Another Buy In
By Barry Ritholtz - October 24th, 2008, 11:56AM
We put some more money to work this morning into the mess — another 5% — while I was somewhere over North Carolina, on the way to Tampa. we are now down to 55% cash, from a peak of 80%.
As I noted on October 10, we "scale in over time, in 10% increments, and recognize that the
bottoming process can take several months to several quarters to
complete. Hence, slowly buying in is the key."
I would expect that another whoosh down will lead us to put another 5-10% to work. I was disappointed to see we didn’t get the 1000 point down capitulation. That’s probably to pat, and widely expected/hoped for.
Oh well, there’s always Monday . . .
October 24th, 2008 at 12:05 pm
We have an entire industry of traders, money managers, institutional investors, etc. who are trained to buy anytime the market drops big. They are all looking for a “capitulation” event, with a spike of fear, because historically it has been profitable to do so. Now what we see is that any time the market opens down big, everybody gets excited and jumps in to buy.
As long as this occurs, we’ll never truly see the selling climax that they’re looking for. The bottom won’t be in until all these traders jump in, and then get smoked when the market falls by another 20% or more. It happened during the depression. It will happen again. The bottom won’t be in until NONE of these clowns wants to jump in and buy equities. That will be the final capitulation.
October 24th, 2008 at 12:06 pm
We have an entire industry of traders, money managers, institutional investors, etc. who are trained to buy anytime the market drops big. They are all looking for a “capitulation” event, with a spike of fear, because historically it has been profitable to do so. Now what we see is that any time the market opens down big, everybody gets excited and jumps in to buy.
As long as this occurs, we’ll never truly see the selling climax that they’re looking for. The bottom won’t be in until all these traders jump in, and then get smoked when the market falls by another 20% or more. It happened during the depression. It will happen again. The bottom won’t be in until NONE of these clowns wants to jump in and buy equities. That will be the final capitulation.
October 24th, 2008 at 12:06 pm
We have an entire industry of traders, money managers, institutional investors, etc. who are trained to buy anytime the market drops big. They are all looking for a “capitulation” event, with a spike of fear, because historically it has been profitable to do so. Now what we see is that any time the market opens down big, everybody gets excited and jumps in to buy.
As long as this occurs, we’ll never truly see the selling climax that they’re looking for. The bottom won’t be in until all these traders jump in, and then get smoked when the market falls by another 20% or more. It happened during the depression. It will happen again. The bottom won’t be in until NONE of these clowns wants to jump in and buy equities. That will be the final capitulation.
October 24th, 2008 at 12:06 pm
We have an entire industry of traders, money managers, institutional investors, etc. who are trained to buy anytime the market drops big. They are all looking for a “capitulation” event, with a spike of fear, because historically it has been profitable to do so. Now what we see is that any time the market opens down big, everybody gets excited and jumps in to buy.
As long as this occurs, we’ll never truly see the selling climax that they’re looking for. The bottom won’t be in until all these traders jump in, and then get smoked when the market falls by another 20% or more. It happened during the depression. It will happen again. The bottom won’t be in until NONE of these clowns wants to jump in and buy equities. That will be the final capitulation.
October 24th, 2008 at 12:08 pm
“the bottoming process can take several months to several quarters to complete.”
…especially when you’re doing it headfirst.
Barry, are you insane or simply turning Japanese??
October 24th, 2008 at 12:09 pm
You may want to stay in Tampa.
October 24th, 2008 at 12:10 pm
Had about 5% in – doubled it with coal and refiners.
October 24th, 2008 at 12:11 pm
Can anyone explain the difference between bottom-up and top-down earnings for the S&P 500? They are so different; I don’t know which figure to use for valuation.
October 24th, 2008 at 12:23 pm
You can say that again GH!
October 24th, 2008 at 12:30 pm
BR,
You certainly have big ones. I capitulated and sold all the call options yesterday. I had bought these during your last Friday real time call.
I certainly don’t have the temprament for this market. I feel a lot better sitting on the sidelines for the moment.
October 24th, 2008 at 12:36 pm
I too went long 100% this morning. My astronomical models are undeniably indicating a very significant tradeable bottom is in this morning or monday morning. If we go lower on monday I will margin up another 100%.
tally ho!
October 24th, 2008 at 12:44 pm
No, Barry is not insane for scaling in slow and easy.
Recessions end, even bad ones.
Stocks almost always bottom before the recession ends.
There are some massive amounts of equity dumping going on that are not, IMO, based on either the seller’s opinion of company fundamentals, the seller’s view of the stock technicals, or even the seller’s fear of additional market losses. Rather, the selling reflects the sellers need to raise cash.
