David Rosenberg, the soon-to-be former Economist for Merrill Lynch, had a very prescient commentary last week about the 25% four week rally on Friday:

As for this 25% rally in three weeks – the consensus has swung to the view that this is a real inflection point. One warning. We saw this happen in late 2001 and early 2002 too … big, big rally; early cyclicals flew; the markets thought we were in for a V-shaped recovery … it was longer away than many at the time believed and many were burnt as a result. And keep in mind that the ‘second derivative’ on growth began to improve in the fourth quarter of 2001, and the S&P 500 still did not bottom for another year.

Currently, the equity market is priced for $70 on earnings on a going-forward basis, or a 75% rebound. And with retailing stocks up 30%, leisure/accommodation up 35%, and the homebuilders up 40%, the market is priced, amazingly, for a revival that is led by the consumer! (in fact, the only S&P sector that is now trading at P/E multiples that are at post-2001 highs is the consumer cyclical group). If we see that in the next year, we will be the first to hang up our Hewlett Packards. Being up 25% in a year and staying bearish … well, shame.

Achieving that in less than a month – come on. Too flashy for our liking.

In fact, let’s learn from history. The only times we have ever seen the stock market surge close to this much in such a short time frame were:

* December 1929
* June 1931
* August 1932
* May 1933
* July 1938
* September 1982

Only in September 1982 and in May 1933 was the equity market embarking on a new bull phase. But guess what? By the time the S&P 500 surged 25%, it had already crossed above its 200-day moving average. So call us when the S&P 500 crosses the 1,000 mark – another 20% to go. That is how deeply entrenched this particular bear market has been – that even after this massive rally, the onus is still on the bulls! Consider as well that on 4 of the 6 occasions that the equity market staged such a huge rally over such a short time period, it relapsed. So we are going to wait this out, acknowledging that we could be late to the party. We still feel the downside risks are too high to be involved.

Category: 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.

72 Responses to “Rally: Too Flashy For Our Liking”

  1. Bruce N Tennessee says:

    Obviously written by a man who has been on more than one cattle drive…

    Git a long little doggie…

  2. John from Concord says:

    One down day does not prescience make (though that said, I’m inclined to his point of view). We’ll see how the market sucks down earnings over the next couple of days — AA and MOS and a few other bigs kick things off tomorrow.

  3. Mannwich says:

    Bulls battling a bit this afternoon. Might see more of that this week, I’m guessing, a little sideways action until earnings numbers start to roll out. I wonder if earnings guidance has been sandbagged so much with expectations so low that we won’t see more of that sideways action for a while until May or June?

  4. leftback says:

    Trading seems very thin today as everyone waits for the April showers.

    It’s possible that we may well see some decent earnings here and there among the Q1 rubble – some of the energy/materials might be a little better than expected – but I have a feeling they will be drowned out by the disasters, especially in those sectors of the economy that are typically low margin, high volume. [I'm lookin' at you, retailers, technology, service providers]. Insurance companies have more problems than is generally realized.

    Don’t be surprised if some stocks get taken down 20% or more. That was a big rally already from SPX 666.79.

  5. drollere says:

    george soros, bill gates and warren buffett can afford, and understand in depth, the highest quality economic analysis and counsel on the planet. so until i believe politicians and fed officials are open and honest, i’ll go with the gates/soros/buffett public forecast: gonna be a long dreary haul, and a very feeble time for equities.

    thanks to a poster for pointing to the hussman funds weekly letter — it also contains the claim that a 30%-40% downside, from here, is entirely possible. to leftback’s comment, a related hussman post analyzes equity trends in terms of economic expectations — the market rises when upside expectations are exceeded and downside expectations are not. i would guess, in times of high economic uncertainty, expectations play an even greater role. (surprises are more shocking.)

  6. drollere says:

    postscript: given the flatline economic scenarios, my concern is shifting toward inflation and specifically the inflationary effects of free, freshly printed money.

    most of the stuff i have seen pins inflation on wage and price dynamics and the expectations priced into long contracts. anyone know of a good discussion of inflation re monetary and fiscal policy, especially as those increase during a contraction?

