say we have a rally to 14,350 or so, and then a completely normal, and sudden correction to mid 13,000’s…Generally, I think economy is ok and will deal and work through blips. Inflation and higher commodity prices are a signal of global growth, so as long as that stays, you have to stay generally long stocks with a hedge short position in indexes.
We keep worrying about inflation in pipeline, if thats true, than near term bullishness in equities is the play and fed will raise rates; last time I checked the fed raises rates because growth is there and an overheating is a concern. Big threats come next year with effect of housing woes, defaults, secondary shock to credit markets, and tax policy change if any.
Berry- I say Buy.
There’s an old saying on Wall Street: “Don’t Fight the Fed.”
Look at me, 18.3 Billion and I don’t receive one penny.
Hamlet “Though this be madness, yet there is method in’t.” – William Shakespeare
I think it is actually “A”, “2”, and “D”, at least if you are going to be true to the original.
Great allusion.
The Enronization of America continues and America gets what it deserves with an economy largely run by financial rip off artists.
I was thinking the new high had something to do with the new Federal fiscal year and a fullup checkbook coming. (fullup – you know what I mean)
What’s sustaining the markets is the belief that the Fed’s action are going to work. That the Fed will keep the US from falling into a recession, ergo profits will continue to grow. When realization dawns on the stock market that the Fed cannot stop the unfolding train wreck of fictitious capital (god I love that term) then katie bar the door, it goes down …….quickly.
1. Don’t fight the fed
2. Don’t fight the tape
3. Watch the triple top in SPY
4. Buy, but put in stop-losses my friends
The elections are next year…..so we need to deal with this nonsense until such time!!!
The markets can go up all they like but the question is, is it any easier to make money now then it was a year ago…. a resounding NOPE. Feels like money rotation and a squeeze of the shorts.
What is so pathetic to me? Is that it feels like Uncle Ben has put the screws to the shorts twice on options expiration! So much for free markets….
Sucker rally or not, it’s been meaningful if you caught it and painful if you didn’t. Once again, I learned the hard way that ignoring my indicators over reading was the wrong thing to do… What people say and what people do are the most divergent thing I have consistantly witnessed… My indicators told me when to get out with minimal harm and reversed when people were still yelling fire. Emotion is still the enemy. The thoughts are nice, the worries are valid, the recession inevitable (maybe), but how much is given up waiting for it all to come to fruition? Mechanically, it is simply hard to go against the tide at this time of the year. Supposedly, a lot of managers making a lot more than me are behind the eight ball… not just gunning for bonuses, but survival. Cornered animals are dangerous and shouldn’t be trifled with…Pullbacks? you betcha. Volatility…maybe it will spike back up again after “they” have made their nut. It is foolish not to believe we are in a neverland situation right now… Make your sheckels now, but do not wait for people to be dancing with lampshades on the head. The cops will come and this party will be busted, but there is still plenty of cold beer for the moment and Benny is our lookout…
The stock market used to be a 6 month leading indicator.
Now, I doubt it is more than 6 weeks of leading indicator. Why?
1) Globalization of securities trading.
2) Tempo of securities trading, creating swift and massive volatile swings.
Gold is up, dollar is down.
Europe is looking weaker.
The Fed did a short-term favor to me -and other investors – and a long-term disfavor to the economy by the recent lowering of Fed funds.
Predict some sort of stagflation in 2008 Q2.
Aggravated by Fed panic rate-lowering.
This week the VERY MAJOR Mutual Fund family I do business with sent an email to customers warning of the perils of going to cash and missing equity opportunites.
Why would they send this email?
Because many people, including yours truly, are getting out of equities and going to cash or bonds.
Wow, do we have a Wall of Worry here or what?
What is the lead horse? The US or the rest of the world?
There’s your answer, I think.
I don’t think anyone can make sense of the banks earnings, the brokers earnings, or FNM…..
or inflation numbers, or employment/unemployment counts, or debt figures, or war costs, or money supply or…..
Never known such an era of unmitigated propaganda in my life. Propaganda is a symptom of national disease.
So are 50 bip rate cuts in the face of “economic strength and growth”.
Screw Denmark. Something is rotten right here in the usa and something wicked this way comes.
i still say recession is now and we’re due for another Fall classic.
