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You are correct. I did reply to your post specifically because it was the most offensive to me. I will not go into why or how because the whole point is to avoid these kind of hurtful dialogs that divide us when we should be unified.
My post was just as directed at Koikaze as at you. But, I guess that I could not help but be drawn into the politics, so I responded to the post that made me most offended. Even now, it is almost impossible for me to respond to you without being drawn into the argument after your hateful response describing how my "kind of thinking" is the problem. But, I will avoid addressing your "kind of thinking" because....
THIS IS NOT A POLITICS THREAD.
Northam, et al:
Please take the politics posts to another more appropriate place. The idea of this thread is to create common casuse in an analysis of Your Economy and it is an exceptional thread. Unfortunately political speech does not seem to lead to common cause. It leads to divisiveness as someone will always see something as very offensive which the poster did not see as offensive at all.
An excellent example is your classifying gay as somehow wrong. Have you ever considered the wrongness of such an anti-gay pronouncement? Have you thought of how hurtful it might be to others who are reading this thread? Although I have never tried it, I cannot see how it could be "wrong". I am certain that there are plenty of "wrong" people who are heterosexual and plenty of "wrong" people who are homosexual. Does it not irk you when a vegetarian tells you that your carnivorous whay of life is "wrong"?
I do not want to get in a political discussion. What I really want to focus on here is that doubtless there are individuals who follow this thread who may be offended by your political views. Why create division over an issue that is really a matter of private choice when we are all trying to create a common cause?
Once again, there are plenty of forums for political speech.They are exciting places to post. Please take these discusssions where they belong.
TIA
Nice response.
I have to agree with almost everything with some caveats.
Sarah Palin's experience of governing Alaska is scalable to the WHite House?!!!
The market is efficient and rational and there will be no waste as consumer buy the products they need most and reward companies that make them thus producing no misallocations of capital?!!!
I am not so sure that private business is less wasteful than government. If you walk into Micorsoft versus walking into City Hall or a local school, you will definitely see much, much more waste going on at Microsoft with plenty of ineffective employees who don't get fired, ridiculous perks, Cadillac health plans, stock option plans that dilute stockholder equity, etc. Not to mention that much of a consumer's capital does not go to R & D, but instead goes to stockholders and into huge bonuses for the top executives and then on into luxury goods. Not sure how marble slab and luxury cars and 10000 square foot houses are a good allocation of capital even when compared to legislative pet projects.
There is waste everywhere. Why is it that anti-government pepole get so up in arms about taxes but don't get up in arms about the tax we pay on corporate produced goods and services that go to corporate waste? We buy things everyday that cost 10 oir 20 times what it cost to produce them, so that CEO's can have four houses, 10 cars, and 20 mistresses as they jet around the world in their private jets.
I just saw the other day the use of an example of a teacher making $620,000 to villify teachers as overpaid. First of all, is it just possible that that data was a mistake? Secondly, even if true, it is certainly an outlier. To use that data to prove somehow that teachers are overpaid is ridiculous. Not to metnion that teachers who typically make between $20 per hour and maybe $40 tops have the same level of education and training as the average CEO, GS executive, or software engineer and contribute at least as mnuch to the overall health of the economy.
There are deep systemic problems in both the private and public economy that will not be fixed by one side yelling at the other. IT is not that we need more government and less private or vice versa. They both suck and they both need to be fixed or our economic power will certainly be eclipsed by countries where greed is not the engine of growth, but a true desire to innovate and serve the needs of the people.
What is saddest is that these greedy, powerful people want us to be distracted by this ongoing drama of red vs. blue, so that they can get away with this. Don't fall into the trap.
So, honestly Dick, if Sarah Palin was in charge right now, would you be saying the same things about her or would you be telling us that she is making the best of a bad situation? I really get tired of hearing commentary that is solely based on whether the person is on your team. If a Republican had been in charge and cut taxes so that we went from near disaster in the economy to job creation, albeit weak job creation, you would be telling us about the wondrous elixir of tax cuts. But, Obama's stimulus and bailout that probably saved us from a Depression, at least for the moment, is somehow breaking our backs.
