A Real Glimmer of Real Hope???

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Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
A Real Glimmer of Real Hope???

Two questions -

1.  Is this finally getting out into MSM?

2.  Will it matter?

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/the-next-crisis-has-already-begun.aspx

The next crisis has already begun

We've survived a financial meltdown, and we're working through a recession. But another phase -- when all the money printing melts down the dollar -- is just getting started.

By Bill Fleckenstein

MSN Money

This week I'd like to update readers on the funding crisis. That's the third in the three-baseball-game analogy that I dreamed up last fall (read "Economy sinks as we save bankers") as a way to think through the enormous problems we faced.

The first and second games (crises) -- the credit meltdown and the economic downturn -- have been pretty easy for folks to understand, as they were front and center in the news.

The view from the dugout

Essentially, the financial crisis now lies behind us (with the economic crisis in full bloom, the recent economic "bounce" notwithstanding). That's due to all the moves put together by former Treasury Secretary Hank Paulson and other government officials. Those actions stopped the vaporization of the financial system, essentially giving everyone a do-over.

But therein lay the seeds for the funding crisis -- which, as I noted in my daily column at FleckensteinCapital.com on May 21, appears to have started.

This is a much more subtle but pernicious crisis in some ways, as it's not so apparent but is disastrous in the long term.

My reason for saying so? Because if the dollar is called into question (as now appears to have begun) and if the Federal Reserve's monetization cannot lower interest rates (and in fact causes them to rise, due to the consequences of printing so much money), then the Fed is trapped. The more it tries to solve the problem by printing more money, the worse it all becomes.

How that will play out exactly, how long it will take and what the road map along the way might look like is difficult to say, due to the many permutations of how events might interact.

But the ultimate outcome will be a weaker currency, more inflation and higher rates until such time as the printing press is finally taken away from the Fed.

Louis Navellier, the editor of the newsletter Emerging Growth, explains why the dollar could drop further and what that could mean for the US economy and stock market. (May 14)

The model bites back

Away from the nuance that is the funding crisis, the action in recent stock trading cannot lay claim to subtlety. Indeed, there's no mistaking the bizarre behavior on display, wherein so-called low-quality stocks outperform so-called high-quality stocks. To explain this disconnect, let me first reprise remarks from my Oct. 8, 2007, column:

"At a recent New York conference, investor Jim Chanos noted a couple of anomalies that, in all likelihood, are a direct function of quant trading. They highlight a disconnect between stocks and their underlying fundamentals that only a computer could love.

"It turns out there are two -- and for all I know, more -- closed-end mutual funds that own mundane large-cap S&P-oriented stocks: the Cornerstone Total Return Fund (CRF) and the Cornerstone Strategic Value Fund (CLM). Inexplicably, these funds trade at premiums of better than 50% to net asset value. . . .

"The connection to the quant universe is that Renaissance Technologies, among the biggest quant hedge funds and certainly a very successful one, is the fourth-largest shareholder in both Cornerstone funds.

"You have to scratch your head and ask: What is a quant fund doing paying a huge premium for an easily replicated portfolio?

"The only logical answer would be that the stock-price characteristics have behaved in a way that makes Renaissance's computer -- obviously programmed by someone -- think these funds are a good thing to buy, regardless of the fact that their valuation is beyond absurd. . . .

"That's what the computer-driven models at quantitative funds do, setting aside the fundamental questions of what a company actually makes or does and what that business is really worth."

Fast-forward to now: Most of the people I speak to who are knowledgeable about the minutiae of trading point to problems with various quantitative and market-neutral computer-driven strategies.

To wit, after having worked well for so long, many of these models have recently stopped working, thereby inflicting considerable pain on many of the funds that have used them -- the aforementioned Renaissance Technologies in particular. Referring to the fund managers who are now witnessing the failure of their models to accurately track, a knowledgeable friend I've dubbed the "Lord of the Dark Matter" describes them as "people chasing tracking error."

The preponderance of quantitative funds rectifying their errors -- i.e., cutting their losses -- might account for a decent portion of the seemingly nutty action in the stock market these days.

I say "seemingly" because oftentimes the market can appear nutty. Then you find out six months later that it wasn't. Rather, there was some reason only identifiable in the aftermath. However, in this instance, I don't think that will turn out to be the case.

 

mpelchat's picture
mpelchat
Status: Silver Member (Offline)
Joined: Sep 10 2008
Posts: 214
Re: A Real Glimmer of Real Hope???

DIAP,

Seems like the low level MSM is awaking a bit and telling the story.  This is very interesting and perplexing, we have now found that we ((as people)) have 2 levels or more of MSM. Kind of like having a newspaper.  The in your face articles, what is breaking news is on the front page and the other stuff in on page 2 of the business section.

The article you reference is from MSN one of are MSM's but you do not see this information talked a lot on the in your face stuff like Wolfblitzer or one of those talk shows, I mean news shows.

In my opinion, the reason why MSM is starting to run articles like this at this level, is that the MSM knows that there is a good chance that the SHTF may come and  wants to buffer itself.  If all goes well, the populous doesn't think less of the MSM and if all does not go well, the MSM can tell the populous "hey we reported this on such and such day."

