They Dow is down ~250, Nasdaq down almost ~100 as I type this.

As the excuses and mea culpas roll out over the next few weeks, pay close attention to the following nonsense:

Its not our fault; We relied on BLS for NFP data, and its apparent now it was wrong. The CPI data out of the government was also incorrect, that was where we were led astray.

What bullshit.

We have been pounding the table — here, in print, and on the tube — for several years. There is no excuse for ignoring the obviously flawed data series. You had to be living in a different world of to buy into that.

There was an alternative universe where the Job growth was robust , inflation benign, the Housing bust  irrelevant, and the credit contagion contained. This universe was populated with pollyannas, perma-bulls, overtly political economists, and Wall Street cheerleaders. 

In this alt. universe, Retail is fine, the economic boom was caused by the 2003 tax cuts (not Fed cuts), and the core rate of inflation was all that mattered.

This was Goldilock’s house — only today, she got her foreclosure notice . . .

Category: Economy, Inflation, Markets

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.

81 Responses to “Overstated Job Growth, Understated Inflation”

  1. Steve Barry says:

    “This universe was populated with pollyannas, perma-bulls, overtly political economists, and Wall Street cheerleaders.”

    They all bow to their leader…Larry Kudlow.

    My prediction the other day that this will be the worst year in S&P history (-43% in 1931) is off to a good start. QID up 12% YTD. Understatment of the year by Dylan Ratigan…”sub-prime may be starting to affect tech stocks”…starting? QQQQ way underperformed every index today. Many top QQQQ stocks have short ratios of about 1/2!!!! Short of a lifetime.

  2. Donny says:

    BRAVO BARRY!

    You (WE) are now about to earn a healthy amount of respect!

  3. Mr. Beach says:

    Barry:

    I find your blog useful, valuable, interesting and even funny (I like the cartoons). So, please allow me, a random reader, to wish you a Happy New Year and thanks for your work.

    Now, regarding today. The market is beginning to sober up. I think the next 12 months are going to even more volatile than the last.

    At this point, the big wildcard is the government. Will they raise the limits for the size of mortgages that Fannie and Freddie can buy? Will Bernanke find another way to force-feed liquidity into the market? Where will this liquidity squeeze out into?

    My big personal goal for 2008 is this: find a way to protect my principal from the market and monetary inflation. I have yet to find a strategy that makes sense to me.

  4. Uncle Jeffy says:

    I’m sure Larry Kudlow will have a complete and convincing explanation, just as soon as he takes off his aluminum foil hat.

  5. Innocent Bystander says:

    Yeah, Kudlow is on TV now telling investors to stay in for the long run. Well as least he didn’t tell us for the 10,000 time he was in the Reagan administration. Well, here is Billy hawking Mighty Putty. Closed my shorts, smoking a cigar now. Amen

  6. Estragon says:

    Let’s not get too carried away with the “I told you so’s”. As we’ve discussed at length, the NFP number blamed for today’s wailing and gnashing of teeth is almost certain to be substantially revised.

    Confirmation bias lurks. Buyer beware.

  7. v says:

    Amen brother BR! Your readers know you rang the alarm; unfortunately too few listened.

    And mega-lol@Goldilocks … um, when is your next Kudlow&Co appearance?

  8. Ross says:

    Da pravda, I echo you disgust and salute you tovarisch!! UHRA.

  9. pj says:

    BR,
    Though the writing has been there on the wall for quite sometime, somehow the markets are not reflecting it. The Dow was in Mid 13Ks just last week. Repeatedly the market has defied the logic that is usually displayed on this blog.
    I am just wondering if we are about to start the whole cycle yet again. You know some new phoney measures during the weekend, crude slipping back a little, the whole talk shifting to the next FED cut etc etc etc…
    Would this time be different?

  10. jab says:

    Barry,

    I hope you use that line on Kudlow!

    “Today, Goldilock’s got her foreclosure notice!”

    Great Line

  11. Steve Barry says:

    Tremendous technical damage today…QQQQ below 200day EMA…Dow below the number they gave late Nov for Dow Theory Sell Signal. And the 10 day put/call actually fell to a bit today to .93!! No progress made to a sentiment bottom. This is just starting folks.

  12. muckdog says:

    Retest of the November lows with divergences.

    Classic buying opportunity.

    IMHO.

  13. techy2468 says:

    come on guys, its too soon…we are supposed to get a oversold bounce on monday…

    and maybe next week…there will be rumors that FED will cut 50 pts this time, and the markets will rally again.

    but it will be great to sell to the 50 pt cut rally….i wish they go 10% higher.

    after the FED rate reaches 2%, maybe then we will get a chance to short it, sit back and relax…

    but does anyone know whats going to happen since the central banks are giving out unlimited credit to the banks to ease the credit market…

    are the banks simply going to invest as they please and not lend to each other, defeating the primary purpose..

    btw isnt credit freeze supposed to be improving??