PLEASE, PLEASE, PLEASE: Do not turn this into a politics thread with all of the ridiculous one-sided vitriol from both sides that seems to come with politics on these threads. IT is ruining my experience of one of the great finance resources on the web.
ALL OF YOU, PLEASE, NO POLITICS!
One person's tyranny is another person's common good....
Don't Mess with Aunt Minnie
John P. Hussman, Ph.D.
All rights reserved and actively enforced.
Reprint Policy
Over the years, I've noted that certain subsets of market conditions - occurring together - are associated with very specific outcomes, such as oncoming recessions, abrupt market weakness, strength in precious metals, and so forth. Such indicator subsets, or Aunt Minnies, are essentially "signatures" that often have very specific implications. In medicine, an Aunt Minnie is a particular set of symptoms that is “pathognomonic” (distinctly characteristic) of a specific disease, even if each of the individual symptoms might be fairly common. Last week, we observed an Aunt Minnie featuring a collapse in market internals that has historically been associated with sharply negative market implications.
Of the 3257 issues traded on the NYSE last week, 2955 declined and just 275 advanced. The S&P 500 has now abruptly erased nearly 8 months of progress. Moreover, we observed a "leadership reversal" with new 52-week lows flipping above the number of new 52-week highs. Our broader measures of market action deteriorated to a negative position as well. Historically, we can identify 19 instances in the past 50 years where the weekly data featured broadly negative internals, coupled with at least 3-to-1 negative breadth, and a leadership reversal. On average, the S&P 500 lost another 7% within the next 12 weeks (based on weekly closing data), widening to an average loss of nearly 20% within the next 12 months - often substantially more when the Aunt Minnie occurred with rich valuations and elevated bullish sentiment.
The most recent instance was November 9, 2007, which was followed by a market loss of more than 50%, but the instances also include September 22, 2000, prior to a nearly two-year bear market decline; July 14, 1998 prior to the "Asian-crisis" mini-crash; July 27, 1990, at the beginning of the pre-Gulf War plunge; October 9, 1987, just prior to that market crash; July 2, 1981 at the beginning of the 1981-82 bear market and again in May 21, 1982, following a strong rally during that bear market, leading into a steep decline to the final lows; November 9, 1973 (just after a swift rally during the 1973-74 bear market, and leading into the main portion of that loss); and November 21, 1969, at the beginning of the 1969-70 bear market.
Given my aversion to market "forecasts," I hesitate to interpret this record as a hard prediction of what will occur in this particular instance. This is particularly true because in a handful of instances (2/9/68, 9/12/75, 10/20/78 and 4/30/04), the outcomes were fairly benign. Still, the average outcome has been awful. For that reason, the combination of unfavorable valuations and collapsing market internals is a sharp warning to examine risk exposures carefully here.
I haven't used the word "warning" for some time, and I certainly don't want to be alarmist. If your asset allocation is reasonable and you are following a well-defined discipline, do nothing. There is wisdom in ignoring the views of others and staying the course, provided that your investment strategy is in fact based on a well-defined discipline. That said, I disdain when analysts advise "staying the course" when the subtext is to disregard risk. Probably the best advice I can offer is to reprint the following segment from the November 12, 2007 comment, which roughly mirrors my sentiments at present:
"My intent here is not to encourage disciplined investors to deviate from carefully considered investment plans. But if a recession or a bear market would produce unacceptable losses or would force you to abandon your investment plan, it is best to begin altering your investment position immediately (even if not entirely at once) toward a position that you can maintain regardless of market outcomes. If your position is inappropriate, do not wait for an “ideal” opportunity to change it. Begin changing it immediately, and continue to change it in steps – larger steps when you can get favorable prices, smaller steps when you have to do it at adverse prices. The important thing is to start immediately and decide in advance to move step-by-step over a reasonably limited period of time, until your position is appropriate.
"I should also emphasize that I have no intention of encouraging short-selling or bearish speculation about potential market weakness. Our investment position is fully hedged, but it is not net short. It can be very costly to bet on market declines because the “tracking risk” is intolerable – it's one thing to gain only moderately when the market gains, but it's entirely another thing to lose predictably and continuously as the market advances. You simply can't maintain the discipline if the market makes a sustained move against you.
