This worked out very nicely last time: Open thread.

Only rules: keep it nice and informative. No personal attacks.

So: What did people do today?  Any thoughts about today’s action?

Category: Weblogs

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

66 Responses to “Open Thread”

  1. Robert says:

    This market tracks the US economy, the USA as a nation. Be prepared for one step up and one and one half steps back. We are a large economy and a large country…things do not change quickly (think erosion along an ocean or a leaky faucet in the kitchen sink or pollution of our lakes, streams and air.) Our ineffectual and selfish leadership in Washington, the corporate board rooms and on Wall Street makes one think that the punch bowl is deep and unlimited. Beware of excess hubris.

  2. toddZ says:

    I put my toes in the water short PD and CAT… I was hoping they would make a bigger run at their 50dma, but I think this might be all the rally we get.

    I don’t think this market will settle until copper is fully unwound and the overseas markets settle. Tonight’s n225 action should provide a better clue on where we’re going…

  3. SINGER says:

    BRK/B UP in DOWN MARKET…PAAS down but on real lite volume lately…

  4. kaiser says:

    By any standards, the sell-off in silver has been brutal down almost 40 % from its recent high. Bought some SLV at 97 on Wednesday when silver sold off steeply withh an upside target of 110-120 representing the probable retracement levels.

    SLV shot up as high as 103 and change on Thursday and briefly on Friday. Feeling unsure whether the correction in the metals has even reached an intermediate bottom, folded and sold out my SLV at 100 today for a 3 % profit.

    I am looking to get back in for I’m longer term bullish on precious metals. Look forward to hearing other posters’ perspectives on silver.

    -Kaiser

  5. Brian says:

    kaiser, I don’t like silver as much as gold. I’m worried about it’s price’s dependence on industrial usage (which isn’t good with a global slowdown).

  6. MikeF says:

    I took a tentative “toe in the water” position in GLD (< 3% of portfolio) and am maintaining a long position in MO (reinvesting the dividends) with hopes that a couple pending court cases will settle favorably. Otherwise, am now pretty much on the sidelines in a money market fund (currently paying 5.34% annualized). Still too much risk out there (rising global interest rates, falling domestic real estate values, falling dollar, eroding consumer demand and fading overseas interest in purchasing our debt).

  7. chris says:

    Its time for the market to head downnnnnnnnn………………………………… What happens if crazy n. Korea launches that missle ?

  8. emd says:

    i think this market is SICK… the bulls had one heck of a run going Wed/Thur but then they just can’t get it to stick. not saying we won’t see another bounce but I think we are a long way from retesting the highs.

    Today I covered the Jly IWM puts I bought midday on Thursday (thursday night this position did not feel good but ended up making almost 50% return in 2.5 trading days… better to be lucky than good).

    I’m still heavily short and had some discomfort Thu esp with your “buy” call, however, this market isn’t giving me any reason to take this short off…. rallies are fast and furious with absolutely no follow through. the charts look broken… maybe if the Fed does something stupid later this month we’ll get a pop but their credibility is on the line after all the recent chatter… “one and done” should be dead by now.

  9. trader75 says:

    For me the most interesting aspect of this action is what’s going on in energy. Crude oil was supposed to be all pumped up with speculative fever and yet it’s still pushing $70.

    Energy stocks on the other hand have intriguing if not compelling valuations at this point–aren’t a lot of these companies still being rated on $40 oil?–and yet XLE continues to get hammered. What’s up with that? Does everyone still think oil will be cut in half any minute now?

    Also surprised at how thoroughly emerging markets got whacked. Maybe Roach is right in that while emerging market economies have been stuffing cash under the mattress to fight the last war (asian contagion), the new boogeyman that is about to whack them is the demise of the American consumer.

    Another question is what the hell happened to hedge funds. I mean we know these guys are volatile as a group but the hedgies really turned out to have a glass jaw. All this VAR selling makes them look like a bunch of crybaby pansies. Or maybe they are doing the smart thing—John Hussman this week said that an S&P valuation of 700-800 in the next few years would be “reasonable.”

    Overall I am impressed with how stupid and childish this market feels. For a while I had the impression that investors on the whole were getting more savvy. That goes right out the window; things are as kneejerk and goofball as ever. If Jesse Livermore were to walk into this market he’d probably say SSDD.

    Of course, that’s just my opinion. I could be wrong. (Whatever happened to that guy anyway?)

  10. lola says:

    I installed an air conditioner.