  7. leftback says:

    drollere; Try asking the Japanese about prices during the 1990s as they printed yen.
    Just because assets deflate and wages are flat doesn’t mean prices for everyday items will not rise.

  8. cjcpa says:

    I would ask Karen and Leftback how they reconcile inflation expectations against Roubini’s refrain: “slack in goods market, slack in labor market”.

    From where I sit, the best you can get is a lively discussion as the answer is not apparent. Massive deflationary forces are at work, while the gov’t has unleashed massive inflationary forces and stated that they will pull back as necessary, perhaps negating any intended effect by saying ‘this is not permanent.’

    There are large forces working in both directions, and like stocks going up and down, there are buyers and sellers at every moment, each with (nearly) opposite motivations or perceptions.

    why I come here, if I don’t trade stocks, is to get an idea of what is coming down the pipe. Protecting money I have saved against market declines or inflation. Worked out okay on number 1. Number to TBD.

  9. DL says:

    If the SPX could retest the 670 level on respectable volume, then maybe, MAYBE that would be the final low. But in any case, it’s certainly not going to be up, up and away from here.

  10. DL says:

    cjcpa @ 4:06

    I think that we should be specific about what we mean by “inflation”. Leave the CPI for the politicians to talk about. A key issue is that of commodity prices (copper, oil, aluminum, wheat, etc.), as they will largely determine future inflation.

  11. Bruce N Tennessee says:

    By the way, that long bond just keeps on misbehaving….I guess Papa Bernanke will just have to take it out behind the woodshed…wait…I think he said he was already doing that….

    Couldn’t be that people are paying attention to the Chinese agressive agreements with Argentina, et al, to use their currency as the basis of trade, could it?

    ..just wondering…of course the Chinese currency is years away from being considered seriously…yep, years… away…yep…years…..away……

  12. DL says:

    Bruce @ 4:15

    Maybe T-bond investors are finally starting to wake up and smell the coffee.

  13. Super-Anon says:

    Who had the stones to short REITs or financials? Scary business these days.

  14. MRegan says:

    China-Argentina deal.

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=amo3z_441h7g

    Here’s a crazy idea: Peru has over-planted rice and will have a surplus- sell it to Argentina for bull semen and sell that to China. Wear gloves.

  15. AmenRa says:

    The S&P tested 822.92 and held. The trend is still up…..for now.

    Question to all. If the economic theories that people like to quote/use were created while under a gold standard then are they still practical now that all currencies are fiat?

  16. leftback says:

    Bruce – In recent months, when the long bond gets to 3.00% on the 10-year has usually signaled a rally in Treasuries and a concomitant fall in stocks.

    cjcpa: “I would ask Karen and Leftback how they reconcile inflation expectations against Roubini’s refrain: “slack in goods market, slack in labor market”.

    The bottom line is this: if we really deflate hard, I am fine. This is the simplest case. I have no debt and own no depreciating illiquid assets of any description. Life goes on and I will prosper by acquiring assets at fire sale prices from those forced by the deflationary spiral to deleverage.

    But if we inflate as a result of monetary and fiscal interventions, I will suffer a decline in living standards. So I am simply protecting myself with TIPS and other reflationary instruments. The more acute becomes the debt reduction, deleveraging and deflationary pressure, the more the Fed will be prompted to intervene by printing money, and the more severe may be the rebound inflation. I am therefore investing in commodities [oil] that are in demand in the US and by other nations with stronger currencies and economies. This is what hedging really involves – to understand not only what you own, but also that of which you are short.

  17. techy says:

    so far my understanding is that inflation will only result if there is consumption….because speculative investors cannot hoard commodities forever(too much storage cost).

    I have read that OIL is now stored in hundreds of ships because of contango…but there is a limit and cost to do that.

    similary metals, grains etc cannot be stored for a long time.

    so where will inflation come from if the world has cut back on consumption??

    me thinks, maybe china has a lot of capacity to stimulate its economy using all the reserve/savings it has accumulated over the years.

    china has already started moving away from being mostly in USD. it is now investing big time in energy by investing its USD in africa and russia.

    it is also investing its USD reserves into mining companies.

    but i still dont see how china can switch from its export oriented economy to local consumption in a short time span??