Just saw poor old Paul Kangas looking like Deputy Dog these days, with no more chipper “best of good buys”. Neil Cavuto reads his pre-scripted lines the same way Mitt Romney speaks them, like the metronome my daughter practices violin on, tick, talk, tick, talk. And Maria Bartaromo, wow, looks like she’s being force-fed the same meds as Britney.
Everyone knows the White House is on crack, and Fed is a ham sandwich, without the bun.
Now comes the martial investment arms, like
http://tinyurl.com/2ffh79
and you know Soros and Buffett are ‘in’ too.
Petroleum is the final con that breaks US, petroleum, and this Neo-Zi Supreme Soviet.
Poor old Mom and Pop are shivering in their kitchen around a two-day old chicken roast, hoping their utility bills don’t go up, the old bomber parked forever in the driveway.
I watched an old couple take a can of plums off the shelf at the store, caress it, look at each other, then put it back and leave.
Anyone who looks pre-2000 for market clues is living in a dream bubble. Double tops, market cycles, bollingers and 100-Year DJIA,
wow, where do you get such good snuff, we might as well be talking tobacco futures.
Why are we even talking? Play Nearer My God on your harpoon, and let’s bug outta here!
jras said:
“Make your sheckels now, but do not wait for people to be dancing with lampshades on the head. The cops will come and this party will be busted, but there is still plenty of cold beer for the moment and Benny is our lookout…”
You are precisely correct, there is a window within which any idiot can make some money, after it closes it will get harder. But I don’t foresee it closing during an election year, so it’s entirely reasonable to work on a 12 month horizon for a bit yet if that’s your preference. My guess is that it will not be time to head for the bunker until maybe next November, in the interim we should see repetitive new highs in fits and starts just because that’s the way things work with govt. intervention to save the Rich & Worthy. Any of you who want to play rochambeau with Ben and Hank can be my guest, but you will never win.
==whipsaw==
On a relative basis, it’s inevitable. Fundamental economic forces are driving capital, both real and financial, to countries besides the US. This reduces capital accumulation (productivity) and the “management fees” that both our financial industry and our managers of real capital receive for their services.
Since the US market has not processed this fundamental factor/trend, a trend that will reduce our sustainable growth level (and sustainable productivity growth), the markets must eventually correct.
I think someone should point out how_angry the commenters calling for recessions and crashes seem to be. Why the anger?
I’m not sure I understand why one would be angry that the stock market is doing well and the economy seems to be averting a recession.
While I’m sure the anger has to do something with the armchair economic forecasting team vs. Bernake and the Fed team, it is entirely possible that the Fed team is right. It is also entirely possible that the AEFT is right. One figures the probabilities and places his bets. It is a rational response to irrational markets, so why the anger?
I think that the markets will continue a steady climb, with obligatory pullbacks, and that the economy will avoid a recession.
Excellent… My crystal ball.. though defective and cracked….
The new highs are a ticking time bomb on the Market… In the research I’ve done.. The only time the fed has cut and we havn’t gone into a recession was 98 and the LTC/Russian debt crisis, which was a market event and not an organic market economic boom bust correction(whatever that means)… Historically, after the fed cuts the first time we always trade to new “All Time Highs”…
Then the news starts coming in, bad employment, slowing consumer, slowing global economy, confirming the Recession… and the bear market starts, just a few months after the Recession actually started. the idea that the market is predictive of the economy, is just garbage. It’s reactionary and emotional.
Back to my point, now that we are hitting new highs, the fuse is lit… But that fuse could run for a few weeks, or a couple months. Our conservative fed, did not cut rates because “Maybe” something was going on. They know it’s coming too.
Now when the fed doesn’t cut rates in October.. the bulls will say “it’s because nothing is wrong”, and if they do cut rates, they will say “the fed has saved us”.. either way we go higher. Unless the employment numbers are negative 2000 or greater we will trade higher off of them as well. The reason the fed IMHO may not cut this time, is because they know about Inflation Ex-inflation too, and may be hesitant about setting off the death spiral of hyper-inflation.