There is plenty of the other kind of selling, too, of course, but I think there is also a large temporary component to the selling.
October 24th, 2008 at 12:46 pm
We should have another down leg in here to new lows, but, if we are truly in a bear market (my view), it will be less dynamic that the spike low at Dow 7880. The liquidation on that decline will be from individual investors who were shocked at the recent selloff but didn’t act.
In bull markets individual investors and institutions are the sellers in spikes because they lack conviction. In bear markets they hold until new lows finally discourage them. The bottom should be a “W” not a “V”
After that, a rally for a few months and then we start down again for a deeper leg
October 24th, 2008 at 12:52 pm
What’s going to ignite this recovery? We haven’t even gotten into all the job losses. Keep the powder dry friends…this ones got a long way to go. It aint your average Bear Boo-boo….
October 24th, 2008 at 12:53 pm
PPT – no doubt about it. HUGE buying RIGHT at the open with futes down 550 and Asia crashing?! No way anyone with half a brain would buy at that point. It’s disgusting. For the skeptics out there, consider that interventions worked in 1929 as well.
http://www.buyandhold.com/bh/en/education/history/2002/r_whitney.html
October 24th, 2008 at 12:57 pm
i have been reading animal entrails and i see a bottom in………..putting all my money in the home builders stocks. dow40,000 by the end of the year.
cant wait til next year when all these idiots realize they lost all their money calling a bottom……
October 24th, 2008 at 12:57 pm
You should completely disregard short term moves in the stock market.
Maintain a long term time horizon.
(Unless, of course, you’re short puts).
October 24th, 2008 at 12:58 pm
Stuff like this really makes me wet my pants in my anxiousness to get long this market:
Alea Oct 24: U.S. Treasury Securities:
to receive:$2.570 trillion
to deliver: $2.490 trillion
–> Delivery Fails occur when a trade fails to settle on schedule. There are two parties to every fail: one party fails to receive the security (fails to receive) and one party fails to deliver the security (fails to deliver). Outright purchase and sale transactions can result in a fail. Financing transactions (securities borrowed or securities lent, also known as the market for collateral) may also result in a fail.
October 24th, 2008 at 1:05 pm
re: your previous post stating “what you’d like to see” (eg: Manhattan Project for econ):
There is currently a hearing on C-SPAN in front of Rep George Miller’s committee: Education & Labor. There has been some very good discussion on the forward thinking/planning aspects of econ mess which, AFAIK, is really the first such “stuff” I’ve seen from congress.
There has been much very, very good discussion at least pointing the way towards solutions. In particular, one of panel member’s (Robert Pollin/Univ of MASS) explanation of % of public vs. private $$ directed towards various economic projects real time. He pointed out in late 70’s, public contribution was (from memory) around 3.4%, has fallen to around 1.2% now. His point was to hilight previous benefits of public % focus, particularly it’s ability to direct focus on what’s wanted and needed. He broke it down very well, including private biz’s benefits from fruits of such public endeavors.
Rep Sarbanes furthered the discussion very intelligently. This is the kind of stuff I’ve been waiting to hear, and IMO it was a good start… a very good start.
I don’t see (for whatever reason) a listing on C-SPAN’s TV schedule… this could be it, but panel is not accurately listed. However, it’s listed on the committee’s website under for Wed, 10/22/08. Looking @ Wed’s C-SPAN schedule, I don’t see it there either.
(not surprising it would have been overlooked w/all Waxman’s hearing’s that day).
October 24th, 2008 at 1:06 pm
Serious post from me this time. Yeah yeah, it’s about time for that idiot CNBC Sucks.
GH – your post was so nice, you had to post it four times. I wish you had only posted it thrice so I could make it rhyme. But I agree with you on the points. My problem with that behavior by money managers is how much in transaction costs and lost upside these money managers waste in terms of their clients’s returns, with their intellectual dishonesty and impatience in jumping back long into the market. Most money managers are probably about the same age as me, so I am sure they learned the same conservative principles of valuation as me, and not like those late 1990s b-school vintage dolts who started dot coms thinking the world had changed. Anyone who has looked at returns against different P/E ratios knows there is an inverse relationship: when the P/E range for the market is around 14.6 to 19.9 as I believe it is now, the returns for the next 10 years still suck: 5.3% – 7.6%, and those are the median returns! I have said before that you really need to get P/Es below 15 (http://bigpicture.typepad.com/comments/2008/10/analysts-foreca.html) for the broader market to get interesting, in which case median returns for the next 10 years go up to 10% and higher.