  11. RB says:

    I am very puzzled/confused with the inflation/deflation debate. Is the whole idea behind buying gold that it is a hedge against inflation? The key argument for deflation appears to be that due to globalization, there will be no wage-price upward spiral — what are the arguments against that?
    Secondly, the folks at ECRI have said that current inflation numbers are a lagging indicator and do not tell us anything about where we are headed. Their future inflation gauge indicates that inflation has started to turn down and their long leading index of global economies indicates a slowing of the global economy in the second half which will reduce inflationary pressures (there is an interview on the Capital Spectator). So, is inflation really a problem in the coming months or is the Fed aware of this and is just talking tough to appease the markets?

  12. Mark says:

    “Overall I am impressed with how stupid and childish this market feels. For a while I had the impression that investors on the whole were getting more savvy. That goes right out the window; things are as kneejerk and goofball as ever.”

    That is exactly what I said today! At one point this afternoon I looked at my screen and said out loud “This is SO STUPID!”.

  13. Uncle Jack says:

    Open – great.

    Can anyone believe what Richard Fisher has to say about housing after that crazy “ninth inning” comment last year? I saw him on the screen with the mute button on and told my market-novice-wife the joke. She said, “must be extra innings, huh?”

  14. erik says:

    “that is exactly what I said today! At one point this afternoon I looked at my screen and said out loud “This is SO STUPID!”.

    try never to have that reaction that you are wiser then the market. you may be wiser than the collective, but that’s not the market’s consciousness. learn from what you perceive as stupid because it’s all information.

  15. Guy says:

    I’m avoiding the metals for now. I can’t tell if they’ve bottomed. I have a small position in CAM and AMR that I’ll hold until they reach a 61.8- 78.6% Fib retracement of old highs.
    I might go long an oil driller like TS, or refiner like VLO tomorrow. I also will add to my QQQQ position.

  16. Brian says:

    MikeF, I’m primarly in gold and cash right now for some of those reasons (and others too). I feel that gold is good longterm, but I’m really unsure what’s coming in the shorterm. I’m thinking it might be better to hold cash and buy gold/real estate later.

  17. wayne says:

    Emerging markets still look like a short to me – after a bounce. I shorted Russia, China, South Africa during that micro-bounce a couple of weeks ago. A rally could come at any time, but take a look at Japan’s monetary base – now down 15% yoy. Liquidity being withdrawn. Lots of (dumb?) money flowed into EM’s in Jan – April. Need more pain for this thing to be truely unwound. I am torn as to whether Barry is right on a signifigant rally b4 ultimate bottom. Maybe. But my massive reading of the blogosphere makes me believe this may be a consensus – maybe we wash out here.

    Maybe maybe maybe – isn’t trading fun?

  18. B says:

    He died about 700 years ago. Or sometime in the past century. Livermore that is. They named Lawrence Livermore labs after him. Also liverwurst and Liv Tyler and the Lievre River in Quebec. But those damn Frenchies changed the spelling.

    I guess we just had a test of the efficient market theory. Especially in emerging markets. I’m gong long and hard on China. I’m margined with everything I have in Chinese real estate, steel and banks. I just love the China story.

    Other than that Celgene, Cigna, Microsoft, ATT and Verizon are on my weak short term buy candidates in the large cap space. I wouldn’t touch any of them with the exception of Verizon which I love for secular reasons and because it pays a big fat 5% dividend in this market……….should I believe this market deserved my love. Yet it is an unrequited love. So, I’m waiting on a buy signal for copper or the Qs or SMHs so I can ride one of these hogs back up. Copper is too volatile to pass up. If I don’t get a buy on copper, we likely aren’t going back up.

    Btw, Todd, if you don’t think we will see a bottom till copper unwinds, you are going to be a rich man. Because that is likely less than 60 cents by the time this cycle bottoms.

  19. trader75 says:

    There’s a difference between getting angry at the market–and rationalizing unfavorable activity with epithets–vs recognizing the primary drivers of a situation.

    Some say the market is always right. I prefer Soros’ notion that the market is always wrong. Though ideally one should have the flexibility to recognize that sometimes the market is right and sometimes it is wrong.

    All that “one and done” chatter of a few weeks / months back, for example, was a clear example of the market being wrong. The collective euphoria associated with the dow’s early May breakout to highs was a case of the market being wrong.