  14. v says:

    Also related On Topic discussion question (MS, Eric D, anyone):

    It seems highly likely that as the bad news continues towards the end of the month, the probability is high that Bush&Co will make a push for a corporate tax cut. It will take some time to get done as the Dems will make sure they get what they want out of it as well (i.e. it won’t be a complete corporate bail out), but it seems highly probable this will get major play in this election year.

    So my question is (if a corporate tax cut does occur) how will this affect the market? Dollar takes a hit? Financials will likely get a sweet deal? Will a corporate tax cut truly spike corporate spending/capex? And won’t any effect of something like this take at least months to see any real, significant results?

  15. techy2468 says:

    stve barry;

    dont you have a blog. i am new into investing/trading, your insights look very interesting to me.

    i was under the assumption that we may get a bounce on monday due to the oversold conditions?

    particularly in darling of the masses stocks like Apple, google and RIMM

  16. Felix says:

    Funny-I thought you were one of the guys going around saying that the economy is bad but NOT THAT BAD…. correct me if im mistaken.

    Finally Michael Panzer gets his respect where it is deserved!

    Larry Kudlow- what a sorry sap- still wont accept the fact that we are in a recession

    Your network CNBC- joke- the traders I know shut the volume off and only sometimes watch the tape. All the day all day is PUSH the market and say things are not bad!

    Finally the tech analysts come out with their downgrades- they knew this was gonna blow but didnt want to ruin ’07- wanted the tech bull run to run till the end.

  17. Will T says:

    You tell ‘em, Barry!

    On your next TV gig, maybe you can inform the pundits about the 3-step program to cure Goldilock Syndrome:

    1) Stop drinking the Kool-Aid.
    2) Put down the glass of Kool-Aid.
    3) Step away from the Kool-Aid.

  18. Steve Barry says:

    Techy,

    I may start a blog, thanks for the encouragement. Of course you could get a bounce anytime for any number of reasons. but as a new investor, I suggest you read this blog of course and John Hussman’s site (his weekly commentary and hester’s pieces). Hussman said last summer this was one of the worst times in history to be in stocks and I agree. If there is anything to shy you away form tech stocks, it is the fact that volume on down days has dwarfed volume on up days since last May. Volume , after price itself, is the surest technical measure. The other thing I have mentioned is short interest on names like GOOG, AAPL, INTC, CSCO, RIMM are at ridiculous lows…this indicates overly optimistic sentiment. Tech is NOT immune to this fopr reasons I gave the other day. On a macro level this chart is scariest of all…a debt bubble that dwarfs the 1920s.

    http://www.comstockfunds.com/files/NLPP00000/292.pdf

  19. odograph says:

    “There was an alternative universe where the Job growth was robust , inflation benign, the Housing bust irrelevant, and the credit contagion contained. This universe was populated with pollyannas, perma-bulls, overtly political economists, and Wall Street cheerleaders.”

    Good paragraph.

    The tough question now is the appropriate degree of pessimism (a little or a lot).

  20. Alex Khenkin says:

    Retest of the November lows with divergences.
    Classic buying opportunity.
    IMHO.

    Broke ‘em. Closed below. Sorry.

  21. Stormrunner says:

    As to an oversold bounce on Monday

    We’ve already been to these levels 3x, if the DOW Bear confirmation is accurate shouldn’t we see a route to the 12.5 /1380 level before any kind of relief rally commences.

  22. Paul Jones says:

    Thank you, Barry,

    for being an internet pioneer of a different style of economic analysis.

  23. Steve Barry says:

    I mentioned in another entry about the President meeting with the PPT today. This from Comstock Funds yesterday:

    As if to give emphasis to our negative outlook, it has been announced that tomorrow (Friday) President Bush will, for the first time, meet with members of the President’s Working Group on Financial Markets to discuss the current financial and economic situation. This is the formal name for the so-called Plunge Protection Team that was formed by President Reagan following the 1987 market crash. Its stated purpose was to prepare to deal with a serious credit or market crisis that could significantly impact financial institutions and the economy. While we understand that the team has met periodically with no announcement, we are unaware of any president ever meeting formally with the group. We think they view the current financial and economic situation with alarm—and so should you.

  24. Eric Sebille says:

    To the poster above looking for a way to preserve capital and fight monetary inflation, check out JJA.

  25. rickrude says:

    Great post Barry,
    I’m ready for the big inflation
    (as if we never had inflation) !!!

    just don’t be holding USD while Bernanke
    gets ready to print more.

  26. ken h says:

    Nicely put Barry. We all know this is bullshit. My 90 yo grand mammy and her cougar friends knew it was bullshit. The Pigmen know it’s bullshit. Knowing that they know we know and yet they talk out their ass reminds me of Ken Lay or O.J. Simpson.

    Let them talk their bullshit because all it does is make them look stupid like Paris Hilton or Jessica Simpson stupid. No one with any brains really takes Kudlow or Cramer seriously,…seriously??

    Fact is this whole scenario has been baked in and the Pigmen have figured on a workout when the shit hits the fan. No doubt. Unfortunately we all know it never works out as planned and me being the J6P supermodel I am, I going to look for every opportunity to stck it to them. Fly in the ointment so to speak.

    Party On Barry!

  27. Bob A says:

    eeehhem… it doesn’t take a genius to look at charts from 2000-2003 and figure out we will have not just one, but many bounces, on the way down. or that certain people who resemeble bozo will predict each and every one of them is “the bottom”.

    you will know we’re near the bottom when your friends who believe in buy and hold and the tooth fairy tell you they are no longer opening their monthly brokerage statements.

  28. scorpio says:

    i particularly like it when the Talking Heads say “it’s not stagflation like the ’70s”, when, if we were comparing apples to apples and using ’70s methodology in computing today’s inflation and unemployment, we would look much more like it than they want us to believe.

  29. Mongo says:

    Barry, I’m not a genius; only believed the numbers were bogus for a long time now. Reading TBP only made me feel less alone on the CIP and BLS stats. Thanks.

    My only advice to friends is: Stap everything down.

  30. larry says:

    So the pres decides to spend a few minutes of his precious concentration by meeting with two guys who predicted in June and April of 2007 that housing had bottomed. Looks like the dunce corner to me. Kudlow is just part of the spin machine. If this administration was interested in the least about policy, someone would have been cognizant of the housing debacle, inflation, unemployment, etc. Further gumming up the machinery is their desire to run out the clock and kick the problems to the new administration. I am afraid the capital preservation, i.e. stay out of the market, will be the order for 2008. Reduced volumes, more volatility spell serious investment problems this year. Notice that no one has a sure fire way to make a decent return this year, even the kudlow like blowhards. a tell for sure.

  31. John says:

    Great Post Barry!! One of the Few in the Financial Media who tries hard to tell things like they are…
    Well it’s reassuring that the Incompetent In Chief (after meeting with his Working Group on Financial Markets/”Crack Team” of Economic Advisors) came out and stated the “financial markets are strong and solid.” And that “This economy is on a solid foundation.” Oh yes, and Core Inflation is Low.
    I guess that means we really don’t need any more fiscal stimulus from the Federal Government and drastic or inter-meeting .50 bps rate cuts/30 billion dollar+ auctions from the Federal Reserve.
    But the Free Market Cheerleaders on CNBS and the rest of the Financial News Media will No Doubt be jumping up and down crying for more fiscal stimulus (tax cuts) and Global Central Bank Intervention after todays Slap Down. The Market “Demands” it, Goddamnit.
    Even with No Recession Coming!!
    And let’s not forget about all of that Sovereign Wealth Fund Money that will just pour into U.S. Markets and rescue the Financials…
    More Crack Cocaine to an already Coked Up Whore…

  32. Troy says:

    As a permabear I can’t wait for Bob Brinker’s radio show this weekend . . . prolly wheel out his “volatility” spiel again.

  33. Johnny Vee says:

    As long as job group is strong the consumer and the economy will continue to grow and the US will avoid a recession. What’s that? Job growth is slowing, even with the Birth/Death booster. Help Ben!!!

  34. Pat Gorup says:

    If you calculated GDP, CPI and NFP stats as they did just 20 years ago you’d know that the downturn started in the 3rd quarter of last year. Based on that conversion, we have already endured 2 quarters of negative GDP which means we are already in a recession regardless of what Wall Street’s cheerleaders tell you.

    To Mr. Beach: buy gold and silver bullion, especially the latter.

    To CNBC: can’t you really find anyone other than Kudlow to be a guest contributor? It would be nice to hear the opinions of the other guests because if I wanted Kudlow’s opinion, I’d watch his show which is why I don’t.

  35. Costa says:

    i hope panzer is on kuldow tonight and doesn’t say a word but just smiles and laughs

  36. dblwyo says:

    Let’s all enjoy the schadenfreude.While it’s a little premature to get too carried away wait until the B/D model is adjusted. This isn’t Goldie’s party and hasn’t been since last Jan – it’s been Cindy’s (as in Cinderella) and we’re debating what time it was. Now it’s a question of how big will the mess become and who cleans it up. A couple of key points to note: 1) all the other volatile down-bounces were triggered by credit market problems – this is the first based on an economic indicator. That changes the game. 2) Tech’s (NDX) have been bubbling up since last Spring over the SP500 but it’s suddenly dawning that no growth = no capex = no tech spending. Look out below there too. What the heck…3) Check out EPP vs EEM etf’s – Asia x-Jap (China) vs Emg. Mkts. The bubble’s coming off the first rose and maybe the 2nd. No safe havens left IMHO. But…betting on the downside now ? Hmmm… ?

  37. BG says:

    Well a lot of investors and potential investors have suspected for several years that Goldilocks was nothing more than a prostitue working for the machine. I’m glad she got her foreclosure notice today. God knows she deserves it. It’s going to be tough turning those tricks in the cold back alleys surrounding Wall Street this winter; but, I’m sure when she reminds her John it’s sunny and 80, he just might still believe her that is….. if his gonads are not already frozen to the ground. In either case, he had better hold on to his wallet with both hands because Goldilocks is getting into a tight sqeeze and it’s not the one she is accustomed to.

