So where is the correction?

33 posts / 0 new
Last post
investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: So where is the correction?

zo -

Dent says if the Dow can't hold 9430 it starts now.  If it can hold 9430 it will probably run to 9600-9700 and then correct.

Either way, I'm in  January and March Puts.

Time will tell.

 

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: So where is the correction?

There is still too many traders too quick to short the markets, it looks like more short squeeze pain is needed and/or the dreaded sideways market where no one can make a buck.

xraymike79's picture
xraymike79
Status: Diamond Member (Offline)
Joined: Aug 24 2008
Posts: 2040
Re: So where is the correction?

Doug Kass, writing at TheStreet.com, gives a series of compelling arguments why he thinks we have reached the market high for 2009 (here).

A good summary for the article is this quote:

"Just as I looked over the valley in March 2009 toward the positive effects of massive monetary/fiscal stimulation within the framework of a downside overshoot in valuations and remarkably negative sentiment, I now suggest another contrarian view is appropriate as I look over the visible green shoots of recovery toward a hostile assault of nonconventional factors that few business/credit cycles and even fewer investors have ever witnessed."

Ignore Doug Kass' opinions at your risk.

       -------------------------------------

• Flat household incomes raise doubts about economic recovery

WASHINGTON – Household income in the United States is essentially stagnant, raising doubts about whether consumers already hurt by job losses can sustain an economic recovery.

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: So where is the correction?

Like everything else in The Biggest Bubble Ever Made, I guess it would make sense for this bear market rally to be bigger and last longer than all prior ones.  Based on that chart, it already has.  This is the first time DC and NY have ever made anything Texas-sized.  

xraymike79's picture
xraymike79
Status: Diamond Member (Offline)
Joined: Aug 24 2008
Posts: 2040
Re: So where is the correction?

LOL. It's gettin' as big as your cow there.

Sandman3369's picture
Sandman3369
Status: Bronze Member (Offline)
Joined: Dec 20 2008
Posts: 71
Re: So where is the correction?

You forget about Alaska-size. All lower 48'ers do...don't feel bad!

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: So where is the correction?

[quote=Sandman3369]

You forget about Alaska-size. All lower 48'ers do...don't feel bad!

[/quote]

You're forgetting a subtle difference here, Sandman. Alaska is simply big. Texas is egregious.

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: So where is the correction?

In 2003, stock indexes set their low for the year in March, just as they did in 2009 to date. The March 2003 bottom wasn't as low as the Oct. 2002 bear market bottom. But it did mark the beginning of the bull market 'take-off' phase, when the positive momentum was sustained.

By autumn 2003, many were expressing the same sentiments as Doug Kass -- wanting to fade the excessive enthusiasm for the 'new bull market.' I myself backed off from long stock index positions, which had been quite profitable, and started concentrating more on long commodities.

Yet the bull market rolled on for four more years after the excessive bullish sentiment became apparent. I have seen this happen over and over. Everyone 'knows' that stocks are going up ... the extreme bullish sentiment leads to a pause in the upward momentum for a few weeks ... then the indexes blast off again. This process continued for more than five years during the period from Nov. 1994 to March 2000.

Kass's chart is very tendentious, since it treats only one bear market -- 1929-1932 -- during which the highly unusual condition of runaway deflation prevailed. The monetary base was contracting during 1929-1932, rather than doubling as it has done recently.

Though it acts with a lag of 18 months or so, monetary policy is quite effective. Ben's 'Big Easing' started nearly two years ago, and stocks bottomed (so far) 1-1/2 years later in March 2009. Straight out of the monetarism textbook.

I wouldn't be buying stocks right here. But I do think this is a new secular bull market, more likely than not. After all, we PAID for this bull market. Those who short it too early will pay more than their share. Just as a watched pot never boils, an expected correction never comes.


DavidC's picture
DavidC
Status: Silver Member (Offline)
Joined: Sep 29 2008
Posts: 243
Re: So where is the correction?

Hi machinehead,

I do wonder where this bull run will end, but I don't go along with your arguments for several reasons;

1 -There is absolutely no room for further downward moves in interest rates unless they turn negative (a possibility but not a probability), an historic precedent.

2 - The housing market is not rising, it is still correcting to its long term trend level, thus consumers (still 70% of the US GDP) are no longer treating their homes as ATMs. Potentially, we also have the CRE correction to come.

3 - Consumers are still, overall, overleveraged and have started (shown by the increase in savings rates for example) deleveraging.

4 - The money that has been THROWN into the system by Governemnt and the Fed has in NO way been directed at Main Street, all it has done is prop up an EXISTING system (non-stress tests for the banks for example) and provide the opportunity for theft, even greater profits and grossly inflated bonuses (Goldman's VaR is greater now than before the crisis DESPITE being a commercial bank now and supposedly subject to regulation and limitation of such things!).

5 - Unemployment continues to climb, depsite the massaging of the figures and positive spin put on them ('only' 570 THOUSAND new unemployed instead of the 576 THOUSAND last month, so thngs are getting better/aren't as bad as expected!).

I could go on. What I'm saying is that the conditions that existed during and just after the tech bubble and during the housing bubble are now completely different.