"In short, my intent is to prod investors to carefully think about their risk exposures, and to make any needed changes in a step-wise fashion. Make larger changes when prices are advantageous, and smaller changes when prices are adverse, but start immediately and keep moving step-by-step until your position is correct. The inability of investors to extract themselves from speculative positions destroyed the financial security of many investors in 2000-2002. At the same time, I don't recommend “bearish” investment positions except as a hedge against long exposure that would otherwise be inappropriate."
From a price-volume perspective, it is a real problem that valuations are rich at the same time that technical measures are breaking down. This is inconvenient because if something makes a given trader want to sell, the price must move in a way that either removes that impulse or induces another trader to buy. There is no other option. As I noted in Zen Lessons In Market Analysis, "if you've got an overvalued market which then loses technical support, the outcome can be extremely negative, because technical investors are prompted to sell, but fundamental investors have weak sponsorship at that point, so large price declines are required to induce the fundamental investors to absorb the supply."
Finally, as longer-term readers of these comments know, I have a lot of respect for Richard Russell, who publishes Dow Theory Letters and is as close as one can get to having William Peter Hamilton - who wrote for the Wall Street Journal in the early part of the 20th century - still writing. While our views certainly don't always agree, you won't find a more informative, if colorful, observer of market action than Russell. At present, Dick suggests "If I read the stock market correctly, it's telling me that there is a surprise ahead, and that surprise will be a reversal to the downside for the economy, plus a collection of other troubles." Speaking in reference to one of his key measures of market internals, he observes "In 50 years, this is the most decisive top I can ever remember... the damage and cost of this reversal will run into the trillions."
We can't rule out a recovery in market internals that would allow a further extension of market gains, but the historical record provides little basis for that expectation. Take risk seriously here. That is not advice to abandon all exposure to risk, but it is important to accept only the risks you can actually tolerate in the event that further problems materialize.
Savage the Innocents or Restructure the Debt
Treasury Secretary Eddie Haskell Timothy Geithner has scheduled a trip to Europe this week to urge European leaders "to pay better attention to potential market reactions to policy moves, and to accelerate the European rescue program." This promises to be a fiasco. What could European leaders possibly find more arrogant than to be lectured on bailout policy - not simply by the U.S., but specifically by a one-trick pony bureaucrat whose chief trick is the ability to smoothly talk the language of prudence while simultaneously prostituting the fiscal stability of an entire nation for the benefit of bondholders who made bad loans?
The ultimate survival of the Euro relies on the ability of its member nations to maintain tightly controlled fiscal deficits, and on the ability of the ECB to avoid creating more of the currency (through its purchases of European debt over time) than is consistent with price stability. Unfortunately, some of those member nations have no history of deficit restraint, nor any reasonably near-term prospect of acquiring it. It is one thing to buy more time, at some cost, to resolve a situation that will gradually self-cure. It is another to throw good money after bad in order to kick the can down the road.
Providing Greece (and possibly some of its neighbors) a graceful exit from the Euro requires greater courage but lower ultimate cost - particularly to the citizens of Greece itself - than a policy of forcing heavy austerity, dislocations, and internal deflation within Greece. The effect of austerity policies will be to damage the revenue side of the Grecian economy enough to leave the deficits little changed in any event. One would like to go back a decade in time and choose different policies that would have allowed Greece to maintain the Maastricht deficit limitations, but it is far too late to push a full-grown genie back into an itty-bitty bottle.
As I've constantly emphasized (possibly to the point of exhaustion, yet it remains worth emphasizing) - in a situation where the probable amounts repaid by borrowers cannot meet the required debt service on the bonds (or mortgages), one has two choices: either savage the innocents in order to defend the bondholders (and create new government debt or print money to do so), or restructure the debt. For Euro-area countries, the stronger member countries (which are already running fiscal deficits) are being asked to run even larger fiscal deficits to bail out the weaker members. This itself would undermine the Euro. The alternative bailout is for the ECB to effectively print the money, which has the same effect of undermining the Euro by levying an eventual "inflation tax" on the holders of Euro-denominated assets.
