Market sentiment getting more bullish, bears capitulating en masse

9 posts / 0 new
Last post
Subprime JD's picture
Subprime JD
Status: Platinum Member (Offline)
Joined: Feb 17 2009
Posts: 562
Market sentiment getting more bullish, bears capitulating en masse

Short post.  Bloggers and posters on the alternative media are getting bullish on stocks. Interesting thing is that there are many bears invested into equities, including CM members. I see a turning point coming very soon as most are expecting more gains. Just read the comments on this site, zerohedge, Mish, Calcrisk, etc. With so many bears invested into equities at the slight turn of the market the run for the exits can be quite large. After a good sharp tank people will be angry with themselves saying "damn it i should have seen it coming, i knew it was coming, but i was in long."

I could be wrong but im taking the risk.

Im putting the bear back in the name, BEARMARKETTRADER


Disclosure: adding positions in SDS

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503

Not exactly the same topic as Bear's, but pretty relevant.  This article by Yves Lamoureux via Nate's Economic Edge breaks new ground for me.  Keep in mind the Yen is the second largest component in the dollar index.  Nate's argument regarding a treasury sell-off not withstanding, this could portend an eventual competitive currency-devaluation, as Yves notes, starting with the Yuan:



Thursday, December 3, 2009

Another interesting observation by Yves. Before jumping into his words, I suggest you start by examining his chart. What you will find is that the broad money movements underlie and lead movements in the currency, at least that’s the history. And you’ll note that the broad money measurement recently began increasing again, remember the 10 Trillion Yen announcement just a couple days ago?

Well, today we now further complicate this dynamic with rumors that Japan is going to sell $100 Billion of their U.S. Treasuries. On the face of it, the move to sell would cause interest rates in the U.S. to rise and thus could be expected to cause a rise in the dollar and possibly break the recent dollar carry (just a theory, may not work that way in practice, watch gold).

Now please go back to Yves chart. You will see that he drew a bright green line across the 100 Yen to the dollar mark. That is the critical area and the Japanese need to force the Yen back down to get the relationship to the dollar above 100 to 1.

Of course their gambit to sell treasuries, if more than a rumor, could have big time unintended consequences such as other countries could heard out of Treasuries at the same time, the effects of which would not be pretty for the world. Let’s face it, eventually each country will act on its own behalf to protect its interests. When forces reach extreme out of balance, you can bet that the water will eventually break all dams. These imbalances have been known and ignored for far too long…

I have been bullish on the Japanese currency since March 2007. What I think defines broad movement in currencies is perception along with broad relative monetary actions. The expansion or contraction of monetary aggregates in one currency versus another is in essence its purest denominator.

We show today such a timing model in the yen/usd rate of exchange. Notice that timing simply based on monetary aggregates can be not forgiving for quite some time until the new trend establishes itself.

The top chart is of the yen itself. The bottom chart shows the expansion or contraction of the broad money base. It does generate great warnings ahead.

I have changed the color to purple for the expansion or rise of monetary aggregates. It will be useful to make our present case more obvious.

I congratulate Albert Edwards on beating me to the punch for the Yuan devaluation thesis. I too have been expecting this for over a year. Bringing it up now was however too early for me. I believe that the yen might bear the brunt of the devaluation first as the Chinese currency does not float readily.

The present USD carry trade is the equivalent version of the yen carry trade on steroids plus more. There is no doubt that zillions of derivatives have major multiplication effects. The real fun part begins when you want to unwind this.

The parallels are eerie just as then Japanese held in contempt their own currency. They could not sell it fast enough to buy high yielders. Just as then, they would face an end-game. This is where we did an excellent purchase of yen in combining sentiment and broad money timing, giving us a green light.

It would appear that we are starting to get the same elements but in reverse. Sentiment on the yen is sky high and broad money is acting up. The chart on the right hand side shows the last purple arrow moving up. It would therefore be my expectation of a top in the Japanese yen. Yet to be defined is the nature of the correction. Does it portend to an upcoming devaluation of the Yuan?

A direct benefit of a weakening yen is again long treasuries. Our Japanese friends turned sellers of bonds would quickly revert to becoming buyers again.

I study one market at a time on its own merits. But perhaps this unlikely trigger might offer the delicate carry trade too much destabilization…

Yves Lamoureux, Investment Advisor, Blackmont Capital, Inc.

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
More on the $, Yen and China

Don't know if this is old news around here or not (I've been a little disconnected lately), but this article goes hand in hand with the one above, and the author, Albert Edwards of Societe General, is referenced in the first one.  Via ZeroHedge.  My apologies if this is a repost.


With everyone and their grandmother screeching that it is about time for China to inflate the renminbi, despite that such an action would be economic and social suicide for the world's most populous country, SocGen's Albert Edwards once again stalks out the Black Swan in left field and posits the contrarian view de jour: China will aggressively devalue the yuan following a deep 2010 downturn coupled with escalating trade wars. As Edwards says: "I think the next 18 months will see major ructions in the financial markets. The consequences of a double-dip back into recession next year require some lateral thinking. If the carry trade unwind results in a turbo-charged dollar, any collapse in the China economic bubble will be doubly destructive to commodity prices. A surging dollar, coupled with China moving into sustained trade deficit through 2010, could prompt the Chinese authorities to acquiesce to US pressure for a more flexible exchange rate. But why does no-one expect a yuan devaluation?"

The critical observations from Edwards that may end up being spot on, courtesy of everyone with an FX account being short the dollar:

JAG's picture
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Market sentiment getting more bullish, bears ...

Hey FB,

I thought you might appreciate that Edward's article. To me, it epitomizes lateral thinking at its finest. I don't think I ever posted it here because I haven't seen you around lately and thought you would be the only other person here to appreciate it.


Did you catch the Investor Intelligence Sentiment Survey this week? More bulls than the top in 2007.

Christmas Crash....Happy New Year Plummit...coming our way.

idoctor's picture
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: Market sentiment getting more bullish, bears ...

This bear not capitulating (yet) LOL....but suffering a little for the last 2 weeks. I like the SDS & will add if we see something bigger happen. 

xraymike79's picture
Status: Diamond Member (Offline)
Joined: Aug 24 2008
Posts: 2040
Re: Market sentiment getting more bullish, bears ...
idoctor wrote:

This bear not capitulating (yet) LOL....but suffering a little for the last 2 weeks. I like the SDS & will add if we see something bigger happen. 


Before this bubble can pop, you'll have to pry it from the cold dead hands of the QE/plunge protection team.

Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Re: Market sentiment getting more bullish, bears ...

It's funny. This is the same thing that happened just before the crash in 1929. Throuhout the year up until the fall the bears were warning of collapse. Then by early fall most of them had capitulated and said the supposed things would work out then...bang.

utecity's picture
Status: Member (Offline)
Joined: Sep 24 2008
Posts: 20
Re: Market sentiment getting more bullish, bears ...

This will end in tears for both bears and bulls. Getting burned for a second time around will put a pretty bad taste in many mouths. No one will come back into the market after this next correction.

docmims's picture
Status: Platinum Member (Offline)
Joined: Jun 17 2009
Posts: 644
Re: Market sentiment getting more bullish, bears ...

yep I capitulate.  Time to short. Smile

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments