As suggested by readers a few weekends ago, why not have an pen thread when there’s not much else happening?

I assume know you good folks have something to say.

Well, here’s your forum:  What are you thinking  — what theme will take over in the coming weeks? Is there more donwside ? Is the Fed nearly finished? How cold will Real Estate get?

What say ye?

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.

74 Responses to “Open Thread”

  1. LB says:

    Beware the soon Double Bottom on the DOW. Overbought on daily, but a very real possibility. Technically speaking of course. Also, don’t forget about our neighbors to the north. The TSX is looking very good. Could get helped out by that Inverese Head and Shoulders pattern that is getting executed.

    Good luck to all!

    Best,

    LB

  2. speedlet says:

    The Fed is finished, and will be cutting rates by the end of the year.

    The situation in the Middle East will soon subside, returning to its usual wretched state.

    Once both of these burdens are lifted, the market will be free to go….. lower.

    Because the main story going forward for the next year(s) wil be the ongoing collapse of the housing bubble, and all of the jobs/consumption/debt that went with it.

  3. khare says:

    TSX broke it’s trend line a while back. Does the volume confirm an inverse head and shoulders? I don’t use this pattern but it looks like it doesn’t.

  4. Even though I am short at the moment — volume decreased Wed to Thus to Fri and so I put ‘em out at the close — I suspect there is an August rally out there — presumably from lower levels

  5. advsys says:

    Lots of comments lately about housing. Seems like a no brainer that as an asset class it has gone bonkers. What took it there, good bad or indefferent seems irrelevant at this point.

    Looking forward, it seems to me that we have had a series of asset classes that have gone bonkers since roughly 1995. It also seems that as one started to find its upper limit and start to collapse, the next one came along to prop up the general sense of a strong economy. The only gap of course was the end of the tech bubble. It took about two years for the next asset class bubble to form.

    So, I ask myself, is there another asset class that is going to keep the process going now that the latest has peaked.

    I can’t see one. Any one got any ideas?

  6. wcw says:

    I’ve seen some interesting moves in biotechs. They’re perennially liable to blowoffs, though quite honestly I don’t see it here.

  7. speedlet says:

    RE: advsys’ question –

    The next bubble has already begun, just as the foundations of the housing bubble were laid before the tech bubble even peaked.

    The next bubble? Energy.

    After that? Precious metals.

  8. advsys says:

    I have been amazed for years at the volume of opinions about the Fed. I just don’t get it. Not at all.

    The bevy of folks who don’t even have close to enough brains or credentials to even be considered for this job who think they are qualified to call the current seat holder an idiot is beyond my imagination.

    How anyone could possibly think that they have a better handle on all of the data, economic expertise, financial savvy etc then a team of folks who do this as a full time job is just ludicrous. I am talking about plain old amatuer stock traders like myself as well as professionals, and certainly also include members of congress.

    All of this jibber jabbering seems much more about a manifestation of each persons own perception of how a change in interest rates will affect their own portfolio. That is also ludicrous. Since none of us can set rates, wouldn’t it be smarter to adjust your trades to match whatever policies are being set? (I think this also relates to a general belief that low rates will keep an economy growing forever. Probably not true. )

    For something like the last 15 of Greenspans fed meetings, he would tell us way in advance what he planned to do. (raise .25 for those who have been asleep for a while) Yet each time, there was pundit after pundit who would get on CNBC or write a column that would attempt to guess at when he would change policies and why etc.

    Bernanke is actually very clear right now as well. He is not going to make up his mind until he sees the last bits of data right up until probably the day before each meeting. He is going to look at a lot of data. From all kinds of sources. More than you are looking at!

    Then factor in that he also has political pressures from a dozen sources, plus he is not the only decision maker. There are other members that vote.

    He is also pretty clear about the fact that he is not going to do anything drastic. So, expect nothing or a .25 point move at the next meeting. Dont’ try and guess what that will be until the day before. Get it!!!

    Also probably a false notion is that the Fed is the sole source of causation of a recession. If you don’t think that the current govt. debt levels, the govt’s current foreign policies, the policies of at least the BRIC nations if not many more and a slew of other factors don’t have an affect on causation, you are the very dum dum that you think the Fed chief is.

    Which leads to my last point. It is probably not at all a safe assumption to make that if the Fed stops at the next meeting that this will in any way avoid a recession. There is a recession coming. You should know that. The only thing that Fed action may do is to push back the arrival date. That would also debunk the myth that the Fed always overshoots.

    Glad I could get all that off of my chest. Hope it means something to some of you. If I sound angry it is only for the purposes of providing emphasis for my points.

  9. Alaskan Pete says:

    The next week could reveal a lot, IMO. As I wrote in a previous comment, many indicies/sectors are very close to running into resistance levels and/or trendlines, yet are setting up some short term positive divergences.

    Some technicals of particular note: The 30Y has recently broken a 22 YEAR trend line and run back up to test it. SP100 big cap to SP600 small cap ratio has recently broken a 6 YEAR downtrend line, but is running out of steam and looks to run back down to test the trendline.

    Compelling market to watch, very exciting in alot of ways, but I’m not placing any large bets until we get some clarity.

  10. advsys says:

    Speedlet.
    Precious metals makes some sense. Thanks for bringing that up.
    Help me out on Energy? Does it not have as big a downward drag on the economy as it may have on the upside? So, how would it keep the economy afloat?

    Thanks

  11. DavidB says:

    Well, I guess this is as good a time as any to lay out my thoughts. I’d love some feedback on this and if this idea takes hold let it be known here and now that this is the first place I’ve seen it.

    I have been coming to a bit of an epiphany of late but I am searching for more confirmations to really see that we are moving in that direction. It has to do with the “inflation ex-inflation” debate that has been surfacing and has cropped up on this board. This is my take on what might be happening at the fed and in the federal government. The question is whether this is conscious or subconscious on their part.

    What I’m seeing with all this ex-ing out of items that affect the government inflation measures is effectively the government moving from a managed system back to a free market system.

    Because we have been so conditioned by the fed to expect them to adjust money rates up or down this is coming as a shock to us but if they are now removing items from the inflation basket are they not saying that they would rather have the free market price those items?

    If they no longer are willing to move the rates up and down for housing or fuel, etc. then, in time, the free market will price those things again at fair market value as long as it has the understanding that the Fed won’t be jimmying the rates every time things get too expensive or too cheap. What do you think?

    This to me is a great opportunity for the free market and ultimately what I have been hoping for since I first learned about the fed. I would better have liked to abolish them all together but if they are going to move to a less market oriented role and leaving that job to traders I am all for that. I guess the real question is if they are willing to ignore prices on the rise will they do the same when prices are falling? There is the real test.

    If so the question then is what will be the Fed’s role? Will it just be to protect the value of the US dollar?

  12. DavidB says:

    How anyone could possibly think that they have a better handle on all of the data, economic expertise, financial savvy etc then a team of folks who do this as a full time job is just ludicrous. I am talking about plain old amatuer stock traders like myself as well as professionals, and certainly also include members of congress.

