Markets have been in what I call the "orderly whackage phase" over the past few weeks.
Off of the top, there’s been some damage done:
• The Dow is down nearly 2,000 points or ~13% from the October highs.
• The S&P500, from its recent high of 1565, has given up almost 15%.
• The Nasdaq has shed 470 points from 2859, or nearly 17% lower.
• The Russell 2000 is down ~20%.
And thats before the disorderly whackage phase begins.
Question for the assembled multitudes: Are we closer to the beginning end of this correction, with an oversold bounce due (anyday now) or– is this the start of something even uglier, with the market heading relentlessly down without interuption?
What say ye?
~~~
Think it’s the start of a long road down- too many excesses have to be washed out and blaming only “sub-prime” is a gigantic ruse. Bad lending, fraud, and greed are leading to what they always do- a well deserved correction, now if only the ones truly deserving get the correction- which doesn’t seem to be the case most times.
By the time muni holders realize that their AAA bond is really a B rated bond, and all those banks and insurance companies realize that Fannie, Freddie, et al, are broke….and that those bonds have home loans in them that people can’t pay……when all this comes out, then the whackage starts.
everything I’ve read is pointing in a direction I’ve never seen before: Down. Further.
Several factors that don’t lend themselves to optomism:
1. Increasing energy and food prices aren’t freeing up any ability for the crucial American Consumer Spending Machine to operate.
2. Housing…
3. Credit card debt…
Quite frankly I’m having a hard time seeing many good elements of the economy right now. Perhaps I’m blind to the bright light at the end of the tunnel…
I thought we might get a bounce but ever since AMEX came out with their numbers and that write-down….ouch. We might head all the way to 11500 before we see any relief.
short the next uptick…two days after the fed rally.
dow headed to 11200
here’s my latest thesis: the bear market began in 2000.
it’s comparable to the bear market that began in 1968.
that makes today comparable to 1975.
any thoughts?
Suspect we’ll get a bounce in the next few days.
I don’t know that the whackage has been all that orderly, especially today. I got the feeling of everything being whacked and sold indiscriminately, because people need to sell.
That said, a very disorderly whackage (ie, crash) is not out of the question, especially if our supposed leaders keep shooting off their mouths and revelaling how clueless they all are.
I rarely commend Cramer, but “WE KNOW NOTHING!” seemed to be the operative message I got from both sides of the Bernake sideshow today.
-btc
Vote#1: beginning of the big D
A bounce up in the very near future b/c people will think the markets oversold, but I agree with alex. Too many credit problems in too many places and popping up in new areas all the time. We’re going to loose more ground as the employment numbers will start looking terrible soon.
Another real good whack ( VIX 35 ) and I’m in……..
strange — entered “hidebound” as the name and it was posted as BelowTheCrowd??
I stick with what I said earlier Barry, there’s a bunch of people that are just now starting to understand WTF has been going on (we’re at the beginning stages of this). It’s like these people have been sleep walking. I was watching CNBC and they had a Perma-Bull, money manger from Las Vegas, bragging about managing 2 billion. He was saying this correction was overdone, and pushing stocks. It was just hilarious. When these Perma-Fools start advising people to go into cash, I’ll cover my short positions and go long.
I think the market is due to bounce, however, I see no sustainable strength. There’s simply too much excess left to expose … too many people still believe everything is okay. The markets will likely rollover into any bounce and head to new/nasty lows.
Impossible to answer. The pain needs to come, but it could come tomorrow or it could be drawn out over a period of years. And the closer we are to the point that it needs to go one way or the other, the indicators become more and more difficult to interpret. It’s self-organized criticality, life at the “edge of chaos”. Per Bak is smiling down on us from wherever he is now…
Let me summarize what I have already stated:
My “BIG PICTURE” is that if Shiller is right, housing has to fall 40% just to get to pre-2000 highs using 120 years of data (not just bubble times). It will probably fall 60% and usher in something resembling a depression. Optimal portfolio is 1/3 cash, 1/3 very short term treasuries, 1/3 QID. Gold will tank with other commodities.
My “SMALLER PICTURE” is a very sharp sell off to DOW 11,300 or so in the next 2 weeks, then an oversold bounce while we await more data. The S&P should trade at 1 times sales of 900 per share (my estimate)before year-end, possibly breaking its worst calendar year ever (-43% in 1931).
Credit is contracting in our credit-based economy. We are already in a recession and equities (a.k.a. options on profits) will be heading down…not in a straight line but still heading down.
We could bounce in the short term, but my guess is an all out crash (20%+ one day move) sometime within the next couple months….
Steve,
I tend to agree. I would short the next bounce, but have in recent days cut back on shorts and even added some longs as I believe that the bounce could be sharp and vicious, especially if the Bernake looks at today’s reactions to his comments and decides he has to move fast and quickly.
(Unlike some, I’m not convinced that he decides to cut right into options expiration in the morning, though it certainly couldn’t happen. But I wouldn’t be shocked if he lets everybody stew in their juices over a long weekend then cuts Tuesday morning.)
Even if we wait to the end of the month, we’ll probably get a ripping bounce somewhere in here.
Then look out below.
As to the comparison, I think we might be more like 1974. That was the year that our oil dependence and corrupt leadership problems came home to roost, we had to figure out how to get the hell out of a disastrous foreign war and the DOW lost half its value.
In 1975, a DOW investor doubled his money. We’re not there…
-btc
The VIX finally popped today. With expiration tomorrow it will be interesting. I wouldn’t expect to see a multi-month bottom in the market until we see a VIX approaching 40 at the minimum. See past spikes earlier this decade. It took VIX readings well above the 35 level to signal at least an intermediate bottom.
Hidebound,
Your name shows up under your comment, not above it.
-btc
11% and 12% corrections would only signify a bottom if this is a mid-cycle correction, and history argues against that. The bull market was long in the tooth so to think this is a correction for a continuation is problematic.
Bear markets typically range from 6 month to 18 months, so looking at this as a bear market means it is still early – I wouldn’t start looking for a bottom until we are in the 25-30% fall from the highs.
If Nouriel Roubini is correct that a recoupling will occur, the U.S. could well lead the world into recession, in which case a drop of 40-60% can’t be ruled out.
I remember Barry asking about this very thing some time ago under “American Flu?”
Roubini was a little early in his prediction, but his hypothesis so far has been dead on – a little frightening.
I think the markets are due to go down further still. We are talking deep recession down.
11,000 or less would not surprise me.
i think we will get a big bounce….due to FED rate cut and some talk about stimulus…
but i think i am pretty convinced that most people will start to short the rally…
now i am not sure how long that rally will lost if everyone is shorting it.
I say a 2-3 day bounce sometime next week (definitely if we get a rate cut). Then down again until $SPX 1275-ish. MAYBE we make a stand there.
Barry – Remember the Dennis Neil top you called at 14,000 when he was super bullish and ridiculed you for being bearish. You have to bring that back up next time you are on air with him on Kudlow.
VIX needs to pop before we bottom.
Remember in the summer of ’98 when those of us who knew *so much* about stock market history assumed the mini-bear was the beginning of the end for the Naz bubble?
Now, like then, we are well-into one of the longest bull markets in history and a mini-panic caused by financial shenanigans. But ’98 was just a warmup, as was ’87.
Unless someone is willing to go WAY out on a limb and suggest that we are headed towards the next Great Depression, I think we get one of two scenarios:
1) The market gets whacked mercilessly, we bottom over a few months and then head back up for another blow-off top well above the October highs, or;
2) we stabilize soon, churn around for a few weeks, maybe even fake enough people into going long again, then start a fairly orderly descent for the balance of the year.
Again, the potential for a Black Swan (the book is so full of sophistry I wasn’t sure whether it needed to be flushed down the toilet when I was done reading it, but I love the term) event is ever present, but if any of us could predict it it wouldn’t be a Black Swan
Remember in the summer of ’98 when those of us who knew *so much* about stock market history assumed the mini-bear was the beginning of the end for the Naz bubble?
Now, like then, we are well-into one of the longest bull markets in history and a mini-panic caused by financial shenanigans. But ’98 was just a warmup, as was ’87.
Unless someone is willing to go WAY out on a limb and suggest that we are headed towards the next Great Depression, I think we get one of two scenarios:
1) The market gets whacked mercilessly, we bottom over a few months and then head back up for another blow-off top well above the October highs, or;
2) we stabilize soon, churn around for a few weeks, maybe even fake enough people into going long again, then start a fairly orderly descent for the balance of the year.
Again, the potential for a Black Swan (the book is so full of sophistry I wasn’t sure whether it needed to be flushed down the toilet when I was done reading it, but I love the term) event is ever present, but if any of us could predict it it wouldn’t be a Black Swan
It’ll bounce around but the trend will be down and for quite a while. We have yet to have an honest shake-out. Unless we do (and we won’t), attrition will take its toll.
BTC-
well that’s what I was refering to actually the point before the dow lost 44%.
Also, its worth noting that the DOW lost 29% in the 69-70 recession.
Sort of like the bubble crash in 2000.
One and the other in a relatively short period of time.
I agree we’re stuck in that ’70’s show.
We’ll keep dropping till we hit ~1200 for the S&P (at least I hope so, since that’s where I have some tasty upside) in the next 6-12 months. Typical correction during a recession. Then the market will bounce around for ~9 months before starting a new move up as the recession ends.
