The Eternal Optimism of Opening Day
With the S&P’s as of Friday’s close up 26% off the low of 666, it’s fueled the debate of whether the bottom is in or is it just another bear market rally. With opening day in baseball today always engendering in fans the eternal optimism that this is the year, especially for Cubs fans (no disrespect to the Cubs as I’m the Cubs of my fantasy rotisserie league, aka, never won), the bulls are thinking the same that 2009 is the bear killer.
What has made the call much more difficult is the money printing and easy money path of the Fed and other central banks as the inflation that will ensue (that’s their main goal) can result in nominal returns in equities but not real returns. As the S&P’s have rallied 26%, the CRB is up 15%. It’s like a Cubs hitter that smacks a lot of home runs in Wrigley Field b/c the wind is always blowing out but can’t hit one on the road without the help of the wind. The stats look good but it’s not real.
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April 6th, 2009 at 9:25 am
Maybe I’m wrong but I don’t think the market is up because investors are preparing for inflation, I think they’re preparing for a rebound in the economy.
They’ll be disappointed, the market will tank again and then it’ll be time to start preparing for the great inflation that no one will see coming.
April 6th, 2009 at 9:57 am
Not sure I understand this post. I think your suggesting that the SP500 rally is misleading due to money printing and inflation. I think that’s a partial contributor to 26% jump, but if this was the case then you would see commodities OUTPERFORMING the SP500, which they are not. And, Gold is getting trashed. I think the stocks are rallying due to a “reprieve from the deflationary spiral,” not necessarily inflation.
April 6th, 2009 at 10:02 am
this is a 25 year credit cycle gone bust. a housing bubble that was the biggest in the history of financial markets. a consumer spending bubble that has burst. attitudes have changed towards debt and those attitudes have changed permanently. to think this collpase can be resolved in 17 months is ridiculous. i see no signs of inflation for the short to intermediate term. housing prices are still falling and will continue to fall. unemployment will continue to rise. the china story right now is a pipedream and there is NO WAY china can lead the world out of this depression. wages are not only stagnant but are being cut in many industries. trillions of wealth has evaporated. commodities for some reason (copper in particular) have rallied and many have poijnted to early signs of recovery. this is a pipedream considering defaults on prime are up and commercial real estate continues to implode. good luck holding equities. the worst is yet to come as far as the economic crisis.
April 6th, 2009 at 10:05 am
My son often accuses me of being a pessimist. I tell him that objectively looking at the world admits of neither a pessimist nor optimist philosophy.
But the maddening crowd always lurches from euphoria to panic and back again, and with the electronic connectedness of the day, can do so at frightening speeds.
As the Christian community should well be able to appreciate in this Easter season, five days after Jesus rode into Jerusalem on a donkey (or colt, there are differing versions of the story) to hails of Hosanna and palm fronds waving, that very same crowd turned on him and had him hanging from a cross.
As we’ve just exited an era of unbridled euphoria and optimism that things really were different this time, the panic of realizing that they aren’t, and that the human condition does not substantially change because you change the method by which it is counted (i.e., the money) is beginning to settle in.
I expect the psychological swings to become ever more severe as we tarry down this road. Crowds are nothing if not manic-depressives. But objectively, things are neither as bad now, nor were as good then, as was/is believed. We make mistakes when we allow our emotions to enslave us and obscure the true reality. The flip side of hope is fear. I rather prefer to indulge, or be controlled, by neither.
April 6th, 2009 at 10:13 am
Andy Taboo says:
I think the stocks are rallying due to a “reprieve from the deflationary spiral,” not necessarily inflation.
Reply:
Prices that would otherwise be declining except for the creation of money/credit is inflation. Recall 2003 when Greenspan pushed interest rates to their lowest since the fifties because he feared deflation in consumer prices. He was successful at halting the slide in consumer prices that would otherwise have happened, however his attempt at forestalling consumer price deflation caused massive inflation in commodities. Prices will find their appropriate, real level, no matter how much mischief is played with the money, as we are about to find out, again, in residential real estate.