    Many who argue that the market is always right have emptied the phrase of meaning–if everything the market does is “right,” then the term becomes meaningless. Better to recognize that the collective view interprets things sometimes rightly… sometimes wrongly… and sometimes stupidly. The market is not the Dalai Lhama. The collective crowd consciousness can be downright moronic at times.

    Agree, though, that information must be interrpeted strategically rather than emotionally to be useful.

  20. whipsaw says:

    Since I sold off my puts at the open last Wednesday, all I’ve done is watch the spectacle and told myself to be patient before buying them back (this time with “the House’s money”). I’ve thought about exogenous events that could suddenly push the market higher or lower by a substantial margin and have come up with these:

    Higher: Capture/killing of OBL; no short term bump at FOMC next week
    Lower: No short term bump at FOMC next week (after it sinks in that this means recession is already here); anything and everything else.

    So I’d say that otherwise, any big swings up are mainly manipulation on many levels and any big swings down are attributable to structural flaws and failures that aren’t going away anytime soon. My money says that we are in for a round of “investors were cheered” and “investors shrugged off” days for a bit. That suits me fine, should make for a much better harvest once reality kicks in again.

  21. David says:

    I keep thinking about the bear market of 1973-1974. I think Barry’s referenced the 1973 collapse as his preference relative to the 1929 scenario …

    There was a crazy bear market rally in the summer of 1973 … late August to late October … Every time I think its over-the-falls time, I take another look at that chart.

    FWIW, I’m long DIA, BLS calls, 401(k) in cash

  22. Eclectic says:

    I observed what I interpret as being the spiritual conversion of the Dallas Fed’s Fisher.

    He has been ordained as a Deacon in the Church of Bernanke.

  23. ballyache says:

    I believe he died in the mensroom of a bar in Detroit circa 1940. Supposedly his last words were, “What a wasted life’.

  24. Mark says:

    erik-

    WHATEVER.

  25. Si says:

    Had to mention something that has amazed me over the last month or so. We get a moderate market decline, just like all the many other moderate market declines that have happened in history, but the noise that seemed to go with it just seemed absolutely mad. It was as if it had never happened before or that next week we would be all lining up outside the poor house to get some kind of watery potato gruel and a hunk of stale bread. I am still shaking my head over some of the rabid analysis that was going on. We didnt even get to the down 10% mark for either the Dow or S&P and only just grabbed it for the Nas. It got me thinking about what kind of world we live in today. A world where s**t doesnt happen and if it does its always someone elses fault. Does anyone truly own their own decisions anymore. I great case in piont is how the market is obsessed………..obsessed with every word that comes out of any fed chairmans mouth. I think there was even a piont a few years ago that because Greenspan was basically saying the same things over and over that people began to analyse HOW he said those very same things. GET A LIFE.
    As far as I know I live in a Universe that runs in cycles, everything goes up and down, everything. The sooner people realise this the better because the longer we try and keep this fairytale going the bigger the cliff we are going to fall off when market decides to correct itself in a real mans way.
    Ahhh rant over, ulcers feeling better already. Now who can I offload those three houses I bought on to, I mean in any kind of normal world they should go up at least 20% a year, if the Fed would stop raising interest rates when they clearly dont have to.

  26. another Brian says:

    Oil grimly hanging on at $70 while oil stocks go down 10-20% or more in a month. I don’t get it. Are there still a lot of “oil is going back to $30″ guys left? Even at $50 most of the oil stocks are ridiculously profitable.

  27. erik says:

    mark-

    good talk.

  28. Mark says:

    “try never to have that reaction that you are wiser then the market. you may be wiser than the collective, but that’s not the market’s consciousness. learn from what you perceive as stupid because it’s all information.”

    What a pompous, condescending bunch of crap.

    There’s my talk. Have a good day.

  29. DaveF says:

    long DIA at 3:40 pm

  30. Sammy20 says:

    Why does everyone dismiss the money supply issue in these inflation conversations? The conversations always fall back to increasing wages or the goverment manufactured “core” CPI. Kudlow practically laughed at a guest last week who mentioned the elimination of M3. M2 grew at a rate of 4.7 YOY and god knows what M3 is doing. Tough Fed talk and increasing interest rates in tiny amounts does not nearly counteract the actual damage being done to the dollar and inflation when all the smoke clears. Inflation is also defined as in increase in the general money supply!