There is nothing in the data, underlying conditions or treatment of the problems by the Fed/Government that will convince me that we are on a path back to 'normalcy'. I really think we are in unprecedented times. And no, I'm not being 'doom and gloom', I hope I'm making a rational, reasoned and adult conclusion to what I'm seeing going on. I'm happy to have my mind changed if you can provide me with vaid reasons.

DavidC

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: So where is the correction?

Machinehead,

I've been slow to come around to the new bull market hypothesis, but given the all-out failure of my usually very reliable sentiment indicators, it does look remarkably like 2003 out there again (the last time the market blew right through excessive sentiment readings). As I have stated on several occasions, economic fundamentals have very little influence on the poker game that we call the stock market. One thing is for sure, things are getting interesting out there!

Source: www.sentimentrader.com

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: So where is the correction?

What about Volume?  JAG, anybody else out there, how does volume compare to other bear-market-traps or real bull markets?  My sense is this run-up is built on the volume of a tennis clap.  Maybe I'm wrong.

Harvey's picture
Harvey
Status: Member (Offline)
Joined: Mar 16 2009
Posts: 18
Re: So where is the correction?

The problem I see with trying to understand the market is the fact that it is manlipulated by a very few big players who make up the rules as they go. Just look at bank stocks and try to explain the stock price based on reporting ! I'm not playing in the US market anymore period.  One thing that does interest me , I keep hearing about US personal savings going up. I wonder if most of this is due to people getting servence pay when they are laid off ? I know when I lost my job in April , after being there almost 20 years, I got about a years worth of pay in serverance . Of course the big boys got millions ! Maybe thats the bump in savings ?

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: So where is the correction?

Volume? What do I know about Volume?

I didn't take on the Captain Sheeple moniker for nothing. I'm an expert in analyzing the dumb money crowd simply because I'm one of them. My proprietary Sheeple Herd Indicator is signaling a panic buy at this point. Surprised

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: So where is the correction?
Quote:

One thing that does interest me , I keep hearing about US personal savings going up. I wonder if most of this is due to people getting servence pay when they are laid off ? I know when I lost my job in April , after being there almost 20 years, I got about a years worth of pay in serverance . Of course the big boys got millions ! Maybe thats the bump in savings ?

That may be a portion of it, but the precipitous drop in imports from China is real - those dollars are staying home.  

Agree with you on the US stock market - especially anything having to do with banks and insurance.  However, the real market always always always catches up with and schools the market manipulators, and the longer it takes, the bigger the schooling.

Harvey's picture
Harvey
Status: Member (Offline)
Joined: Mar 16 2009
Posts: 18
Re: So where is the correction?

Agree with you on the US stock market - especially anything having to do with banks and insurance.  However, the real market always always always catches up with and schools the market manipulators, and the longer it takes, the bigger the schooling.

 

 

Thats my problem , I can't tell whats real , and even when I can it does not seem to matter because the "spin" seems to work.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
Re: So where is the correction?

As I understand it, the increase of savings is really paying down debt, not actual savings.  I'm not sure what difference that makes, as it seems both would contribute to revenues flowing into banks.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: So where is the correction?
Harvey wrote:

The problem I see with trying to understand the market is the fact that it is manlipulated by a very few big players who make up the rules as they go. 

Markets have always been manipulated, its the name of the game. But like FB said, every market participant, no matter how big, is still subject to the consequences of their own actions. There is a very good reason that we see strength in the banking stocks, because that sector is the primary focal point for those that short this market, and therefore the short squeeze reaction is also focused on this sector. 

If we do get a correction this fall, it's velocity will have to be tremendous to insure that the dumb money is too slow to profit from it, IMO.

investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Re: So where is the correction?
DavidC wrote:

Hi machinehead,

I do wonder where this bull run will end, but I don't go along with your arguments for several reasons;

1 -There is absolutely no room for further downward moves in interest rates unless they turn negative (a possibility but not a probability), an historic precedent.

2 - The housing market is not rising, it is still correcting to its long term trend level, thus consumers (still 70% of the US GDP) are no longer treating their homes as ATMs. Potentially, we also have the CRE correction to come.

3 - Consumers are still, overall, overleveraged and have started (shown by the increase in savings rates for example) deleveraging.

4 - The money that has been THROWN into the system by Governemnt and the Fed has in NO way been directed at Main Street, all it has done is prop up an EXISTING system (non-stress tests for the banks for example) and provide the opportunity for theft, even greater profits and grossly inflated bonuses (Goldman's VaR is greater now than before the crisis DESPITE being a commercial bank now and supposedly subject to regulation and limitation of such things!).

5 - Unemployment continues to climb, depsite the massaging of the figures and positive spin put on them ('only' 570 THOUSAND new unemployed instead of the 576 THOUSAND last month, so thngs are getting better/aren't as bad as expected!).

I could go on. What I'm saying is that the conditions that existed during and just after the tech bubble and during the housing bubble are now completely different.

There is nothing in the data, underlying conditions or treatment of the problems by the Fed/Government that will convince me that we are on a path back to 'normalcy'. I really think we are in unprecedented times. And no, I'm not being 'doom and gloom', I hope I'm making a rational, reasoned and adult conclusion to what I'm seeing going on. I'm happy to have my mind changed if you can provide me with vaid reasons.