All-in, we’ll see new highs in 2011. You can take that to the bank. Lo and behold, we’ll have gone the decade going nowhere, it’ll just be like the ’70’s. Then by 2011/2012 someone will wake up and see that the S&P P/E is back in the high single digit range and that’ll set up a decade-long rally.
David
(Short through 1200 on the S&P, then long and strong as market/economy flattens out)
The Onions (get more pungent the more you peel them back):
Onion #1: Subprime RMBS. June 07 – October ’07
Onion #2: CDO Exposure. October ’07-December ’07.
Onion #3: Counterparty risk of Bond Guarantors. January ’08 – ?
Almost 11% on the S&P? From 1565 to 1333 today that’s 17%. It’s down almost 11% YTD, not from its recent high.
~~~
BR: My bad on mixing the YTD data with the post high #s — I’ll fix that above.
I get:
1565 – 1333 = 232;
232 ÷ 1565 = 14.8%
Look for a significant bankruptcy or two to signal a bottom—it would have been Countrywide if BAC hadn’t bought them ….
The market will not keep going straight down.
There will be a rally around Fed meeting at the end of the month. (Can you imagine if they go 75 basis points?)
That will be a good time to reload the shorts.
All these predictions ignore the actions of the government and the Fed — they will act, and I think the markets may then bounce. Then I think people will realize that what is unfolding is not subject to Fed actions or Congressional legislation. In an election year, it could get very ugly — even Ron Paul may start to broaden his appeal, as will those with an anti-capitalist, populist program. Staid moderates (McCain, Clinton, Bloomberg) may start to lose their stature. People are going to be both angry and scared. To put it another way, if this were early 2007, Bush would have been impeached. It is very unfortunate to have an economic meltdown in an election year.
There’s the small matter of $1 trillion in HELOCs without any meaningful collateral. Another $200bn in write-offs?
Big banks forced to merge with government/taxpayer guaranteees (remember the S&L crisis)? And the growing realization of lots and lots of new taxes to buy Bubba’s vote.
Absent the inevitable Big Ben Bounce, there’s no way but down for now. Just have to gut out the spikes and stay short.
Word for 2008: “Write-off”. My credit card company just ate 2K because Big’s Furniture in Yonkers went BK. Just the start.
OT: Kudos for 2 men…Charlie Gasparino whose honest reporting has been spot on and he takes no crap.
The other, reluctantly, is Bernanke who is not caving in to relentless pressure as much as he could have.
It’s shades of 1937. Markets will go down a bunch more and there’s nothing anyone can do to prevent it. Too soon to call anythng…look for thigs to go a LOT lower to the point that investors everywhere will be shocked into disbelief.
Too many people here too willing to short the next rally. If this sample is representative at all tells me the next rally will be prolonged as the path of maximum frustration will be up.
A bounce soon, but then some more down.
The short term and medium term market breath is oversold and diverging. Shorts, like buyers, get tired and cash in. Sellers (that aren’t short) see stocks as cheap and get sucked in.
The buyers become buffalo and we hunt them until they’re all gone. Then we make shoes out of their butts and put up Wal-Marts where they once grazed.
I’m a huge fan of Elliot wave Theory… By my count we are in the finishing stages of wave 3….. Waiting for wave 4…and waiting and waiting… Which will Lead to that Final Pummeling Nut grabbing…. Wave 5…..
The Vix will have to get higher than it did in November, for wave 5, forget that nonsense about august… in that final Bottom…. Which puts us 80-90% there….. In this first down move…..
I always say… The market bottoms When Dylan Ratigan cries!!!
god love him.
Average Joe stockholder still doesn’t have a clue. This will be the month they start questioning things a little after they open their brokerage statements.
And speaking of government rescue packages, where are we gonna hear someone speak up about those 30% default rates on credit cards. You think those are really helping things any? If anything they’re a reason credit card lenders are gonna get walloped even more down the road.
I think the FED cuts tomorrow by 50bps, and again at months end by another 50bps. After the first week in February the bond insurers go under, and all heck breaks loose. A major move down after that and with no ammo for the FED to use, things get pretty ugly. My 2 cents.
I’d say up or down, but I’m pretty much just watching until it goes sideways for a long while. I guess I’m getting old. And maybe a bit wiser.
One thing is for sure, I’m happy as heck having swore off mutual funds last year. With ETFs so readily available, I see mutual funds as a lingering sham. Basically, you are handcuffed outside the exchange while everybody else trades all day on news, etc., and then about 3:59 pm somebody sticks their head out the front door and says, “Sorry, we forgot about you, would you like to place a trade in this final second today?” Of course, you have to do it blind to the NAV, too. Bah!!!
Steps, not necessarily in order:
– A little bouncing around, with S&P settling in a range between 1275 and 1300 as Fed sparks are subsequently doused by more bad news out of financials
– March/April/May mortgage resets are a debacle of biblical proportions
– Demand keeps shrinking, and oil and misc commodities see a correction
– Housing starts shrink to something close to zero
Then the real whacking starts…
– The bottom of the housing market is replacement cost (not some two-bit appraisers work), and commodities like lumber and concrete start getting sold on street corners
– Housing corrects just like Shiller predicts (50%+)
– Government enacts lame legislation that allows people subsidized mortgages
– Third quarter financial earnings are ugly, ugly, ugly, and at least two regional financial institutions hit the courthouse steps
– Half the major builders are gone by July, and about the same time credit card defaults hit 8%
– Dow sitting at Oct 02 levels by Oct 08
Next Christmas is bad, and by February everything is cleaned up and we are rolling once again.
Average Joe stockholder still doesn’t have a clue. This will be the month they start questioning things a little after they open their brokerage statements.
And speaking of government rescue packages, where are we gonna hear someone speak up about those 30% default rates on credit cards. You think those are really helping things any? If anything they’re a reason credit card lenders are gonna get walloped even more down the road.
Bob A – I completely disagree. I’ve actually heard a lot or average joe stockholders over the past couple of days talking about pulling their 401k money into all cash.
Against my better judgement, that actually makes me think we are probably closer to the bottom that we might think
Looks like too many people standing on the bear market side of this bet.
agreed, I’m hoping for an ugly ugly open tomorrow……if we get in I’m making a big bet with a boatload of index calls
1989 Nikkei peak
1995 Emperor’s palace worth more in real estate than the state of California
1997 Deflation scare and start of what ultimately became ZIRP.
Meanwhile,
1999 Blowoff in tech stocks fed by Yen carry trade
zoom to 1999, 2005, and 2007
The dollar carry trade is already alive…look for blow off tops in Shanghai and Mumbai
We might see a return to 1929. My bet is the powers that be want to end the dollar as the reserve currency and replace it with something else, and our own currency may end up back to the gold standard (which ironically led to the last depression) or some other standard (carbon standard). If so, the Dow could go well below 10,000 and other indexes even harder hit.
Sir Alan “Bubbles” Greenspan on NPR on Dec 27.
“What I have to forecast is something will happen that is unexpected, which will knock us down…..We are in a turning phase, and extraordinary improvements that have occurred in the world economy in the last 15 years are transitory, and they are about to change. So I think the whole process will reverse.”
Gulp.
Overwhelming majority here are bearish. If that was the investor consensus I’d say fade the consensus. I think there is a 50:50 chance that this is as low as it goes.
When the Fed cuts is 25 to little…50 just a maintaining cut and 75 that some people are calling for a panic cut. I think anyway they slice it the market will roll over. This has a ways to go.
Bounce … slow rise, then race to S&P 1480 or a little more … summer dip to S&P 1380 … up after that.
Options open interest and volume is higher than before; maybe that dampens the VIX a little bit and we won’t see it going sky high…
Beginning or end? I say we are at a fork, one way leads to a cliff the other to the unknown.
My gut feeling is that if there is a meltdown it will on a Monday (not necessarily the next one).
I think College Kid nailed it.
With high oil prices and high consumer debt, where will the spending come from? And without the spending, how will companies surprise us with better than expected earnings? And without better than expected earnings, how will the market go up?
I hope I am wrong, but I am having a hard time seeing what would cause people to suddenly think things are going to get better.
If the S&P closes lower tomorrow, it would strongly suggest a 1250 target for the S&P in short order.
AT
WRT the liquidity illusion created by fabricated ratings, as Hudson said in Aliens: “That’s it man…..game over man, game over!”
http://www.moviewavs.com/0058536645/WAVS/Movies/Aliens/gameovr.wav
estimate SPX ultimately trades to 1050. why? estimate the 08 EPS on the SPX down 15% y/y to $76 and it gets about a 14x PE. so,…about 1050. Don’t think it’s a straight drop to get there, probably see a short term rally around fed cut. what concerns me is if the PE goes lower as it very well may because it has been so long above historical trend that it may go well under trend in the future. nothing scientific, just my 2 cents worth.
Reading all these comments makes me more confident in my opinion that the bottom will be hammered out over the next month or two. The market acts as a leading indicator with the next six months of disappointing economic data already priced into the markets. Market breadth is starting to get to some pretty extreme levels as evidenced by Barry’s NYSE 200-day MA post earlier today. I would also like to remind all of you of one of the most important rules in investing……….don’t fight the Fed!
Take a graph of the total debt/GDP ratio (increasing steadily since the early 80s) and overlay it with the stock market (increasing steadily since the 80s) and they match up nicely. This corresponds to the modern era referred to as “the great moderation.”