  31. B says:

    People had a cow this correction because it was hard and fast. Forget about the indices. The indices you read about in the paper are likely going to be the bear market leaders. ie, The ones which hold up the best if we hit a protracted downside. Instead, look at some commodities, emerging markets and many of the mojo leaders in the US. People were overweight small caps, industrial metals, emerging markets and the China plays. They all hit about a 25-40% skid in a month. That is some serious pain and someone took an ass whoopin.

    The indices have hidden much of the underlying blood bath for the mojo players.

    BTW I AM A OIL TURD KINDA GUY. Patience. Oil is in a different place than the industrial metals. That fantasy is based on China growing at 5000% a year ad infinitum. Oil is also based on that argument but as well there are alot of peak oilers. (Although I’m not sure $10-20 oil is a reality for a long time if ever.) So, this sell off hit the Asian story the hardest. Oil is the new “pet” investment of traders. You will need more to shake them out. Oil markets globally have started to take it rather hard. They led the decline in oil stocks in the US. And stocks many times lead the prices of commodities. So, this might be a normal correction and buying opportunity or it might be the start of something bigger. IMO the traders will need to see the white of the eyes of a significant global slow down in progress before it tanks. ie, They will drive it until they crater the global economy with it. We are already at ten year highs in supply for both oil and gasoline. So, there is a large premium based on “risk” ie, traders speculating.

    Don’t be fooled into thinking these oil stocks will hold up in a slow down just because oil is elevated and they have a PE of 10. The market is telling you something by giving them a PE of 10. It is telling you that their profits are NOT SUSTAINABLE and HIGHLY CYCLICAL. XOM lost 50% of its value in 74 even though oil stayed elevated. If China overheats, blows up, gives up the ghost or whatever, you’ll be bathing in oil. And wouldn’t that be nice to hear the Iranian kook shut the f*ck up because his oil balls are shriveling up. Although there is a part of me that wishes oil would stay high to spur long term innovation. I fear weak oil will reduce consumer enthusiasm for alternative energy over time as it has every cycle before. Remember, the DOE was created in 1977 to make sure we were never dependent on foreign oil again. 30 years later oil imparts are double what they were then.

  32. RB says:

    Sammy20,
    Money supply is a good point, but how do you value gold? For instance, gold was $270/oz. in 2000 and M3 is estimated to be growing by about 8.2%/yr? That would make gold worth about $435 today. I’m just curious — somebody educate me.

  33. whipsaw says:

    I suspect that a lot of the consternation and confusion that many express and the rather odd behavior of global markets is because stagflation has already set in. I also suspect that many here are not old enough to understand what that really is in day to day terms rather than as a glossary entry in an econ book.

    At heart, stagflation is concurrent inflation and deflation which I would say is worse than either component by itself simply because it is so difficult to figure out how to stop. The setup for stagflation is a budget deficit that is absurd, severe trade imbalances, an endless and expensive war, and a loss of faith in govt leadership- does this sound at all familiar if I throw in oil price escalation?

    Once stagflation is in play, it brings with it general malaise. In a Corporate State, nothing will escape which is something of a twist on the last time that we walked into this when there was a nominal division between business and govt.

  34. toddZ says:

    Crude is kind of struggling at $69-$70. If we see $67 I think there will be some amazing selling. In the back of every energy traders mind is the knowledge that any economic slowdown will leave us awash in crude.

    The trouble with the energy market is that no one is stupid enough to short crude with Iran acting out. When the market decides to sell for whatever reason, there will be no buying reserve to cushion a tumble.

    With long energy the premiere “can’t lose” trade right now any correction will be a major event. Precious metals was the warning shot across the bow…

  35. trader75 says:

    Re stagflation I thought Caroline Baum had a good observation the other day–one way in which the current environment is NOT like the 70s is that wage earners have a lot less pricing power these days.

    With the pressure of global labor competition, it’s not like Joe Sixpack can demand a raise just because his cost of living is going up, and the unions that could do it for him in the old days have been gutted.

    If the US consumer taps out and commodities stay crushed, where is inflation going to come from. Continued support of commodities via the China connection seems to depend on continued resilience of the western buyer. So maybe when Joe Sixpack goes down for the count, so does everything else, including inflationary pressures.

    And then the liquidity desert puts a bunch of marginal hedgies out of business, and their unwinding depresses the market even further, and then we get the deflationary death spiral threat that gives Ben a primo excuse to put that old printing press speech to use.

    But if that’s the scenario it’s more of a slowdown to deflation to hail mary super-stimulus kinda theme, rather than a 70s replay.