DavidC

I'm with you David, Everything you mentioned along with little volume and big money still on the sidelines. There are just to many banks going under and at an esculating rate. Not to mention, how can we have a bottom when housing market is in a shambles, and the commercial real estate is about to hit hard. This will go on for years and no amount of fudging and manipulation is going to hide whats happening. This is nothing like 2003. I am also sure the Fed has never had to bribe the foreign intitutions, bankers, investors like they are now also. I think when the market drops again, the small time investors are going to get wipped out just like before. Remember the consumer is tapped out and the consumer is two thirds driving force in the economy.

xraymike79's picture
xraymike79
Status: Diamond Member (Offline)
Joined: Aug 24 2008
Posts: 2040
Re: So where is the correction?

I follow Tradermark for his cutting wit and insight into the market. This recent article by him shows how screwed up, ass-backwards, and manipulated the market is:

Notes from the Fully-Subsidized Market

Aug. 26, 2009 Tradermark

Let's go over some observations on what has now become a fully-subsidized economy and stock market (taking from the future to push up economic activity and stock market values today).

(1) First, a housing report came out. Let us say we were shocked, just shocked, I tell you, about the results. I mean when the same exact data point happens 32 times in a row, it is right to be shocked and drive the stock market up on the "incremental new data point". Because as we know, the stock market is efficient ... so efficient that random bloggers can predict what is going to happen days in advance... as we wrote in our weekly summary.

Looking at the economic calendar for the week; even MORE housing data that we can be "surprised" by - I use the exact same quotes each of the past few weeks around the word surprise because I continue to be amazed we can be surprised by the same news each and every week. Tuesday we can be suprised by Case Shiller index & Wednesday we can be surprised by new home sales. Just remember, whatever the news - be surprised and buy stocks in joyous rapture.

(2) There was another consumer confidence survey - unlike the one a week and a half ago, this one surprised to the upside. As we wrote Sunday, please act shocked ... and buy stocks.

Tuesday brings us another consumer confidence survey - however if its bad we WON'T be surprised since we just saw one a week ago Friday, hence you can buy stocks on that too - even if it's bad.

Boo yah - 2 for 2.

(3) Back in March and April, I was noting how much of the moves in the market were overnight. Day after day we'd see S&P futures negative at midnight but between 7 AM and 9 AM they'd almost always furiously rally as "someone" wanted to buy the market to such a degree that they did not care about what price they would pay.

http://www.fundmymutualfund.com/2009/05/daniel-shaffer-notices-invisible...

Many days it was in excess of 1%. You see dear reader, if an institutional money manager wants to buy something he doesn't want to actually move the price, that only hurts his profits. Only one institution in the world really would want to buy in such a manner day after day after day, in a way that would drive up the price. An institution that is not viewing it as an investment but simply a way to inspire confidence. You can figure it out. Whatever the source of said buying - we are now seeing that same pattern, but instead of overnight it's happening every day now in the first 30-90 minutes; almost at a 80%+ clip the past month.

In fact, as I watch the market the past 3-4 weeks intraday it feels like an airline flight. We ascend up at the open (who is so eager to buy this market day after day in that hour and a half?), reach altitude by 11 AMish... then do nothing almost every day between 11 AM and 3:30 PM [The Dead in the Middle of the Day Market] as the high frequency traders milk this system. Then the free-for-all happens post 3:30 PM where your heart starts to race as you see the runway approaching and you always think of the worst (aka "my gosh the stock market might actually fall today!") ... but it almost always works out "correctly" and you land safely ("ahhh, another day in the green").

I ... and apparently everyone ... have complete apathy between 11 AM and 3:30 PM. All the market does the past month, almost every day, is ping pong back and forth in a tight range after the "morning push". The "trend days" from 6-8 weeks ago have been replaced by snooze fests. Until the landing strip is in sight of course at 3:30 PM. Speaking of which.... it's noon ... zzzz...

(4) What a market... what a market. I look at the market in 4 week increments, and the first 7 days of this "period" is already approaching 60% of the gains of the previous 4 week increment. Which in and of itself was the 2nd best period of the year - only trailing the "reverse off the March 6th low" period. It might feel like a helium balloon at this point as we're up nearly 20% in 6.5 weeks, with nary a pullback of >2.5%. But as always, if you look under the hood it is not quite so pretty.

Speaking of those high frequency traders - volume is pathetic nowadays; it is like X amount of computers are trading with another Y amount and that's "the market". Even worse - look where the volume is. Monday, I read 20% of all volume was in Fannie Mae and Freddie Mac. 2 stocks... making up 20% of all volume? That's a stock market? And those are the 2 stocks? Last Friday 40% of all volume was in 4 stocks: AIG, Fannie Mae, Freddie Mac and Citigroup. My gosh - look at those names. What sort of developed 1st world country has 40% of its volume in those stocks? I know what type - the type where computers are just running the same stocks up and down, in a tight range (see previous post) all day. This is what we've developed in the US of A.