Yes, it is good for companies if over the course of decades wages stagnate, benefits go away, all the while people spend more than they earn. Then it ends.
I think the market will surprise to the downside even to those here, 50% or more. Then it will stagnate for a decade or 2. Looking at history it seems like markets spend a lot of time stagnating. I do not understand why very few believe the market could stagnate for many many years.
Yes, yes, and yes. we’re closer to the beginning of the ‘correction’ than the end, we are due for an oversold bounce, and things are gonna get ugly.
Personally, I doubt things will remain orderly, if that’s the word. Too many imbalances out there, too many things coming to a head.
John Mauldin, whose opinion I respect enormously, suggests that a possible crash may be preceeded by a fast and furious one day rally of 200-400 points. Any technicians out there want to comment?
Wow, reading these comments makes me think that this market is ready for a big bounce. Everybody is a bear now. The market has the potential to go down much more but once the FED cuts rates where are you going to make any money. Cash will be paying 3%. Right now fear is in control. By spring, greed will be back, and the market will be on the mend too. Find a good book to read and relax. Hang on to your stocks and look for bargains. There will be a lot of good companies selling cheap. Cash is king until the spring.
I’m not a trader, so I’m pretty much with ‘steve’ at 6:16:06 on this.
I act as if we’ve been in a secular bear market like 1966-1982 since 2000. Right now is (maybe) another down leg like 1968-70, or 73-74. Who knows? Who cares? It’s all a guess.
Dow 10,000 is sort of a Maginot Line, like Dow 1,000 was in 66-82.
I’ll start getting interested when the Dow goes under 10,000. And I’ll be outrageously bullish when the consumer sentiment numbers go under 70, when mutual fund cash levels get up over 10%, when 10-year rates of change in the Dow and other high-profile indexes go negative, when the yield on the Dow is greater than the 10-year Treasury, and when the Q Ratio goes below .25.
Oh, one more thing: I see where total bond market index funds are now even with some stock funds for the past 10 years. That’s encouraging and I can’t wait for the media to get all over it!
Sadly though, at age 66, I have to confront the possibility that I may never see a secular bull market in stocks again in my lifetime. Thank Zeus for TIPS.
correction – meant to say John Hussman, though John Mauldin is certainly no slouch either.
Short term I have no idea.
But long term you guys are too negative.
1929? The ’70’s. Give me a break.
Blue collar people have been eating it for 30 years, it’s time for white collar to belly up to the table.
What’s funny. Take a drive into the “fly over country”, small town USA. Malls are busy, restaurants busy, new buildings, new factories. First time in 30 years.
Suburbs. Foreclosures. Empty office buildings. Closed restaurants.
“its comparable to the bear market that began in 1968.
that makes today comparable to 1975.
any thoughts?”
Just one…in 1975 silver was at $4.08 an ounce, by 1979 it was $21.79. Gold was at $161 an ounce, by 1979 it was $307. The ratio between them during those four years went from 39/1 to 14/1. If gold is now at $900 an ounce, silver needs to go to $64 & its at $16.
To the question; nothing ever goes in a straight line either up or down. However, I do believe that the indices will go much lower than they are now.
As a bear since July of 2007, I bought hand over fist today, I bought MON, APA, NEM, POT bigtime. I love all of this pessimism, exactly what we have lacked the past 6 months. The Fed will reflate the hell out of this market, with oil pulling back they finally have the room to get aggressive. Run to your grocery store and enjoy the cheap food, this is the last time you will see food prices this cheap in your lifetime.
I think we’re about two weeks away. I’d like to place my bet for tipping point: January 28.
Remember the sentiments here do not necessarily reflect the feelings of the general population. This is a self selected group. I think most people have no idea what is going on. But eventually fear will really set in.
Here’s something I just stumbled on that nobody here has touched on. Is there a sub-prime type issue with stock margin loans?
http://www.businessspectator.com.au/bs.nsf/Article/Shares-hidden-downside-AWRKP?OpenDocument
i think i agree with Eric..
FED is going to do some shock and awe…
“Remember in the summer of ’98 when those of us who knew *so much* about stock market history assumed the mini-bear was the beginning of the end for the Naz bubble?”
Remember March of 2000 – when nazz 6K was the next stop?
Some short-term rallies but the general trend will be sharply down for a while.
I’ve been buying puts for the past several months; first homebuilders, now financials, probably tech soon.
There will be a day when calls will be the thing to buy on them, but that day is not now.
Barry, lots of downward sentiment hear, which makes sense…
In honor of everyone caught in this event (which is everyone even if they don’t know it), I’d like to evoke a sentiment from the late, great O.H. Mowrer, the pioneer of biofeedback.
“It is easier to act yourself to a better way of feeling, than to feel yourself to a better way of action.” O.H. Mowrer
Here’s to some new leadership at all levels with the balls to act appropriately.
Oh shit, its an election year!
I’m guessing when a investment bank or 2 goes under , mbi and ambac go belly up and atleast 2 builders go out then that’s bottom . I own a pawnshop and we are buying alot of gold and alot of used Rolexs .So my views might be slanted . It’s funny 2 years ago every Rolex I sold used was to a mortage broker or a Realtor .Now I’m seeing alot of Rolexs come in on pawn and most are Realtors or Mortage Broker .
I think that the employment numbers over the next few months will be key as to where we are headed with this market. Will that be the next shoe that drops?
Cash is king. Long live the king. The markets will bounce, probably w/ each fed interest rate reduction, and then it won’t, it will just fall. It won’t be a straight line down–these things never are–but it will go down. A least another 25%.
Short commodities. This is not 1974. We didn’t just abandon the gold standard.
We are about to have the deflation that Sir Alan so fearfully tried to prevent in 2003. And nothing, not a thing, not even printing a gadzillion dollars will prevent it. The more dollars get printed, the less people will spend them. We will enter the great liquidity trap. Helicopter Ben will finally realize that there was more to the Great Depression than money supply shortfalls. But this isn’t like that contraction. This is a demographic, geopolitical contraction, as the US falters in its world hegemony.
And our only way out of this mess is demographic–open the borders and let the people flow in. Japan will never see a sustainable economic recovery unless and until her birth rate recovers.
Neither would we, except that we have a long tradition of immigrant-led expansions. That is our only hope for a return to growth. Our native population is barely replacing itself. Unfortunately, the nativist sentiment is rising, with idiots like Lou Dobbs ranting everyday about the dangers of immigration.
Immigration is not dangerous to a nation’s welfare. Emigration and/or falling birth rates are.
I dont see markets rising with out us given a reason to beleive in. With Bank vaults empty (or floating on chinese & Arab credit cards), How can there be growth with no $$$?
If Ben cuts to supply banks money, will the dollar collapse? if so, foreign goods will rise (inflation), further strapping the consumer (since we live on imported goods). Stagflation could be likely?
I think we made are bed and must now sleep in it until morning comes (or a job creating fiscal stimus package).
My DJI and SPX puts expired worthless and I don’t plan on buying more so I’m sure that means it’s the beginning.
The beginning, this is going to get much, much worse. How bad is it? Even the hillbillies in the heartland, dumbest white people this side of Albania, are starting to realize how bad it is…they might even vote for a black guy.
With nearly everyone bearish here it would seem a contrarian’s dream to go long.
However, the element in this current economic enviroment that I believe has not been discussed is the very personal nature of the economic difficulties. When tech busted and led the decline in 2000 far fewer people were impacted/touched. Many simply lost previous gains. Few had their lives tied up in the market to any degree.
Today feels different with the cause of the decline being the housing debacle. Even if you haven’t been directly impacted chances are you know friends or family who have. A stock market decline along side this economic element, I believe, makes the psychology much more negative and much harder to reverse. At least until there’s some daylight in home prices.
Since its most likely this spring will bring a pricing disaster I can’t see how you even get much of a market bounce until the horror of the conclusion of the housing decline is finally realized (not that housing prices will quickly recover, they’ll likely languish for years). Nothing the fed or politicians can do will stop the housing price correction so the negatives should be maximized (to some extent) this spring.
After housing is shaken out and the worst news is swallowed and digested then, perhaps, the risk in the stock market will be worth taking again.
Hey, I’m worried BR hasn’t been on Kudlow for a 1/2 hr exclusive…
The Bear market began when Kudlow eliminated comments from the public from his blog.
It is a depression. Been saying it for a month now. It’s not going to be like the Great Depression I don’t think but you can’t give away US jobs for profit growth without penalty.
You can’t live on credit cards at 20% interest.
You can’t speculate on equities everyday cause there is some buyout potential, etc, etc.
Many stocks now in margin call territory. We flush the money out of equities and rebuild.
The great depression comes in Asian countries. Japan already has it started.
I believe there is serious misconception about what is occuring and what will occur.
First and foremost, the threat forward going is not inflation or stagflation – it is deflation.
Although it is true that inflation has been understated, the cause of the inflation has been poorly analyzed. Compare M1 to M3 and you readily see that this is not monetized inflation but debt-expansion inflation.
Debt acts just like money to a point – and that point is insolvency. Debt will say that my CDO is worth $1.00, but insolvency shows that the market values my CDO at $0.27. What happened to the inflation within the CDO? It evaporated, as all mirage capital must eventually disappear.
Debt said my house was worth $500,000. Insolvency and debt contraction says it is worth $400,000 or less.
