This week’s cover story has a nice wrap up of the current market, along with some good research from the boys at the Bespoke Group:
And a video discussion of the same:
>
Source:
The Bear’s Back
RANDALL W. FORSYTH and VITO RACANELLI
BARRON’S COVER, MONDAY, JULY 7, 2008
http://online.barrons.com/article/SB121512473043028031.html
The streaming of this video works better than any other I have tried on this site. no pauses, etc. great.
Am I really first?
Contraindicator.
Considering the last time we heard from Vito was “BUY GM” (about one month and 60% ago), this could be a contra indicator.
Counting the end of the dot com mania as two different markets makes little sense. Having said that, counting 2000 – 2002 as a single event only changes the average loss to about 32%.
I assume the ’30s are excluded because of the changed regulatory environment. Personally I would say that while the de jure regulatory environment is very much different, de facto, not so much.
150 Year Second Fractal Nonlinearity and The Lammert Macroeconomic Fractal Series: x/2.5x/2x/1.5x
The Wilshire closed at 12815.47 on 3 July 2008, near its 22 month lows. Composite equity valuation decay will follow a quantum fractal decay pattern. What is that fractal pattern? Will the current fractal decay pattern time frame and final low be mathmatically consistent with the larger growth and decay pattern starting in October 2002?
Will the US 150 year composite equity second fractal’s terminal nonlinear area be incorporated within a larger nearly perfect quantum fractal pattern whose evolution and valuation saturation limits intuitively is casually determined by systemic unpayable massive debt? This historical debt evolved by unregulated credit expansion, financial engineering, and uncompetitive interest rates and taxed savings accounts and has resulted in oversupply, over ownership, over valuation, and gross and growing dysequilibrium between the jobs and wages needed in the real economy and the ongoing capacity to service the excessive amount of facilitated debt.
GM is likely to go the way of New Century and Delta during this next 18 week time period.
How low denominated in US dollars will the old yellow relic fall in the next 18 weeks supported by a plummeting number of surviving dollars? The devolution of equity and commodity valuations within the 18 weeks will likely be the greatest percentage drop the world has ever experienced.
-snip!-
“Hide out”, “Stay in cash”, have these people never heard of the stock market tickers SDS or QID? How about getting some investor education and start buys puts?
Does Barron’s assume their viewers are too dumb to learn anything?
It is interesting that the bear would be recognized this month. Isn’t this the month that the subprime resets are due to reach their peak? If so the summer could be the last flush. The only caveat would be valuations. Everything is still so expensive. Maybe I’m just poor and suffer from ‘I remember when’ disease
Well, Barry, enjoying my long weekend off…
I would like to see you posit your ideas or those of others as to where this leads…and I mean long term. Some like Todd Harrison think deflation is the end of this mess, others think hyperinflation…
Certainly when one thinks about it, we realize our federal government is broke, and with no good way to fix our economic troubles. When our founding fathers put this miracle together, they put the necessary checks and balances in for individual freedom, but they missed the boat for economic freedom, I don’t think they even considered our government would spend more than they took in year after year after year… Now we have a legacy debt, and it is so large it can’t be addressed without huge changes..
So, what is the last act?? Hyperinflation or deflation? Your ideas?
Bruce in Tennessee
Thomas Shawn:
Expecting Wall Streeters to advise anything that smells of shorting is like expecting Osama to convert to Christianity. It’s psychologically impossible. They always have to find something to buy. After all, aren’t they the ones who have preached buy and hold, Dollar Cost Averaging, etc. to the masses. Even Pat Robertson probably believes some of his own stuff.
Shame that he mentions oil as some safe haven now that it has had such a huge run up. Will just draw more rubes in to become the suckers at the top. But that seems to be the Wall Street way, put customers into what has done well.
Interesting that all the fractal mumbo jumbo is punctuated by fundamentals. And, no doubt, the future progress/retreat of the markets will be fitted into some neat mathematical algorithms when all one really needs to make money is to observe how screwed up things are. I remember dimly from grad school in math some esoteric proof that one can always find patterns in any sequence of random numbers. Not saying that the movements of the markets are random. They are clearly controlled by longer term trends/issues. But riding on top of this are things that cannot be explained, like whether BB got up on the wrong side of the bed just before the BS bailout, whether Paulson lets his true feelings slip out, or possibly even Meredith Whitney’s PMS. Not being sexist with the last. I respect her. Just trying to make a point. Her every word seems to make news these days among the financial media and can send financials up or down.