    Most of the people who think the Fed isn’t doing a good job think Mr. Market, not a different person, can do a better job of handling the interest rates than helicopter Ben.

  13. speedlet says:

    advsys –

    If anything, the still-nascent energy bubble seems further along than the precious metals bubble.

    Witness the “story stocks” that have been sprouting up all over the place — solar energy plays, Canadian oil sands plays, uranium plays, ethanol. The stocks of corn producers are jumping based on a tangential connection to the oil price. Tune in to Jim Cramer’s Mad Money and the callers have finally given up on JDSU — they all want to hear about Encana!

    My thesis (not a particularly original one, I’ll admit) is that we are currently re-living the ’70′s, when paper assets stagnated and hard assets outperformed. The ’70′s witnessed an energy bubble, followed in turn by a precious metals bubble. When the metals bubble crescendoed and collapsed in 1980, stocks were selling at single-digit multiples once more and a new bull market in equities began. I suspect we’re reliving the same cycle this time around.

    Toqueville’s John Hathaway observed a few years ago that Technology and Gold occupy two opposing ends of the sentiment spectrum — unbridled optimism and unbridled pessimism. We are currently moving slowly from one pole to the other. Then the cycle will begin again.

  14. whipsaw says:

    per DavidB:
    “What I’m seeing with all this ex-ing out of items that affect the government inflation measures is effectively the government moving from a managed system back to a free market system.”

    We see things thru different eyes, my friend. I consider the manipulation of metrics to be simply disingenuous Enron accounting. You could certainly conclude that they have just given up when a measurement is changed (which is what happened with GDP and unemployment), but I am not sure why you would equate that with an intention to abandon control. The last thing that an oligarchial corporate state would like to see is 8000 hedge funds determining short rates who simply follow each other around every day. You cannot maintain an empire with that kind of volatility.

    It’s easy to forget that the Fed exists mainly because the big bankers wanted it to exist and they are neither unhappy with it nor interested in losing the control that it provides. It’s also easy to forget that the short rate is only one small piece of the monetary picture- the most direct tool that the Fed has for tightening or loosening credit is the reserve requirements for member banks and you hardly ever hear anything about that. It’s also easy to forget that fiscal policy is more important over the longer term and ours is completely broken.

    The real power of short rates is in impacting USD and you can be pretty sure that it is going to be sacrificed as needed to maintain an illusion of prosperity. That’s what has been going on for a generation now and is what is about to gear up again. My guesstimate is that we get another bump the week after next, but then Pause! until after the elections which will tank the dollar. After that, who knows, but my current thinking is that rates reverse in January and take USD down with them.

  15. edhopper says:

    The thing about housing is that it will affect so many people that it will be a much larger hit to the economy than other assets.
    Most of the growth in the GDP in the last 4 years has been housing and Gov. spending. Both debt driven.
    In reality we have been in or near recession and borrowed to stay afloat.
    While investors may find another bubbling asset class to buy into, the average consumer will find himself in a house which is worth less than he owes, unfordable gas and a bleak job outlook.
    I do not think another asset bubble will save the economy this time.

  16. Mr. Bubbles says:

    “The next week could reveal a lot, IMO. As I wrote in a previous comment, many indicies/sectors are very close to running into resistance levels and/or trendlines, yet are setting up some short term positive divergences.”

    Adding to this overhead resistance is the seasonal factors that are also at play. There is significant historical weakness in the first trading day and in the first 1-2 weeks of August. Can the Bulls pull the markets through it? This will be an interesting week to watch.

  17. HT says:

    Weekend nugget to ponder for all the “it’s just like ’87, or ’73 or heads and shoulders or double bottoms” crowd et al.:

    “History does not repeat its self, it rhymes”

    M Twain

  18. S says:

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    http://video.google.com/videoplay?docid=4980626658551413306&q=Star+Spangled+Banner

  19. whipsaw says:

    per advsys:
    “For something like the last 15 of Greenspans fed meetings, he would tell us way in advance what he planned to do. (raise .25 for those who have been asleep for a while) Yet each time, there was pundit after pundit who would get on CNBC or write a column that would attempt to guess at when he would change policies and why etc.”

    This is the most worthwhile portion of your rant, mainly because it reflects on the Cult of Personality that the financial media constructed in order to get people to watch.

    The remainder seems dangerously naive to me. Do you really think that because these bureaucrats have the time and resources to stare at a lot of data, they are wise or necessarily acting in the collective best interest? Most of the people who post here are rather sophisticated investors and can offer reasonably articulate opinions about monetary policy, agree with them or not. The notion that we should blindly trust in the Great Brains of Economics and Finance sounds like the background for the failure of LTCM.

    Beyond that, the Fed is a public body expending public resources and anyone is fully entitled to critique what they do whether they know what they are talking about or not (otherwise Members of Congress would have to fall silent before most others). Given the political dynamics and economic consequences, trusting these guys “to do the right thing” flies in the face of risk management.

  20. whipsaw says:

    per LB:
    “Beware the soon Double Bottom on the DOW.”

    Thanks for the heads up. And now what should we do about the double tops in $SPX and $RUT? :)

    ~

    BR: speaking of double tops, look at the Dow Trannies . . .

  21. DavidB says:

    whipsaw:

    you said:

    We see things thru different eyes, my friend. I consider the manipulation of metrics to be simply disingenuous Enron accounting. You could certainly conclude that they have just given up when a measurement is changed (which is what happened with GDP and unemployment), but I am not sure why you would equate that with an intention to abandon control.

    I did add the caveat that it may be conscious or subconscious. If it is conscious it could be a move by those who believe in the free market exerting a somewhat silent coup in the halls of economic power. If it is subconscious then maybe all our free market ranting on the web is making sense in the back of their brains and they are backing themselves into that corner with Adam Smith’s invisible hand pushing them there.

    I agree with you about their covert ability to play with the reserves and they may just be taking everything behind the curtain where they can manipulate to a greater degree without them telling us. They did stop reporting MZM recently so that is another possibility but HAVE FAITH. The Austrians may have performed a coup and twenty years down the road they’ll get the courage to tell us about it when they have consolidated power. (;

  22. whipsaw says:

    per DavidB:
    If it is subconscious then maybe all our free market ranting on the web is making sense in the back of their brains and they are backing themselves into that corner with Adam Smith’s invisible hand pushing them there.

    If ranting on the web made any difference, there would be people hanging from lamp posts in DC. I think that we are going to have to agree to disagree about invisible hands.

    I agree with you about their covert ability to play with the reserves and they may just be taking everything behind the curtain where they can manipulate to a greater degree without them telling us. They did stop reporting MZM recently so that is another possibility but HAVE FAITH. The Austrians may have performed a coup and twenty years down the road they’ll get the courage to tell us about it when they have consolidated power. (;

    Being more of a Keynesian myself, again we will have to agree to disagree. I’d say that there is more chance of followers of Mao announcing a power consolidation in 20 years. But in the interim, you might enjoy reading this.