Debt said all those casinos being built in Las Vegas were worth millions, that New York office buildings could support negative cash flows, and that that copper was worth an all-time high.
False perspective can drive a false demand, leading to a bubble – a bubble being that portion of the price of an asset that is simply driven by debt – i.e., Ponzi fincance. Anyone remember 1973 and 1974 when we perceived an oil shortage when none had occured? Or when all those builders paid premium prices for undeveloped land because low interest rates had caused an artificial demand for housing?
Misallocation of assets. That is what has occured. The decoupling of the world is an illusion – serious recession in the U.S. would lead to world recession, and all those high-flying commodity prices would come tumbling down along with it.
Debt contraction is a deflationary event, and it is the threat of deflation that is propelling the Fed to slash rates – which they will continue to do until we reach a real negative interest rate.
so we have a bull market in cash,in USD’s
as everybody is bailing into safey
Is that the best investment ??
and for how long ??
They say that it is that which is LEAST expected which is MOST likely to happen. Remember 1982? How many were predicting Dow 14,000 in 25 years?
So today: Dent and other morons still predicting Dow 36,000… or even 100,000! Others predicting new highs. Others predicting Dow 10,000 or even 7,000.
Let’s see, what have I left out? Hmmm…. How about something EVEN WORSE than the Great Depression? How many are predicting that?
Earlier I mentioned that the spring-summer housing market will be a critical factor. But three other thoughts:
1) I wanna be like GS: Since GS became the current smart guys in the room by shorting ABX, I think many funds got calls asking, “Are we short housing?” or, “I heard we are headed into a recession, are we short the market?” Thus, like Gold for the mutual funds, being short the market has quickly become THE in vogue trade among hedgies. And, at least for the moment, there is too much negative data to be dumb enough to try and be a hero and go long in all the beat up sectors (especially when you get rewarded for this quarter’s performance, NOT a 3 year turnaround play). Add the removal of the down tick rule and you have a pleasant playground for bearish investing.
2) War: Before the government EVER lets us fall into a depression, there will be more war. It may be a war with Iran or some major patriotic trade war with China, but either one will refocus attentions and stimulate that good ole’ adrenal gland that helps so well with entrepreneurial spirit and consuming things. In this case, at least there will be a identifiable trade in the defense sector.
Final verdict: we’re in trouble until housing stabilizes, banks start lending more freely again, or a new sector of the economy gains some serious steam. Until then, we can either grow some corn or practice law/medicine …
Kudlow “the king of crazy town” has been wrong about oil, gold, the stock market, and the economy! He is a political and financial hack, why hasn’t CNBC fired him???? CNBC seems to be a refuge for a growing number of losers!!!!
i agree, Kudlow is an educated clown
VIX trades over 30… then it is time to look for a tradeable bottom. Finally seeing some FEAR coming into the Market. Can’t have a tradeable bottom without a spike in the FEAR indicators.
“Frank Jan 17, 2008 8:02:35” is askin’ all the right questions, folks. ultimate outcome will be: oil nowhere to go but down fm $100/barrel AND it will bring the dollar (further) down with it.
Easily another drop of 400-500 in the S&P…
The world never decoupled…and China is rigged for an implosion; massive liquidity drain and adjusted M3 doesn’t capture it all; unreliable data for assessing economic status of US and China economies creating greater uncertainty; U.S. political paralysis leading into an election year with nothing of significance getting done; and several major bankruptcies – de facto (Countrywide) or de jure (a monoline)
I am over 50, investor for most of my professional life and have never seen the macroeconomic environment this bad. The stock market until now was propelled by massive amounts of leverage and excess liquidity. As a result it failed to be a leading indicator of the economy. It’s getting mighty cold out there.
Why is noone speaking of massive hyperinflation on this blog? It is so obvious yet everyone is missing it. The hyperinflation will counter the deflationary effects and neutralize the losses in the stock market and housing values by keeping them at or near current levels. This is the only way the fed can keep the banking system solvent. The massive hyperinflation is already beginning to show up in gold, silver and agricutlural commodities. Helicopter Ben already stated he would drop money out of planes before he would let deflation occur. Do you think Ben really cares what China thinks? Do you think China would allow the US to go into a depression and the US govt default on its Trillion in debt with them?
Long from here. Markets will be up 20% from today’s levels easy between now and the end of 2009. By 2011, everyone will be saying…”remember when we all freaked out back in early 2008. Man I wish I loaded up then.” Stocks go up because it’s the human race’s job to make them go up. Now if the human race gets wiped out…
Steve, Ditto. Sitting here looking at the same damn thing on StockCharts. VIX and VXN — both patterns look to me like they’re setting up to make a move higher. CBOE has todays total PUT/CALL ratio at 1.53– the highest it’s been since August, if I recall…
IBM also sent the futures higher tonight– making me think we stay with the pattern of selling off, before we close out tommorrow, (barring of course any pandering to the Stock Market by Lil’ Ben and the boys and blessing us all with a surprise intermeeting rate cut…).
Just doesn’t feel like we’ve seen a hard enough of a capitulation (in August we had some near 400 pointers)– although some of the winners GOOG, AMZN, AAPL seem to have slowed the pace of they’re selling.
My take is we head lower for a little while short term, put in a bottom, then bounce back to 12,900-13,100 or thereabouts on the DOW, and then turn back down…
Ross,
You sound a lot like Mises describing the “crack up boom.”
And you are right.
Those think that derivitives will be a zero-sum game are wrong; for that to occur both parties must be solvent.
I have no idea how much of the excess liquidity is simply phatom profits and mirage capital, but the amounts are surely gargantuan – when insolvency hits, that debt-money evaporates.
Last year when things even began to get ugly, the Fed was cutting rates and everyone had PPT conspiracy theory’s. etc. This kept the bulls throwing money at whatever was the momentum play of the month.
Since new years, the mood has unquestionably changed.
I still find it hard to believe that the powers that be, that have brought us this disaster won’t make one more attempt at a rally.
I certainly hope so anyhow. My trading plan has been to hold onto cash so that I can get better entries when this bounce comes. So, Ben will severely crimp my yearly returns if he doesn’t come through :)
As for Kudlow. He has been the poster boy for the last 7 years of crazy. I can’t wait to watch this all change and have him become the markets pinata.
There will be no “hyperinflation”. The velocity of money is slowing and slowing some more.
Unless the government wants to kill itself and print, nada to inflation.
Basically:
1.RE started deflating first
2.CE has started deflating late last summer
3.Equities have started this winter
4.Commodities are the last and most violent explosion left.
It was into these assets and commodities that the “inflation” went into, not consumer prices. The “inflation” saw in 2007 was the last of the credit bubble.
Not only will Oil and Gold get slaughtered, but Ag prices will crumble. Matter of fact, notice how the housing boom and Ag boom were/are VERY similiar. Tough times coming for Iowa and it will be abrupt.
“It is too late to sell”, so said Jim Awat. It is buy, there’s no downside, till an index is down 20%. Then they switch to, it is too late to sell.
The serial bubbles, the suspension of the business cycle, and the proliferation of USDollar based credits combine to negate the possibility for accumulated imbalances to be air dribbled by the monetary and fiscal machinations of US institutions. The Law of Diminishing Returns catches up with the over used levers of economic control, rendered impotent by the inpenetrable shadow banking system. Even the venerable Paul Volcker says they’ve lost control of the economy. These things overshoot. Hence, it ain’t over yet.
All the pundits, are only starting with their revisionist palaver, Hugh Johnson says they’d recently changed their outlook, perma-bull M formerly of Pru now RBC, pulled te same sleight of hand. We haven’t even begun to hear “capital preservation” yet from these always-buy-never-sell walking advertisements.
The bigger the imbalances, the greater the adjustment. It has only begun. It will be a long grind.
Yeah, but now Kudlow has an apprentice in Dennis Neale. Next time Larry takes vacation the odds have to be 100-1 Neale fills in, and talks right over dissenting viewpoints…
what scares me about this rapid decline is the contemporaneous complacency. I see a sharp rally that leads to much more pain. I think it was Warren Buffett that said the severity of the hangover is related to the quality of the party!
Let’s see, what have I left out? Hmmm…. How about something EVEN WORSE than the Great Depression? How many are predicting that?
____________________________________________
I am. I had a feeling the “Sychronized Global Boom” had to be followed by the “Synchronized Global Bust.” Winston nailed it…misallocation of assets which began with the Internet bust, then housing is causing massive problems. The ultimate culprits have to be Investment Banks, with the Fed looking the other way and enabling it with debt. Now you have a debt bubble much bigger than the Depression. QID is up 25% YTD by the way and will outperform anything you can dream up.
FED cuts tomorrow by 50bps, and again at months end by another 50bps. After the first week in February the bond insurers go under, and all heck breaks loose. A major move down after that and with no ammo for the FED to use, things get pretty ugly.
Slick, you’re neglecting the $600 tax rebate checks we’re all going to get and go spend on Ipods…
Now that you mention Volcker, he called this in 2004, saying that there was a 75% chance of a currency crisis in the US in 5 years. The real Maestro…makes Greenspan look like a hobo.
“Steal from our children’s future” to keep rich folks rich today. A Range Rover in every garage. If you honor me with your vote…
Reading over these comments I am very tempted to go long with leverage! When the consensus is that the sky is falling, it’s time to sell umbrellas, not buy them.
I suspect that the apocalypse predicted by most here will not occur.