(5) You think I am being facetious when I say this is a subsidized economy and stock market. A cogent case can be made that of those 4 stocks that dominated volume last Friday, none of them should even have common stock trading. In the old US of A, when a company defaulted, the company would go bankrupt. And the stock would stop trading. But we have a new paradigm; the government-supported system throws $200B at AIG, throws $100B at Fannie, Freddie and throws $300B at Citigroup, makes sure none of the bondholders take a hit, and lets the stock speculation continue. So for the low cost of $600 Billion, we now enjoy the "payoff" - thank gosh for that, because if not for that $600B, 40% of last Friday's volume would not have existed.

(6) I spent some time scanning the financial blogosphere last night, specifically stock-oriented websites, and I could find almost no bloggers short. Granted, almost everyone now employs a momentum-oriented strategy (buy high, sell higher), but the complete lack of bearish bent is interesting. Some are bearish in concept but have given up trying. That used to be mean something (in a contrarian way) before the US markets were subsidized...

(7) Turning back to the economy and its subsidization, I have no idea what is going on anymore since every economic report has been bastardized by massive waterfalls of money. Industrial production up? Really? Is that what happens when I stoke auto production via handouts? Yes. But what now America? We wake to a new dawn on car dealerships this morning; my expectation is in the next 8 to 12 weeks, car dealerships will not only be back to pre Cash for Clunkers levels but worse, since we brought in many months of demand into a 4 week orgy.

I can almost hear the drumbeats (circa Thanksgiving) demanding a new Cash for Clunkers program because dealers are suffering. Extrapolate that example to our entire economy where the government is doing handouts; we see "green shoots galore". Where they are not - we see the truth. It's the subsidized economy, and let me tell you Wall Street loves it. Wall Street could care less about long term costs; it just wants the "awesome" gains today from layering on more debt onto the future generations. They lauded Alan Greenspan for all the steps he took to try to erase the business cycle - and he gave them nearly free money in the process to speculate. He was the Maestro... for the NYC crowd. Unfortunately for Main Street, there was a price to pay for the emperor having no clothes

(8) Speaking of which, the announcement came down from Mount Olympus that Sir Bernanke will be reappointed. I am flabbergasted the stock market did not gap up 5% on this news. Bernanke is Greenspan 2.0. When Wall Street barks, he jumps. Because the last thing you want to do is "upset the markets"- that would "wreck confidence".

I am not picking on Bernanke specifically - it is the whole institution and concept. The brainwashing we've undergone in which we think a "group of wise (wo)men" sitting in a room together once every 6 weeks, pulling levers and pushing buttons to direct an economy, is correct? Didn't we call that communism / socialism in the day? Central command directives? But in the Fed's case we applaud it, and worship the players, in fact. They are so wise! Even though they completely missed this downturn and even when faced with it said it was "contained" in 2007. They said unemployment would "jump" to 6% in 2008... they said... ah nevermind.

All I know is when a regulator completely messes up, the sensible solution is to expand their powers. Which we are doing. If it's Ben or Larry or Tom the plumber... it is irrelevent. The Fed is the bank to the banks, and it is acting that role. Everything it has done has been a godsend to the banks, so on that charge, they have fulfilled their mission. Wall Street should be thrilled it has a bigger, badder version of Greenspan now - a person who promised 2 years ago almost to the day he would not bail out institutions from bad decisions, and then spent the next 2 years furiously doing the opposite. Reward that man.

If indeed you live on Main Street you should not be so joyous. Well I should couch that; if you enjoy spending over your head and borrowing, you should be thrilled. Especially if your vision for the future lasts no longer than 18 months. You can borrow money at very low rates - our "lever of prosperity" (leverage) remains intact. If instead you either (a) care about the future out past 18 months or (b) are a saver - you should be crestfallen.

Point (a) speaks for itself in the myriad of posts we've put up over 2 years. Much like Greenspan was once lauded, in fact worshipped at the time because he made Wall Street hum and Main Street spend without any fallout, so is Bernanke today. But mark my words, when we look back in retrospect and the current bubbles forming burst in the future, the same opinion of Greenspan will be handed to Bernanke. For point (b) I am just sorry to say - the days your parents or grandparents enjoyed where savers were rewarded in this country is over. And has been for a decade+. Putting money in a CD and getting (gasp) 5-6%.... we cannot do that anymore. Because your fellow citizen is not a saver - he is a borrower. And the majority rules.

And let me put out a special note of condolence to the last group, which is in the bottom 30-40% of America. I realize you don't read this blog, because it would be fanciful for you to actually have money saved over to invest, since your jobs are being shipped away, and inflation is eating away at your buying power year after year. But I'm sorry to say that the man reappointed first and foremost wants to make sure your cost of living increases even further.

Sure, if one makes $60-$80K, its not really much skin off their nose to pay 8% more for healthcare, 9% more for university, 4% more for food, 7% more for energy. But since the median wage in America is $36K and you Mr. 30-40% of America are obviously below that - Ben Bernanke and his institution, so lauded by Wall Street for the speculative fervor they constantly fund, is quite possibly your worst enemy. Unfortunately, you will never see this, but I will be thinking about you in the years to come as Wall Street roars with glee over the success of the new bubbles the Fed is creating. There is a cost to the said glee, and you in the bottom third will feel it most directly, as the powers that be are hellbent on maximizing the most regressive tax on the consumer there is.