  38. D H says:

    Quote of 2008 (so far):

    “This was Goldilock’s house — only today, she got her foreclosure notice . . .”

    Nice, Barry!

  39. Winston Munn says:

    Well, the bright side is that Bernanke will get to find out if his academic theories work in practice.

    However, I think he will end up discovering that debt-based economics is an unsustainable proposition, and the problem is worldwide.

    Similar to what Major Tom discovered far above the moon.

    “Planet Earth is blue, and there’s nothing I can do.”

  40. Yes, I agree with you on that. In fact, I would go further and say that the entire idea of price indices is logically fallacious, let alone accurate. As I quoted Ludwig von Mises in How much can we trust the price indices (e.g. CPI)?,


    All methods suggested for a measurement of the changes in the monetary unit’s purchasing power are more or less unwittingly founded on the illusory image of an eternal and immutable being who determines by the application of an immutable standard the quantity of satisfaction which a unit of money conveys to him…

  41. MikeinMT says:

    Hear, hear, estragon @ 4:21. You’re not kidding about confirmation bias. We got confirmation bias up the wazoo.

    As a prime example, Barry, how come no mention of your beloved +/- 430,000 margin-of-error on the NFP number this time around? You were always quick to trot it out when the headline number was 100K+

    http://bigpicture.typepad.com/comments/2006/11/bls_margin_of_e.html

    To borrow from my favorite Grizzly Micheal Ray Richardson, this ship be … well, if not quite sinking, it’s definitely listing hard to the bears’ side!

    Not to say I disagree with where we’re headed ultimately, but the tone of this and a lot of other boards today has me on the express to Fade City on a down open Monday.

    ~~~

    BR: 1) My goal is to identify where the mainstream is getting something wrong. I think its hard to deny the reality now.

    2) I can only mention so many things in each post. Your argument by omission is rhetorical silliness. The alternative is that every post has a confidence level/statistical disclaimer in it.

    3) Additionally, if we strictly apply the BLS error admonitions (here: http://www.bls.gov/news.release/empsit.tn.htm) then every NFP for the past 3 years was statistically meaningless.

    What fun would that be to look at?

  42. Brian says:

    who watches cnbc anymore? our office is now tuned to bloomberg tv

  43. mw says:

    If the Fed lowers rates to 1% again can they pump up the bubble again? I doubt it. With loan standards changing, people afraid of RMBS,CMBS, CLO’s, CMO’s, CDO’s, SIV’S, etc., etc.,… I belive we are in for some “REVERSE INNOVATION” like some good old fashioned banking and loaning from years past.

  44. Francois says:

    @Steve Barry,

    Thanks for the link to the chart. It is indeed quite scary.

    One remarkable thing: the steepest (and most sustained) rises in debt occurred under Reagan and Bush 43…the fiscal conservatives par excellence.

    The next several years are going to be quite interesting to watch, and most painful to live through.

  45. Stuart says:

    This is what’s going on. Russ absolutely nailed it here.

    http://wallstreetexaminer.com/blogs/winter/?p=1310

    overstated job growth, understated inflation, all part of the game.

  46. Stuart says:

    Forgot to add, that next month’s NFP will be very likely be materially worse when you consider that December had 64K BLS birth/death model ghost jobs included. Well each January has a NEGATIVE adjustment usually in the range of 150K-200K, again a negative adjustment. Conclusion, if Dec was 18K and the BLS added 64K, actual Dec headcount was -46K. So just to stay the same, they will need to add/find 200,000 to the actual headcount next month. My mule has a bigger chance of winning the Kentucky derby.

  47. Cherry says:

    Well, duh. Barry, your obsession with inflation is disturbing.

    Of course you have to “read” these monthly employment reports with a grain of salt and try to place a number:
    November: 150,000
    December: -50,000=
    100000/2=50000

    That is what I think the numbers will be after benchmark revisions. So what does that tell us?

    1.The economy is struggling. duh!! Job growth has struggling since June when we were in the very early stages of the credit problems. I suspect some pre-November months will be revised down to negative as well with some up months, sorta like June/February 2000-2001.
    2.The Christmas season didn’t do the job. After hoping for a 03-06 Christmas, they got a 00-02 christmas. This will further slow the economy down as they are forced to further work off inventory related to consumer spending. Further forcing more layoffs and potential outright recession.

    It looks like the economy was ok through the first quarter of 2007 and things began to go wrong in the 2nd.

    I am having 2000 flashbacks!!!!

  48. Did anyone see Cramer today? Man, he was blasting “B-52″ Ben with both barrels. Calling him incompetent and worse. If anyone has the YouTube(or other source of video), please post it. It was priceless, only in the fact that Cramer was calm when he was saying this and not barking at the moon.

  49. Steve Barry says:

    Francois,

    <>

    Good observation…since you brought up the political angle, this chart will really hammer it home. Maybe Barry can address this.

    http://www.lafn.org/politics/gvdc/Natl_Debt_Chart.html

  50. randy says:

    i have a question.is kudlow a limp wrist sissy or is he really gay?