We will muddle along, most banks and insurers will muddle through, and we will have a bear market of average proportions, down 25% or so from the peak, so 10% or so more down to go.
It’s a boring prediction, I know, but I look around and the malls are still busy, people are still buying cars, and houses still sell, and in the rest of the world all of this is even more true.
Yes, the CDO’ers will suffer, and some people will lose their houses, and maybe even a builder or two will go under, but so what? I can buy a 1TB harddrive at Costco for $280! Progress will continue, and the world goes on, and it’s all so boring….Armageddon would be so much more fun!!! Besides, it’s year 4 in the presidential cycle, and there’s an Olympics in China, how bad could things get?
Eric wrote, “Why is noone speaking of massive hyperinflation on this blog?”
Speaking for myself, I believe it is a non-event. To understand the difference, hyperinflation is a monetary debasement, a money-stock creation. It requires the Federal Reserve to go into wide-open buy mode to monetize debts.
It would be the end of The Empire, Mighty Casey Strikes Out. It is the last gasp of the dying Republic. It won’t happen.
The Fed will continue to try to encourage borrowing by lowering interest rates while deflation will encourage savings.
There may be some jerks and jolts along the way, as false bubbles try to begin, but the deflationary hammer will keep pounding away until only rubble remains.
And then, and only then, can we finally begin to rebuild on a firm foundation.
“FED cuts tomorrow by 50bps, and again at months end by another 50bps. After the first week in February the bond insurers go under, and all heck breaks loose. A major move down after that and with no ammo for the FED to use, things get pretty ugly.”
Sure as hell hope you’re right, else another 250+ down day…
Pressure from the white house on Bernanke must be enormous. The GOP does not want a recession leading into 2008 elections.
If oil and ag commodities was priced in gold I would agree with your Cherry. However they are priced in a currency that may collapse in the next year. You hold your dollars, I will hold things of value. Wanna bet who wins. I do not see anything similar in the housing and ag booms. The housing boom was based upon the greater fool fallacy that was sparked by low interest rates and imprudent lending decisions. The ag boom is being created by rising global food demand, a weak US dollar, and massive gov’t ethanol subsidies. Please point out how the housing boom and ag boom is very similar.
Winston, you are spot on all night.
BTW, is this what fiscal policy is reduced to? Printing up more money and telling people to spend it fast?
WASHINGTON – United for urgent action, the White House and Congress raced toward emergency steps Thursday to rescue the national economy from a possible recession, including tax rebates of at least $300 a person — and maybe as much as $800. Federal Reserve Chairman Ben Bernanke endorsed the idea of putting money into the hands of those who would spend it quickly and boost the flagging economy.
ABC, Barringo… A, B t-f C!
Okay, you happy?
———–
BTW,
Here’s some whackage you can get a double handful of and chase your Cotton Catfish with:
http://finance.yahoo.com/q?s=%5ETNX
I love it how stock traders call for tops in commodities. I agree at some point commodities will come back down, but not yet. There are no blow off tops that are extremely typically with Gold, Silver, the CRB, etc. Those calling for commodities to crumble, have you even taken a look at the CRB? Almost perfect linear rise at ~20% a year, since 2002. Wow 20% is a lot you say . . . well shoot when you lose 30%+ value of the dollar since 2001, it’s not that hard. Why 20% since 2002 . . . hmm rates at 1% and artificially low rates since will do it.
I do expect commodities to correct hard . . . but not for a few more months, silver to 20 before it corrects, then down to 16-17. Gold to 1000, then down to ~850.
Generally commodities and stocks move cyclically opposite each other. During the 90s commodities lagged . . . it’s my premise we’ve been in a long term bear (~10-15 year) in stocks since 01 and long term bull (10 years) commodities.
Those calling deflation, really don’t understand the problem that has gotten us to this point, it’s not deflation, it’s inflation!!! Interest rates to 1% and not allowing the markets to fully correct in ’01 is why we are staring at this mess now. Shoot when has the FED NOT inflated!! And according to the Austrian school even the Depression had its roots in inflation.
Ag boom . . . shoot, silver lagged at around $5-6 dollars an ounce for 20 YEARS!!!!.
Gold boom . . . Gold 350-450 for 20 YEARS!!! and a doubling in price in five years makes up for 20 years of inflation.
Sorry, but you ain’t seen nothing yet in Gold/Silver/Commodities.
The only thing stopping it is if the Fed actually had some cajones and realized the root of this mess is inflation and misallocation of resource caused by artificially LOW interest rates and RAISED rates. But they can’t do that, b/c we’ve got to inflate away the massive amount of debt we’ve accumulated fighting wars and bigger social programs.
I realize it would hurt, but it’s better than the alternative. Since they don’t have the cajones (and neither does Congress to stop spending like drunken sailors), we’re headed for re-inflation part deux (interest rates 2% or so), I think I’ll hold on to my commodities, thank you.
If “easy Al” were running the show, the Fed funds rate would be at 1.5% by now. It looks like Bernanke’s taking the long term view, which means stinginess on the rate cutting front, and a lower market.
Steve Barry,
Yes, this has always been my contention, as some who read my thoughts confuse with anti-America sentiment or overly-bearish sentiment, and I am neither. I try my best to be a realist.
It is the economic system that I abhor – an Empire built upon the faulty foundation of debt expansion as money. It is unsustainable. However, the powers that control the Empire believe in their myths, so Android may well be right that we will muddle through – only my take is that muddling would be more comparable to Japan’s muddling through after being ravaged by deflation.
And Eric, misallocation of resources does not depend on the type of asset, but the perception of the supply/demand imbalances inherent in that asset.
A severe and prolonged U.S. recession will lead to a recoupling of the world economy and that perceived demand (no shortages in commodities) – that perception will be unwound in exactly the same manner that housing demand, CDO demand, and debt demand is being unwound now.
Bubble are bubbles, regardless of the underlying collateral’s name.
Shane wrote, “Those calling deflation, really don’t understand the problem that has gotten us to this point, it’s not deflation, it’s inflation!!! ”
Hard to believe, I know, but I agree partly with your observation – inflation, indeed got us to this point. But it was inflation based upon a credit/debt expansion bubble. Deflation is not a money-stock event; deflation is a credit event. Without the inflationary misallocation of resources, there is no bubble to unwind. Inflation prededes inflation.
Question – what price event preceded Japan’s decade-long bout with deflation?
See what I mean?
And by the way, I’m not calling for a commodity top right away – time takes time, and it will take some time for recoupling and deflationary pressures to consume prices – years, not days or months.
Mr. McGuire: I want to say one word to you. Just one word.
Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: i13.tinypic.com/715pc2g.jpg
Benjamin: Just how do you mean that, sir?
I think it is now obvious what is going on in Washington. A Fed rate cut, even 50 bp, takes some time to work on the economy. But if they issue $300-800 rebates, that will be spent so fast on food, gas, and ipods your head will spin…immediate boost to the economy, which Bush needs. So they may not be pressing Ben too much for the cut, but he has to support the stimulus. Puzzling why the dems are so for it though.
Winston, priced in any monetary unit other than dollars… yen, euro, gold etc..ag commodities are nowhere near bubble status. These are global commodities unlike US housing. If you are willing to bet against Gartman and Jim Rogers, I wish you the best of luck and recommend you purchase lotto tickets to fund your retirement.
I see 130 or so bearish comments; I will take the other side of that TRADE any day. Yeah, the fundamentals are lousy and have been lousy for a long time…but when did fundamentals ever matter?
This is still the beginning. The end starts to come as we move into a full blown solvency crisis. The blow ups of the insurers such as Ambac, MBIA will be that catalyst. Then it gets ugly and the Fed goes into panic cutting mode. It then gets surreal ugly when they realize the rate cuts are not proving effective so they directly monetize debt, destroying the dollar. Hyperinflationary depression in 2010.
Shane:
You would accept that sweet crude is the most liquid of all investments, desu neh?
The cost of production of crude is $15/bbl. Price on the board is $87.50, about 6:1 over cost, and about the same as options margin leverage, which explains the premium over $55, but wait. Just focus on the multiplier.
Cost of production for gold is $45 to $85. Yup, that’s right, $45. 6:1 on avg is $495.
Precious is overbought on momentum by 2:1.
Precious is manipulated like crazy when the money supply is easy, and liquidated when
the money supply is dear or margins are called. Like housing, the moment it starts down, the mines will dump their held-back inventory. FIFO. Hold and die.
Ergo, you gold bugs are f–k’d.
Eric,
I always thought commodity futures WERE lotto tickets.
Serioulsy, though, you may well be right, but you also may be misinterpreting my views. What I am saying is that the p-e-r-c-e-i-v-e-d demand for commodities may be illusory, caused by a mistaken belief in a true global economy.
If..a big IF…the U.S. goes into a deep and prolonged recession, the effects on the global economy will be so severe that the expected growth in commodity demand will evaporate.
The question to determine: Is the demand for commodities real or a perception of anticipated and continued demand growth?
If demand collapses, the current price will be too high, regardless of how it is priced.
We are a long, long ways yet from a true global economy. The U.S. is still the diesel engine that pulls the train.
Posted by: Petey | Jan 17, 2008 11:47:03 PM
Interesting thing, gold. Why does it have any value at all? Why bother getting it out of the ground in the first place? It’s not an industrial metal – it isn’t consumed. So why does it have value?