“requisite 20% drop”
There it is again…
A great example of the Wall Street mindset is CNBC’s Stock Blog which is subtitled “Tracking Buy, Sell, Hold,” but which contains only buys.
It’s also good for a laugh, like the first entry recommending Steels just after their peak as the downturn begins to bite around the world. I suppose their being such great buys is why SMN went up 12% in three days after I finally pulled the trigger. And I didn’t even catch the bottom :)
“It is interesting that the bear would be recognized this month. Isn’t this the month that the subprime resets are due to reach their peak? If so the summer could be the last flush”
We still have the ALT-A option arms to go through. I found this BW
“The rate of option ARM delinquencies is already spiking”
“According to a recent analysis by Lehman Brothers, option ARMs that originated in 2006 performed about as well as fixed-rate Alt-A debt for the first 12 months. But by the time they were 2 years old, about 2.1% of performing loans were going 60-days delinquent each month. Compare that to a 1.2% of current loans going delinquent with other Alt-A loans. The rate of increase in delinquencies is even beginning to approach that of subprime, which is about 2.5%.
“It’s a better quality borrower but the rate of increase in delinquency is looking closer to subprime than Alt-A,” said Akhil Mago, the head mortgage credit strategist for Lehman Brothers, said.”
http://tinyurl.com/5jr8dq
We have a long way to go!
Barry,
Now, THERE’s a magazine cover indicator if I ever saw one!!
AIM restes peak JUN/JUL and with 6 months to forclosure, we should be looking at a bottom in 1Q09? As the SNP discounts 6-9 months ahead, could we be reaching the bottom here?
The tendency of the human brain is to take a trend and project it further up or down (It is the most dangerous part of models building, the inability to detect, to gauge an inflexion point ).
It is even worse for markets said to be sentimental (I still did not find out to what?)Linear projections require caution as they are « fractures » in all stories.
No way this bear market ends before the election.
The whole election process, and the immediate aftermath (11/5/08-1/20/09), in fact, will PROLONG the bear market (in terms of time).
There will be rallies. But the bears won’t go back into hibernation for at least another 10 months.
The Bespoke table shows us that the number of days from the beginning to the end of each bear market averages out to 386 days.
What is more relevant at this juncture is the days from achieving the requisite -20% drop to the end of the bear market. With the data given in the table, this works out to an average of 107 days.
Does this mean we are out of the woods in a little more than 3 months?
I have already heard the bulls say this bear market is close to over-I thought it just started.
The bulls have been saying the that the decline was over since last fall. I suppose they’ll be right eventually.
I still remember waiting for an oil change in, I believe, January at a Texas dealership. Of course they had Fox News on and it was the day after a big drop. Characteristically, the averages were up a little on the day after. Some little girl who is a “financial analyst” came on and explained how it was now time for “the grownups” to take over. I swear that’s what she said.
As to the average lengths various segments in bear markets shown in the table, they are skewed a bit by breaking the turn-of-the-century bear market into two separate bears when looking at the chart makes it pretty apparent that it was a one long bear market interrupted by a rally.
Similarly, while the 87 crash is labeled a bear market, it was really more of a short term panic resulting from something that looks on the chart like the price of oil over the past 15 months. Wikipedia says that the DJ was actually up for the year, which certainly doesn’t sound like your typical bear market.
Barry,
I think you waste time and space talking about “days into bear”. It has nothing to do with anything. It has no predictive behavior. The “days” count will be an output of the market getting better not an input of the type “oh, wow, we really have let this bear go on too long, we better sart buying!”
Oil is overpriced and not scarce (yet), banks are weak and burdened with increasing loads of bad debt, no one is smart enough to understand a fraction of what is going on but some idiots (Bernanke, Trichet, etc.) have their hands on some pretty powerful levers nonetheless. Bull markets are some time off.