    I think that they will let USD depreciate against commodities(due to its action of not buying USD and buying commodities) but they will keep RMB/Yuan pegged to USD till the time they think necessary to keep their exports cheap to usa.

    so is it possible that going forward….we will see the inflation due to falling dollar vs commodities??

    I think even USA wants to depreciate the dollar (or i guess they are not too concerned…for them employment is the highest priority right now) so the FED may keep up with QE to keep interest rates down.

    before we freak out…remember that falling USD is not such a bad thing….the world owns our debt in USD, and if USD was to fall 30% in next few years….thats 30% hair cut for them

    at the same time export will become profitable….local manufacturing will become cost effective.

    who knows….our past credit may have been completely subsidised by the manufacturers…..and now we may just not need them, and start our own factories.

    the only problem that i see is how far will commodities go in USD if global economy starts recovering.

    i know there must be a lot of holes in my above analysis….please let me know, i am trying to understand this mess so that i can have some control over things…

  18. Bruce N Tennessee says:

    Lefty:

    Same reason I am in very short CD’s…If inflation occurs, I have been around too long to let Bernanke take from me (to use my puny rate cd’s to pay for his ambitious reflation targets), so once I see it happening, I will be right there with you in inflation protected investments…

    I still think Mish has some valid points…and I realize once the government starts printing, things should start to reflate…but as Steve Barry used to opine, since the populace is starting already deeply in debt, will the government printing make Joe six-pack go deeper into debt?

    Hmmmm….but it IS interesting to watch…

  19. cjcpa says:

    Leftback,
    so it seems true to say that you are preparing for both cases, at this point not knowing which will arrive.

    I think that was somewhat of my point — not to dismiss the question of drollere with a ‘nobody knows’, but really that is the underlying status. Nobody really knows. Some think both will arrive in different asset classes. Many think inflation will come later. But nobody really knows what and when.

    It is a traders market. as the ups and downs struggle to prevail, there will be moves in both directions.
    I am singularly unsuited for making money in this environment.

    Later, the overall trend will reveal itself and ‘buy and hold’, or ‘avoid stocks as an asset class’ — will become more clear as a desirable investment strategy.

    AT said… with deflation… all asset prices go down. I made a note of that last fall.

    I am sortof waiting for this all to resolve itself. Seems like it is going to take a while.

  20. Short Man says:

    I would tread carefully if still holding significant long positions. On the S&P candlesticks we have back-to-back ‘hanging men’ patterns between Friday and today. This reinforces the possibility that heavy institutional selling is only partially offset by retail dead money coming back into the market. Definitely has me leaning back to the downside.

    I’m nearly out of long positions and am net short (cautiously) again.

    Short Man

  21. franklin411 says:

    Not everything goes down in a deflationary environment. Social instability and lawlessness typically soars. So anyone who thinks they’re prepared for deflation better start laying in a supply of firearms and kevlar vests!

  22. DL says:

    cjcpa @ 4:48

    Problem is, if you sit this out in cash, a year from now you may be kicking yourself for having missed out on a big opportunity. Thus, the lure of the markets.

  23. leftback says:

    @cjcpa Says: Leftback,
    so it seems true to say that you are preparing for both cases, at this point not knowing which will arrive.

    Precisely. The reflationists here are sometimes misunderstood as being Pollyannas. Not the case at all. A prolonged recession with inflation is among the worst scenarios, and that’s where I think we are headed.

    My money is on inflation ahead of us, and bear in mind that inflation has a way of arriving unexpectedly – but I will try to stay nimble enough to play this either way. Bear in mind that in the long run, interest rates MUST rise – these interest rates are historically low, so at some point all roads therefore lead to deflation.

  24. SWMOD52 says:

    techy

    I understand true inflation to be a monetary issue. In other words your dollars aren’t worth as much as before. So increases in money supply effects true inflation rather than demand. Supply and demand can effect prices but not cause inflation.

  25. techy says:

    isnt TIPS dependent on Inflation as stated by the Gobenmint…and if i remember right 2007-2008 commodities went through the roof but inflation was well below 3%??

    what is the best ETF for getting into all kinds of commodities (food, energy,metal).

    people have been saying that USO is not good for tracking, if so what is the alternative?