Until then - hey the stock market is up, and as you know Mr/Mrs Bottom 30-40% "Wall Street = Main Street" - a market rallying means good times are here again. Surely you know this even as you don't have time to read the blog as you try to survive the day to day. See you at the used car lot - what's that? Used car prices have gone up due to taking 750,000 of the cars you used to buy off the market? Oh well, the economy is not run for you. Sorry.

(9) Swine flu. I was shocked to read yesterday that half of America might be hit with Swine Flu in the coming season. Black Swan? Who knows - depends on how prevalent and what version we get. Another story I read said some universities are segregating entire dorms just for future swine flu victims. Knowing how the US media works, this could set up for quite a mania... if indeed anything serious happens on this end, I can only imagine the hysteria. Won't be quite so bullish for consumer discretionary - retail, travel, and the like. Might even hit GDP, although "Cash for Swine Flu Victims" would surely follow.

(10) China down 5% Monday night before rebounding to only fall 2%. Not a problem. Baltic Dry Index all the way back down to early May levels despite a few trillion dollars spent by worldwide governments to create prosperity. Not a problem. (Insert any issue here) Not a problem. The Fed has it covered... see point 8.

investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Re: So where is the correction?

xray, good stuff. Like you I just don't believe in this contrived rally.

Shorters’ retreat helps fuel volatility

http://www.ft.com/cms/s/0/0617992c-93fe-11de-9c57-00144feabdc0.html

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: So where is the correction?

xray:  This tradermark is great!  What's the link?

xraymike79's picture
xraymike79
Status: Diamond Member (Offline)
Joined: Aug 24 2008
Posts: 2040
Re: So where is the correction?

 

http://www.fundmymutualfund.com/

Most of his pieces are published a day or 2 later in other websites such as Seekingalpha(usually with a different title). He's one of the few financial analysts I follow. If you go to seekingalpha, you can see who he is following.

xraymike79's picture
xraymike79
Status: Diamond Member (Offline)
Joined: Aug 24 2008
Posts: 2040
Re: So where is the correction?

Saturday, August 29, 2009

March 6, 2009: Generational Bottom? What Was 'Fund My Mutual Fund' Saying

Posted by TraderMark at 3:15 PM TweetThis

I caught a neat post from The Reformed Broker blog titled "What Your Favorite Blogs Were Saying at the Bottom". Despite not being one of the Reformed Broker's favorite blogs, if you are reading this I am sure I am *your* favorite blog and you are what matters. ;)

The bottom in retrospect was March 6, 2009 - it was a Friday and we hit the foreboding S&P 666 level intraday before closing at 683. It's been just about straight up since. Noted hedge fund manager Doug Kass has called this a generational bottom i.e. we won't see those levels tested for a generation. Of course we won't know until we look back in 20 years but for now it is looking like a great call. Like Doug I was trying to get more long oriented the 2 weeks previous as I was counting on a rubber band effect... the S&P 500 in fall of 2008 had fallen an almost unheard of 38% below the 200 day moving average. Coming into that week the S&P 500 had fallen to 32% below....

As the market went into another free fall week after week in late winter 2009, I kept track of how far the rubber band was being pulled back ... 25% below the 200 day, 28% below, 33% below... 36%... I kept trying to get long some stocks in the 2 weeks previous to March 6th and kept getting my head handed to me. Looking at my position sheet that week, I was (considering it felt like the world was ending) aggressively long with 33% long, and only 11% short (rest in cash). Being even 2 weeks early on the "reversal of the ages" actually hurt. Then eventually we hit 38% the week of March 6th- as far below where the market was at the worst in fall 2008; keep in mind fall 2008 had a week where the market lost 20%. Yet we KEPT going down, indeed we reached 40% below the 200 day moving average on that fateful day: March 6th.

For curiosity sake I wondered what I was saying on that day and right before and after. Here is how the week played out.

Ironically with AIG surging hundreds of percent this week, back in March we were talking a lot about the AIG itself, and how the 100% payoffs for AIG's obligations basically were a handout to other financial firms. In most bankruptcies, creditors are happy to get 30 cents on the dollar, but the US taxpayer is a poor negotiator and was happy to pay 100 cents on the dollar.

Sunday March 1st, I posted an excellent piece by NY Times Joe Nocera on how AIG got to be where it was, and why it was so central to the global financial system - AIG: Propping Up a House of Cards

Next week, perhaps as early as Monday, the American International Group is going to report the largest quarterly loss in history. Rumors suggest it will be around $60 billion, which will affirm, yet again, A.I.G.’s sorry status as the most crippled of all the nation’s wounded financial institutions. The recent quarterly losses suffered by Merrill Lynch and Citigroup — “only” $15.4 billion and $8.3 billion, respectively — pale by comparison.