April 6th, 2009 at 10:19 am
Nice analogy, Peter. To extend the analogy, no matter how many home runs the Cubs hit, baseball is really all about quality pitching. In this case, if the Cubs have lousy pitching (credit markets) a few home runs (equity rallies) are only going to lead to the inevitable June swoon.
I know, I used to have season tickets.
At said: “I think the stocks are rallying due to a “reprieve from the deflationary spiral,” not necessarily inflation.” Agreed. We have been buying the “world is not ending” trade. Now what?
April 6th, 2009 at 10:21 am
Or the inevitable swoon in October. Either way, it’s coming for both the markets and the Cubs.
April 6th, 2009 at 10:23 am
Here’s a clip of Hugh Hendry and Liam Halligan discussing the spectre of inflation. Hendry’s view is solidly deflationist. He doesn’t see how Halligan’s outcomes can come to pass.
http://www.cnbc.com/id/15840232?video=1058753794&play=1
It’s one thing to print a ton of money but if velocity is impossible to achieve, how does inflation happen? I wish I weren’t so dumb and innumerate. Then I would know and soon be able to festoon me ‘umble ‘ome with the finest of lace curtains.
April 6th, 2009 at 10:26 am
I can’t see how inflation really happens in earnest until the job losses stop or at least slow down. If/When that happens, then I think we’ll finally have our inflation.
April 6th, 2009 at 10:32 am
“The Banker Who Said No”
http://www.forbes.com/2009/04/03/banking-andy-beal-business-wall-street-beal.html
…Then came a shocker: Amid one of the most reckless lending sprees in history, regulators focused on the one bank that refused to play along. Beal’s moves confused and worried them, and so they began to probe him with questions. “What are you doing?” he recalls them asking. “You’re shrinking yet you’re raising capital?”
Says Beal about the scrutiny, “I just didn’t fit into any box.” One regulator, the former head of the Texas Savings & Loan Department, Charles Danny Payne, says, “I was skeptical at first, but I’ve gained a lot of confidence over the years,” adding that Beal has an “uncanny ability to sniff out deals.”
Next, the credit rating agencies started pestering him about his dwindling loan portfolio. They never downgraded him but scolded him for seeming not to have a “sustainable” business model. This while their colleagues were signing off on $32 billion of bum collateralized debt obligations issued by Merrill Lynch….
interesting article
Don’t forget, every baseball game has an ‘officiating’ crew,
to make sure the rules are EQUALLY applied.
April 6th, 2009 at 10:43 am
“It’s like a Cubs hitter that smacks a lot of home runs in Wrigley Field b/c the wind is always blowing out but can’t hit one on the road without the help of the wind. The stats look good but it’s not real.”
Is like the Cubs hitter that accidently used cork in a bat and didn’t speak English when asked about PEDs? :). Just teasing U a bit – I’m a Brewer fan so I know a little something about not winning. Good luck to your team in rotisserie!
April 6th, 2009 at 10:44 am
That is essentially what we have now.
A baseball game with no umps.
the pitchers call their own strikes,
the hitters call their own balls,
and when they steal home,
they REALLY steal home.
April 6th, 2009 at 10:50 am
@ Mannwich 10:26
“I can’t see how inflation really happens in earnest until the job losses stop or at least slow down. If/When that happens, then I think we’ll finally have our inflation.”
So, does this mean that so long as the layoffs continue, the markets can continue to rise, climbing the “wall of layoffs”, as it were?
April 6th, 2009 at 10:54 am
@constantnormal: I guess that’s possible but I don’t think it’s probable. If more and more people don’t have jobs, how do they buy stuff to support company profits and the economy? Isn’t that what our (don’t laugh) markets are supposed to represent?
April 6th, 2009 at 11:25 am
“Better than Ezra” Report: Cuomo charging Ezra Merkin with civil fraud. Great start. Need to get some criminal charges in there too.
April 6th, 2009 at 11:37 am
More Perp Walks means Fewer Pitchforks.
April 6th, 2009 at 11:38 am
I didn’t know there was such a thing as a “civil” fraud – especially one that could be charged by a non-party. I wonder what the legal distinction is.