    I am right now 100% cash…planning to move 20% into commodities…unless you guys recommend something else for inflation protection (USD protection).

  26. DL says:

    techy @ 4:41

    “so far my understanding is that inflation will only result if there is consumption….because speculative investors cannot hoard commodities forever(too much storage cost)”

    There’s also the futures market to consider. If the forward prices is well above the spot price, those “hoarders” can hedge in the futures market. Bottom line is that investment in commodities will precede end user demand.

  27. DL says:

    techy @ 4:41

    Cramer says that USO underperforms oil during contango, and outperforms during backwardation.

    DJP is a simple, plain vanilla way to go if you’re not a trader and have no interest in leverage.

  28. techy,

    just a point, w/this: “similary metals, grains etc cannot be stored for a long time.”

    Metals, for certain, can be stored for serioulsly long periods..

    as a case in point, after the USSR turned CIS, it took them the better part of a decade to work off their Ni stockpiles..

    and, see: http://www.mineweb.net/mineweb/view/mineweb/en/page35?oid=54685&sn=Detail
    “today’s” concerns with Russian Pd..

    even the “Softs” aren’t that difficult to store..

    LSS: Producers control Any Market

    why the ol’ adage: “Give me control of a Nation’s money, and I care not who makes its Laws”

  29. DL says:

    Techy @ 5:07

    If you like mathematical formulas, see the following:

    http://en.wikipedia.org/wiki/Forward_price

  30. techy says:

    SWM…thats the academic version….how does it play out in real world??

    in fact i expect commodities to fall a bit when the equities will fall this time, because they will say “unexpectedly economic recovery is not happening tomorrow…”

    money supply is increasing….but there is no velocity right now.

    in fact it is debateable that money supply has really increased…since so much asset value has been destroyed by loss in equities, commmodities, real estate etc..

    does some one know how much money has been lost in equity market itself?? compare that to how much money the FED has infused as bailouts??

    but i am expecting china/others to increase USD supply (or rather it will not decrease USD because it is stopping storage of USD and moving into commodities)

    FED can print money and give it to everyone but there will be no inflation if we dont spend it.

    so far FED action wrt to printing has been only to stop deflation…..because without their action….my cash could have bought a decent house… but i may not have had a job :) (25% unemployment…all banks gone kaput…GM & Chrysler gone.. etc..)

    i think i am leaning strongly towards:
    the only reason we will get inflation is: some one starts buying stuff we need(commodities) and consumes it, increasing the demand.

    in the short term they can simply store the stuff…and the price will go up. but due to storage issues they can only store so much.

    but there is a catch:

    If USA economy starts to recover….all the above may not happen…because USD will again become strong because of investment inflow from the world.

    and china will like to keep their exports cheap and hence will continue the past policies, of course with reduced intensity.

    here is something to ponder about:

    India maybe able to replace china as the creditor/manufacturer by pegging its currency…..exporting stuff in return for USD.

  31. techy says:

    Mark…

    but why will some one buy metal to store…unless there is fear of shortage in future??

    DL:

    future markets contract rolling will not make the price go up forever….because then again it has to be stored somewhere (producer will have to store current stuff somewhere if the current contract has become cheaper than future contracts)

    just like they are doing right now for OIL….they are getting stored in ships.

  32. techy,

    refining metals is arduous work, that not only takes Time, but multitudinous other inputs, as well..

    Economically, refined metals, as an Asset Class, are radically underpriced–their Costs are far higher than their Financial Price..

    LSS: if Sudan heats up, and the African Union takes hold, the PROC will want all Natural Resources, including Metals, it can afford, on hand..

    Storing Oil, on the other hand, is difficult, one reason that China’s e-production is geared to Coal, they’ve had that since they kicked the Japanese out of Manchuria..

    Also, it’s another Reason why they’re spending so much time in Siberia..

  33. Bruce in Tn says:

    ” – these interest rates are historically low, so at some point all roads therefore lead to deflation.”

    Lefty, you meant to say all roads lead to inflation….I fixed it for you…I imagine the Swedish twins must be coming over tonight…

    ……good luck.