  23. FliteTime says:

    Hey Whipsaw,

    “And now what should we do about the double tops in $SPX and $RUT? :)”

    Question: I’ve been wondering about the $SPX. To my still-untrained eye, it kinda looks like an inverse Head & Shoulders starting May 16. Are there rules that say the shoulders can’t be broken into short rallies like they are? The neck is sliced, but the volume is not there, so maybe it means nothing? Haven’t your double-tops become broken, too?

    I’m still bearish, overall. I just think people are jumping the gun these days. Look at the Tel Aviv market when rumors came out that Israel might back-off almost two weeks ago. As the Israeli government was going on TV stating (to paraphrase), “Huh? We don’t have our soldiers back, so we’re not stopping! What ‘you been smokin?” And the TASE-100 (or $TA100, since we use StockCharts.com around here) is already moving back on its 3-month down-tend.

    It seems everyone is trying to outmanoeuvre everyone else. My guess is it’s the Hedge Funds trying to get there first. How else do you explain when the pre-bell news says “GDP Lower, Economy Going Down Toilet” and the traders scream, “BUY! BUY! BUY!” out of the gate?

    If it all just didn’t make sense, I might actually turn Bullish. Speaking of which, where’s that ss-guy?

  24. whipsaw says:

    per FliteTime:
    Hey Whipsaw,

    “And now what should we do about the double tops in $SPX and $RUT? :)”

    Question: I’ve been wondering about the $SPX. To my still-untrained eye, it kinda looks like an inverse Head & Shoulders starting May 16. Are there rules that say the shoulders can’t be broken into short rallies like they are? The neck is sliced, but the volume is not there, so maybe it means nothing? Haven’t your double-tops become broken, too?

    I was being sarcastic. This is a crazy market dominated by untalented hedge fund managers who will go either way from one day to the other in a herd. Daily TA & Sentiment analysis means almost nothing and fundamentals mean less then nothing.

    IMO, Mr. Stagflation is already here… he’s that guy over in the corner drinking up your whisky that nobody seems to recall inviting. But the invited guests continue to rattle on about their kids and vacations while he just looks on. Pretty soon, he’s gonna stand up, pull a Remington riot gun out from under his unseasonal topcoat and bark “On the floor or die!”

    After holding everybody hostage for a year, he’ll be found dead by the hostages with a she python named Ms. Deflation around his neck who has just watched her offspring hatch out and head into the walls of the fortress, Chilling adventures are forthcoming.

  25. jm says:

    Can anyone provide a bit more clarity on yesterday’s post from Barry (GDP: 2.5%):

    “The Fed is now likely to do something very different on August 8th compared with their prior actions: They are now likely to either hold rates steady – or raise ¼ but change the statement significantly. Either way, this tightening cycle is now entering a different phase.

    Maybe it finally is the 8th inning. ”

    The way I see it, growth is slowing more than expected and inflation is up sharply. The logic out there seems to be that the Fed will favor growth and not fight inflation. Sound about right?

  26. Does anyone besides me feel that the market is behaving right now in a perfectly rational way- exactly as it should considering:

    (1) that it’s been fed about twelve years or so worth of liquity in a period of about half that duration;

    (2) that we are more or less just past the midpoint and the now the valve is shut off for the second half;

    And then I think that global instability, an overextended military presence all over the world, sky high energy prices, and all that are pretty easy to handle at a collective level when the money’s flowing. But for Part II, when the liquidity is expended, all that is going to be more difficult.

    Luckily I have some new good porn on my site that will help you cope.

  27. Larry Nusbaum, Scottsdale says:

    Everyone calling for the “bubble to burst” in real estate (5 years now), energy (2 years now), precious metals (7 months now) and REITS has me convinced that that’s the sole reason they have not.
    Of course, in precious metals, gold & silver, they haven’t gone up all that much.
    And, in real estate, the commercial market is so stinkin’ strong that vacancy rates are in free-fall. From strip centers to apartment buildings, landlords are driving the bus.

  28. retired says:

    How focused on the fed are we. And, there is not real agreement on what the mkt will do if we pause or not. The next big event is usually what is disproprationately not discussed. What captures my attention is the ease of war and terror, so many true believers ready to die or have others die, the crumbling foundations of the odd relationship between washington and the oil rich royalty, the persistence of emerging mkt growth vs the fear that liquidity is drying up, and the big wave of retirees coming down the pike. That, I think, being a little egocentric,is the big story ahead. Every financial advisor is shoving their retired, but relatively young, into equity rich “diversifed” (yeah sure) portfolios. No more monthly contributions and on the way down, distributions. The next cleanout is going to cause a lot of pain and there is going to be less powder to restart the mkts. Currency investments I think is something i’m going to need to know more about. So many moving parts and those secretive hands of power just make it seem impossible to understand and predict. I’ll be damm if I know who is running this country. CNN just reminded us all that Cap Weinberger gave Hesballah a pass when Regan mistakenly thought that he had ordered them hit in retaliation for killing 250 marines.

  29. whipsaw says:

    erm, Larry, go read read this through, then go reconsider your perception vs. reality issue. As for “strip centers to apartment buildings” I think what you mean is that is that you can get pony rides, hot dogs. and henna tatoos for the kids if you will just look.

  30. tyoung says:

    one way stox
    anybody read any good books lately?
    i just finished “No country for old men” by Cormac McCarthy
    Highly Recommended

  31. Insurance Guy says:

    I have a question for the Board. I imagine some of Friday’s (and all of last week’s) rally had something to do with certain money managers wanting to boost month end performance. Firstof all, any thoughts on that? second, any way to try and track what funds might have been more active than others? Any thoughts would be appreciated.

  32. Alaskan Pete says:

    I think Whipsaw nails it: stagflation now, deflation tomorrow once the demand destruction works through the system. It has been said a zillion times, but without strong wage increases, it’s hard to see a sustained inflationary spiral. The housing bubble MEW has substituted for the upward wage pressure thus far, but that well is about to run dry. For me the wage factor is the single biggest difference between today and the 70s.

  33. whipsaw says:

    per retired:
    Currency investments I think is something i’m going to need to know more about. So many moving parts and those secretive hands of power just make it seem impossible to understand and predict. I’ll be damm if I know who is running this country.

    If you can figure out currencies, you’ve found the holy grail because that’s what everything else bounces off of. I’ve been at it for nearly a couple of years and that market is so heavily manipulated (even compared to oil and gold) that you are pretty much reduced to red/black on a daily or weekly basis.

    The only thing that I know for sure is that there is an 82% inverse correlation between USD and $SPX, so anything that is good for stocks is generally bad for the dollar which should tell you a lot about how screwed up the markets are. I run a small hedge in spot currency via oanda.com and would recommend them simply because they are honest and have good spreads if you want to get into currency trading. But then again you will be using leverage no matter what and I personally don’t care for that.

  34. Alaskan Pete says:

    InsGuy: Sure, I think it’s commonly accepted that end of month and/or end of quarter markup is a regular occurence.

    tyoung: “Think on these Things”, by J. Krishnamurti (re-read for about the 5th time).