Dog, I wish I could call it hope.  It sounds like just people that know putting themselves in the best position possible no matter what happens.

Sorry to be so cynical.

PS. planted my potatoes last night.  Go potatoes!

 

jms2112's picture
jms2112
Status: Member (Offline)
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Posts: 14
Re: A Real Glimmer of Real Hope???

Good God, how can ANYONE understand this stuff???  With all of these levels of players and different types of investment vehicles, even the experts can't tell what's going on.  It's baffling, to the regular guy trying to make some sense of it all...

Thanks.

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: A Real Glimmer of Real Hope???

jms -

Welcome to the site.  Don't get too frustrated with what you don't "know".  There are a lot of really smart people all over this site who are very knowledgeable in a variety of topics.  I can't even begin to list how much I've learned.  It's a great community with a host of folks who can help out - in just about any subject you could think of.

Obviously, going through Crash Course is at the top of the list.

Poke around, see what you come up with.  Feel free to ask questions any time you want - I guarantee someone on the site knows the answer through personal experience.  Post the question as a new thread topic (chances are it's been asked before, but as a newcomer don't let that stop you, there is a good search feature that will help you track down topical material).  Or drop a PM or email.

Here are a couple of threads to get you started:

Trading/Investing - http://www.peakprosperity.com/forum/traders-thread/14692

Gardening/Permaculture - http://www.peakprosperity.com/forum/definitive-agriculturepermaculture-thread/15715

Food Storage - http://www.peakprosperity.com/forum/food-storage-lessons-learned-and-recomendations/19518

Not a trading thread but critical info - http://www.peakprosperity.com/blog/crisis-explained-one-chart-debt-gdp/11570

Gold discussion - http://www.peakprosperity.com/forum/massive-rise-goldsilver-price-next-30-days/18978

Community Building - http://www.peakprosperity.com/forum/community-building/15712

Emergency Preparations - http://www.peakprosperity.com/forum/emergency-preparation-and-food-storage-info-lowesville-seminar/18845

Firearms - http://www.peakprosperity.com/forum/definitive-firearms-thread/12654

Again - welcome.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: A Real Glimmer of Real Hope???

 The fact that the dollar demise has made it into the MSM content makes me want to bet on a rise in the dollar! If the herd jumps on board, you bet the market will be happy to separate them from their money.

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: A Real Glimmer of Real Hope???
mpelchat wrote:

snip

The article you reference is from MSN one of are MSM's but you do not see this information talked a lot on the in your face stuff like Wolfblitzer or one of those talk shows, I mean news shows.

In my opinion, the reason why MSM is starting to run articles like this at this level, is that the MSM knows that there is a good chance that the SHTF may come and  wants to buffer itself.  If all goes well, the populous doesn't think less of the MSM and if all does not go well, the MSM can tell the populous "hey we reported this on such and such day."

Dog, I wish I could call it hope.  It sounds like just people that know putting themselves in the best position possible no matter what happens.

Sorry to be so cynical.

PS. planted my potatoes last night.  Go potatoes!

mpel -

I'm hoping they weren't rhetorical questions.  The article was filed in the "Contrarian Chronicles" so it seems to me to be a not so subtle ploy at pitching the article in a specific light to bias the reader.  Damn, I almost sounds like I'm throwing the flag on suppressive MSM conspiracy!! 

I am a bit encouraged that it even showed up front and center on MSN's home page.  Now if we can get the Britney/X Box/PSP/Direct TV crowd to read it. 

Maybe it's me, but it seems like these kinds of articles are popping up a bit more - we can only hope they get some traction.

We got our sweet potatoes in the ground last weekend - too late and hot to get potatoes going here in SE Virginia.  We have been eating salads and using herbs from the garden almost daily for the past four weeks.  My white currant bush is exploding with fruit and the peppers are starting to get going.  Looks like it's going to be a busy summer in the gardens.

mpelchat's picture
mpelchat
Status: Silver Member (Offline)
Joined: Sep 10 2008
Posts: 214
Re: A Real Glimmer of Real Hope???
Dogs_In_A_Pile wrote:

I am a bit encouraged that it even showed up front and center on MSN's home page.  Now if we can get the Britney/X Box/PSP/Direct TV crowd to read it. 

 

I agree with you it is good to see may get some traffic and open a mind or two up, however to the main populace it is on pag 2 of the business section and will never see the light of day for 99% of the readers.  Thinking about it I will take 1% at a time if that is all we can get to at least think the "Red Pill" is actually a choice.  It is a start.

Hope you enjoy the sweet potatoes.

britinbe's picture
britinbe
Status: Gold Member (Offline)
Joined: Dec 28 2008
Posts: 381
Re: A Real Glimmer of Real Hope???

I've said to a number of friends and co-workers that the inside pages and the business pages are tomorrow's headlines.

Its to see that the story is being told at last, albeit in a limited manner........... It will be interesting to see how much reality people can really handle in the coming days, weeks and months......

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