My understanding is that it was the fear of inflation because of oil prices that made the fed tighten in the middle of the 73 recession, which kicked that recession into high gear… Which is why we now have Inflation Ex-inflation… have faith the guys at the fed are smarter than the front they put out to the public.
This is a suckers rally, but for the bulls, and the bears that don’t believe in their own thesis… Every bet(investment) I make… I say… is the upside bigger than the downside? now that we are at new highs… My answer almost every time is no.. There is a ton of downside and now I’m only picking up crumbs off the table, at best. It’s time to start getting Super defensive, tight stops watch the market like a hawk… and watch the dip buying.. as the dips get broader and broader.
The fed saves us from Depressions, not recessions. If they saved us from recessions why have we had 9 recessions since 1970…. we are defiantly Due.
It’s a long way down from here.. to a 30-40% decline of a Bear Market. Trying to catch this last 3-7% is getting dangerous.
As my boy Santelli says, “picking tops and bottoms, are sucker bets.”
The real question is, why is why does Santelli with both a trader and economic background have to degrade himself to argue with that Journalist Steve Liesman….
and why does it seem like CNBC tries to sell Liesman as an “Economist”…. Try Info-ainment Econo-strologer.
But like I say, my crystal ball is cracked and broken, and sometimes I think I’d be better off to get one of them “magic 8 Ball”
But, bonds are starting to look good to me…. hmmm maybe Copper, milk, and.. coffee.
I’m not sure I understand why one would be angry that the stock market is doing well and the economy seems to be averting a recession…..
Well, some of us who read Barry’s Blog are NOT investors and some of us who read BP aren’t much into Vegas either…..
in the classic con game- find the pea under the shell; someone is making money, someone is losing money, someone is shaking his head in bemused disgust….
and someone else is hailing it as the “genius of capitalism”
Yes, the US is headed for a recession. MEWs have to decline, consumer spending will follow, the fed cut was not a bail out but an adjustment made in a continuing tightening (yes a tightening, they had to cut to counteract the rate increases caused by the credit crunch. Rates are still higher than before the cut) to fight inflation which will continue for a short time.
We won’t admit there is a recession until the US dollar strengthens and minor stagflation turns to deflation as the rest of the planet follows the US in eight to twelve months.
That’s my guess.
Brion, I don’t think you explained the anger.
The next volatile move could start from HK and/or China. Look at Hang Seng index performance since subprime rocked all the markets around the world. The index is up around 40% in about 1 month. And it isn’t gonna stop here. It will go higher than 30k. As as Asian, I know that we are pretty good with handling money and when it comes to investing, we wouldn’t hesitate. The scary part is….. What if China/HK bubble is similar to Wall St’s Oct 1987?
A shopping list of random indicators September for August 2007
US leading indicators (- 0.6) August
NY factory down August
Sales of advertising down
Tax receipts down (see the latest communication of the governor of Virginia on this subject)
Ford trucks sales (-22 Pct) this is real economy!
What is more impressive is the sense of panic, filtering from a banal potential economic cycle an eventual growth contraction.
It is to be assumed that the main economic aggregates and balances have never been so ill prepared to meet with this eventual recession.
The indicators suggest that a recession is nowhere in sight:
1) Yield curve has normalized.
2) Commodity prices strong.
3) Emerging markets, particularly China, still crazy.
4) Baltic Dry index still strong.
So it’s not as if the US stock market is ignoring what’s out there. All the markets are saying the same thing.
And yet… I can’t believe that we’re going to have this massive global housing/debt implosion without taking down the economy.
Think back to 2000. The tech economy started collapsing first. At first it seemed isolated to tech. The Dow remained relatively strong (close to its all-time highs) until April 2001 — a full year later. When the Fed cut rates, the market went wild (up 14% in one day on the Nasdaq). But it would later turn out that we were already in recession. It took a full year for the ripple effects to be felt in the rest of the economy, and for the Dow to reach the 7,000s.
I suspect that’s the case here. So far this is isolated to one industry: housing. Those stocks have already been taken out and shot, just like the Nasdaq in 2000. At some point it will begin to spread to the broader economy. But we’re not there yet. I suspect we are in early 2001 right now.
Watch the indicators above closely, particularly commodity prices. They will tell you when and if the game has changed.