    And with that, I bid you adieu. Off to watch “The Deerhunter” at my lady’s place. Of course maybe she swindled me again and when I get there she’ll have rented some cutesy chick flick. The ol bait n switch.

    Enjoy the weekend ya’ll, I know I am (easy when it’s partly cloudy with a high about 70)

  35. FliteTime says:

    Whipsaw,

    Thanks for the info. And I didn’t recognize the sarcasm through the tone in your font.

    So, what’s the strategy for stagflation then deflation? Trade the volatility and stay happy, go to bonds, become a landlord, hoard gold, or just hoard canned food & ammo and hole-up in your house?

    I was thinking of looking back to the Great Carter Days for reference. But Alaskan Pete has already thrown a curve by suggesting the different wage-factor. So, what’s an Apprenticed Investor to do?

    As for books & reading, I just got “Ahead of the Curve” by Joseph Ellis for my birthday. I’m about 1/3 through. It gets kinda slow at parts, but he updates his charts for free online:

    http://www.aheadofthecurve-thebook.com/

  36. retired says:

    WHIPSAW: Is there a mutual fund, close ended fund, or etf that you would recommend for exposure to multiple currencies. I am not going to do something like this directly by myself. Appreciate your inverse correlation statistic, a major reason for exposure.

  37. brion says:

    “IMO, Mr. Stagflation is already here… he’s that guy over in the corner drinking up your whisky that nobody seems to recall inviting….”

    Dude, that is the single best post i’ve ever seen here…lol

  38. whipsaw says:

    per Alaskan Pete:
    I think Whipsaw nails it: stagflation now, deflation tomorrow once the demand destruction works through the system.

    I truly hope that I am wrong about all of this because the consequences will be astonishing and will not just take out the bulls, but everybody to one degree or another. The underlying problem has almost nothing to do with interest rates, it is all about fiscal policy and a bankrupt state, same as in the 60-70′s transition that resulted in the U.S. Bretton-Woods default.

    But I have come to the conclusion that since the bond markets are run by adults as Barry has mentioned, the best way to invest is to either long or short the bond etf’s instead of messing around with the other stuff. Once my SPY puts hatch out, I’ll be going that way and just laugh when the equity market does some crazy back flip.

  39. brion says:

    “Luckily I have some new good porn on my site that will help you cope.”

    Sherman, that was gonna be my vote for next asset class…..ass.

  40. FliteTime says:

    Speaking of bonds, and since I see you guys like PIMpCO, did you catch Bill Gross’ latest release? He sees a bond rally soon, perhaps the last one before we do the 20 year cycle back to the inflation of the ’80s. With all due respect, just seeing his pic and listening to him speak makes Bill Gross look & sound nerdy-enough, smart-enough, and humble-enough to have MUCH credibility. Then again, I was already bearish…

    http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2006/IO+August+2006.htm

  41. Don Bynum says:

    Book Review
    The Philosopher Kings Of Hedging
    Robert Lenzner, 07.29.06, 12:35 PM ET

    Steven Drobny’s inside look at hedge funds couldn’t come at a more appropriate time. Everyone should know what makes these private investment partnerships tick, where they are putting their gobs of money and how they see the markets going forward. Hedge funds, after all, are believed to account for up to half of all stock trading and are the controversial focus of a debate and legal fracas over their regulation.

    Drobny’s Inside The House of Money ($30, John Wiley & Sons, 2006) sheds more light than ever on the minds behind the largest global macro hedge funds, those giant pools of money that see the whole world as their oyster (unless they’ve gone short on shellfish). They make big bets on crude oil, Eurodollars, gold, Japanese bonds, Brazilian soybeans, sugar, cotton, you name it–investments that most ordinary investors would likely avoid.

    Drobny humanizes his hedge fund operators, showing them as global thinkers out to exploit any opportunity in inefficient markets, but not as a force out to destroy the financial system. It is a welcome relief from the harping of a skeptical crowd of onlookers who seem to see the forces of darkness lurking behind every one of these partnerships.

    The book reveals the intricacies of thinking like a hedge fund manager. Marko Dimitrijevic of Miami’s Everest Capital liked Argentinean banks, went short with Japanese government bonds when they were yielding only 0.45% (very clever, because interest rates were bound to rise and depress the bonds) and was also playing the markets in Cyprus, Mongolia and Uruguay. He also recommended YUM Brands, owner of Kentucky Fried Chicken and Pizza Hut, as the best American stock to play the growth in China.

    There’s some brilliant common sense here, valuable to us mere mortals. Dr. John Porter of Barclay’s Capital believes that momentum trading is the flavor of the month and that “people who are indexed are going to get killed.” Porter anticipated the knee-jerk response of the U.S. Federal Reserve to loosen money when tech stocks sold off in 2000. He loaded up on two-year Treasuries at 6.75%, which was a bet that interest rates were headed down and the value of the notes were headed up. It was a highly profitable play when the cost of money dropped to 1%.

    Drobny also shows how managers have learned from past hedge fund failures. Peter Thiel of Clarium Capital in San Francisco refuses to become the next Long Term Capital Management. He places stop-loss orders on every trade– a very tough discipline–but one that limits disastrous losses.

    One shortcoming of the book is that since hedge fund operators are so nimble, they may well be long out of the positions they revealed to Drobny in 2005. That’s the nature of hedge funds; they don’t have investment committees and can dump a position in five minutes and get back in it the next day. What’s compelling among these money managers is their intensity in educating themselves about nations and bottom-up individual investment opportunities.

    Many years ago, Dwight Anderson, then with Tiger Management, now with Ospraie Management in New York, explored palladium mines in Siberia to ascertain the true world shortage of that precious metal. Tiger made a killing when Palladium soared from $120 an ounce to more than $1,000 an ounce.

    An underlying theme of the work is that macro traders “thrive on dislocation and economic upsets. Macro traders always do better when the world economy is tanking,” says one of the managers. So, unlike the proverbial market optimists, macro operators like disasters such as currency crises or political upheaval, because they produce the panic selling and market bottoms that provide the biggest upsides.

    Running through these interviews is an uneasy sense that we’re on the cusp of dangerous times. Scott Bessent of Bessent Capital says, “At some point we will have had The Big One. It’s out there. I don’t know if it’s a financial asset depression or a real depression.”

    Dr. Sushil Wadhwani, of Wadhwani Asset Management in London, says, “What you’ve got now is huge asset-market distortions, and one of these days, the chickens will come home to roost, and when they do, there’ll be huge opportunity.”

    So, for the wealthy investors in hedge funds, these are prospective opportunities. For the ordinary investors, these are warning signals to be prudent and protect your assets.

    Want to buy The House of Money at a Forbes.com members’ discount? Click here.

  42. Previously breathtakingly unthinkable increases in the rate of accumulation and the amount of consumer credit, mortgage credit, corporate debt, government borrowing, all debt and credit, here and around the world, all have spurred the up-thrust of prices by devaluing the dollar in direct inverse proportion to the increase of all this credit-money. It is the cause of all of the nominal price increases in the global markets for stocks, bonds, commodities and strategic resources.