  34. DL says:

    techy @ 5:33

    I’m not an expert on this. I would note that crude oil for May 2009 is @ $51, and for May 2010 is $64. It would seem to me that if someone is hoarding crude oil, they could short the May 2010 contract. If the price for May 2010 delivery declines, they make money on the contract. If the price increases, the value of their physical holdings increases. (And of course at some point, they can always liquidate their positions).

  35. AmenRa says:

    I understand that when a foreign country buys US bonds that that will increase the money supply because they have to convert their currency to USD for the purchase. But if the Fed is doing the buying is it actually increasing the money supply? Or is it just a reduction of the purchasing power of our currency?

  36. ben22 says:

    looks like the bank analyst had to make a name for his new firm today. Shocking news on those reports, 11 banks are in trouble. Wow. I had no idea. lol.

    As I have written on here a 100 times I’m firmly in the inflation/reflation camp. How come only karen and lefty get any love for that?

    Yes, I agree, lots of deflationary forces at work, but prices, for lots of stuff has been very sticky. I spend all my time trying to prove myself wrong, that there will not be inflation, but so far, I haven’t changed my mind.

    @Mark E. Hoffer,

    Wonder if anyone got long RTN with me? That felt good today. Knowing about the connections to the current admin. still plenty of time on that one.

  37. Whammer says:

    @lefty — looks like you called the LB top, in addition to the LB Bottom????

    We are not worthy!!!!!

  38. ben22 says:

    BR,

    I agree that this:

    And with retailing stocks up 30%, leisure/accommodation up 35%, and the homebuilders up 40%, the market is priced, amazingly, for a revival that is led by the consumer!

    doesn’t make any sense. With starts so low now homebuilders will be a trade all year long, but consumer discretionary is not alive and well IMO.

  39. ben22 says:

    there should be a good opp to short AAPL after 4/22

  40. “Question to all. If the economic theories that people like to quote/use were created while under a gold standard then are they still practical now that all currencies are fiat?”

    The big difference is that when there is a gold/silver/conch shell/whatever standard, there is less opportunity for the government to attempt its illusionist trick of creating value by placing green ink on paper, provided, of course, there is not an unlimited supply of whatever it is that the currency is tied to.

    Gold and silver always make sense as currency, as they are stable elements that are readily divisible into amounts small enough, yet valuable enough, to make them useful. Also, theyare rare. Adding to their supply is extremely expensive.

    Throughout the history of money, there has been debasement of its value, sometimes by the entity that issues it, sometimes by its users. Debasing the currency seems to be a human attribute that we’d do well to account for in designing currency systems, but that fiat currencies implicitly refuse to acknowledge. Making it harder to debase the currency seems like a good thing.

    At present, and not including the fiscal stimulus, the Federal Reserve, without anyone except its governors voting on it, has agreed to increase the supply of currency by about $3 trillion dollars. There is no way they could have done that under a gold standard, and that is the point. And of course, it is inflation that they are seeking, particularly with their latest tranche, directing their dollar creation at the MBS market in order to artificially prop up the prices of houses. And remember, a price decline that doesn’t happen because of monkeying with the money is just the same and just as illusory as a price increase we would call inflation.

  41. ben22,

    RTN is decent play, nice 8+% up-move today..

    not sure if you had TBP joiners, they’ll have to call out (:

    maybe I’m old-fashioned, or, could be stupid, but I like those MO covered-call Writes..

    the Apr16s are paying ~2% for 11 days..

  42. leftback says:

    @Bruce: ” – these interest rates are historically low, so at some point all roads therefore lead to deflation.”
    Lefty, you meant to say all roads lead to inflation….I fixed it for you…

    NO NO NO. I did mean deflation, IN THE LONG RUN. What I mean is that after inflation occurs, then you have to raise rates to control prices and then that is where the whole edifice comes crashing down. There is no escape from this mountain of debt. Stimulus is just kicking the can down the road until we have to return to sound money.

    “I imagine the Swedish twins must be coming over tonight…”

    The Swedish girls were a steal from Philip Roth’s novel “The Professor of Desire”. The protagonist, unlike Lefty, is something of a rake, and lives a desultory life in New York. I have recently been asked by those of delicate sensibilities to delete the Swedish girls.