  51. John Borchers says:

    Thanks for your work BR.

    With wall street’s cheerleading I was able to sell all of my 401K S&P500 fund on Dec 04,1997 at around 1480′s.

    It was obvious what was going to happen to me after Black Friday had low sales traffic at my malls in Allentown, PA area and people were basing stock buying decisions on consumer reports based on “foot traffic” measuring sales volumes, LOL.

    My 401K was moved to AAA/Gov’t bonds that day and is now up a few percent instead of down around 4%.

    The bears are/were right they were just early.

    Kudos to Doug Kass as well.

  52. Eric Davis says:

    I love it when Barry, gets on a rant. I’m assuming that quote had to do with Kudlow, which I missed.

    I like Kudlow, more the program than him. It is one of the nerdy-est economics shows MSM lets us have. As a “Market of Ideas” or debate show, It can be great. I think one has to understand that the point is to throw the Bear case out, and the Bull case out. and let them go at each other… hopefully in a civil way. If one side throws out some Ridiculous arguments, that is just part of that “Market”.. If you realize that some participants are completely Amoral that way… so be it.

    HuZZaaa!!! Barry…. But where is my Friday night jazz??? I say as the ungrateful asshole I am.

    v:

    My opinion is a “Tax cut” won’t have an immediate significant affect…. I think your thinking about the suggested “Stimulus package”, being talked about. I bet that proposal will have a small short term affect, until it’s realized that it has to get past the legislative bodies, and that it will probably have little “meat”, just as the housing proposal was sort of a limp noodle.

    This morning there was a debate about, how we don’t need a “tax cut” what we need is a “Net Tax Cut”… Point being, a tax cut that isn’t a Tax on our grandchildren.

    Which, overall is the reason for the current state of the Dollar. Ignoring the political minefield that is “The War”. The Massive Spending, and Tax cuts, have places a ton of strain on our economy.

    If you look back through history, Many “Recessions/Depressions” are a Net effect of war spending(in my opinion), This recession is certainly part of the natural business cycle, but the magnitude of it will be increased by the current overspending, with no end in site.

    I liken this to the “Box” the federal reserve is in. Inflation vs. Stimulus. Our Federal Government is in a simple “Box” with no end in site to “The war” and the possibility of it escalating. I’m fearful of what more “grand-kid Taxes” will do, and could add to the possibility of Hyper-Inflation, since it’s not really a Tax cut. This is like losing your job, and not cutting back, you just apply for as many credit cards as you can, and maintain your overspending. Not only are you now even more in debt, but you are paying interest on it now.

    The idea that we will Reduce spending is… Unfathamable, and I’d be more likely to bet the other way.
    The idea that the Federal reserve will “preserve the dollar” is just as unlikely. and most money is on Severe Inflation and a Plunging dollar over the next year.

    As Pinko/Lefto/Commie as I am. and the idea that a new “president and democratic leadership” is going to “Save us” after the election. well, it actually makes me laugh. To be honest, without an adversarial system of Legislative Vs. the Executive. Our government is more likely to Stagnate, with infighting and Fat pork Barrel incest, as every Tubby Washington insider tries to grab a piece of the Pie, ignoring their True objective of running the country, for the more favorable goal of making themselves rich and powerful.

    I do hope for better, and I am pleasantly surprised that people exceed my expectations most of the time, So things arent that grim. Uncle Ben, Knows what Volcker did. The ridiculous missteps of Thomas Phillip “Tip” O’Neill, and the democrats during the 70′s are well documented, and remembered by many…..

    So, the hazards are there for all to see. I’m always amazed at the Resilience and perseverance our “Survival instincts” provide us with. And that is enough reason to hope.

    But, the chance of a legitimate “Depression” is here, But I’ll bet against it.

    In fact, I’m still more a “Stagflationist” than in the Recession camp…. But by saying that, what I mean is we are going to Hope for the simplicity of a “Recession”

    As always I’m just excited to see how it’s all going to turn out…. and to be on the good side of the trade.

  53. Peter Davis says:

    I’m a strict technician. Although I pay close attention to underlying fundamentals and significant macro occurences, I use this information for perspective only. To me, the chart never lies, and what I’ve been seeing is a gradual, yet choppy, turn in market psychology.

    The topping process that began in June has simply been a matter of a change in psychology. Such extreme euphoria (i.e. that which has guided the now bust credit mania) is not something that is typically deflated quickly or easily. Rather, it has taken time for the realities of the underlying fundamental problems to affect a change in market psychology. As the extent of these problems have become more apparent to the herd, the indices have begun to follow suit. Potentially negative news which had once been ignored or brushed off is now being interpreted in a negative light. The news and data has not changed; the market’s interpretation of it has, and this is what will ultimately cause a broader and sharper sell-off.