The natural fear of restructuring is that if the debts of Greece (or any other debtor for that matter) are not made whole, then there are probably other leveraged financial institutions that hold that debt, who will be forced to mark down assets, and might themselves become insolvent. The proper response to this fear is "And?" The management of those institutions took risks, for which they stood to gain, and those risks were poorly taken. Likewise, the bondholders that lent to those institutions took risks, for which they stood to gain, and those risks were poorly taken. Who should bear the costs of those actions? Precisely those individuals and entities.
It is helpful to remember that only about 60% of the liabilities of the global banking system represent deposits. The rest is money that was knowingly provided to these institutions through stock or bond purchases, in pursuit of returns. If an institution takes bad bets, the investors in the institution, not the public, should lose money.
The frantic cry is then "But look what happened when we let Lehman fail!!" The response is that the failure of Lehman did not cause dislocation simply because the company went bankrupt, but because there was no mechanism by which a regulator had the authority to step in, cut the operating entity away from the stockholder and bondholder liabilities, and transfer that operating entity as a going concern. Note that in the case of bank failures (such as Washington Mutual), that mechanism is fully functioning. The same is true for European banks. Lehman's failure was problematic because the company had to be sold off piecemeal and unwound in a very disorganized manner. Disorganized unwinding was the problem.
Restructuring does not cause losses to bank depositors, and it does not lay burdens on citizens who had no part in the mismanagement and poor allocation of capital. Instead, it properly places the costs precisely on those individuals who provided capital, in expectation of return, but also with the foreknowledge that those investments could result in losses. When governments change the rules of that process, and teach that any risk is good risk, because bad investments will be bailed out (at least if one has the right friends), what prevents rampant misallocation of capital? Worse, what prevents preferential loans to unqualified recipients, at public expense?
It would be wise for investors to abandon the fear-mongering word "failure" in preference for the instructive word "restructuring." Thinking of credit strains in terms of failure prompts a natural but improper impulse to avoid that failure through bailouts, at the cost of those who had no part in the mismanagement. In contrast, recognizing the need for restructuring places the costs directly where they belong - on those who provided and managed the capital. It also immediately turns attention to proper solutions and negotiations between the borrowers and lenders.
While each situation will have its own outcome, depending on the relative position of each party, the ability to swap debt for equity (i.e. taking partial ownership), and the profile of cash flows over time (which might allow a shift in the timing of payments), the ultimate goal of restructuring is to bring the value debt obligations back in line with the probable cash flows that will be available to relieve them. If we accept a "failure" and "bailout" mentality, lenders will play chicken with governments in a way that puts the costs on ordinary citizens. If instead, the only alternatives are restructuring or receivership, the problems can be properly contained to negotiations between borrowers and lenders.
Market Climate
As of last week, the Market Climate for stocks was characterized by unfavorable valuations and unfavorable market action. We also observed a leadership reversal last week, coupled with lopsided negative breadth, which as noted above tends to be associated with unusually hostile market outcomes. The Strategic Growth Fund is fully hedged here. We closed the bulk of our "staggered strike" position as the implied volatility of options (above 40%) significantly reduces the potential benefit of owning additional time premium, and significantly raises the cost if the market moves sideways or recovers. When our long puts and short calls have matched strike prices and expirations, there is no net time decay in the hedge, and it essentially operates as an interest-bearing short position on the underlying index.
We continue to have modest staggered positions in the Nasdaq 100 and Russell 2000, because the size of the potential losses in these indices, in the event of a further market decline, is still large enough to warrant the additional time premium we are holding (about a half-percent of Fund value). In our current position, the primary driver of Fund returns here is the difference in performance between the stocks held by the Fund and the indices we use to hedge.