    @lefty — looks like you called the LB top, in addition to the LB Bottom???? We are not worthy!!!!!

    The Leftback Top™ remains in place, for now. We’ll see how it works out. Mr Market is tricky.

    @ben22: Dude. I see you – riding the reflationary bus. Respect, bro’.

  43. AmenRa says:

    @The Curmudgeon:

    So inflation would be a reduction in purchasing power of the currency? Asset prices increase but only because the value of the USD decreases. Also that would then assume that if asset prices are decreasing the value of the USD is increasing aka deflation. Damn I need a drink now.

  44. ben22 says:

    @lefty,

    thanks man. I agree with that longer term outlook about deflation as well. It must eventually come to that, it’s just not now, IMO.

    Mark,

    you might be old fashioned but I don’t think what you are doing with MO is stupid.

  45. leftback says:

    @ Amen. NO! It’s worse than you think – the leveraged paper assets (houses, stocks, bonds) are no good without demand and a rising velocity of money. But real assets like oil, grains, gasoline, etc… can move independently of stocks because there is external DEMAND for oil from other countries, but NONE AT ALL for Mr. Joe Sixpack’s home, his mortgage or credit card debt.

    We really and truly are f***ed. Declining paper assets and rising hard asset prices – AT THE SAME TIME. It will start slowly, my friend, but by the time it picks up speed you will be too late. Read some Marc Faber and Jim Rogers for a fuller explanation, my friend. Oil stocks will be fine. Gold miners, likewise.

    We are all Argentines now.

  46. DL says:

    Do banana republics with a huge debt overhang end up with deflation?

  47. AmenRa Says:

    April 6th, 2009 at 6:28 pm
    @The Curmudgeon:

    So inflation would be a reduction in purchasing power of the currency? Asset prices increase but only because the value of the USD decreases. Also that would then assume that if asset prices are decreasing the value of the USD is increasing aka deflation. Damn I need a drink now.

    Reply:

    Inflation is everywhere and always a monetary phenomenon. It is always the result of money growing more rapidly than is output, because money, in its fiat form, only represents value, it has no value on its own. The best way to measure inflation/deflation in internationally traded currencies is to look at internationally-traded commodities. If their prices are screaming up across the board, there is inflation,as was the case in 2007. If they are decreasing, there is deflation. Expecially watch oil, as
    leftback says. And forget the domestic CPI. It is so manipulated until its useless.

  48. DL says:

    leftback @ 6:41

    “impaired” versus “unimpaired” assets as Jim Rogers would say.

    I’d like to see a plot of the ratio of the CRB index to the Case-Shiller index; it’s been rising, and will continue to do so.

  49. leftback says:

    Oil price is especially crucial in the U.S., because of the role of gasoline prices (think: delivery trucks driving every day across this giant country) in determining the prices of basic foods and beverages. It is therefore the major determinant of the CPI and even more so of REAL inflation. BR did a nice dissection of this last summer.

    DL said: “Do banana republics with a huge debt overhang end up with deflation?”

    Yes. Once the IMF has made them take their medicine, the economy collapses. The rich retreat behind the high walls and barbed wire and lots of people end up scavenging on garbage heaps for a few years. It’s not pretty.

  50. and, to lb’s, et al. point,

    that story that was circulating re: Abandoned Boats is the perfect example of the type of ‘assets’ that going to go Zero Bid..

    one would have a hard time trying to imagine how many “boats”, “RVs”, excess ATVs/Snowmobiles there are in this Country–let alone “condos” and CRE of many stripe..the ‘valuations’ of, the previous, is heading South in Real terms..

  51. Mannwich says:

    @ben22: I was watching RTN today but could not pull the trigger. Oh well, will keep an eye on that in the coming weeks. Hope I didn’t miss my opportunity thought.

  52. Bruce in Tn says:

    Lefty:

    I understand your point…but I am not as sanguine as you about the final outcome of the fed’s massive monetary input….yes, we’ve had decades of debt creation, and that bubble has popped. But I think of economics as an inexact science…and not predictable…could Bernanke manage another round before Armageddon?