    I anticipate the prospect of the coming correction to be global due to the ubiquitous world-wide presence of ever more debtors who are sub-prime or marginal. In many systems, e.g., knitted sleeves, gasket failures and economic panics, the unraveling failure begins when the growth of weakness at the margins overwhelms a relatively small critical mass.

    The unprecedented rate of expansion of global credit is being reduced as central bankers jaw bone the markets and raise money rates closer to the real rate of inflation. Whether by central bankers or by an implosive reversion, the shrinking will continue — both the rate of growth and eventually of the money supply itself. As such, all speculative pricing will fall as the propping-supply and velocity of money are reduced.

    It’s as unlikely as it is politically infeasible to prevent a crash from unfolding over the next ten years. The debt bubble may burst or steadily deflate, but as it shrinks so will the globally inflated, speculative and easy-money-driven pricing of all assets, not simply housing or stock prices. All markets’ price movements have been highly correlated one to another for the past several years. The historic counter cyclical impulses that had made allocation between classes and types of assets a predictable insulator no longer exists. Stocks, US and international, micro, mid cap or Dow, all have moved up, down and sideways in high conformity with gold, silver, and bonds since the bounce from the 2003 lows.
    The serial popping of regional debt bubbles began in the 1970s and1980s in the US (of all places) by indebting the treasury to bail out bad credit decisions by a handful of well connected bankers who enriched themselves on loan fees and refinancing agreements as they gave away credit for the FED via corrupt development or mutual aid agreements (weapon sales) made possible by issuing credit to frequently undemocratic and murderous tyrants around the globe and to criminally negligent S&L thieves (some might include the current president’s brothers in this group.) It continued throughout the 1990s: Japan in 1990, Mexico in 1995, Thailand in 1997 (and Australia, Canada, New Zealand, Chile and Mexico, again), Russia in1998, and lastly the US again in 2000’s tech bubble deflation. These predictable, rolling economic blackouts destroyed $10 trillion of net worth.
    We are now in the third act of the play, where in the main character, the dollar is center stage with its strength (omnipresence) and weakness (its incompetent stewards saying, “Deficits don’t matter.”) starkly revealed under the harsh lights of speculators and hedge funds
    The bull market that began in 1982 ended with the market top in January 2000. The rally from August 2002 until May 10, 2006 was the first counter-trend rally in the bear market that began with Y2K.
    I recommend preparing now for the trend that is already unfolding: no growth, recession and depression. All the fundamentals are eroding any support, insulation, or cushion. Many technical indicators are flashing yellow, some are solid red.
    The brakes are being applied now. It has begun in earnest now.

    Refuse to follow the magician’s slight-of-hand or the con man’s patented misdirection. CPI measures a rigged inflation number that doesn’t include things everyone spends money on every day. Can somebody here please say, “The Administration’s economist has no clothes?”

    Central bankers are growing powerless by the many negative consequences of any policy they choose. How can they cool inflation that destroys the value of currency when raising interest rates will destroy the net worth of leveraged assets? To encourage export employment, the economy demands low rates and cheaper dollars. This however, fans inflation by making cheap imports more expensive and is compounded as the supply of money grows faster than the supply of things to purchase. Easy liquidity from low interest rates is the only temporary support for protecting the values of homes and securities, but this too pumps more credit into an over saturated system and runs headlong against the need to raise interest rates to attract investors to refund bonds that are the reserves that back the currencies that are losing their purchasing power on the secondary market.

    In the end , all price fixing schemes unravel.

    are forced to continue to raise fiat currency benchmark rates (to) marginal debtors with floating rate loans will be forced to sell shares to service debt.

    Later in the cycle, some of these debtors will default. Keep in mind the quadrupling of adjustable loans as a percentage of total loan volume over the past few years, and that most foreclosures occur in years three through five of loan servicing. There will follow a cascading reduction of housing prices as REO assets are auctioned to restore capital reserve ratios of banks with troubled loan portfolios (not all loans reside in the secondary market). This possibility has been foreshadowed by the Japanese experience of the past 16 years. Don’t count on 40 and 50 year mortgages to restructure much of this debt when collateral asset prices fall below defaulted loan balances.

    This is a very simplified explanation. It does not include the concomitant effects of a FED (and other central bankers’) policy that will add liquidity to avoid deflation, protectionism to support domestic markets, and the further reduction in consumers’ confidence that may precede additional declines in spending that will further reduce production and incomes, as there is no current savings to cushion the fall. After nearly 100 years of inflating the dollar surely a decade or two or more of “wringing out” the excess greenbacks is assured.

    I think the gold market is reflecting this more than the explanations of uncertainty over Iran or uninformed speculation.

    Any thoughts on flaws in this scenario?

  43. whipsaw says:

    1. I got my undergraduate degree in finance in 1974 and my law degree in 1977, so I ducked a lot of the stagflation era and don’t have any useful suggestions for how to deal with it except hope that your parents have a lot of money. :) Deflation is best dealt with by bonds bought early I think.
    2. The first option vs. USD is FXE but only if you are betting on the Euro. There are mutual funds that are either pro or anti USD baskets and some are leveraged 2:1 and there are probably some other etf’s available.

  44. juan says:

    To speak of abandoning control assumes control was there to be abandoned, i.e. assumes what needs to be demonstrated.

    I have little doubt that countercyclic fiscal and monetary policies have transitioned from being hardly required (the long post WWII boom) to a form of permanent crisis management following upon the ending of that boom (late 1960s-early 1970s) and beginning of what’s been a contractionary long wave phase of multi-decade duration.

    I equally have little doubt that this form of crisis management has become progressively less effective:
    as indirect subsidy to capital, they have supported industry even while undermining it; as debt based policies, they have assisted in bringing about what – in 1973 – O’Connor termed ‘the fiscal crisis of the state’; as national, they have been impacted by the process of economic globalization (capital is global, national states are not and cannot be — the requirements of each side can conflict, be contradictory).

    Some of beliefs in ‘control’ came about as part of the lobbying effort which helped bring the Fed into existence but, moreso, as consequence of the post WWII long wave expansionary phase with its generally mild and short recessions, i.e. causality was assigned to policies rather than the larger economic picture. This was particularly prevalent during part of the 1960s as beliefs in a new ‘cycle free’ capitalism gained adherents.

    Really long and much more involved story short, the business cycle is not a function of State policies, which are themselves reactions to both the cycle and that which it is part of, long waves in the rate of profit (not earnings).

    Does this mean that the so called free market has not been modified? No, only that such market has had more to do with theory/ideology than reality, though it is possible to speak of a more freely competitive capitalism than the more highly concentrated and centralized form that came into existence during the latter half of the 19th century. Perhaps this latest phase of globalization has, to a degree, recreated the earlier form though at a different level, and this is perceived as ‘the return’ of the ‘free market’, or perhaps this has more to do with the ‘free market’ rhetoric of neoliberal, ‘There Is No Alternative’, policies of the last 25-30 yrs, or both.

  45. FliteTime says:

    I was born in 1974, Chinese year of the Tiger, US year of the Bear… but maybe you didn’t really want to know that.