April 6th, 2009 at 11:43 am
Oftentimes “civil fraud” is just a precursor for criminal charges as they build their case, I believe, since criminal charges put a bigger burden of proof on the state.
April 6th, 2009 at 11:46 am
Barry,
I would love to see a thread dedicated to personal observations of how this recession is playing out in all the various local economies represented by your readers/posters. I am really interested in what people are seeing and experiencing in their local economies rather than what commentators and statisticians are feeling, nothing wrong with that but I want to hear the people on the streets…
A couple things struck me this weekend (SF Bay Area, I feel we live in a middle class area but maybe we are upper middle class) as I went about my business.
1. We went out for dinner with friends to celebrate a birthday, it was Sat night at 6:30 (we all have kids), no reservations, walked in and the place was empty, and we were immediately seated for a seven top. When we left at 8:00 the restaurant was still 50% empty. This is one of the few good restaurants in our community and right next to the new movie theater.
2. During dinner heard about how back in January the Ritz-Cartlon had put all non-exempt employees on four day work weeks. This week one of these non-exempts, the Chef was let go as a cost cutting measure after as the sous-chef can do the job for 50% less money.
3. Went to Home Depot three times on Sunday (8AM, 10AM, 11AM) and it was empty. It is spring time here time to build, garden and start projects. There was only one live cashier open plus the self-check out lines. During the first visit I used the live cashier, walked right up to her, no line. At the second visit I had a return, no line, just me. On the third visit there was a line of three people for the only live cashier, and the self-check out registers (four) were all in use but as I walked up to check out one immediately opened.
4. This weekend I decided it was time to eliminate all employee benefits at my business. We are a small company and have offered 401k (4% Safe Harbor Match), Paid Vacation, Health, and Dental for the last 9 years. No more as of today it is just wages. I have not drawn a salary since December and enough is enough. And we are in a “recession proof” business; all of our work is related to insurance related claims. Our problem slower and slower payment and/or the insured leaving town with our monies.
5. The coffee shop – on Sunday, there was one other person at a table around 7:30AM, this morning at 7:30 there was not another soul in the place.
6. 8:43AM – Monday, there are eight businesses in our building that share our parking area and right now there are four cars in the parking lot other than those for our business. Four employee cars for seven businesses – it is a graveyard.
April 6th, 2009 at 11:47 am
Maybe the accusation is “fraud”, and the case is being brought as a civil action (still can’t see how the state gets involved, unless it’s a damaged party), and criminal charges will be forthcoming.
April 6th, 2009 at 11:49 am
@Marcus: I believe they’re charging that Merkin funneled funds to Madoff without some of his clients knowing it.
April 6th, 2009 at 12:11 pm
jason. that sounds depressing. I think there are certain regions that are suffering a Great Depression of sorts and then there are regions suffering ‘mild recessions.’ It seems very regionalized. There are certainly people cutting back in the houston burbs, but i see packed restaurants when they should be packed. Furniture stores not so busy and real estate agents a little anxious, but everything else is still going. Maybe it’s just a slower moving wave coming this way.
Wonder if any of those big brain economists in the Fed are going to do analysis about why certain regions suffered a lot more than others. I’ve been very critical of California’s anti-business, pro-regulation, economically perverse laws, NIMBY attitude for many years. I think the Golden State is a structural mess. The whole beauracracy and mess of laws needs to be blown up.
April 6th, 2009 at 12:19 pm
Jeff,
don’t get too excited, Merkin could only be more tangential to this affair if he was an lifetime MTA card-carrying Bus Driver..