  36. "pompous"-erik says:

    forgive me for misinterpreting this site as an open forum for comment and constructive thought. if you wanted to just comment for the sake of writing your name behind something nonsensical, than please let me know what you had for dinner, i’m aching to know.

    btw, i don’t know about you but i always thought someone who’s pompous tends to think of themselves as the smartest in the room rather then the humble student. my comment pretty much boils down to the old addage “don’t fight the tape”, although i could see what you mean as me being condescending with all those references to learning from your mistakes…????WHATEVER.

  37. erik says:

    anyone read martin pring’s piece on the s&p today on “the street”? rather exceptional conditions being violated. pretty compelling chart. anyone see any holes in the research?

    http://www.thestreet.com/p/rmoney/technicalanalysis/10292480.html

  38. chris says:

    Erik and mark break it up … lol

  39. whipsaw says:

    per Trader75:

    “Re stagflation I thought Caroline Baum had a good observation the other day–one way in which the current environment is NOT like the 70s is that wage earners have a lot less pricing power these days.”

    True enough, “wage earners” now are mere coolies. But she necessarily subsumes that stagflation in the 70s was primarily brought on by wage escalation when the underlying cause was years of unfunded govt spending together with the oil embargo. So it is not the same and I would say it is worse since we no longer have a robust middle class and can no longer expect anyone to line up with us out of self interest when push comes to shove.

    What’s going to happen when the Chinese say they are going to take back Taiwan and we say no? And then they say fine, no exports until you change your mind. Where are all of those WalMartians going to go to buy anything after the 45 day JIT supply chain is empty? What about all of the other retailers who have sold themselves out to the Chinese?

  40. VL says:

    I think we are going in one direction.

    Massive budget deficits and trade deficits => declining dollar and increased inflationary pressures => Fed hiking interest rates to fight inflation and keep sinking dollar up => collapse of housing markets => decline of consumer spending (difficulty with making ends meet) => compensatory move from consumer driven economy (2/3 of US economy) to industrial economy (1/3 of US economy) => US economy slowdown => global slowdown => companies profit growth fall => future earning estimates restatements => share price declines => bear markets => possible recession or stagflation (if inflation remains high)

    Factors that will expedite the process:
    1. Geopolitical crisis
    2. Derivative meltdown
    3. Hedge-fund liquidation. They have been much leveraged secondary to cheap money from Japan, 0%. BOJ has been the biggest global liquidity generator but BOJ has been reducing this liquidity dramatically since March of 2006, from 30 trillion to 13 trillion. The reason we saw global stocks and commodities spiked on Thursday is because BOJ left its interest rates at 0%; (but everyone expects BOJ to raise rates in July).
    4. Democratic landslide in November
    5. US TIC has reported unexpected large decline in securities investment into the US in April
    6. Bird flu pandemic or terrorist dirty bomb in the US

  41. advsys says:

    One of my favorite blogs.

    Since todays action was blamed on the builders sentiment numbers it brings to mind bubbles.

    I have said it here before. I have been an active participant in several bubbles and a few ass kickings. I decided that I not only wanted to be able to avoid the next one but make some money off of it. To somehow rise above the irrational behaviors.

    I have been a believer for over a year that residential housing is a bubble market. That at some point prices will have to not only peak but decline. Most likely a regression to the mean will occur.

    I know that now I have incurred the wrath of dozens of staunch advocates of real estate. The issue does get confusing. Is the recent slowdown due to the Feds actions in tightening. Is it simply an issue of some markets rose too fast and are experiencing a brief pause. There are some areas that are still seeing price increases doesn’t that mean that all is okay. The dozens of investment advisors that are calling a buy on home builders because their P/E’s are ridiculously low. I have seen all the charts and graphs. Housing as a percent of GDP or of real wages etc.

    I am not an economist or anyone with any special educational background. However, if this is a bubble.

    All of the charts and graphs and data will end up being wrong. (usually because they end up being based on false assumptions)

    P/E’s of 6 will turn out to have been perfectly normal. As in the P/E will be 6 in two years from now but the E will be way smaller than today and so therefore will the stock price.

    I don’t know that it is really very easy to predict when a bubble will end. I just know from the last few that I followed that when they do, there is a price to pay. The event will have to have an affect on the economy and probably a substantial one.

    I have had some puts on the industry for several months now and have had some nice returns of course. I think the bigger issue is that I am going to make sure that all my investment choices from here on out, keep this issue in mind as well. That I will be somehow hedged against a general shift in housing sentiment and the downward force that would put on most of the markets.