    I got my Aerospace Engineering degree in 2000, been laid-off 4 or 5 times since then (in 6 years!!!). But I’ve found that going contract gives me a few bucks to sock away for the “airplanes bad!” days.

    I’ve only really been able to get serious about investing during the past 2 years, and have been soaking up information left & right to see if I can rise above the herd. That’s why I like this blog.

    As for the USD, listening to currency talk has made my head spin. All I find is nonstop daily technicals. Are there fundamentals to look at somewhere? I was just getting into a routine on establishing fundamentals for US stocks when, as you said, it seems fundamentals just don’t seem to matter anymore. Is that a red flag, or what? Since then, I’ve been putting value on hold for trendspotting & line-drawing.

    By the way, the volatility of aerospace jobs is wearing thin on my sanity and my family. I’ve been considering a career change… possibly into finance. Anyone wanna smack me back to reality before I do something stupid?

  46. whipsaw says:

    per David Sternfeld:
    Any thoughts on flaws in this scenario?

    mon partenaire, I appreciate the depth of the thought, passion, and angst that went into your post. And I agree with most of it, but you overlooked the part where Problem=Problem Solved because we’ll just start another war which is pretty much the entire basis of crony capitalism.

    Of course that only works if you win without any substantial damage to the homeland, don’t have to borrow heavily to finance the adventure, and can convince John Q. Sucker that the loss of life was noble. Points 2 & 3 are where Vietnam went off of the rails and where Iraq is off of the rails. But that doesn’t mean that we won’t be treated to another policy decision or two that are intended to pump up the economy with blood. In fact I fully expect it.

  47. FliteTime says:

    “But that doesn’t mean that we won’t be treated to another policy decision or two that are intended to pump up the economy with blood. In fact I fully expect it.”–whipsaw

    Are you saying you think we’ll go invade someone else, now? Or is the ‘blood’ your talking about referring to deficit spending/borrowing/whatever?

  48. Mano says:

    How anyone could possibly think that they have a better handle on all of the data, economic expertise, financial savvy etc then a team of folks who do this as a full time job is just ludicrous. I am talking about plain old amatuer stock traders like myself as well as professionals, and certainly also include members of congress.

    Agree completely !!!
    Former theor. physicist, banker, trader

  49. Mark says:

    I’ve just finished Bill Gross’ piece. As always, well written and thought provoking.

    I believe the best part is his “hidden message” at the end, not his defense of the firm’s research and thesis that rates have peaked and a bond bull is ready to begin. In it he posits that the bond bull will be very short-lived and the bear will return quickly as the US is FINALLY forced to deal with the overhang of long term structural issues in its social programs, persistent inflation, etc:

    “The important idea is that such a forecast speaks to eventual reflation, inflation, and declining bond prices sometime out there in 2009 and far beyond as the U.S. seeks to address its enormous future liabilities concentrated in social security, healthcare, and foreign holdings of U.S. bonds. But that is a story for next month’s Outlook – I promise, I’ve already written it.”

    I will be looking forward to THAT piece. In the meantime, the suggested course of monetary easing is reminiscent of the Harry Dent book that says asset prices will be reflated to the moon and a deflationary bust willl begin in —–2009.

  50. Leisa says:

    FliteTime–Regarding your career. I can see how your job situation is tinkering with your sanity. I would suggest your undertaking some gritty analysis. Look at your personal asset inventory: interpersonal skills, quantitative skills, work ethic, satisfaction with your career choice, etc. There appears to be a gap worth exploring: you are not having trouble getting jobs, but rather retaining them. You may wish to explore that gap with a trusted friend/mentor. Unfortunately, there is a food chain in corporate America. This analysis might give you some boost in that chain.

    As Joseph Campbells stated so welll: Follow your bliss and the money will come. The corollary to that is that if it doesn’t come, then you’ll not care so much so long as you are not hungry and shivering! Good luck!

  51. Jrs says:

    OK – So my prediction on CLASS ACTION follows any bubble. With the dot.com bust and other class action driven activities due to equity reporting and advice over the previous five years, my prediction is the real estate companies and mortgage groups will be in for five years of court dates and settlements. This is due to the real estate bubble and when it goes ‘kaboom’ people will turn to tort action to seek recovery and in the end it will be only be a small recovery – if any. I believe the legal positioning will be on bad advice, pressure to buy/sell as well as misleading forward placed information. To me, the type of court action is a lagging indication of asset class devaluation with a somewhat concurrent when the class action law suites hit the late night TV. So a little fun “Did you pay too much for your house, no longer living in that water front house, did the bank take over your house – Call us at Y,Z, S Law Firm.”

  52. RW says:

    retired,
    Per your question on currency-based financial products, the new partnership between Deutsche Bank and PowerShares to develop and deliver commodity and currency ETFs should be worth watching. Among other products, a currency ETF that goes long the highest yielding currencies and shorts the lowest yielding currencies seems closest to what you may be looking for (assuming I understood that). The last time I looked it was still somewhere in the process of development/registration but the symbol was scheduled to be DBV; don’t know if the symbol will change as a result of the PowerShares relationship or not.

  53. Insurance Guy says:

    Jrs,

    Couldn’t agree more.

  54. Alex says:

    I am not ready to post too much of an opinion yet.

    That being said……

    Every one who posts here has something to say, but most do not mention anything about time. A market is going up or down, when and for how long? It is like the statement that a stopped clock (the one’s with hands and kitty kat eyes that go back and forth) is right twice a day. Without a statement of time or markers of significence, in regards to buying or selling, what do we have? It is really easy to make a trillion dollars… it’s living for the first 300 years that is hard.

    Currently I like the oil drillers which seem to be undervalued relative to the orders that are coming at them and are likely to continue to be thrown at them. Even if some really great tech came up for energy supply it is likely that it will not be disseminated too quickly. Of course watching that area go down recently has not been much fun but as it has been said: In the short term markets tend to be beauty contests and in the long term, it’s a scale. I really do not care which one I am betting on, as much as I understand which one I am betting on and have a plan for circumstances that might occour in either time frame. Days and weeks versus months or years. Room for both.

    Some how I think having some aspects of gold and stuff that is going to be used no matter what, is a good idea. Maybe some far out of the money leaps On gold? Both Puts and calls. (Read “Fooled by Randomness” by Taleeb to get the idea of what I am thinking about. A great book)

    I also noticed on a more immeadiate level (lets say 2/3 months) the sectors I am interested are tending to be outside the USA.

    Hey Barry I do not have the Ned Davis book of charts but if you are interested in the Wall ST. Waltz by Fisher I might be able to get it to you.

  55. BDG123 says:

    GEEZ! The bears are out in force. I can visualize it. It is so clear to me. It is a foregone conclusion. Well, that’s usually when you are wrong cause much of it has likely passed. You need to put up a poll and use it as a contrary indicator for investments. Does anyone have a Ginsu? I’m going to slit my wrists.

    How about this for a dumbass idea. I don’t think it isn’t there yet but I’m seeing a reason to start thinking about buying homebuilders. If I were an aggressive money manager, I would have bought home builders last week with some tight stops. Not for a big ole move to new highs but for a reflex trade. Maybe 20-30%?