    This is why, in my opinion, the most recent Fed actions have been met with selling. Consider this: the first 2 Fed cuts (the discount cut on August 17th and the first Fed funds cut in September) were met with huge buying. Yet even this short-term return of euphoria could not overcome the negative turn in psychology which was prompted by underlying fundamental problems.

    Will we break the August lows next week? My suspicion is that we will bounce a bit off this intermediate-term double bottom before the real fun begins. The Nasdaq and NDX are still very extended in relation to the blue chips; if I was a betting man, I’d be putting some money on the short side of tech.

    Oh, wait. I am a betting man.

  54. gary says:

    I’ve been pointing out for the last couple of months on the SMT http://garyscommonsense.blogspot.com/ that the commercial traders have been exiting the market even as the market has been declining. Last weeks COT reports were very telling as the commercials used the santa clause rally to go to a net short position.

  55. Stuart says:

    holy crap. Just watched a taped version of today’s Kudlow…debating targeting gold as a fix for the ills of the world.?????? Lets target the price of a shiny yellow rock. Ya, that’ll fix everything. Seriously has everyone lost their frickin’ mind????????????????? That could’ve been an episode from the Daily Show. Bourbon time.

  56. Peter Davis says:

    Joe Klein’s conscience:

    If you want to see Cramer’s latest embarrassment, go to CNBC.com / CNBC TV / Mad Money.

    It really saddens me that anyone listens to this guy. Blaming this meltdown on the Fed – and not on the assholes (pardon my French) who underwrote, traded, originated and bought all of this crappy paper is, quite frankly, beyond me.

    Only CNBC could tout as a market expert someone who seemingly knows so little about the markets. I particularly enjoy his chest-thumping regarding his triumphant forecasts (about 10%) while ignoring his utter failures (about 90%). This from a guy who has reversed course on the financial about 30 times, has consistently advocated buying at the top and selling at the bottom and has finally advised staying away from the financials. Nice call, bozo, given that they topped out about a year ago.

    Cramer talks about the “travesty” that’s the Fed. The real travesty is that Cramer is going to cost a lot of people a lot of money.

    I apologize for my mudslinging rant, but I truly feel that broadcasting Cramer is an incredibly irresponsible action by CNBC. I don’t know of any professional traders who don’t think that this guy is (a) an idiot, (b) amoral, or (c) all of the above.

  57. Innocent Bystander says:

    I run to the TV on a big down day to watch Cramer squirm and lie. His advice is only to buy, buy, and buy. Well, what do you do in a down market but short. Ever hear that out of him mouth. Its one way trading. His advice is worth what you pay for it. Its a carnival act with bells and whistles.

  58. Peter Davis:
    I agree with you about Cramer. It’s sad that there are people out there who trade on his advice. I know Wall Street is as much, if not more, to blame as the Fed. It’s just odd seeing someone in Cramer’s position rail like that against “B-52″ Ben. He was basically saying that Ben and most of the NY Fed out to resign and go on a permanent vacation somewhere. As much as some here(including me) might think “B-52″ Ben is adding to the current mess, our calling for his resignation is different from the nonsense that Cramer is spewing.

  59. rickrude says:

    ‘holy crap. Just watched a taped version of today’s Kudlow…debating targeting gold as a fix for the ills of the world.?????? Lets target the price of a shiny yellow rock. Ya, that’ll fix everything. Seriously has everyone lost their frickin’ mind????????????????? That could’ve been an episode from the Daily Show. Bourbon time.

    Posted by: Stuart | Jan 5, 2008 12:45:45 AM’

    The ultimate fix is nationalization of oil and gold, that way, the government will control inflation. Its happening with oil already, in places like Canada.

  60. Eric Davis says:

    I like Cramer. I’m sure I’m about to get shellacked for that opinion. He is still Ronald Mcdonald of McBuisness TV…. Doesn’t make him wrong, all the time.

    As people lose money, in a recession he has been warning about(passively) for 9 months. IMO he just doesn’t want to be the scape goat for why people are losing money. As a Fully qualified Shell gamer, he is just making sure it’s not him.

    I, BTW missed both of them(cramer and Kudlow), after a full week, watching Business TV after the closing bell on Friday, makes me want to Hurl. I’m kind of feeling left out now :(

  61. cinefoz says:

    I agree with all the observations in the story except those concerning inflation. Most of today’s higher prices, except those associated with asset inflation, are caused by supply and demand factors. Supply and demand are normal economics in action. It is not the job of nanny governments to protect us from market forces. Development of compliments and substitutes is the role of private industry.

    Free and abundant money inflated the value of many assets beyond reason. Credit collapses, will realign the price of assets to something more realistic. Interest rates will have little effect here.

    No level of interest rates will affect the price of oil. OPEC couldn’t care less about libor or prime or the discount rate. Oil will cost whatever they price it at. Everything made from oil will reflect the cost of oil, regardless of interest rate levels. It still surprises and amazes me about how many otherwise smart people think interest rates and the price of oil are somehow related.

    That being said, lower rates will have an effect on the value of the dollar. But oil imports, and the resultant dollars sent overseas, will have a greater impact on the value of the dollar than the discount rate. Also, repatriating the dollar via exports of investment from overseas will also strengthen the dollar.