I realize most of the peeps on this blog are short-term traders, and these guys are fantastic for exploiting technicals and the idiocy of the market. But on a fundamental valuation basis, this crash still sucks.
October 24th, 2008 at 1:06 pm
agree with quadpost 1-4.
dip buying allows this play to infinity:
on delusion rally, long OOM bank puts, wait 0-48 hours, sell them back on the inevitable thrashing.
wash, rinse, repeat.
October 24th, 2008 at 1:16 pm
This is how capitulation works in real time.
BR was right for 2 years so now he thinks by scaling in for 2 years eventually he will be right.
When he is all in and wrong for another 2 years THEN an epiphany.
The other option is to trade it away, then gain insight.
Capitulation only occurs when you have been wrong for a long, long time.
Quote for today “Cash will continue to outperform until stocks are no longer fashionable.”
And boy will that take a long time. One reluctant convert at a time.
October 24th, 2008 at 1:17 pm
Garth –
This buy in will be over the course of weeks not years.
I expect that between now and 2 years from now, we will be both higher (first) and lower (later) eventually.
We’ve been in cash long enough and missed enough of the down move that we can comfortably take some hear here for a few days and weeks.
And again, we are still over 50% cash . . .
October 24th, 2008 at 1:31 pm
man, you mega bears are as bad as perma bulls…when BR makes a call that isn’t the most bearish thing ever, you freak and some even start name calling.
those that at least use some logic to explain your position are excused. the rest of you – get a life.
October 24th, 2008 at 1:34 pm
There is a better than even chance that we will see capitulation today based on Chris Carolan’s darkest days of the calendar year study. Today marks one of the 4 darkest days of the year.
I am not predicting this, but don’t be surprised if the indexes drop by as much as 20% by moday morning from yesterday’s close.
October 24th, 2008 at 1:35 pm
OK, I need to vent again, but what I really, truly hate is when CNBC keeps talking about stocks tumbling but they are off “their session lows” or their “12 month lows”. Why the need for spin? Being off the lows is not news, it is probably the case 98% of the time. You only hit a session low once, twice, maybe three times in a day.
Until CNBC stops treating its viewers like children, I don’t see capitulation. So we may be in a stock market malaise for years. Lots of short-term trading opportunities though.
October 24th, 2008 at 1:44 pm
since when are markets logical/ rational?
October 24th, 2008 at 1:47 pm
Cash is a position.
It is NOT a Mega Bear or a Perma bull.
When someone disagrees with you it is not name calling.
Do a Google search for stock investing rules.
You will find:
Never take a big loss
Dead cats don’t bounce
Wait until the move begins
The trend is your friend
Manage risk
Be patient
Do not throw good money after bad
This is Investing 101 stuff, if you do not have any capital when the real trend becomes clear what then?
I do not know what that trend is going to be, and yes maybe it will be up.
love you all
October 24th, 2008 at 1:53 pm
@ CNBC Sucks:
Dude, I love you and all but seriously:
If you hate CNBC so much… Why dont you just turn it off?
I made that move myself months ago, and I’d have to say it makes my own perception clearer, and my mind more at ease.
CNBC does suck, so lets not watch it.
October 24th, 2008 at 2:28 pm
She’s going lower today. Only the very deep pockets or people who are trapped will stay long this weekend.
Sometimes I get the feeling that “certain people” are using my consistently negative posts as a contrarian indicator. Remember the Hysenberg uncertainty principle? When you start basing your actions on observation, the thing being observed changes behavior. Barry, I think you are log rolling off Niagara Falls. Try to be more careful and prudent. A lot of people trust you for advice and leadership. Don’t get carried away.
October 24th, 2008 at 2:38 pm
“Until CNBC stops treating its viewers like children….”
Their target market is the 19% who still think Dubbya is doing a good job.
October 24th, 2008 at 2:39 pm
Hey, sorry about all the multiple posts. My browser was acting crazy.
October 24th, 2008 at 2:44 pm
For those of you looking for the bottom:
Yes, there were some people that made money during the 30s. It wasn’t by looking for a bottom. It was by looking at those boring things like fundamentals. You know, like is there a market for the product the company makes?
For the next few years, the only buyer of market goods in quantities to increase a corporation’s profit will be the government. The people are tapped out. It’s depressing but it it’s the real deal. There is no there, there. We are going back to a low VIX and dividends as the main investment attraction. Yeah, it’s boring but that’s the way things are when liquidity is gone.
October 24th, 2008 at 2:57 pm
SkY hurts.