see: “limited hang-out”
“A “limited hangout” is a partial confession, a mea culpa, if you will, that leaves the essence of a crime or covert reality hidden. Because it includes some small part of the truth, the limited hangout is irresistibly attractive to dissidents and political critics whose thirst for such truth makes them jump at the dangled scraps. Once the system’s watchdogs are busy chewing on the limited hangout, the guilty players can go about their illegal business for a new round of unaccountable, semi-secret mayhem.[1]
If you want to see an excellent limited hang out at work, pick up a copy of the John Perkins’ bestselling Confessions of an Economic Hit Man. In his limited hangout confession, Perkins describes his career from 1971 to 1981 as a highly paid professional who helped defraud Third World countries by helping syndicates make uneconomic loans as a means to facilitate the eventual takeover of those economies by elite and corporate interests. …”
http://www.scoop.co.nz/stories/HL0503/S00090.htm
under the heading ‘Economic Hit Men’
April 6th, 2009 at 12:20 pm
@Hoffer: I guess one man’s “fraud” is another man’s “business”. Seems we have a bit too much of that these days. After all, it’s just business, right?
April 6th, 2009 at 12:25 pm
Jeff,
It b bidness, no doubt~ Glad to see you’re learning (:
as you know, these ‘people’ are beneath being despicable..
http://www.thefreedictionary.com/despicable
April 6th, 2009 at 12:28 pm
Civil Fraud is when someone politely relieves you of your wallet, in a civil manner. Unarmed robbery.
@MEH: John Perkins’ bestselling Confessions of an Economic Hit Man. I am reading this at home after finding it at the weekend at a Fraudfield County book fair ($2 – we like a bargain here at Schadenfreude).
Mannwich; The Bear Market will end when US Business is universally seen as Fraud.
April 6th, 2009 at 12:30 pm
psychology is still ingrained that all will be well. it is in the american psyche to want to believe. they understand that things are bad but just can’t accept the fact that banks and gov brought the country to it’s knees. once those ideals start to whither god help us. the revolts will start. the catalyst may be a gm bankruptcy
April 6th, 2009 at 12:36 pm
@leftback: “Mannwich; The Bear Market will end when US Business is universally seen as Fraud.”
Sadly, I think you may be right. I still get quizzical looks when I’m out with friends for drinks. A buddy of mine (who I easily won a prior bet with in ’08 on market predictions) who is a great friend told me he thought it was a great time to get in now and that investors had better start getting or they’ll miss a big opportunity. He was stunned when I told him I still disagreed because the market had gotten way ahead of itself with this latest 25% run up.
They all think I’m insane and far too pessimistic. Another friend told me that I was “part of the problem” because I was short the market right now. Maybe I am but I don’t think so. Just trying to be smart here. They’ll get caught up someday to blogs like this one. Maybe……
April 6th, 2009 at 12:42 pm
lb,
“Why should it Cost you?”
book fairs, book depots, used book exchanges, etc., they’re all Good.
as an aside, to the people that complain that BR never makes ‘Market Calls’, they should remember R.I.F.
http://www.rif.org/
hh, is on the right track, peep are still in “we’ll hang in there mode”, and are ill-prepared if the facade cracks..with that point, (3M) is noting manufacturing/supply constraints for its line of /meta-/ Scotch Tape
April 6th, 2009 at 12:56 pm
Jeff,
you may care to check out:
http://gardening.meetup.com/cities/us/mn/minneapolis/
especially, the permaculture group, I’ll guarantee you won’t run into the type of brain-fied MSM-washed Zombies you were describing..
as a +, most people don’t Need to hear that they’re ‘crazy’, it’s truly insulting. People use it as weapon b/c their target is causing them cognitive dissonance…as we’ve seen, ‘peep’ will go to any length to protect their ‘bubble’ (of delusion)..
April 6th, 2009 at 12:58 pm
Jason-
If you are trying to cheer me up, I can only say: ‘not working’.
But I am grateful for the anecdata.
April 6th, 2009 at 1:06 pm
MW: “Another friend told me that I was “part of the problem” because I was short the market right now. “.
Jeff, these thoughts are best kept to oneself, along with the revelation that Not Everyone Was Slaughtered. Some of us are going to have to hide in the reeds for a while longer, amigo. Especially in Middle America.
We live in an astonishing Age of Stupidity. Until the old order finally rolls over, the dumb sheep will continue to Shoot the Messenger. I have seen many signs this week that we are going lower. There still hasn’t been enough pain for people to learn that they are following the wrong Thought Leaders. The Tyranny of the Incompetent continues. That’s the title of my book, BTW.