If I offered to give you one-eighth of an ounce of gold right now, I’m pretty sure you’d take it and keep it.
Gold is valuable because everybody knows what it is and agrees that it is very valuable. Why? Who knows. If you can convince them otherwise, the price will fall precipitously.
M.A.
RE: AU
Cloverfield 1-18-08
That fast.
I’d say that CNBC is a haven for a growing number of people who have no idea what they’re talking about, except that it’s always been this way.
After the blue chips are down 14%, the Nasdaq 17% and the Russell 20% from their tops; after many sectors have sold off 30-40% (and have been doing so for months); after as Al Pacino said in “The Insider” the cat is “totally out of the bag” is CNBC now claiming that a bear market is “looming”.
The ever present Cramer is lambasting the Fed for not rescuing the markets two months ago and calling for SEC investigations of the major banks for fraud. This is in spite of the fact that he lambasted the Fed for not bailing out these very same banks (hardly so innocent, are they Jimmy?)
I’ve said time and again that CNBC is the place to go if you would like lose all of your money. And quickly. They will be of no help to anyone in a bear market, because they are nothing more than bull market cheerleaders.
Larry Kudlow is, I’m sure, a very intelligent man. But I do not believe that he possesses a complete and comprehensive picture of the market. He can talk about valuations all he wants, but value is purely subjective and markets are not moved by value; they are moved by social mood, and this one is turning negative. And when the crowd is negative, they don’t want to own anything – no matter how cheap others are claiming it to be.
CNBC is very dangerous because it consists of two types of people:
1. Those who are truly clueless. In this category falls most of its anchors with Melissa Francis and Erin Burnett being the most notorious offenders.
2. Those who believe that the market just can’t go down. In this category falls almost all of their guests, who consistently find reasons to explain why the boom will last forever and ever.
Be Alerted to the Hottest Stock Picks!!
Join Emerging Growth Alert Newsletter !
By joining the team at Emerging Growth Alert you will be in position to receive stock alerts profiling stocks about to move or already in motion. Our alerts are sent in time for you to research, investigate and make a decision about whether this opportunity is right for you. You will not be bombarded with junk mail. There is ABSOLUTELY NO OBLIGATION, and the service is entirely FREE.
http://cashstocks.angelfire.com
P.S.
You may think this is spam but this is only an invitation for those interested to receive Stocks alert – ONLY stock alerts… Thanks to those who subscribed :)
The Dow will bottom out below 9000 before it makes a sustained climb upwards, but that won’t be until we’re near the end of a very nasty, deep, and sustained recession. The big question is what is going to be the power behind our national economic engine going forward, since as a nation we don’t manufacture more than a fraction of what we used to.
Even if American companies are still profitable by manufacturing overseas, much of the wealth that is being created in the form of wages and salaries is going to foreign workers. Since consumer spending is approximately 70% of our economy, where are the jobs coming from to replace the credit binge that has sustained that spending?
We didn’t become the world’s foremost economic power by being a nation of burger-flippers and bedpan changers; we made things and sold them to the rest of the world, and to ourselves.
Stuart,
I don’t think a collapse will be hyperinflationary, no matter how much the Fed cuts. Because we are in the opening stages of the bursting of an asset and credit bubble, the bust will likely be deflationary, as the value of everything topples.
I think such a scenario is more likely to see a strengthening dollar, not a weakening one.
Winston I hear your point on the perceived versus actual demand and agree that as the US goes so does the world and vice versa. However my point is I want to be in commodities or basic material stocks (with the exception of industrial metals) as I believe if we go into a severe and deep recession the value of paper currencies backed by nothing will come into question, which makes me feel more comfortable owning the rights to precious metals and agriculture commodities. I believe if we do see a deep recession and start going into deflation a massive loosening of monetary policy will act as a floor for them. If we miss the recession and global growth heats up they will just continue their upward trend. Either way I see the two classes in a win win situation…either the growth continues and the demand is their or we go into a recession and the fed opens up the purse.
Petey,
Stick to stocks buddy, ‘cuz you obviously don’t know jack about commodities.
As late as ’05 the production costs of Gold was ~400-415 an once. Using your 6:1 ratio that would be $2400 an ounce before its way over leveraged. Considering that just in the past year the dollar has lost at least 11% of it’s value, it’s a little higher than that (some say ~600). Don’t forget the fact that gold and silver production is FALLING, not rising in ’05 production was DOWN 3%.
“Gold is valuable because everybody knows what it is and agrees that it is very valuable. Why? Who knows. If you can convince them otherwise, the price will fall precipitously.”
I turn that into:
“U.S. Dollars are valuable because everybody knows what it is and agrees that it is very valuable. Why? Who knows. If you can convince them otherwise, the price will fall precipitously.”
Sorry, Gold boom will end when everyone and their brother starts selling grandma’s antique gold vase for cash.
Go back and play in your crashing stocks . . .meanwhile, I’m up 23% on my commodities holdings.
we’re near the bottom. the almighty fed is going to swing in on a rope and start to reflate things. not a bad time to buy financials and other select industries for a long term play. short term there will be some pain but longer term (7+ years) you’re going to make out like a bandit.
This is the year housing really gets killed. It started 2-years ago. The Market is at least a year behind and should continue to fall, although bouncy at times. There will be rallies when fed cuts, but we are pushing on a string and the market will continue to fall when the cuts are shown to be impotent.
I’ve been in gold since last June, and until now, my conviction was that we were in for some serious inflationary or stagflationary times, and my gold stocks were a good long term hold – But now I am rethinking my assumptions. It’s possible that the FED will be able to inflate it’s way out of yet another crisis, but it seems that such may not be the case this time, what with the combination of collapsing housing keeping people from creating new money and the simultaneous deflation of nearly everything. Right now, I am holding as much GDX short as I am various gold stocks long, and I will stay that way until I see definite evidence of either a prolonged downturn or upturn in gold, at which point my strategy will be subject to change. And FYI, the guy who says that the production cost of gold is $45-$85 is way off the mark. The real production cost of an ounce of gold varies anywhere from $200-$350, depending on the miner.
When the FED lowers interest rates again, there will be a short psychological bounce then a continual downtrend.
The FED is too late to save this recession. The ten-year treasury is near its historic low, so future rate decreases will only benefit the banks with cheap loans (like 1% with Greenspan). With inflation around 4%, who is going to make a loan to business for less than 4%? The FED has really no tools to correct bad debt (mortgage foreclosures) and the same time, prime the economy. It will just take time to correct the excesses.
It could like July 1990, there will be about a 20% drop from the peak when there was the savings and loan bad debts. Unfortunately, we are much more sophisticated and internationalized sub-prime bad debts on a grander scale, so who knows.
I read several financial blogs/chatter and am amazed to notice that there is a great anticipation of a 50 bps rate cut on Fri morning, before market open. Amazing. Makes me wonder if folks are holding on to trading positions afraid of missing a 3% rally that could arrive in the wake of a “surprise” rate cut. But what surprise? Ben already hinted he is ready to drop pants, er I mean rates, to screw with the market.
I am also amazed at the number of new kids I have seen get into the market the last few years. I have seen college kids and then even high school kids start trading mo mo stocks. These folks don’t know about the 2000 – 2002 bear market. To them it was history and if they were around at that time, they are sure they would have gotten out in time. So they are confident.
And remember how many sharp corrections we had the last couple of years. Average 2 per year and anyone who sold into that panic regretted selling a month later when the market hit new highs. So no one wants to sell now. Or if they sell, they are eager to jump back in so they don’t miss Ben’s rate cutting party.
I think the real estate troubles are just now beginning. Heck, in my neck of the woods, house prices have barely gone down and there is still new construction going on as well as ground work being laid for more new homes. What real estate crisis are you folks yammering about? It may have started in a couple of corners (Florida etc) but not nationwide.
I am reminded of several months ago when, from the floor of the NYSE, I believe it was Dylan Rattigan that took one of these CEOs (can’t remember which one) for a painful waltz… and my, my how he did cut that poor boy up. He was on him like a duck on a junebug. It was so bad I almost trembled in agonized merciful sympathy with the defender as he stood there gesticulating his way through the severe body blows that the Rat was puttin’ on him. What a show it was!
http://biz.yahoo.com/ap/080117/bond_insurers.html
Yes I was sympathetic, but no I didn’t believe what the fellow said… as he stood there dancing and gesticulating with Rattigan.
You know why I didn’t?
It’s not because I challenged the man’s honesty or integrity, because what I’m saying here now is not about those things. It’s about the philosophical and logical basis of what I observed. What I saw was a man under the sudden onslaught of heavy machine gun fire with his company’s stock getting pounded, pinned down under the recognition that his own failed understanding of the evolution of his company’s crisis meant that all that was left for him was to try to stave off the wolves at the door. All that was left, even then with Rattigan, was to respond in the only way he could… with bombastic hyperbole to try and keep the don’t-worry-be-happy type unworried and still happy as long as possible. It was as if he’d been a metaphorical Crocodile Dundee and whipped out his portfolio for Rattigan to protect him and the TV audience from a momentous observation: “Ah, no worries… mate. You think that’s a portfolio?… Naww!… that’s not a portfolio… THIS is a portfolio!”
It’s all too typical for situations like this to evolve into a discussion in which the point man of some entity (corporate or government) usually responds by explaining how we don’t understand things as well as they do. “We have value that the market just doesn’t understand,” they’ll tell us. Sure.