  42. brian says:

    i would short Nabisco to hear Bushco say…

    “So, I want to speak to you first tonight about a subject even more serious than energy or inflation. I want to talk to you right now about a fundamental threat to American democracy.

    I do not mean our political and civil liberties….

    The threat is nearly invisible in ordinary ways.
    It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our Nation.

    The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.”

  43. brian says:

    VL? WTF??

    4. Democratic landslide in November

    6. Bird flu pandemic or terrorist dirty bomb in the US

    Hmmm…decisions, decisions…..

  44. trader75 says:

    “What’s going to happen when the Chinese say they are going to take back Taiwan and we say no?”

    If it comes to that, there will be war.

    The communists cannot afford the political risk of mass layoffs that come with economic slowdown–the threat of uprising is too great.

    The Taiwan scenario likely comes about as a totalitarian hail mary pass… if / when China’s economy looks to implode no matter what, the leadership plays the xenophobe card to gin up nationalism and distract the populace from economic chaos. If it comes to that, the powers that be will have little to lose and no real way to back down from escalation. Missiles will fly.

    Needless to say, no one is keen on that outcome…

  45. me2200 says:

    Great commentary, guys. Barry: thanks for letting us have another open session. How about setting up a real forum, where we can start subjects, comment, do polls, etc ?

    I called this downturn. I’ve been calling it since January. I was heavy in gold. When it hit $720 I cashed out. And of everything else shortly thereafter. Yep, I’m sitting on 100% cash. For some reason I don’t have a margin account setup so I have not been trading options or shorts. I think I’ll change that shortly.

    Oil: I keep looking at the inventory data and we have tons. But the supply is weak and demand isn’t falling much even at $70. I don’t think it is going to fall much below $50 and even then oil companies are profitable.

    I think oil companies will be my first buy when the market turns. Investors are throwing the baby out with the bathwater with them.

    Copper and other commodities: copper was all speculation. Everyone thought the market was tight enough that it could be cornered. And actually, it was, for a few weeks anyway. My guess is we see copper in the $2 range within a month. A couple more big sell offs and we will be there.

    Cause of the decline is two fold: a) HOUSING. b) liquidity.

    Today for the first day the market acknowledge that housing probably isn’t going to have a soft landing and yes, it is going to hurt. Very badly. No way around it at this point. I think by now everyone realizes that the homebuilders have declined by about 50%. What they don’t realize is that the homeowners are now going to get whacked. When people say the economy is slowing, what they really mean is that RE is going to bust.

    Liquidity: this caught me off guard. I know there was a lot of carry trade and figured that at some point it would unwind, but the speed of it caught me off guard.

    Hedges: I heard a rumor today that we are going to see some hedge fund sell off shortly. Some of them are indeed in trouble.

    Inflation: yes it is out there. And I am happy that Bernanke is fighting it the way he is. If the economy was healthy, 6% wouldn’t hurt us. The problem is the economy isn’t healthy. Housing floated us for the last few years and now its done.

    Fed Rates: My call is 6%+ before the end of the year and one or more 50 basis point hikes.

    Stock picks: I can’t see buying stocks long until this has all blown over and I don’t think we are there yet. There might be a trade from time to time like last week, but I only see bad news for a while, mainly from housing. I agree the market shouldn’t flip over the Fed rate, but they have. Maybe its a liquidity thing. The funny thing is that I don’t think corporate bonds have gone up a lot, so the Fed rate isn’t going to hurt corporate debt that much, at least not yet. Caveat: I haven’t watched the bond market that close.

    Something I don’t understand: the trend is your friend when it is going up. It is your enemy when it is going down. Why do people (retail investors) stay invested and try to make money in a down market ?

    Turning Point: I don’t know what it will be. The Fed can stop raising rates, but that isn’t going to inject liquidity into the market and it isn’t going to stop the housing market from crashing. We might get a bounce on it, but I doubt it will hold.

    Corporate profit: Yes it is high. We are at the top of the cycle. Profit is always high then. The market sees that slower times are right around the corner and thus the sell off.

    We’ve been living like drunken sailors for the last decade (?). The party is over. Now it is time to clean up.

  46. >>> Something I don’t understand: the trend is your friend when it is going up. It is your enemy when it is going down. Why do people (retail investors) stay invested and try to make money in a down market ?

    My exact sentiments. Why try to swim upstream?