At the same time A.I.G. reveals its loss, the federal government is also likely to announce — yet again! — a new plan to save A.I.G., the third since September. So far the government has thrown $150 billion at the company, in loans, investments and equity injections, to keep it afloat. It has softened the terms it set for the original $85 billion loan it made back in September. To ease the pressure even more, the Federal Reserve actually runs a facility that buys toxic assets that A.I.G. had insured. A.I.G. effectively has been nationalized, with the government owning a hair under 80 percent of the stock.

Again it is amazing to read that when you consider how the stock acts now - by amazing I mean infuriating but anger has no place in America anymore. We simply live in a win, win, win society where there are no costs.

That Sunday night Harry Markopolos appeared on 60 Minutes explaining how he basically tried to hand Bernie Madoff to the SEC for close to a decade.

At the time things were so dire, and the mood so dour I had taken to posting panda pictures (pandas are soothing, cute creatures) in many posts - including my weekly summary.

Yet another horrible week in the markets with the S&P 500 down -4.5%. While we have outlined how flawed the Dow Jones Industrial Index is [Reuters: Is it time to Overhaul the Dow?] it is the oldest index at 113 years old, so these data points are staggering. We just came off the worst (by %) January in history; and followed it up by the second worst (by %) February in history. Back to back. Thrown on top of horrific Sept, Oct and most of November. This 6 month stretch is debilitating if your sitting in a fully invested long only account - you can almost hear the 401k withdrawals and mutual fund closings in the wind....

Remember, at its worst in history the S&P 500 traded 37% below the 200 day moving average (Nov 2008) 25% used to be considered "extreme". Where are we today? Roughly 1080 on the 200 day moving average, so S&P 735 is 32% off. The rubber band is being pulled farther... and farther... and farther - eventually it will be released and we'll "snap" back upwards. If you are curious - to get to a 37% distance from the 200 day moving average we'd have to get to S&P 680. So yes Dorothy - it can get worse from here.

On the plus side the sharper we fall, the more pronounced the following rebound will be (small comfort) - timing that turn is very difficult and if November 2008 is any indication if you are 2 hours late you missed half the rebound.

If you have been reading the blog longer than a few months you now see how silly the
cheerleading of "it's a new year! therefore it must be better" OR "2008 was so bad, surely we will rebound in 2009" OR "the first 5 days of the year clearly identify how the year will go" - all Kool Aid handed out by the sirens of punditry. We said the market was still way overpriced (and in fact - sadly - still is) and that 2009 will ping pong between hope and reality. We started the year off with hope and have been facing a relentless onslaught of reality since. Now let's be clear - hope will come back at some point... and just like the action 8 weeks ago did not "signal the economy is improving" (as the talking heads screamed) the same will be said for the "coming rebound".

How quickly things change...

Monday, the 2nd - by mid afternoon the S&P 500 was down another 4%. I posted the S&P 500 was now 34% below the 200 day moving average. We wrote about another wave of hedge fund withdrawals that looked set to hit, which in theory would extract even more pressure on the market.

Louise Yamada showed on up on CNBC's Fast Money - when she appeared the previous fall the market bottomed within a week. Amazingly her Fast Money appearances now seem to be the contrarian indicator! She of course called for S&P 600 back in November 2008 which she reiterated, and also gave the same "potential to S&P 400" call she mentioned in November.

Tuesday, the 3rd - Nouriel Roubini showed up on Yahoo Tech Ticker and CNBC. Unfortunately, instead of sticking to making good economic calls he turned into a stock market prognosticator and his infamous S&P 600 call also surfaced.

We posted a story on how Germany's auto sales were booming (10 years highs) based on Cash for Clunkers... I said I was surprised Obama had not latched onto it. As always, I tend to be early.

Frankly, it's just a direct subsidy to car makers disguised as a rebate check but hey, it seems to be working in Germany. Surprised Obama has not latched onto this since you could make an environmental case to boot (older cars being less Earth friendly)

After the bell Google announced they are not immune to the economy and traders dumped it an additional 3.5% after hours.

Oh boy, and here is an interesting one - you know how Jim Cramer says he was calling the bottom, as he agreed with Doug Kass. Revisionist history seems to be Jim's hallmark. You want to know who called the bottom in stocks? President Obama!! In [Barack Obama: Buy Stocks; Jim Cramer - Stop it Obama!] we posted 3 videos - Obama said stocks were a good value (the video is no longer available on that entry but surely can be googled) while Jim Cramer was arguing with Erin Burnett that the market was not a place to be; meanwhile Robert Gibbs actually made remarks about Cramer's viewpoints. Hilarious in retrospect. Just like Jim called for a housing bottom in 2006... and now claims he says it would be 2009 :)

This is all starting to get surreal - I feel like a fiction writer nowadays. Now that President Obama has destroyed the payday lenders and much of the healthcare sector I am wondering if he finds value in those sectors. I am hoping he starts a stock blog so I can pick up some specific tips...


video: http://www.msnbc.msn.com/id/22425001/vp/29478113#29478113


Cramer: "We're going lower" "I see no reason to own bank stocks" - etc etc. Sounds like a bottom call to me. Here is the irony - Jim has been attacking Nouriel Roubini endlessly the past few months for not calling the economic or stock market bottom. But if you look what I just posted above, on the 3rd of March both were in complete agreement. That said, Nouriel is not good at revisionist history... just remember, Jim Cramer was there with Doug Kass when he was calling the bottom - it will be the basis of his coming book.