  56. Confused says:

    This might be one of the hardest medium term junctures I have ever seen. On one hand we have a slowing economy with a deflating housing bubble. On the other hand we have 20 billion dollars coming into the market via the MSFT offering, 22 billion via HCA and another 20 billion via Kerr Mcgee. To put that in perspective, during the tech bubble we had mutual fund inflows of about 20 billion a month. However, back then we had IPO’s and secondaries to soak up all that money.
    In the long run fundamentals will trump liquidity but the next few months are very hard to call.
    In the next week we might have a good short term shorting opportunity. Most of the excess pessimism has been wiped out of the market and the MSFT money will not hit the market until mid August. Generally, the first day of the month is seasonally strong. I am hoping for the rally to carry to Tuesday so I can unleash some shorts on this market.

  57. whipsaw says:

    I didn’t offer a very good response about vehicles for currency exposure- there are several Rydex ETFs that are single currency as well as the Profunds rising and falling dollar mutual funds. The problem I see with the Rydex stuff is that it’s still low volume and you are not using a basket of currencies like that used to track $USD (unless you buy into serveral of the etf’s). The Profunds stuff does use a basket, but I don’t like mutual funds for various reasons.

    So at least until an etf comes along that uses the $USD basket and has some decent volume, I think I’ll just continue to dabble in spot forex at oanda.com and maintain my own basket. Without appearing to pimp for them, I would add that anyone can open a game account there and practice getting smacked around some- they offer proxy trading for gold and silver as well which is interesting and was pretty profitable for me in 4 out of 5 trades. Of course the 5th one vacuumed up half of the profit I made on the other 4, but that’s just part of speculating.

  58. teraflop says:

    Patterns for recognizing entry to a “doomsday” regime:

    The IMF recently completed a report on the USA:
    http://www.imf.org/external/np/sec/pn/2006/pn0682.htm
    If you lack time to read it, scroll down to the last paragraph.

    Similarly, the stoked fires that we see as being coincident: North Korea vs. everyone, India vs. Pakistan, Iran vs. the West, Israel vs. Islam, Turkey vs. Kurds, etc seem to feed on themselves. Long-running issues that bubbled beneath a crust of civility and conferences are exploding. Even when we thought Cyprus was no longer a topic, it recently re-arose as ex-Lebanon refugees were transported there.

    The IMF may be considered a cassandra, as this posting. But the unwinding of incumbent structures is what we’re on the cusp of seeing. Pulling back from the precipice calls for leadership, something that Greenspan noted that Congress was capable of (http://www.federalreserve.gov/boarddocs/hh/2004/february/testimony.htm) and has previously demonstrated, that America’s ability to rise to the occasion to solve intractable problems (Current Account deficit, spending, etc) is what people buy, it’s our “dark matter.” However, where is the dark matter in the Middle East? What leadership THERE will rise to the occasion?

    The Fed is on inflation watch (my own analysis, here: http://trade.homedns.org:6999/trade/FOMCMinutes06282006.html) but are they really watching inflation’s effects on the common man? I recently coined an Index reflecting anecdotal evidence of gas prices’ effects on the working class/poor. I noted a near 4:1 ratio of drivers (non-commercial) with car windows open in working class/poor areas versus wealthy areas (this during a sweltering day mid-July with temperature in the 90s and humidity high after a heavy rain). Wal-Mart’s paycheck cycle is an indicator of recessionary effects (http://www.usatoday.com/money/industries/retail/2005-09-07-walmart-holiday-pricing_x.htm) but what I found most salient was the following quote (from http://www.freshplaza.com/2005/19dec/rn2_us_walmart.htm) “Wal-Mart’s shoppers, with an average income of about US$40,000, are particularly vulnerable to increases in fuel costs.” In my opinion, The Fed is missing the underbelly of this nation’s working class/poor, discounting their impact upon sectors. When I heard on Bloomberg recently that gas prices are irrelevant because they comprise “only 4% of CPI” he wasn’t speaking in terms of the impact upon disposable income of the working class/poor.

    Lack of leadership combined with the dominance of the concept that everyone deserves to “get even” with the past means we’re headed to more unwinding.

    Ok, here’s where I put my money:
    - GLD, I bought after the mid-May dip
    - QQQQ Puts
    - Speculative stocks with zero correlations to S&P (despite everything, some still believe in investing)

  59. Bob A says:

    Why isn’t anybody talking about the very real possibility that the neocons have already decided there will be a war to bring regime change in Iran, and what the effects on markets and economy might be.

  60. cm says:

    Leisa: Speculating further on FliteTime’s career (in aggregate terms), often enough in volatile industries retaining a job is a matter of Musical Chairs. Whenever the next 10% layoff comes, 10% of people will go out the door. That doesn’t mean those are all the troubled or the underperformers. The first 1-2 rounds the share of those will be high, then it will decline as the cuts progress closer to the bone. Sometimes perfectly legit projects get axed, and you will be out just because you happened to work on such a project. The choice may be not be the result of project merit, but which bigwig wins out in keeping their project/group.

  61. Alaskan Pete says:

    Bob A, it appears they (US neocon contingent) are currently pushing Israel to escalate the conflict to include Syria. If that happens, Iran has pledged support for Syria. There’s your most likely path to a world war and the excuse for the US to attack Iran. I don’t think after Iraq that the world will accept another pre-emptive adventure based on Iran’s nuclear activity. On the positive side, it appears Israel wants no part of this scheme as they are getting their asses handed to them (in comparison to the expected results) in the current “small” conflict.

    It pains me that we have a petulant child, stuck in a dry-drunk fratboy phase, “leading” our country. But arguing politics is a waste of time IMO. The american populace is too fat and lazy to get off their ass and do anything about it. They can’t even be bothered to protest, vote, or otherwise exercise our democratic freedoms.

    Our press is a laughingstock joke, who abdicated responsible journalism to get access and/or ratings. News has become 50% tabloid bullshit, and 50% stenography where they simply repeat the spin from both sides and fail to investigate separate the spin from the facts/truth.

    BDG: You may be right on the homebuilder play, but IMO it will be a violent, short lived, but tradeable rally fueled primarily by short covering. I hope you’re wrong because I’m still short HBs, but unless they gap up 20% the trade will be profitable.

    As the cliche goes: Trade what you see, not what you think/hope…

  62. jab says:

    Whipsaw – I agree with much you say above. Here is a question for you that I can not figure out. If inflation is higher than govt stats claim, if we are entering a period of stagflation, if the dollar will fall considerably then why is the 10 yr and 30 yr at 5%! What is up with the adults in the bond market? Are all other investment options so poor that a 5% US Treasury can look good? Are other countries just buying so the dollar does not fall – they are so into us they can’t stop now?

  63. Bob A says:

    Alaskan Pete, we are thinking pretty much along the same lines, though I might be more inclinced towards thinking the decision has already been made and events are being allowed/prodded to unfold in such a way to make it all seem accidental and unplanned. Time will tell. Something one should have a few thoughts about how it would affect one’s investments in any case I would say.