  47. Kevin says:

    I am very puzzled/confused with the inflation/deflation debate. Is the whole idea behind buying gold that it is a hedge against inflation? The key argument for deflation appears to be that due to globalization, there will be no wage-price upward spiral — what are the arguments against that?

    Lola,
    Here are a number of counterarguments.
    1) There has been no wage-price spiral because of the downward pressure on wages due to production shifting to China. But what if that process has gone about as far as it can go? The counter-inflationary force might subside.
    2) Oil is sky-high and ultimately that affects everything. Even if oil dropped as low as $40, that would still be substantially higher than it has been for a while. The counter-inflationary force from China has been balancing this out, but that force ebbs, then the inflationary impact of high-priced energy will start to be felt.
    3) There is already substantial inflation but the numbers are cooked (by the manner in which housing costs are handled) and then sliced and diced by focusing on “core inflation”, with the core defined to excluse those areas that have inflation. This is what I understand Barry to be saying.
    4) There are many people across the political spectrum who feel that the current administration in Washington is not always reliably competent. (Do I get a prize for understatement?) A tussle with Iran handled even half as poorly as the invasion of Iraq could send oil prices to unfathomable heights.
    5) Reverse argument 2. What if there is some calming down with Iran and North Korea and oil prices do fall, but the deflationary impact from China accelerates? The Chinese have massive over-capacity and much of it is in the hands of local and provincial governments who are more motivated to keep on producing at any price rather than cut back to maximize profits. If something went wrong in China, they might export a tidal wave of deflation. What does the Fed do then? When confronted (in this hypothetical scenario) by the prospects of a depression as bad as the 30s? Do they shovel money out of helicopters and ask questions later ? Maybe bring in the cargo planes that are used for dumping water on forest fires?
    6) Many people feel that the huge US deficits will require a large devaluation of the US dollar. That would be quite inflationary within the US (although deflationary elsewhere).
    These arguments may all turn out to be wrong, but they are reasonable ones.
    Also, the people whom I personally know who have been big on gold for a long time all are deeply suspicious of “fiat money”. This is not all investors at all, but there are definitely some gold supporters for whom support for gold is a deeply held belief, in some cases almost religious.

  48. Michael L. says:

    I’m reducing position size, was risking 1% of my equity on any one trade, then .5%, now .33%. These are long trade s around my core short positions. Looking at stocks that they puking up like NBIX and VG but only if they rally up in the PM. Shooting for 4-5% on a trade, too much volatility to try to hold out for more.

  49. Kris says:

    Can the US stock market do well if the dollar continues to be weak?

    Does anyone have a pie chart that shows who owns equity in the world? Something like 40% mutual funds, 30% hedge funds, 10% individuals, 10% pension funds, 10% private equity funds. With some drill down this would be even more helpful.

  50. Steven says:

    How about this scenario:

    Oil peaks as everyone expects in the next 3-10 yrs.
    Civilization obviously does not collapse, but massive amounts of capital will be needed to build large numbers of nuclear and clean coal power plants to offset the energy shortfall. (plug in hybrids replace gasoline cars)

    Building these powerplants would soak up huge amounts of money. We would be happy if China cooperated with a deflationary hard landing. Otherwise bond rates would soar, and the fed would go to 8.5%

    Do the numbers work? How much do a hundred large nuclear plants cost? How many residential houses could that build?

  51. me2200 says:

    “I am very puzzled/confused with the inflation/deflation debate.”

    OK. My OPINION to follow.

    “Is the whole idea behind buying gold that it is a hedge against inflation?”

    Yes, but only if you think it is going to be significant. The key thing for me in the Bernanke speeches is that he isn’t going to allow inflation to run. As far as I am concerned, that is what caused gold to fall off and maybe the start of the whole sell off.

    “The key argument for deflation appears to be that due to globalization, there will be no wage-price upward spiral — what are the arguments against that?”

    The argument against that is that there is enough global demand that prices stay high.

    However, I argue that in the long run deflation ala Japan is a much bigger likelyhood than inflation. The reports out of China are that they have massive over capacity and will flood the market with cheap goods. This will be especially prevalent if the US goes into recession because demand will drop. In the short term we have massive commodity inflation. I could write more but it is late.

  52. trader75 says:

    The US couldn’t stomach a Japan-style slow-bleed deflation. Too much leverage, too much consumer debt.

    China or no China, in the event of a truly deflationary scenario–which is a real possibility–the Fed will be forced to stimulate. They will have no choice.