Wednesday, the 4th - Jim Rogers said to let the financials fail. Not in America Jim - remember we are not Japan and please don't call them zombies. If only you could see their stocks fly up 100s of percent 6 months later.

We noted 1 in 5 Americans were underwater on their mortgages and reiterated our long held call this would hit 1 in 4.

The market was actually up that day, so I covered the last of my Apple short and brought out the heavy guns... Kool Aid man.



Thursday, the 5th
- Jon Stewart had been all over the stock market, and begun his turf war with CNBC at large. Joe Nocera actually paid a visit that week to speak more of AIG.

Look things were out of control - this blog author went to the extreme of asking readers to send him positive economic stories; that's when you know it's bad.

I noted how many times we rallied on nonsense, specifically in the financials - the latest incarnation in fall had been "Tim Geithner would save us" - I said it was now clear he had not saved us. But that had not stopped the market from rallying

Since Tim Geithner has opened his mouth the S&P has fallen from 870 to 682; thats nearly 22% or a full bear market Tim. I am not placing the blame on him; I am just shaking my head at the excitement over his magical speech and 'thesis' buying, even to this day. We also rallied 3-4% in an hour when he was announced late in 2008 because after all - he walks on water and the government will make all our problems go away. If its not one Treasury secretary its another - someone will save us. False idols.

That should sound familiar to you - just replace Tim Geithner with Alan Greenspan, or Ben Bernanke and our idol worship continues. The more things change...

That day we were also getting more details on Obama's handouts to current mortgage holders - in theory saving 1 in 9 mortgage holders in America - so much wasted national treasure.

Friday, the 6th
- so this was the bottom. Clearly it was bad as I was posting stories about opportunities to move to Canada - Saskatchewan in particular. Look folks, per Fox News I hear any Canadian that has to go to doctor's office usually dies immediately*, so if I was posting stories about moving to Canada you know we were in dire straits.

*fair and balanced

The New York Post asked where was Paul Volcker - we also wondered but it had already been made clear he had been ambushed by Larry Summers. Based on generations of future Americans we were to steal from in the coming months to make today's generations happy - his "disappearance" will be something our grandchildren and great grandchildren will rue as the only voice in reason turned into a hood ornament.

As the markets crumbled down to S&P 666, I threw on a 6% short exposure on Amazon.com in case (and I literally used the words) an End of Days scenario occurred Monday. Remember, October 19, 1987 was a Monday.

The previous night Stephen Colbert created the Doom Bunker. Stephen, completely unnecessary - but you might want to build one for the great grandchildren. By taking from them, we saved ourselves - I believe the new term is generational theft and its at a 52 week high. Boo Yah!

The AIG counterparty furor grew, but as all American leaders know - you simply must lay low during times of crisis and let the furor pass - the peasantry soon loses all interest as it moves on to American Idol, Jon and Kate Make Eight, or NFL (the boob tube = modern day gladiator games)- whichever part of the year we happen to be in. In fact if you wait long enough a company that owes the US 30x its market capitalization can run up 100% of percents making a slice of said peasantry mad money. Only in Cramerica.

Saturday the 7th... the day after - details of the government's handouts to countless international financial firms finally made the press. I could only do one thing - do the ultimate contrarian act - post a series of happy videos on the blog.

And that folks is a look back of just 1 week of 2 crazy years.

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: So where is the correction?
DavidC wrote:

I don't go along with your arguments for several reasons;

5 - Unemployment continues to climb, depsite the massaging of the figures and positive spin put on them ('only' 570 THOUSAND new unemployed instead of the 576 THOUSAND last month, so thngs are getting better/aren't as bad as expected!)

Unemployment is more of a contrary indicator. At the peak of bull markets, capacity utilization is high, and unemployment is low. Think of 2007, the good old days of 4.0 percent unemployment, just before stocks fell out of bed. By contrast, at previous bear market lows, capacity utilization was slack, and unemployment typically was high and rising.

The stock market doesn't track the real economy; it leads it by 6 to 9 months. A rising stock market and rising unemployment -- after 1-1/2 years of recession -- are not contradictory. They're actually typical of the business cycle.

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: So where is the correction?
investorzzo wrote:

how can we have a bottom when housing market is in a shambles, and the commercial real estate is about to hit hard.

Once I was poking around in an antique shop in Bucks County, PA, and came across the issue of Life magazine for the last week of May 1970. In a four-page article about the dismal recession-bound economy, the top and bottom margins of the page were decorated with grizzly bears printed in bright red ink.

The main thrust of the article was about the housing and commercial real estate markets being in absolute shambles. Homebuilders were going broke, as their excess inventory of empty lots crashed in price. Banks weren't lending. Mortgages were unavailable. There were ugly rumors of a big corporate bankruptcy, which came true three weeks later when Penn Central went under.

The reason I mention this is because May 26, 1970 was the exact low of the 1968-1970 bear market, featuring a nasty drop of 36 percent. Life  magazine nailed the bottom -- in contrary fashion, with their red grizzlies -- almost to the precise day.  Stocks embarked on a sparkling rally which carried the Dow to a record high of  1051 in Jan. 1973.