    Nonetheless, I am in CD’s..and short term….

  53. and, further to lb’s point, Landfill mining will be a Growing Trend/biz-opp..

    if the U.S. had any American Leadership, we’d start Tonite on fleet-wide retrofit to CNG, we have so much of that stuff it isn’t funny..

    the Only reason we are ‘Oil dependent’ is to inflate the Petro$, and hold the ‘cained peep hostage–the ultimate ‘billy club’ to keep them from getting too uppity–worked like a charm in the ’70s..and yon’ Petro$ is still riding the waves..

  54. DiggidyDan says:

    See previous discussions about bifurcated economy and elasticity of demand for more on the inflation/deflation debate. Our only saving grace is being the reserve currency for the world’s commodities and having natural resources and high agricultural production. Hopefully that can carry us over until all the credit unwinding takes place without too much catastrophe.

  55. Mannwich says:

    Great thread, guys. Unfortunately I feel even worse about this country’s prospects but I appreciate the facts and cold hard truth.

  56. Bruce,

    w/this: “could Bernanke manage another round before Armageddon?”

    it’s all about confidence and coordination/fear and ignorance.

  57. DiggidyDan says:

    MEH, you’re starting to sound like Pickens! (butcept with more commas)

  58. cjcpa says:

    It is duly noted that BEN22 is on the reflationary bus
    with big balloon tires.

    I don’t know if I got an explicit answer to:
    Roubini says no inflation because “there will be slack in labor markets, slack in goods markets” etc.

    I get the above. Thesis is that foreign countries will drive these prices up.
    and maybe more if the dollar becomes worth-less compared to other currencies.

    Such that slow demand for things such as oil in the USA will not determine the price of said materials in a global market.
    Other, developing, GROWing countries will be driving these prices.

    It seems that many have said the USA is getting booted out of the worldwide drivers seat. On many levels.

    cjc

  59. Diggidy,

    T Boone is spot-on re: CNG

  60. leftback says:

    Mark, if oil gets out of control again in 2010, we will find everyone will be squealing for the CNG again soon enough. Curiously enough, we own both oil and nat gas at Schadenfreude Asset Management.

    We think these assets will prove to be more useful in future years than shares of “upscale retailers”, high yield “BB-rated” bonds issued by “exciting growth companies”, investments in “unique abstract artworks” or houses “of taste and distinction” in “upscale neighborhoods”, and especially this:

    - more useful than $1M 450 sq ft. studios in Manhattan.

    Bonfire of the Vanities, part deux.

  61. DL says:

    cjcpa @ 7:32

    Regarding Roubini, it’s a question of time frame, and how “inflation” is to be measured.

    The CPI will almost certainly remain quiescent for at least a year.

  62. Mannwich says:

    Speaking of Bonfire of the Vanities, part deux……

    http://abcnews.go.com/Blotter/WallStreet/story?id=7270405&page=1

  63. lb,

    I hear you, it’s too bad there isn’t ETFs of those thing you listed, they, too, are heading South, in Real terms..

    esp. those ‘shoeboxes in the sky’

    though, to DL’s point, re: CPI, it’s a big Reason I don’t care for TIPS, note the USTreas isn’t soo stupid as to link those Bonds to something they can’t, most readily, control..if only they’d extend the portfolio duration of their Borrowing, one could, almost believe they were wearing the Uniform w/ R, W &B..

  64. leftback says:

    Mark: I own TIPS in my 401K. Returned ~6% in March.
    Best of a series of unattractive options and enables me to take risk elsewhere.

    Not owning a NYC shoebox may yet prove to be a wise decision.
    Supply can be a bitch, in the absence of demand, I am told.
    At Schadenfreude Asset Mgmt, the shoebox exchange is a market we watch with interest and no little relief.

  65. some_guy_in_a_cube says:

    Still no sign of any of the following:

    Trend reversal.
    New leadership.
    Positive policy shift.
    Improving global fundamentals (discounting the tripe reported by thumb-sucking book-talking CNBC, Bloomberg and other media talking heads, pumpers and touts).

    This rally is bullshit.