New highs exist only when measured in increasingly worthless dollars. If you report inflation properly we are already in recession.
It just does not matter what the views are. Does it matter if the logic is right but the market moves the other way? Would you rather have the right process or more money in pocket. So much has been written about the ills of the global economy. Goldilocks was supposed to be officially dead. Banks with losses are good news now. Huh.
Just that the tape tells a different story. And this story is always the same. It just keeps going UP. Emerging markets beating the shit out of anyone short. The line of least resistance always seems to be up.
Recession, now what is that? And does anyone care? Moreover, Does it matter at all? Maybe, that would be good news too for another move UP.
OF COURSE a recession is coming …and don’t throw technical analysis or lagging indicators at me as a logical argument against it …ridiculous!
I also don’t want to hear how CHEAP stocks are …this is also ridiculous. The PEs are based on peak earnings and at 18 (for the S&P) you can expect about a 5.5% return (Return = 1/PE). Also, except for the bubblicious 90s, an 18 PE WAS always near a peak.
The only question remaining is inflation gonna be a problem also! The declining dollar …and resulting high commodity prices …may easily result in stagflation.
I do agree the market is completely INSANE though. Pending home sales dropped like a rock for the 2nd month now and how did the market react today after the report …the market bid up homebuilders and REITs!
It’s like a bum on crack that’s still screaming and yelling, but his hearts already stopped. Well ok, maybe that was Cramer… :)
Brion, I don’t think you explained the anger….
er, maybe you need to woodshed on it a while….
Barry, could you do a piece on, “Election Years?” It seems that people are thinking that every election year is a ringer. Funny thing is I played the down-side in this past “off” election year, and got burned because things went oppisite way -Up. Now I’m wondering, and believing actually, that things have gotten so stretched because of having two back-to-back eight year terms that something is out of wack jack!
Since 70% +/- of the economy is based upon consumerism who is creating real wealth in this country? Question: Can a consumer economy grow and prosper over the long run or are we eating the seed corn?
This has been a great thread, thank you all for your opinions….
Every morning, the merchant checks his inventory, projects sales for the day, and buys the merchandise he expects to mark up and make a profit. At the end of the day, if an item hasn’t been selling well, the merchant will sell his excess inventory at a small loss or gain.
During the holiday seasons throughout the year, the merchant will increase his price and hold, expecting strong sales vis-a-vis the rest of the year, putting the excess goods at fire sale prices after the holiday.
What’s the point ? Wall Street is the little merchant. They buy up securities to sell to others. When they can’t sell them, they dump em. Fourth quarter is the holiday season.
Why the anger ? People are afraid of the Fed, the government, and wall street. The future is cloudy and damn few believe the carnival can continue but are afraid to play because they will get creamed if the little merchant unloads inventory. The uncertainty pisses people off – no one wants a collapse or recession but would almost rather get it over with if it is inevitable.
Great posts. I think jsrs spoke some wisdom, today.
Bear market next 10 years if interest rates rise. Crash if jobs crash. Through year end – flat to slightly down. Who knows.
“Nowadays, you need to have the nerves of steel to be 100% in cash”
When everyone feels good about their investments, it’s usually time to sell. If you want to make money you must feel some uneasiness. Maybe this is the perfect reason we should hold cash!!!
IMO markets risk major downturn until this improves.
Shrinking Market
The reduction in collateralized loan obligations may make it more difficult to sell the debt, according to Dan Fuss, vice chairman of Boston-based Loomis Sayles & Co. CLOs bought as much as 60 percent of loans for LBOs this year, according to New York-based JPMorgan Chase & Co. analysts.
“The impact of the CLO freeze up is certainly not out yet,” said Fuss, who oversees $22 billion of bonds.
More than 65 percent of investors in mortgage-backed securities are struggling to find bids for their holdings, according to a survey of 251 institutions last month by Greenwich Associates, a Greenwich, Connecticut-based consulting firm. Among holders of CDOs, the figure is 80 percent.
The U.S. commercial paper market is shrinking. The amount of debt outstanding that matures in 270 days or less fell $13.6 billion the week ended Sept. 26 to a seasonally adjusted $1.86 trillion, according to the Fed. It’s down 17 percent in the past seven weeks.