A bull market  starting when real estate is in shambles is not unusual. It is typical of the business cycle. At the top, one must beware of Wall Street cheerleading. At the bottom, once every four or five years, the obnoxious permabullish Wall Street cheerleaders are accidentally right -- just when the handwringing mass media is telling everyone to ignore them, because our plight is so hopeless.

I don't necessarily expect any further gains this year. But the probability of retesting the March lows is only 20 percent, I would estimate.

DavidC's picture
DavidC
Status: Silver Member (Offline)
Joined: Sep 29 2008
Posts: 243
Re: So where is the correction?

Hi machinehead,

It's 1:30 a.m. I'm tired and and I've had a drink or two...HOWEVER, it does seem to me that you're providing contrary information.

1 - "At the peak of bull markets, capacity utilization is high, and unemployment is low." " By contrast, at previous bear market lows, capacity utilization was slack, and unemployment typically was high and rising."

Well, yes! Doesn't that prove my point?! The market has been rising and yet unemployment is rising (I'll agree that utilisation/inventories may rise but that will only be because inventory has been falling and needs some filling even if subsequent sales don't come through) so we shouldn't be at a rally high we should be at a market low!

2 - "The stock market doesn't track the real economy; it leads it by 6 to 9 months. A rising stock market and rising unemployment -- after 1-1/2 years of recession -- are not contradictory. They're actually typical of the business cycle."

The mantra "unemployment figures are a lagging indicator" (and I appreciate that's NOT exactly what you said) is something I've got fed up hearing or reading (along with "green shoots") - I maintain (and I'm not an economist so I am stating this from an empirical point of view rather than academic) is that we had nigh on 50 years of a secular bull market up until about 2003 (I can provide the S & P chart). If we are now into a secular bear market, unemployment figures will, or could be. a LEADING indicator - in other words, worse to come.

As ever, I'm open minded enough (I hope!) to have my mind changed if the evidence supports it!

DavidC

Morpheus's picture
Morpheus
Status: Diamond Member (Offline)
Joined: Dec 27 2008
Posts: 1200
Re: So where is the correction?
JAG wrote:

There is still too many traders too quick to short the markets, it looks like more short squeeze pain is needed and/or the dreaded sideways market where no one can make a buck.

Depends though on what the Q3 financials demonstrate. That's my personal view of this situation. I took a bet of 50 Federal Reserve Notes with another investor friend of mine at work.(he's definitely NOT a contrarian). He's very bright and bet me that in the next 6 months that the markets would not retrace more than 5-7%.

I pounced on it.

And I'm an idiot for doing so. LOL

Might have lost that 50 (that's $1.79 CAD, LOL) because this monster of a mess seems to have the life of a heroin junkie that just keeps on going. Plus, as you know I often repeat, anyone that can predict timing in a rigged marktet has a bit too much ego.

Which is what got the best of me on this bet. See, I was certain that folks would look at the Q3 earnings, realize that they are overly invested in piles of worthless doggie doo, and harvest profits at the first sign of "more bad than less bad", LOL.

For all I know this thing could go to 14,000. Who knows, I might win that bet. But my modus operandi now is to not worry about timing, but to prepare as if it's this week. Better to be prepared for the worst and hope for the best than to be caught completely off guard.

xraymike79's picture
xraymike79
Status: Diamond Member (Offline)
Joined: Aug 24 2008
Posts: 2040
Re: So where is the correction?

The "dumb money" has been rushing in lately, replacing the "smart money."

SAUSALITO, Calif., Aug. 28 /PRNewswire/ -- TrimTabs Investment Research reported that selling by corporate insiders in August has surged to $6.1 billion, the highest amount since May 2008. The ratio of insider selling to insider buying hit 30.6, the highest level since TrimTabs began tracking the data in 2004.

If anybody think we can't go lower than the March lows, you are a fool.

Here’s a look at the Credit Karma survey results from last month.

Average consumers had:

  • $6,818 in credit card debt
  • $193,036 in home mortgage loans
  • $52,559 in home equity loans
  • $14,449 in auto loans
  • $26,368 in student loans

$26,000 in student loan debt? Yikes! That figure and the home equity loans stood out to me. Combined, those two categories alone represent nearly $80,000.

Total consumer debt at the bubble’s peak was $2.57 trillion (the other $46 trillion was corporate). So the fact we’ve paid off about $50 billion of this means Joe America has a LOT more (98%) debt to pay back and default on before he’s finished de-leveraging his balance sheet.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
The Rally Was The Correction

Sometimes I can forget to see the forest, because I'm too focused on the trees.

By all reasonable definitions, the US is in a depression. The bear market is the new normal for the foreseeable future, the current rally is just a correction. I can't believe that I would argue anything different than that. I guess its more interesting if we are not all just sitting around agreeing with one another. 

Sorry about that.....Jeff

 

investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Re: So where is the correction?

Follow the money, the party is almost over.........

Pace of Insider Sales Continues to Escalate

http://seekingalpha.com/article/158926-pace-of-insider-sales-continues-t...

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