    Thus, the credit crunch is a pretty good proxy for higher interest rates, at least domestically. After all, restricted credit is one goal of higher interest rates. Inflated asset prices are coming down. If oil can drop, it will drop.

    Lowering rates at the next Fed meeting will be a good thing.

  62. cinefoz says:

    I said:

    Also, repatriating the dollar via exports of investment from overseas will also strengthen the dollar.

    I meant:

    Also, repatriating the dollar via exports OR investment in the US from overseas will also strengthen the dollar.

    Sorry.

  63. cinefoz says:

    Not to be a buzzkill, but now that various aspects of the economy are depressing, now what do you want to talk about. You can keep on predicting bad times ahead, but, at some point, things will look up again. I suppose everyone can stand around and poke the body with a stick for a while longer, but then what?

    I plan to wait for a few more percentage points of drop in the major indexes and then buy into the dip. To me, this dip is great news and a profitable opportunity.

  64. Winston Munn says:

    Cinefoz wrote,

    Quote: “I agree with all the observations in the story except those concerning inflation.

    Free and abundant money inflated the value of many assets beyond reason.” End Quote

    Mish Shedlock has addressed the definition of inflation, and I paraphrase: a combination of money supply increase and debt increase.

    He then makes the excellent point that debt acts just like money until it has to be serviced – that is the deflationary force, i.e., an unwind of debt expansion.

    The classic definition of inflation is increased general prices due to an expansion of the money stock, but that is not what has occured.

    I think we need a new term for inflation caused by debt expansion, and I hereby submit that the official label should be Alan Greenspanery caused by the process of Alan Greenspanization.

  65. stormrunner says:

    Excellent point Winston

    I’ve been reading Mish for quite some time.

    http://bp0.blogger.com/_nSTO-vZpSgc/R3smlXtCTVI/AAAAAAAABuY/tes9SttKmtY/s1600-h/base-money.png

    “Those who claim the Fed is currently printing like mad simply have no solid evidence to support it. What the printing like mad crowd is talking about is M3 (credit) which indeed has been soaring. Unfortunately these “printing” claims keep making the rounds but repeating a false claim 200 times does not make it the truth.”

    Those that follow the balance of extended repo’s are purporting likewise that both the FED and ECB are actually reducing the base money supply.

    No one has yet addressed the new auctions and what effect they are having regarding monetary inflation.

    I just know that I’m getting sick to death of those like Puplava, ITulip etc. (note highly credible sources) citing M3 statistics as a reason to believe that the nominal price level can increase simply because of credit expansion with out reffering to how this debt is to be serviced.

    Mish’s reasons for reflation roadblocks

    http://globaleconomicanalysis.blogspot.com/2008/01/keynesian-nonsense.html

    Anyone care to explain why M3 is a better measure of monetary inflation than M0,M1 Base Monetary measures?

  66. RichardN says:

    Many people appear to be missing the point.
    Stocks are an asset, not a real living standard indicator. Real GDP may be -5%, stocks couldn’t care less.
    So with overstated job growth, understated inflation and treasury yields under 4% you’re going to short stocks that aren’t even expensive into an inflationary economy?
    Fantastic idea guys.

  67. stormrunner says:

    Thats the whole point

    Is this an inflationary economy just because the price level for consumables is increasing while currently asset prices RE,Stocks, .. are in a corrective mode.

    The current low P/E’s could be a mirage when taken in context with forward earnings estimates.

  68. Winston Munn says:

    Stormrunner wrote,

    “The current low P/E’s could be a mirage when taken in context with forward earnings estimates.”

    Here is one such example. First Fed Cal in year 2006 accounted for $215 in CINA as earnings of a net earnings of $129 – fully $129% of net earnings were produced by capitalizing as income negative amortization. Pay-option ARMs.

    Statistics I have read show that 75% of pay-option ARM borrowers pay the minimum amount – to think that these borrowers will be able to fully repay these loans on reset in a falling housing market, tight-credit environment is simply ludicrous. Yet, CINA accounting makes the assumption that the loans are good and will be repaid.

    How can you know P/E ratios are cheap with so much opacity and doubt about the quality of p-r-e-v-i-o-s-l-y reported earnings?

  69. techy2468 says:

    if free market is really allowed to do its work, and people really come to their senses and become risk averse (i am assuming the money in the market is atleast 70% from investors, not money from FED’s liquidity improving loans)

    i will be looking at p/e below 10, and a correction of atleast 20-30% in all indices.

    but maybe thats too much to ask for, and maybe no government in the world wants that kind of correction and they will do anything to keep the party going on.

    lets see..how it plays out this time

  70. stormrunner says:

    Sorry I need to expand on the question

    Anyone care to explain why M3 is a better measure of monetary inflation than M0,M1 Base Monetary measures?… in an environment where market participants are saturated with debt and the geater fools seem to have run out.