“People said this subprime liquidity issue was going to go away after Labor Day,” said Tom Quindlen, CEO of corporate lending at GE Commercial Finance in Norwalk, Connecticut, a unit of General Electric Co. that has $14 billion of assets.
“The bankers were going to return from vacation and just jump right back in,” said Quindlen. “That’s what I heard in August. Well, they get back from vacation and they’re saying it’s the first half of 2008. I think it’s going to be longer rather than shorter.”
Shrek < Love your post! The recession began in May. This has been a time of pause or lateral movement/growth. I now expect to see negative trends in stocks, wider spreads, and increased indecision in business investment. I also sense that the consumer will begin to see and feel inflation more rapidly -- heh buddy is that loaf of bread really 5 bucks, geez!. Retail sales flat to -1% on s/s/s y/y. Christmas will be interesting. I expect immediate blowout sales or risk sucking wind by late December (Read good Black Friday but the following Monday will be a bust)
I’m worried over the MiddleEast mess and our required retreat. Vietnam pullout produced a halving. Maybe this is the backpeddling on a Democrat immediate pullout – besides a no good way out. I repeat required retreat.
Is there a formula that provides data concerning the Military Industrial Complex Spending – 1> how much of the PIE returns to the PIE 2> how much BURNS UP 3> how much is expelled to EXTERNAL COMPETITORS?
Of course in a MIC economy – one needs a MIC base to flourish.
I would say measured against what exactly because that IS the question.
ps – forgot a big part of PIE
Promise to the Veterans – in education, pensions and medical costs
The Promise is a future expense / retained for the most part in PIE / short the loss in productivity of the walking wounded
It’s instructive to take a look at the DJ Industrials measured against a stable currency like the Canadian dollar:
http://stockcharts.com/h-sc/ui?s=$INDU:$CDW&p=D&b=3&g=0&id=p06779496355
By that measure the Dow peaked in Feb 2007 and has been falling steadily since. The nominal July peak in $INDU was a near non-event in $INDU:$CDW, as is the present nominal near high
Similarly for the Trannies: http://stockcharts.com/h-sc/ui?s=$tran:$CDW&p=D&b=3&g=0&id=p06779496355
The Trannies peaked in February 2007, fell with a nearly constant slope until the mid-July nominal high in $INDU and $TRAN, and have fallen at a faster clip since.
We’re already in a recession. Wake up and smell the bear poop.
Woodshed
The anger is an expression of frustration.
Frustration over 6 years of horrific economic policies. The sacrifice of long term growth and strength for short term quick profits.
It is about degrees of recession. It is about what could have been at one time several years back a small slowdown as part of the normal business cycle that has now been pushed to the limits of insanity and will have to end up as a major, big R recession when the current polices, excessive spending and the realities of out of control money supply growth finally come to roost.
Perhaps , as has always been the case , we won’t know we are having a recession til we are in it . I think we are in one , just isn’t apparent to marketeers and big money folk . As long as theres money to be made , they will be in the markets . If we don’t see the finance stocks turn up , we will have our huge marker drop . So far they are treading water in this rally to resistance . jmho
Bill
Woodshedder:
Why the anger?
Personal exposure to the market and general economy aside, I think it’s due to the perception that the meme doesn’t match the reality of the economic/social scenario.
There’s credible evidence that the bus (evrybody is on the bus) is heading in the wrong direction. Worse yet, there’s the creeping realization that the bus is being driven recklessly, by thrill-seeking teenagers. Anything goes – consequences be damned.
I think what you’re seeing is not anger, but fairly well justified angst.
we are on a cross road never seen before.
i do not think the dollar will fall drastically, reason:
1. EUROPE does not want a strong euro, it hurts their exports.
2. china/india/brazil/Saudi etc.. will not let their currency appreciate much.