  64. Jack says:

    I’d also agree that we are destined to transition into a deflationary environment. Its widely considered that when a crisis occurs, pain is generally inflicted where it affects the most people. With the negative savings rates, and high debt, this just seems like simple logic to me.

    On a separate note, I have to say I am deeply saddened by our policies on the Mideast. I am afraid that the longer we stay on this path of no tolerance, the harder it will be to turn back, until its too late.

  65. BDG123 says:

    Pete,
    If you were in near the top, I surely wouldn’t worry about any reflex move in homebuilders. They are down 60% and a 20-30% rise will only be meaningless to your position. Moving in and out of your position makes no sense. We aren’t even close to a true bottom in home builders unless something miraculous happens. We have another year and a half by my projections. But, we are at diminishing returns in absolute dollar terms. Maybe not in percentage terms though.

    But, I am seeing signs of a wash out in the stocks. Many were up 15% in the last few weeks. This overall market rally is not a significant bottom and will fail soon enough from my work…………Unless they pull a rabbit out of their hat.

  66. S says:

    Confused:

    That’s just the tip of the iceberg. The LBO guys have raised over $100 billion of fresh capital in the past year or so. Lever it 4x-5x, and around half a trillion dollars in enterprise value will eventually be taken out of the global public markets.

    And virtually every cash flow postive company is buying back their own stock. Corporate buybacks in the first quarter occured at the staggering annualized rate of $587 billion. And that’s on top of the record amount spent in 2005, which I seem to recall exceeded $300 billion. No wonder EPS numbers are holding up so well. The share base is rapidly shrinking!

    http://www.dallasnews.com/sharedcontent/dws/bus/columnists/ddimartino/stories/062006dnbusdimartino.c90590.html

    I am beginning to wonder if all that cash going back to shareholders via corporate buybacks and LBOs will provide a floor for the market until the wildly optimistic analysts/strategiest finally lower estimates for 2H06 and ’07.

    BDG123:
    I like the homebuilders for a trade. I’ve been waiting for volume to pick up before committing. Most are trading near book, so not only is downside limited but natural buyers like the value guys are starting to nibble. And they are so heavily shorted that if Bill Gross is right and treasurys rally, I think the shorts in the builders will get nervous and start covering, creating additional buying pressure. The lack of volume has kept me away so far.

  67. Bob A says:

    Jim Roders on CNBC “Bernanke is a very nice professor”…”The government is lying about inflation”…”The fed should raise interest rates if anything”… “Everybody knows prices are higher on all kinds of things”

  68. ~ Nona says:

    Whipsaw – Thanks for your “Lights Out in Georgia” posting. I read it all the way to the end, as you recommended.

    I have two friends who switched careers within the past 20 months to “go into real estate”. The first made some sense (she’s married to a very good contractor) but the second is my canary: She reminds me of the (probably apocrphal) story of shoe-shine boy who gave the late Joe Kennedy a stock tip in late ’28.

  69. void says:

    Compared to many of you that sound like professionals, I am an amateur, though managing my own low seven figure portfolio. Having said that, here is what I am thinking – take it for what its worth.

    I think Friday was the first day in many weeks that bulls felt confident enough to step out. You can see that on this blog as well as the action of the market – no trepidation going into the weekend. Though it probably would not have turned many bears into bulls as yet. So, assuming this came off because of psychological factors and not fundamental factors, I think this portends further up moves ahead – hopefully slow back and fill moves. I think Japan will hit new 52 week highs. US not likely to though there are many beaten down techs that ought to go up another 15-20%,

    As Barry put it – strong opinions, weekly held…

    My 2 cents.

    Full disclosure: I sold a tiny bit on Friday but that is just to keep the psychological framework on even keel…

  70. Johnny V. says:

    Hi all, while I agree that there are massive problems out there I am going to do the contrary thing and predict what nobody on this board would expect…a meaningful stock rally over the next 6 months, starting tomorrow. I know, I know, all the data and arguments by the bears on debt, the dollar, housing, inflation, gold, etc. are incredibly persuasive and tempts one to run for the hills and stock up on ammunition. However, the more I look at things the more I think these are baked in and we will see a rally in equities over the next 6 months. Chances are the market will crash tomorrow based on this prediction, but what will you do if I’m right?

    Good luck out there.

  71. Steve Larrison says:

    For months, it has been “obvious” that the market would rally when the Fed finally pauses.

    The bull camp sees this as the start of a replay of 1995.

    The bear camp sees this as the final rally before a collapse.

    Both camps see upside after the August 8th Fed meeting.

    The market is currently overbought as it heads into a historically bad month. It just had one of it’s best weeks in a few years.

    Logic would dictate that the coming week will be down to work off some of the overbought condition, and to set the market up for a party on August 8th.

    But the market likes to defy logic and inflict pain on the most people possible.

    Which makes the following play the most likely scenario.

    Despite the overbought condition of the markets and the removal of end of the month window dressing, the markets continue to rally next week.

    After the Fed concludes it’s meeting on August 8th, the markets play the old game of “buy the rumor, sell the news” and sell off big time.

  72. alex says:

    just some ideas – it seems China reduced buying US bonds – they are moving more agressively into other currencies…pressure on interest rates are up…we are going into a mid term election and the DC crowds are scared because of increasing interest rates…China doesn’t like that we put (tto much) pressure on Iran because they invested big in oil fields there (after US told them basically everwhere else is US strategic interests and they should stay away). How much pressure can China put on US economy without undermining it’s own sub par currency? The “all soon done” sentiment by the feds could be undermined when the demand of US bonds goes down..or will Saudi Arabia jump in? Some interesting challenges are ahead of us in the near future. I bet someone in DC is messing it up…

  73. diva says:

    Johnny V
    You would be dead-on correct…… except for one glitch = the stupid Fed.
    That is a BIG glitch though.
    Stay very diversified.

    ….wishing you the best

  74. AlexM says:

    Hi I am the “Alex who posted a few days earlier. Not the one just above. Just to clarify.

    Two interesting things to read:

    An interview with an oil analyst/strategist in the new Esquire magazine (the one with Tom McCain on the cover) Basicly saying we are one disaster away from incredible turmoil in the oil markets.

    On deflation. There used to be a pychatrist named Fritz Perls. A hippy dippy Eslan institute type guy. The interesting part is in his autobiography called “In and Out of the Garbage Pail, he talks about the fact that during the hyperinflation of the German Republic he came into some US dollars. Dollars that could buy a block of real estate, great artwork. He stated that he was really glad that he and his wife had spent it on world travels. So that when it was time to leave Germany and the brownshirts he and his wife had nothing holding themselves back in terms of material goods. So they went to S. Africa. His friends who remained, tied down by their stuff, were murdered.

    Just some insight into both hyperinflation and not underestimating how bad things can get.

    So if we go through deflation is it going to be local or global? If local we can invest elsewhere. If global what will hold it’s value best? Gold? A particular currency?
    I heard the American Indians once used seashells as currency…..