October 24th, 2008 at 2:58 pm
Barry,
You deserve kudos for your longstanding bearish sentiment.
But I’ll tell ya…
When you turned BULLISH on October 10th (yes I know you didn’t say get all in…and yes you indicated bear market rally etc)
I said to myself…It looks like a SUSTAINABLE bottom (lasting more than 6 to 8 weeks) is now within 5 to 10 trading days. WHY? Because you are always EARLY by a few days.
Thanks again as I will begin my 25% buy-ins at the close tonight (assuming a DOWN close)…
I will spend the next 4 days becoming 50% to 75% invested after spending the year in cash or short Indices ETF’s.
THANKS!
October 24th, 2008 at 3:00 pm
You are wrong here, Barry. This is not the time to scale in… you are wrong. This is going to cost you $$$$.
October 24th, 2008 at 3:13 pm
This bear will not die until the SPX is trading below 700.
Bulls, you should take a look at Hussman’s peak earnings model.
October 24th, 2008 at 3:23 pm
PPT must be buying hand over fist.
October 24th, 2008 at 4:06 pm
What if they gave an apocalypse and nobody came? If Obama wins this election, which seems likely, this market is going up.
October 24th, 2008 at 4:07 pm
i think that as long as we have the talking heads on cnbc and the idiots on marketwatch or wsj saying that ‘this could be the end, this could be capitulation’ we will have people buying into possible 1000 point down days.
like GH said, the whole finance industry has been raised on the notion of buying at the bottom. when everyone has finally given up hope of a reasonable rate of return on stocks, then a bottom has a chance of being formed. right now though, despite the ‘W’ bottom, i think its only temporary. and even if we never close lower than 8k, i dont think anyone sees another bull market for quite some time.
October 24th, 2008 at 4:14 pm
PPT have their hand over their fist alright….
but honest to god anyone buying or “scaling” into the market right now is, imho, nuts.
Who was it said “all of man’s troubles can be traced back to his inability to sit quietly in a room doing nothing”?
ah well, i guess traders are inclined, come what may, to uh, trade.
October 24th, 2008 at 4:39 pm
Rather than simply say YOU ARE WRONG, DOW 4000 HERE WE COME — how about some intelligence and insight?
Our host has meticulously explained his bear call for the past 2 years, and has explained in 10 charts his bullish trades.
I use my own strategies, but if I’m bullish and BR is bullish, I double up. Much more often than not, I’ve made money following these calls.
Those of you that who are so convinced we are going much lower with no rally in between whatsoever, would you be so kind as to explain,in simple terms, the basis for your calls?
October 24th, 2008 at 4:41 pm
Cajones Grandes !!!
October 24th, 2008 at 5:00 pm
Scott F – Well first theres greed and then there is the egotism of being right. Two of the seven deadly sins.
October 24th, 2008 at 5:22 pm
Those of you that who are so convinced we are going much lower with no rally in between whatsoever, would you be so kind as to explain,in simple terms, the basis for your calls?
———————
1. Apart for financials, I think earnings have barely started to come down.
2. I think people are still focusing on dividends when dividends will be cut as the economy weakens and eps drop.
3. So if you cut future eps, multiples still too high.
4. Too much money sloshing around still. Too many investors salivating with every market drop.
5. True. Markets don’t fall in a straight line to the trough. They do bounce around, but I’ve been in the business long enough to know myself. When I’m invested I spend too much time looking at my stock prices and not enough time doing my research. For the last 5 years, I’ve been doing my research and I know which prices stocks have to hit for me to pick them up. Now I’m working on the next 5 years.
Also, I know that I have trouble selling the sutff once it bounces up so I’m better waiting for the bottom. Then it falls again and I want to wait for the next leg up. Nope don’t want to play that game.
Finally, I have a life. If I’m playing the trading game to catch every bounce from every bottom, it can’t focus on anything else. And because I have a life, I tend to miss the bounce backs because I’m not necessarily on the trigger when it’s time to sell.
There are many ways to make money and rule number 1 is to know yourself.
October 24th, 2008 at 5:27 pm
Thank you Dan !
I appreciate your arguments, and I really don’t disagree with any of them very much. Mine is a trading call (when the easier thing to do would have been to stay mostly in cash).
But I love comments like yours — healthy debate makes us all better trader/investors.
As to catman — what we get paid to do isn’t greed, its to be opportunistic. Its not greedy when you go to work and get paid — my job description includes making money for clients when opportunities arise.