    And if those stimulation efforts turn out to be little more than pushing on a string, then gold will be just about the ONLY thing that benefits.

    There was a recent Soros interview, I forget where. He basically ended the interview with a statement along the lines of, “cash is king… though preferably not dollars.”

    In a global doldrums scenario where everything is in the crapper and the fed is pumping out dollars willy nilly, gold acts as a proxy for stable cash. This is the scenario where deflation tightens its grip even as the greenback resumes its downward slide. If other central banks start doing the same pushing on a string routine, that favors gold as a cash proxy all the more.

    Thus in the event of a deflationary wipeout and a frantic force-feeding from the fed, gold will again be the place to be. Bigtime.

  53. Mark says:

    erik-

    You called out someone’s comment and pointed to it directly as “wrong thinking”(“try never to have that reaction that you are wiser then the market”.) as if you are the Dali Lama of Trading. When called on it you retreat behind the “constructive commentary” canard and the “fair play” posture, then claim rights to be the victim. Are you like a sophomore in college or something?

    Sorry all to clutter up the thread with this. I’ll try to hold my tongue next time.

  54. erik says:

    mark-

    get a grip. stop taking a line or two here and there and making a mountain out of a mole hill. it was a short comment to you. forgive me for engaging you. it will never happen again.

    btw, would you not listen to the dali if he was talking to you? best of luck.

  55. Mark says:

    You’re forgiven. And no I would not.

    Good luck to you also.

    Again, apologies to all who have posted on this thread. Some really good comments out there.

  56. paul jaffe says:

    Shorted EWY (Korea ETF) yesterday. NK wants to stay in the news for awhile to meet their political/economic objectives; also S. Korea economy is struggling without the NK initiatives. We’ll see … near term support for EWY at 39.60.

    This is as tough a market as I’ve seen in over 3 years.

  57. Eye Doc says:

    According to John Hussman, gold actually does best in times of deflation, when interests rates and the dollar are falling. I think that explains why gold has gotten hammered over the past month even though fears of inflation have picked up. I figured inflation would be good for gold, but rising interest rates and a rising dollar outweigh inflation fears.

    I am widely diversified among asset classes as I have been since the last bear market. I was fortunate to have overweighted REITs and international stocks since 2001 until I lowered my allocations to them in the past year, so I made back what I lost and then some from the last bear market. And, I’m not about to take that kind of a beating again.

  58. David says:

    Eye Doc,
    I haven’t read Hussman on gold and deflation, but I’ve read the argument elsewhere.

    Isn’t that argument predicated on the specific circumstance of the Great Depression when the gold price was fixed? I thought that the value of gold was high relative to the falling prices of other things …

  59. LeroyB3 says:

    B,

    How are you playing China? I agree with the China story, but am finding it difficult to directly play this story. Thanks.

    Best,

  60. Whammer says:

    The Dali Lama? Big hitter, the Lama……………

  61. Eye Doc says:

    Mark,

    Thanks for the link. I should have said “recession”, rather than “deflation”. Falling interest rates and a falling dollar, according to Hussman, are what move gold prices up, and those things occur early in a recession.

  62. me2200 says:

    I bought some oil stocks this morning. Too cheap to pass up. COP at 6x earnings !

    I’m down 1% already though. But seriously, it looks like oil company fundamentals are sound, actually very sound. And 6x earnings ! A man only has so much strength to resist something like that. Watch me lose my shirt…

  63. me2200 says:

    It is very interesting to watch people avoid buying oil stocks. Their earnings are very good. The price of crude didn’t fall off during the speculative blow off we’ve seen.

    Nobody is forecasting a decrease in oil prices and if a hurricane should happen to blow in we could see some buying activity. CNBC had some good discussion of the long term demand and supply for oil. In a word: tight.

    So why aren’t people buying these stocks ? They’ll consider buying homebuilders at 6x earnings and I don’t think the homebuilding sector is coming back anytime soon, but they don’t want oil stocks, which have excellent balance sheets and cash flow.

    Have I found a miss priced asset class or am I missing something ?

  64. jason harris says:

    Whammer: you must have total consciousness! LOL. Too funny.

  65. me2200 says:

    Oil could triple:
    http://biz.yahoo.com/rb/060620/energy_usa_saudi_iran.html?.v=2

    Also, oil workers were kidnapped in Nigeria again.

    Something else nobody is talking about is that Japan stated it will raise rates.

    Funny market these days.