In bonds, the Market Climate last week was characterized by moderately unfavorable yield levels and favorable yield pressures. In particular, credit spreads have widened substantially, which as expected, has created "safe haven" demand for Treasury securities as default-free investments. Also, the fear of credit problems has put pressure on commodities, which is why despite our longer-term inflation concerns, we are only gradually building positions in precious metals shares and other inflation-sensitive securities. There is a very strong tendency for investors to associate credit strains and economic weakness with deflation, which tends to pressure securities like precious metals shares and TIPS, even in an environment where central banks around the world are pursuing policies that will produce long-term inflation. So as I've frequently noted, our long-term inflation outlook does not translate into material accumulation of inflation hedges, except to the extent that we observe substantial price weakness.
On last week's selloff, we did shift about 2% more of the Strategic Total Return Fund's assets toward precious metals (now at a still very small 4% exposure), with about 4% of assets in utility shares, and about another 3% in foreign currencies. The bulk of the Fund's assets, of course, are in Treasuries, with a duration of just under 4 years - primarily in straight, intermediate-term Treasury bonds. Most likely, we will have numerous opportunities to shift our investment positions to reflect a longer-term outcome of inflation and generally rising interest rates in the second half of this decade. For now, credit fears are likely to boost demand for default-free government liabilities, holding down inflation pressures and prompting (ultimately incorrectly) less eager demand for commodity-related securities.
And here is an absolute must read from the Weekly Standard that absolutely cuts through the hysteria on both sides:
http://www.weeklystandard.com/Content/Public/Articles/000/000/017/300ubchn.asp
It is amazing how such an important issue as how we participate in the stewardship of the planet has turned into this ridiculous political cartoon by both sides.
Well written response to Climate Gate:
http://www.edmontonjournal.com/cars/Climategate+doesn+change+facts/2305942/story.html
The stuff about human sources of CO2 being such a small percentage compared to natural was interesting but I would like to see that from a more independent source. I agree that those who favor limiting pollution have latched on to global warming as a way to get their message heard.
There were a couple of really questionable things that bothered me. One was the insistence that since CO2 is necessary for plants that it could not be a pollutant. It is exactly because it is such an important part of the life cycle that changes in its levels are so important. Ozone is essential to life, but it is clearly a pollutant. Oxygen is essential to us but a rapid rise in oxygen levels would wreak havoc. It is incredibly corrosive. This whole argument is not science, it's just something catchy and I am amazed that they come back to it again and again. Just an absolutely ridiculous argument in terms of science and a complete waste of my time.
Then there is the internal conflict between two of his biggest arguments: CO2 rises follow temperature rises and that current warming is all a result of solar activity. If CO2 follows warming and we are warming as a result of solar activity, then why have CO2 levels already risen. THey should not rise for another 800 years following the solar warming that we are supposedly seeing now. Not to mention that solar warming tends to be slower than this period by several orders of magnitude.
These huge problems make me suspicious of this as an unscientific video that is merely trying to push an agenda by putting a spin on global warming. The spin stuff blurs the important message that global warming is really just spin generated by those who want to see us limit pollution. Fighting spin with spin is just a waste of my eyeballs.
Even as program trading percentage skyrocketed. Something is fishy here.
Unsure is the bottom line. You might as well just flip a coin right now. Consolidation or distribution or whatever. No real trend here.
The latest from the Oracle of Darien (speaking of sure things )
http://www.thestreet.com/story/10503387/1/schiff-housings-big-picture-isnt-pretty.html
Still a bounce to 940 in the cards?
Schwab wouldn't be trying to distribute to the retail investor, now would they? <G>
http://finance.yahoo.com/tech-ticker/article/243134/Rally-Is-Real-Shift-to-%22Riskier%22-Stocks-Will-Continue-Schwab's-Davis-Says?tickers=JPM,MWV,MSFT,BAX,PFE,ESRX,SCHW?sec=topStories&pos=8&asset=&ccode=
http://finance.yahoo.com/tech-ticker/article/242971/March-Lows-a-%22Textbook-Bottom%22-Buy-the-Dips-Says-Schwab-Funds-CIO;_ylt=AmwGw7duoDBY7z.VHCanReu7YWsA?tickers=SCHW,SPY,DIA,%5EDJI,%5EGSPC,%5EDWC,%5ERUT?sec=topStories&pos=9&asset=&ccode=
If he does not understand sarcasm, I wonder how he is going to beat the Street!