As to “the egotism of being right” — thats more about preventing anonymous trolls (not you) from besmirching a professional reputation. I have no patience for those haters, and I happily delete and ban the same asshat posters again and again.
October 24th, 2008 at 5:54 pm
The market will never go back up again I hear, “it is different this time”.
The thing is, every time we had a crash people thought “it is different this time”. If they hadn’t thought it was different that time they would have been confident in the market and there wouldn’t have been a crash in the first place.
The one thing that is exactly the same this time is that people think “it is different this time”.
I don’t know where the bottom is, but I know we’re at least 50% closer to it than we were a month ago. I’m doing the same as Barry, easing in a few percent here and there over every leg down with a few puts to take the edge off.
My first post here btw, love the blog and have learned so much from it. Thanks Barry!
October 24th, 2008 at 5:59 pm
ok scott F. (or F. Scott as the case may be..) What sayest this?
http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&width=1000&height=600&preserve_ratio=true&s1id=DBAA
October 24th, 2008 at 6:16 pm
yields for BAA-rated paper/bonds are high right now because demand for them is low. In Q1 1930, Baa paper waterfall’ed from a yield of 6% to nearly 13% Q2 1932.
Yields for BAA-rated paper/bonds are high right now because demand for them is low.
Note that Moody has A and AA and AAA rated corporate bonds, which did NOT drop as much as the BAA…..This is a telling sign that the bond markets do NOT believe that the debt of these corporations are collectable per whatever period they sell for.
These are bond yields, on not the best rated, but still investment grade corporate bonds. It is the guys closer to the margin. Its not the worst of the worst, but given the fact many corporations don’t have stellar ratings these days, you find there are quite a lot of them at or near the margin. Notice also the speed of this collapse. It happened within DAYS compared with the 30’s MONTHS. The GDP collapse this implies will be much the same.
we’re getting a different rhyme this time round from 1929. In ‘29 the crash in oct/nov wasn’t due to the bonds leading the way. But the April 30 bear market taking away 86% of the DOW WAS led by this paper.
One more reason I fear the chances of a “rally” are gonna be interesting
October 24th, 2008 at 7:50 pm
Scott F. -
Its the economy, silly. Earnings flat-out SUCK. The Alt-A and option ARMs haven’t begun re-setting in earnest. We have Birth/Death model catastrophically tilting the unemployment numbers. We have massive demographic (Boomers) that has been socking away the lion share of their income into the market and they are about to begin withdraws, in earnest.
We have banks hoarding capital. We have a FED that has lost control of the one thing they actually control. We have credit card debt that is higher than many countries GDP. We are at a point where each dollar of new debt has a Net negative effect to the GDP.
We have hedge funds blowing up. The alphabet soup the FED has created is not working. Auto makers are a hair away from total implosion. The consumer is close to saying no mas, if they haven’t already (see closing and consolidation in retail land).
I have more… shall we go on?
October 24th, 2008 at 9:27 pm
I go with Barry on a trading opportunity basis. Ultimate bottom much further down.
I was going to put a little more in with some orders for ultralong ETF’s I had set last night, but with the futures so bad, was afraid I’d pay too much, so cancelled them to see if it would drop more at open, but instead prices came off the opening lows quickly. So, I stayed put. I suppose there will be more opportunity.
Am beginning to think the intermediate bottom may come with a whimper and not a bang.
Like tyaresun, I had bought some calls too high, but all almost all don’t expire til Jan. so I ain’t capitulating even though the current losses look discouraging. They can bounce back quickly in a rally. My only discomfort with them is if my wife asks how my trading is doing
October 24th, 2008 at 10:05 pm
Good luck with your thesis… seriously. I just happen to think that a rally requires money and currently we are sold out.
October 24th, 2008 at 10:41 pm
Barry,
What have you been buying?
October 24th, 2008 at 11:34 pm
lot of gamblers out there taking longs when there is no clear and definitive buy signal. i would cut loose should the Oct. 10 SPX/INDU lows breakdown though. The NDX has already done so which is usually a leading index. Good luck catching falling knives is all I can say
October 25th, 2008 at 12:01 am
maybe a bounce… maybe not. a lower closing low is ominous though. I say why trade against what’s working??
I’ve been short housing for 2 years now, and I never had the thought “hey I should jump in here for a long trade!” On any big rally I just added more to my short position. I’m looking to close it out pretty soon, but it’s been a long, long ride that made a ton of money.
October 26th, 2008 at 5:46 am
speakin of CNBC, is it me or has Bloomberg TV upped the ante on CNBC BIGTIME with some of the Finest Honeys on the financial news circle…Erin & Maria who ???,…