I mean, at times like that what do you want them to say?:
http://www.youtube.com/watch?v=Zka81SCo5hI&feature=related
And, so, he may have convinced Rattigan that day (we’d have to ask him) and he may have convinced his investors for a while (evidently not for long enough) and he may have convinced his customers (the insureds of his core business) and he may have convinced his bankers (doesn’t now look too likely), but he didn’t convince me because I’m immunized from the infections of Bombastus Hyperbolus… and now it’s clearly apparent that the rating agency he most needed to convince may not be convinced any longer, whether they were or were not still convinced on that day I am discussing.
The vaccine has been in sparse supply of late.
“Barry, lots of downward sentiment hear…”
It is “here”.
“I think we made are bed…”
It is “our”.
Pedantic? Yes please. Hit the preview button and take a second to check your spelling and grammar. Don’t let the signal to noise ratio diminish any further.
crikey, I am not about to actually read 135 comments about anything. I’ll just say that I know for a fact that there will be a bounce soon because that’s how things work, but I doubt if it will matter too much.
Aside from a few XLF puts, I am heads-down in utilities, staples and healthcare etfs when I should have dumped everything into TLT and checked in again in 6 months. My assumption was that The Decider and his minions would figure out a way to paint black as white for the fortieth time and all would be briefly good, but it appears that they may have lost control this time around.
Anyway, I think that taxable accounts need to be either cash or short and non-taxable accounts just need to keep buying into The Dream. It will take a few years to repair the damage, but once Bush is gone, a lot of good things will happen surprisingly quickly.
==whipsaw==
whipsaw, not reading 135 comments? You are missing out on a lot of insight! LOL
Seriously, I worry how much more damage Shrub will inflict before he leaves office. He is already disowning the NIE and talking dirty to Iran. I think he wants some action and he might as well get it — he has a huge military waiting to carry out his crazy orders.
The first time I saw the chart below, I said “Oh Sh!t” and started telling everone housing was doomed. Most would not believe me. Now they do.
http://www.recharts.com/reports/CSHB031207/e42.gif
A look at the reset rates across the years, coupled with declining home values, fraud, etc etc tells me the following:
1) consumers will be strapped for some time if they aren’t already
2) forecolosures will only escalate over time, with a potential false bounce in about a year followed by more downswing
3) there is NO WAY all the bad debt has been written down by everyone assuring more surprises from firms big AND small
4) credit standards will continue to tighten until we at least hit rock bottom in a year, no matter what Bernanke does with rates
5) there are NO outs for the fools who bit off more than they can chew
NOW, wehat I have been wondering about more than ever are:
1) Why have no hedge funds blown sky high yet?
2) since Al Qaeda hit us last on a downturn in the economy, will this be their time yet again to go bigger?
3) how much will foreigners continue to lend us and for how lon considering many have lost money on so many’safe’ investments?
4) how will the consumer get squeezed by state and local government unwilling or unable to cut back spending, this draining even more from the consumer?
5) If unemployment hit 5% recently with a .3% jump in one month, and if we know the birth-death model is a farce, will we be below 6% by years end? (I think not).
6) will rising defaults in ABX pools lead to a further drain of liquidity for the consumer and commensurate higher rates? (I think so).
In the end, I make no calls on the short term trends, but the long term trend is well established already — tighter credit, much more bloodletting in housing, more bankrupcies, more writedowns, squeezed margins, etc etc.
The only way is down.
I have no idea if the market will bouc
R:
Talking about incremental cost growth to produce that one additional ounce, versus speculative price growth for that ounce.
Average stated cash costs for gold mining 2005 “estimated by GFMS” at US$269/ounce. Yet as recently as 2003, this same number was reported as US$218/ounce. 25% cost growth in two years? In its latest annual survey of the gold market, GFMS Ltd “reports that” global mine production cash costs rose by $45/ounce, or 17%, for a year-on-year to $317/ounce. 17% cost growth in one year!?
Spread $105/ounce in 2005.
Spread $203/ounce in 2006.
Spread $476/ounce in 2007.
But no gold is ever destroyed or consumed! 80M ounces more produced every year. It’s like drinking grapes through a fire hose, when you’re strapped to a colostomy bag.
Sounds like momentum investment price spike.
Sounds like classic 1998 pump-n-dump speak.
Sounds like it’s time for the major haircut.
The moment credit shrinks and income slows, (now) the FMV of gold will auger in by -60%.
There are a lot of good posts tonight. Shane and Eric had good points. I feel its too soon for forecast a bottom, as all the bad new isn’t out. We don’t know the size of the housing crash in billions, don’t know where all the CDO’s are, and did not understand what credit default risk was until for or five weeks ago. A fair bit of that is getting priced into the market now. I switched my wife’s Fidelity account into a money market last night. It lost 8K since Jan 1. I do understand fear and greed though. The Fed can only cut to 0%, but theoretically probably to 1% just to leave a bullet in the chamber. Then what?
There is a scenario nobody talks about though, that could hurt any reovery. Its Peak Oil. True, there is demand destruction by high price, and recession too. But will that offset the attrition? THe oil being found is hard to get to,and hard to refine ( heavy sour ). Will the 2 million Chinese that move to the coast every month stop driving and go back to bicycles? Probably not. Well, as the Chinese say, ” May you live in interesting times”
Some Great Thoughts on our ‘Economic Situation’ Tonight. I’m still trying to resolve how Inflation in China, Saudi Arabia, UAE, the U.K. etc. and Interest Rate Policy among the Foreign Central Banks/Foreign Exchange Rates plays into all of this…China raising, we’re cutting, U.K. and Japan maintaining for now…Saudi Riyal still pegged to the US dollar… but Inflation rising in Saudi Arabia and UAE… but the U.S. is still, economically speaking, the Big Dog on the Block…all of this to me says “Slower Growth”.
Well one thing’s for sure… It will be an ABSOLUTE BLAST to watch the CNBS’ers put on their party hats and call a ‘Bottom’ in the Markets (here shortly)… as the Markets continue to make New Ones over the next several years…
——
144th comment!!! Wa-hoo!
And there are some great ones, too.
I know nobody is reading this, I just wanted to burn up a little more server space to say how much I appreciate this blog!
just a thought from an investment standpoint.. but since Ambaic nad MBIA will trigger armageddon… dont you think that the street or the fed wont allow that to happen?
I made a pretty penny on Ambaic today as they reached $5 .. the delisting limit
As you can see, they bounced pretty nicely. Same happened for CFC right?
$5->$6 = 20%
Lovin it !!!
This is just the beginning. I agree with Steve Barry’s comments above. My research indicate we are in a 1973 or 1974 like scenario. Short term (until next Friday), there is between 5-to-15% on the down side.
Agreed, many excellent posts. But can’t somebody tell us “its gonna be alright” ??
I think the severity of this recession will be amplified by the trends in energy prices. Consumers who may already be struggling with home loans and perhaps even joblessness are going to get hit with higher electricity and natural gas costs. Reduced/flat demand for utilities in the commercial and industrial sectors won’t help residential prices, either. This will further kill consumer spending and lead to general economic stagnation.
The US is particularly poorly-situated to deal with the compounded problem of energy.
Even with oil as expensive as it currently is, we should be thankful that its still denominated in dollars at all. Once this fundamental advantage changes, though, all bets are off.
Our geostrategic posture has been significantly weakened, which exposed a lot about America as a people and a state. I can only imagine that there will be significant pressure to use what’s left of our military superiority to make up for the dissolution of our economic hegemony. Its bound to fail though. Trying to engineer Iraq into a reliable off-site strategic oil reserve was a huge gamble, one so great that the psychology of previous investment now undermines our decision making. If we have a duplicitous, uninspiring leader the likes of John McCain or Hillary Clinton, expect them to ask us to double down, but fail to tell us why.
The foreseeable nexus at which all of these things converge is what leads me to believe that this isn’t merely a down cycle recession which portends inherent rebound.
This wasn’t the start, but its nowhere near the end.
I love it that we live in a world where this discoure is possible. Think plenty of bright people in 1928 didn’t see the writing on the wall? I probably wouldn’t like half of you guys in person, but I love reading all these comments. Some good stuff here.
Who knows where things will go, but I agree that the near-term future looks horrendous. Probably 30% off the peak guaranteed. And for those lame comments I read along the line of: “all you guys are bears, so this is obviously the bottom,” yeah, you just bet on that. Only people slightly more on the ball are reading / posting about stuff like this right now, so this general (bad) consensus is something to consider.
PONCH – I don’t know…Futures have been going straight up. I don’t know where we’ll finish tomorrow but the futures are priced for about an 85 point upside pop in the Dow.
We got a looong way down to go before any sign of stabilization followed by a restart of the bull market. Too many economic and political factors have conspired to make this recession to come rather memorable.
1) “if Shiller is right, housing has to fall 40% just to get to pre-2000 highs using 120 years of data” I think the good Professor is dead on; prices ought to match incomes over the long term and incomes have been stagnant to declining for the first time since 1931 when measured in 5-years period, while inflation in-inflation (the real deal familiar to the BP readers :-) is eating away the purchasing power of 95% of Americans. The carnage has a long way to go before things get any better.