It should be interesting to see how that works with the beginning of the month, unwind of window dressing as well as the fairly common Fed-induced local highs. That "breakout" has not yet been too inspiring, but they may yet save it. Reading the Yahoo FInance headlines about the end of the recession and DOW 10000 and a GS call for SPX 1000 by yeare-end. It was the end of the world a month ago and now it's all better? Pretty amusing and an alomst certain sign that this is a bear market rally of some sort even if it does somehow get another set of legs and this is still just the "A" or something.
Wow, that is quite a change in scenario. It sems that we are still going accoriding to you plan of a double top around SPX 875. Why the change?
These guys are pretty good and expect a top at 875 or a parabolic move upward as a less likely scenario.
http://leavittbrothers.com/stocks-options-futures-trading-before-the-open/2009/04/17.cfm
Nicely in line with your post from 3 weeks ago.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=36635555
Well, you were a little off on the price, but your call on the time of 3/26 seems excellent. It seems that all of the bears who were waiting for 600 were frustrated. Maybe all the bulls hanging around for 900 will be frustrated as well.
If we stick with that, it calls for a bit of sideways, slightly higher choppy bear flag and then a signinficantly lower low in March. 74 would call for a retest.
Does it affect their ability to offer financing for their cars? I still don't understand how we could let the airlines go bankrupt without much ado, but it won't work for the autos. I imagine that if the airlines were going bankrupt now, they would be telling us that they could not guarantee our safety if we let them go bankrupt. I am actually glad in a way that they are getting bridge financing until Obama. It should be a great test to see if he really is a different kind of leader. Will he sell his union constituency short for the good of our children?
I am still thinking that it will be tough to close on a high note. The high note is now and maybe next week with a lot of distribution coming in due to tax-loss selling.
So,the criminals would want to paint things higher in order to do their selling at the best possible price, methinks.
This seems like a setup to improve prices for some necessary tax-loss selling and end of the year window dressing, doesn't it?
Hussman unabashedly bullish:
http://www.hussmanfunds.com/wmc/wmc081020.htm
Amazing!
Also 9 month cycle low today.
So, is this upward coursse in yields going to last? Will it explode to the upside? I have this sinking suspicion that the "smart" money that has been in safe bonds this whole time is the next thing to get whacked. Is there any substance to back that up or was this just a short-term thing? Deflation is clearly the problem right now, not inflaton, so yields should stay low. I am just waiting for the other shoe to drop and wondering if it will be safe bonds.
Does it matter with HFTOM? Let's start with SPX.
Still thinking 270?
What is up with the disjunction between yields of intermediate safe bonds and the market? During the most recent couple of days the flight to quality has not been able to keep down yields. What does this portend for TNX and PTTRX, do you think?
So this is turning out to be a test of March 2003 faster than you might have thought. If we do go lower than 3/2003, then the whole move from October, 2002 has to be seen as a correction. WHat are the chances that we will not eclipse the 3/2003 lows, do you think? It would require investors to be able to swallow all of the bad news to come and just hold tight. A possibility, but I do not know if I am willing to bet on that right now.
Nice crystal ball even down to the details like #11.
Glad Ilistened to this stuff. Not completely unscathed, but just a bit of a boo-boo so far. Enough gold, PTTRX, and BEARX to keep the boo boo from getting too fierce.
Soon, we get the effects of short-covering finally now that the ban is off.
Not really an abyss. Lots of support in the 13's
While Hussman's "Growth Fund" is clearly a bear fund and nothing else, he has been much more successful with his total return fund that is a blend of both of your strategies. The bulk has been in TIPs while the rest has been in and out of Gold and currencies.
The new 9/11, brought to us by the leasders of our financial system. Terrorists can just sit home and watch TV while we bring about our own downfall...
NOt sure what you mean by OPEX week ramp to make up difference and LTCM redux. Can you be less cryptic?
Not unless we have a bad enough sell-off to create metrics where he feels that he can buy. He is waiting for the mother of all bears to return some of his metrics to historic levels.
Hussman seems to have it right again. Always a bad sign for the market.
http://finance.yahoo.com/q/bc?s=HSGFX&t=6m