3. Japan is not a significant player anymore….they have their own problem of deflation and slow growth…they want a weaker yen since theirs is a export oriented economy. (and of course they have interest rate of .5% not exactly a supporter of strong currency)
so even if FED continues to lower interest rate i do not think dollar is going to go down much (maybe 2-3%) (no one wants their currency to go up anymore, its like punishing themselves)
even though i am losing a lot because i am a net saver, zero debt, i still support a rate cut to ward off recession. with rate cut we are making capital so cheap that it will have nowhere to go but invested in business to create more jobs, irrespective of a slowing economy.
the world has enjoyed exporting to usa and double digit growth, now its time for them to pay the price in terms of subsidized products and loss in their current USD holdings. if not for these countries pegging their currency dollar would have gone down another 20-30%, making our exports cheap to the world and making local manufacturing cost effective leading to more local jobs.
I also support inflation because we are a net debtor country, and the only way out of debt is inflation since that will deflate the debt while increasing our wages.
but that does not mean we will not get into recession, it all depends on the condition of the consumer for which we do not have any reliable data (i still dont believe that consumer is neck deep in debt and 2-3 quarter later…he will not have any money to shop around leading to massive recession or depression)
as for the market…which is the actual topic, what can i say for gamb-lers with lots of cash and that too other people’s cash (74% money in market is supposed to be from sources like pension fund, retirement fund, 401k, mutual fund investment etc..)
but right now i dont like it since i am 75% in cash
woodshedder the anger is because we do not like to gamb-le or speculate just to beat inflation.
we will love to be on the long side if the data supports the fundamentals of our economy and market, but its not so.
they say we are heading for recession due which fed lowers rate……yeaaahhhh time to go more higher because we are heading towards recession.
and all these are nothing but signs of cheap money (asset inflation) and the FED instead of doing things which will support the economy and punish those risk takers….it appears they are on their side making money more cheap to fuel more speculation and risk taking.
but their is one thing that bothering me, is it not possible that no matter how cheap money becomes in usa, nothing will be invested here but it will all be sent overseas because thats where real growth is right now???
just like japan, interest rates are .5% but people keep investing overseas in carry trade.
thanks to global economy….we wont have to suffer the pain alone, we will be exporting inflation to subsidize our slow growth (again just like japan)
Barry,
What was the companies view on the possibility of recession and the equity market?
Remember, a Dow theory non-confirmation is not a positive signal. Only confirmations count. So the fact that the transports have not yet confirmed the industrials is reason for caution per Dow theory only insofar as (a) that means that sooner or later there will be a confirmation and (b) we can’t know whether that confirmation will be bullish or bearish.
Non-confirmations between the industrials and the transports aren’t the same as divergences in technical indicators–which do provide positive signals.
Question: Can a consumer economy grow and prosper over the long run or are we eating the seed corn?
We finished ours a few years ago and have been borrowing from the Saudi and Chinese stockpiles. As George RR Martin would say, “Winter is coming.”
Whence the anger?
It’s the result of basic human nature. We invested in institutions lead by people to whom we had given fiduciary-like duties and powers. They have abused the powers and abrogated the duties. They have caused real injuries, and I expect more.
We are being cheated right before our eyes, and as long as we continue to trust in the system that has given nearly all of us the freedom to invest and profit in this economy, we are extremely constrained (perhaps to the point of being effectively powerless) in our ability to take action to affix responsibility and implement innovative solutions to our problems.
Thence the anger.
Anger….
As I’ve said repeatedly, the market is a foil for the emotions of investors. Lopsided negativity, like in this thread, is a perfect example of the emotional aspect of sucessful investing….(buy fear).
The current political “angst” and negativity (very low approval of Congress and Bush) have also added to the economic negativity…when in fact this should be irrelavant.
Question for Barry…have we ever entered a recession with such strong global growth, strong commodity markets, and high shipping rates?
Fred, do you actually believe that this blog represents the common opinion of markets?… Seriously, do you?
The markets appear to be rising in knee jerk reaction due to expectation of inflation usually consistent with rate cuts,
But?????????
http://www.lewrockwell.com/north/north571.html
As for liquidity, the Federal Reserve System has expanded the monetary base by less than 2% per annum ever since Bernanke took over in February, 2006. By Greenspan’s standards, this is a policy of tight money. It is disinflationary.
Amazingly, investors pay little attention to this statistic. They assume from the headlines about the lower federal funds rate that the Federal Open Market Committee is expanding the money supply rapidly, which is not the case. It may be preparing to do this, but as yet, this has not happened.