2) There seems to be a credit crunch out there, although some signs of improvement have started to show up. (LIBOR spread down and all that) However, there is this small problem of the bonds insurers that Moody’s is looking at with, one would swear, an eagerness driven by a need for redemption after the CDO rating mess. If the rating agencies downgrade significantly the insurers, it could become truly ugly. As bob lee pointed out, “By the time muni holders realize that their AAA bond is really a B rated bond…” (not a far-fetched possibility IMO) all hell could break lose. Credit squeeze in a credit based economy is not a recipe for growth and bullish visions of the future. Add to that the new infamously stupid laws on bankruptcy that the financial sector lobbied so hard to pass and you got right there a recipe to prolong misery for everyone. If enough people go bankrupt while unable to get a fresh start, guess what? There will be trouble
3) mlnberger wrote:”It is very unfortunate to have an economic meltdown in an election year.”
That could turn out to be the understatement of 2008. If people get hit badly in their wallet by a recession, there’ll be plenty of people to remind voters how much they have gotten shafted by the systematic re-writing of the tax code (see http://select.nytimes.com/ref/opinion/04talking.main.html for a good discussion about this topic) how far the regulatory agencies in charge of protecting them have been gutted and politicized by ideologues which zeal would gain Iran’s ayatollahs approval. FDA, EPA, FTC and FCC are but a shadow of what they used to be. For instance, as a physician, I can testify to the lack of confidence of quite a few colleagues clinicians toward the actual FDA.
The point? Added to an economic situation that could go much worse, political turmoil could be substantial. This could be a good thing given the paralysis and partisanship in DC, but at a time when clear-headed and swift decisions must be made, the added burden of political storms is most unwelcome.
4) Finally, if Jon Markam is right, the recent explosive growth in financial derivatives could turned south and cause chaos on a global scale. Should this become a factor weakening even more the USD as the world reserve currency, this could spell big trouble for our monetary and fiscal policies.
Not a pretty picture.
the current directon of the stock market movement represents increasing potential for future growth
KIO, future growth in what, toilet paper sales?
For the most part, and intelligent and erudute discussion of the possibilities.
You guys do me proud . . .
I see no good reason for a rising market, so it will likely go lower to capitulation point.
As for energy and AG commodities sure when all are in shock they can come down too, at first.
Read Theoildrum for energy insight that also deals with AG, just consider that a huge amount of all corn produced in US will have to be turned to ethanol to meet the targets, that grain stocks are dwindelling for good reason, China is drying up etc..
Still people living today know that the average person used to spend 1/3 rd of the money for food, good times may be over.
Oil and gas producers always feared a drop in demand and now they see their caution confirmed, combine this with Albertas oil / gas taxation jump that significantly reduced drilling and will further and you will find that nat.gas in Canada will drop in production even more than in the last years because the depletion rate is not replaced and last not least energy consumption didn’t fall in Japan while they were in melt down mood.
This is only the first phase. There have been to many excesses and misalocations in too many markets.
When the impact of the US recession will start to be felt in China, I expect even more turmoil.
“Because we are in the opening stages of the bursting of an asset and credit bubble, the bust will likely be deflationary, as the value of everything topples.
I think such a scenario is more likely to see a strengthening dollar, not a weakening one.”
Ben has already said what he will do.
That’s 150 plus negative comments now!!!
Justin,
The growth will come soon. I expect SP500 at 1450-1500 by the end of this January.
The market will drop and bounce with great respect to the support/resistance levels formed during the bull market of 03 and bear market of 2000. It will also take account of the trendlines. Very often it will break, retest or drop from trendlines and it will form one or two major down trendlines (I think one is in the making but we needs a bounce to stop at it to confirm it).
About the bottom… the most probable one is 1150 SPX in my opinion. This represents a major support from the previous bear and bull market. It also represents a 50% retrace of the bull market. Anyway major bottoming activity has been studied and we will have a lot of hints.
So, no worries and good luck!
Oh, and one more thing: guys do not trouble yourselves too much with understanding and predicting the macroeconomic fundamentals. Even the Fed is usually and has been taken by surprise and they are the best economists in the world probably and more than that they have the most valuable information and tools at their discretion.
Adrian,
I would not underestimate the importance and predcitive power of fundamental forces.
If you would take a look at Figure 15 (the last one at the bottom of corresponding text) in
http://inflationusa.blogspot.com/2007/08/exact-prediction-of-sp500-at-various.html
you would observe that SP500 is very well described at two ( and larger) year horizon,including 1987, 1998, 2000-2003 and the current period.
In quantitative terms, RootMeanSquareForecastingError is of 0.09 compared to stdev 0.18 for SP500 returns.
THE ONLY THING I KNOW NOW IS THAT FORMER BIG TIME SUPPORT AT 1370 ON S+P WILL NOW BE A KEY RESISTANCE LEVEL…
AGREE WITH GUY ON THE LOPSIDED BEARISH SENTIMENT…
>> And our only way out of this mess is demographic–open the borders and let the people flow in. Japan will never see a sustainable economic recovery unless and until her birth rate recovers.
>> Immigration is not dangerous to a nation’s welfare. Emigration and/or falling birth rates are.
So, we’re a demographic Ponzi scheme? Not sure if you’d go that far. But, it might be right.
>> And our only way out of this mess is demographic–open the borders and let the people flow in. Japan will never see a sustainable economic recovery unless and until her birth rate recovers.
>> Immigration is not dangerous to a nation’s welfare. Emigration and/or falling birth rates are.
I support both assumptions quantitatively:
1. GDP growth rate is predetermined by population age structure http://inflationusa.blogspot.com/search/label/population
2. That’s why Japan will decay the next 50 years according to their own population projections:
http://inflationusa.blogspot.com/search/label/Japan
Well, for once I did read all the comments, even past 135, and well…
No one mentioned commercial real estate. If Macklowe defaults on his 7 Billion dollar loan do you think that would have an effect? I went into a Whole Foods in NoVa last thurs at 8 pm — looked like about 3000 sq ft stuffed to the gills with high end food, there must have been at least 15 people in the store. About the same number as I see in Shoppers at midnight. They are going to need some pretty big markups to make their payments on that space.
If commercial real estate tanks, and if there is as much leverage, and derivative action on CR as their was on home loans (both extremely likely) then we have not seen anything yet. How much derivative action is there on Macklowe’s 7 billion?
It is really quite astonishing reading the bulls on this thread. Not a one of them managed an argument beyond ‘you are all saying down, so it must be up’. The second implied part is ‘golly I am just so smart for saying that, nya nya stupidos’. Seems to this observer that the reason the market is going to fall is because it is supported entirely by wishful thinking. The fact that there is no bullish argument rooted in fundamentals, that indeed the bullish argument rooted in ‘fundamentals’ of yesteryear turned out to be CEO’s buying their company’s stock on margin, fullying intending to leave the sucker investors holding the bag when they found out that the corporations couldn’t pay back those loans, all suggests that these bullish commentors aren’t as smart as they think they are. Me thinks they are the same guys who have been selling ‘the market always knows best’ for the last 15 years, saying ‘nya nya’ to those of us who have been questioning the fundamentals going back to 1996 when dear old alan said his last intelligent thing ‘irrational exxuberance’. Irrational exxuberance on the way up does not mean that it is is irrational to expect it to go down.
Sorry smarty pants, doesn’t work like that.
KIO,
Very interesting point of view in your articles.
I’m strictly an amateur at technicaal anaylsis but it seems that the Dow and S&P were both in a head and shoulder pattern and that the neckline has long been violated. This should produce a bottom for the Dow at around 10800 and 1211 for the S&P
Adrian,
appreciate that you have taken a look at the articles. Hopefully, the problem will be resolved by the end of 2008.
I am trying to take some real moves to invest in SP100. just waiting technical bottom,.
Amazing response here by readers… all want to short the next rally that they think will inevitably and shortly arrive. The market will not make it that easy. It never accommodates the prevailing opinion. The next rally COULD come from a level 20% lower than current levels.
STAY SHORT.
I agree. My goal is S&P 1100-1150, and I’m not going to monkey dick it trying for extra gains. I would most likely just lose out on some profits.
Yes, the FED was behind the curve and will try to catch up now.
Yes, banks are posting terrible losses, but nothing people didn’t know back in August.
And yes, I do get worried about insurance companies, but they have gone down a lot already (87% anyone?)
Remember how cheap Dow Jones at 12k got when China raised the stamp post last year? Remember how cheap Dow was when it crossed above 12k 2 years ago?
It’s THAT cheap again and you guys want more. That’s greed, and greed caused everything we’re seeing now.
BUY Emerging Markets, especially Brazil and you guys will be happy. Forget the Dow, decoupling is real. If Dow goes up 0,2% tuesday we in Brazil are going up 1,6%. And the opposite is not true.
I agree. Trends similar to 1970’s. I am hoping I am wrong. Could anyone give me a strong argument why I am wrong without getting emotional or referring to global economy.
Barry, I’ll bet your “bear spike” is at an all time high, no?
I’m going long the ‘Bear spike’. Just kidding.
If this is a repeat of 1974, which I am guessing, then the eventual bottom will be around 8,000 Dow. But remember there are a few rest stops on the way down.
When they raid the whorehouse, they even take the piano player…….Said once again.
Mr. Das’s research on the credit market suggests the credit deleveraging will take years…I happen to agree with him.
Mr. Das’s research on the credit market suggests the credit deleveraging will take years…I happen to agree with him.
Mr. Das’s research on the credit market suggests the credit deleveraging will take years…I happen to agree with him.