  66. lb,

    the TIPS spread has been widening out..

    better there, than getting widened out in some Long-Only ‘Equity’ Fund run by some guy who’s merely looking to lend stock to Shorts..

  67. impermanence says:

    The American economy lies in ruins due to incredible fraud, corruption, avarice, and any other vice you would like to add, and everybody here is still trying to figure out how to play the rigged casino and get something for nothing.

    Is it not time to move on and realize that one must not expect to gain at somebody else’s expense? Why the rest of the world has not invaded and taken over this country, subsequent to the massive financial fraud perpetrated, is beyond me. We threaten to nuke any country who dares to look at us the wrong way. This is why our time at the top has come to an end.

    I would like to thank, from the bottom of my heart, the business and political leadership in the United States, for squandering two centuries of goodwill for your own pathetic insecurities. You are truly the essence of everything corrupt our forefathers left Europe over. Take yourselves and your central bank and go back from whence you came and leave us the hell alone, or one of these days, we will point those weapons of yours, at YOU!!

  68. royrogers says:

    this financial fraud has to be the one of the largest global scams in the history of mankind.
    Robbing the avg joe’s of the world of their life long pensions and investments.

  69. james hogan says:

    http://bhamblog.typepad.com/the_curmudgeon/ @ 6:47

    “Inflation is everywhere and always a monetary phenomenon. It is always the result of money growing more rapidly than is output, because money, in its fiat form, only represents value, it has no value on its own.”

    This is the standard Friedmanite description of inflation: more money than output, more inflation. It isn’t quite right, though, as the most_recent episode with real estate shows (a previous episode was the S&L “crisis” in the mid-1980′s–it showed it too, but that’s another story, how so many people missed it.)

    In the great property bubble, all that was necessary to get a mortgage funded was to show that the property up for sale was worth some value as determined by an entire network of (self-interested) players. This is hard to try to cram into a single sentence, but every player–the seller, the real estate agent, the buyer, the appraiser, the mortgage lender–all had a strong incentive to get the mortgage approved. Only builders were involved in any sort of “output” as it is commonly understood.

    In each case, every player in the game had an incentive to maximize their return by behaving in a certain way.

    The seller made more money by selling the property at the highest price possible, obviously.

    The real estate agent made more money because he was paid on commission–higher price, higher commission.

    The buyer wanted the property so that he could sell it later to a “greater fool” (and the buyer was subsidized in this belief if lived in the house for at least 2 years then the capital gains -up to $500,oo for a couple-would be tax-free).

    The appraiser wanted to please the mortgage company, so he was inclined to go along with the highest appraisal possible. (I say this because I actually experienced this attitude when we refinanced our mortgage.) It also came to me from an appraiser that if he wanted to keep working , he’d keep appraising at the high end of the estimates.

    The mortgage lender (the original mortgage lender, that is) wanted to create a mortgage as high as possible because he could then sell the mortgage for more money.

    Maximize profit, all along the line. Turned out to be a major disaster.

    Because the price of housing isn’t based on “estimated value” of any sort, but is instead based on the ability of the buyer to pay the mortgage. About 3 times gross annual earnings is all that a buyer can pay for a house. That’s reality.

    And now trillions of dollars of that supposed “wealth” just vanished.

    An earlier comment that you made regarding the restraint on the creation of money was absolutely right. It has always been very hard to keep the creators of the money in check, especially when creating more money might get them reelected.

    But tying the supply of money to the supply of gold and/or silver only represents the supply of gold/silver that a nation has. We need money that represents the economy, and is should be created by the Congress. That is the Constitutional mandate.

  70. batmando says:

    What gives with YahooFinance and google Finace? Neither are yet reporting SPX this a.m.?
    Short of acquiring a Bloomberg terminal, suggestions for best web locations for tracking multiple exchanges/stox?

  71. batmando says:

    What gives with YahooFinance and GoogleFinance? Neither are yet reporting SPX this a.m.?
    Short of acquiring a Bloomberg terminal, suggestions for best web locations for tracking multiple exchanges/stox?

  72. [...] out could be a little premature. Markets, including in India, have revived somewhat, but many are sceptical that this rally will [...]