    This “Inflation vs Deflation” arguement is the question of the decade as the investor that gets it wrong will be severely punished. It would appear that 90% of market participants are in the inflation camp, I see this as a rather ominous indicater for those that are the “herd”.

    http://www.hussman.net/wmc/wmc071224.htm

  71. Winston Munn says:

    “I see this as a rather ominous indicater for those that are the “herd”.”

    Does this mean you would rather be CINA than herd?

  72. stormrunner says:

    >>Does this mean you would rather be CINA than herd?

    IMHO

    Inflation camp = faith camp “Belief in the FED”
    Deflation camp = empirical camp “Risng Defaults, tightening base money supply”

    M0, M1 = Real Money
    M3, Credit = Faith in Repayment

    Is the faith justified???

  73. john jansen says:

    The stock market is the one market which has not significantly adjusted to the risk aversion trade which has swept through the credit markets since August. Credit spreads have blown out and junk is no longer fashionable. It will take a round of finacial dyspepsia worse than the current hiccup to correct the market’s ills. It could get intersting in the weeks ahead as the buy the dip mentality gets toasted.

    JJJ

  74. Todd says:

    <>

    That’s a helluva lot like the infamous Charles Schwab telling those investors on that commercial that ran over and over again ”just relax” in the middle of the Nasdaq crash. Those who listened relaxed their way very nicely into the poorhouse.

    I wholeheartedly agree with you, Barry…especially this line “This universe was populated with pollyannas, perma-bulls, overtly political economists, and Wall Street cheerleaders.”….but, I think if you have the courage to write that line, then you must name names like Larry Kudlow who is all of the above and given his show, should be at the top of your list. A shameful shill for the Bush Administration, too.

  75. Aaron says:

    Very truthful comment about the whole goldilocks economy thought. That is no longer the prevailing thought and deservedly so. The employment picture, if it continues this fall, will no doubt lead to a recession.

  76. Pat Gorup says:

    “This “Inflation vs Deflation” arguement is the question of the decade as the investor that gets it wrong will be severely punished. It would appear that 90% of market participants are in the inflation camp, I see this as a rather ominous indicater for those that are the “herd”.”

    Gold and/or silver bullion protects you against both, inflation or deflation.

  77. Suge Knight says:

    Pat Gorup and how exactly do you come up with 90%? What are your sources for that number? LOL Sounds like you’re pulling that 90% out of your arse.

  78. Rex says:

    About the Cramer rants-

    Shows how stupid Americans are if they made his book #1 on the NYTIMES Best seller list!

  79. John Borchers says:

    I think permanent damage has been done to the US economy. Take a look at Japan’s stock market. It’s gone no where for many years now. Why? No growth.

    Why does Japan have no growth in earnings? High costs and high competition.

    Look at when Korea started exporting cars at a large volume rate and got accepted by the US. Look at what has happened to the US auto industry during this time period.

    As third world countries develop things get worse for other developed countries as business competition increases.

    With the auto sector as my previous example now look at the semiconductor and display technology field. Everything has moved from US to Korea and now its expanding in China and others.

    By people investing in emerging markets for growth and greed they basically have shot themselves in the foot. By investing in 3rd world nations they have moved these jobs elsewhere by funding many new companies.
    The only way US can complete today is in innovation and that is going to be extremely difficult.

    I’m long EEV (X2 short emerging markets) because I believe two things can happen:

    1) As our US goes down the emergings should follow twice down.
    2) US people will realize it’s better to invest in US than other countries to keep jobs here. (unions already do this but I think now many others will follow).

    Just build me a good car (product) in the US and I can buy it; Even if it’s slightly more expensive. But don’t build the product in 3rd world say its US made and it happens to be garbage because then I’m just better off buying it from the 3rd world country.

  80. ZackAttack says:

    Totally with you on that trade, John Borchers.

    Even in the middle case, where US and European GDP growth move from 3.x GDP growth to 1.x, export-dependent markets suffer disproportionately.

    All else equal, capital requirements will curtail lending activity in both US and Europe.

    Emerging markets could possibly lose either the US or Europe as consumers, but not both.

    By my lights, China is the biggest bubble in the history of civilization. 60x from bottom to top, whereas most bubbles tend to run near a factor of 20. Examples: Nasdaq from 300 to 5100. Gold from 35 to 800. Even the South Seas trading company was almost precisely 20.

    Conventional wisdom is that they’ll keep it together ahead of the Olympics. Trader instincts say to get short ahead of that.

    So, for me, EEV and a touch of FXP.

  81. John Borchers says:

    One point about China because of the US led recession.

    China’s market volume has peaked which I find interesting. I don’t normally believe charts fortell the future myself.

    Here is the Nasdaq going into the bubble.

    http://finance.yahoo.com/charts#chart12:symbol=^ixic;range=19910401,20040503;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined

    I noticed the volume peaked and doesn’t grow anymore. Is this is sign of lack of cash inflow?

    Now look at Hang Seng:

    http://finance.yahoo.com/charts#chart14:symbol=^hsi;range=5y;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined

    It’s similar.