Until 401Ks become 151Ks or 101Ks, we will continue to hear that it’s the fault of “The Shorts” and not of the crooks, who even now are exiting the building with the silverware.
April 6th, 2009 at 1:08 pm
Thanks Hoffer. Those two particular friends are OK and at least open to my ideas/opinions. They’ve come around to respecting and listening more and more lately.
Thanks for the link. Very timely. Am thinking about planting some tomatoes and cucumbers this year for the first time just to try it out.
April 6th, 2009 at 1:27 pm
the southpark clan on the mortgage crises
http://americannonsense.com/?p=22920
April 6th, 2009 at 1:30 pm
More on the Tyranny of the Incompetent, below. This guy was deemed a flake, much like Roubini.
http://news.yahoo.com/s/nm/20090406/sc_nm/us_italy_quake_warning
We are lost until we restore Accountability to public life and business. Naked Emperors are everywhere.
April 6th, 2009 at 1:48 pm
Slightly OT…
On http://www.nakedcapitalism.com/2009/04/are-competitive-devaluations-starting.html
Are Competitive Devaluations Starting?
“Credit default swaps (CDS) measuring risk on five-year government debt have reached 127 for Switzerland, higher than Britain at 118. Norway has the world’s lowest CDS at 48, reflecting its status as a petro-democracy.”
I have asked before on TBP threads: how does one most effectively gain exposure to the Norwegian krona?
April 6th, 2009 at 2:11 pm
lb,
nice book title, apt.
Jeff,
check out http://www.seedsavers.org/
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=heirloom+seeds
they’re a better investment than C, by a long shot. also, go to your county Ag extension and ask them about ‘soil amendments’–they know, and aren’t selling anything, and! you’ve, already, paid for the advice. as an aside, most of the G*rbage sold @HD isn’t really necessary, and some, contra to the FTC/FDA/CDC, people shouldn’t be eating, let alone near..
~~
batmando,
see: as add’l point
http://news.bbc.co.uk/1/hi/business/7937360.stm
also, what objective are you trying to accomplish?
April 6th, 2009 at 2:13 pm
http://www.cmegroup.com/trading/fx/fx/norwegian-krone_contract_specifications.html
April 6th, 2009 at 2:40 pm
LB, thanks for the italian seismologist link; read about quake earlier but hadn’t seen that… as you might imagine, i have a slight fixation with quakes.
April 6th, 2009 at 2:50 pm
sitting here in my Cubs t
“Prices will find their appropriate, real level, no matter how much mischief is played” yaaa but it changes hands .. things always work out .. but black hat white hat .. just the way it is
“does this mean that so long as the layoffs continue, the markets can continue to rise” business is the provider and mega corps provide the most so I think mega-staples can stay in the game using positive balance sheets, eventually going private .. so at that point the Q = no
and it was 666.79 so roundup = 667 … couple weeks back tried to get the 1 day flux chart from Yahoo (my source)(cant do) of that 3/9/09 day ending at 676.53 with a vol 7,277,320,192. I was curious how the pong game was going. I guess I’m abit obsessed with playing out scripts and hypotheses. Kinda like them dvds that have multiple endings for a populace that want different conclussions
April 6th, 2009 at 2:53 pm
MEH -
Can’t recall where I read about it, but my understanding is that a high % of Norwegian state oil revenues are mandated to fund their SWF and as well to be diversified largely (primarily?) outside of Norway so that Norwegian business/industries must compete on their own merits, not pumped up with petro$. (Understandable then that their SWFs have taken hits.)
It just seemed to me that it was a wise model for preserving and growing their national patrimony and would foster a stable economy and currency in the long-term.
Thanks for the URL but trading in FX directly is out of my league. Just wondering why there’s no Krona ETF.
Maybe the best exposure would be to emigrate? 8>)
BTW SeedSaver seeds are the best and offer an incredible variety of varieties. Good eating.
April 6th, 2009 at 3:08 pm
batmando,
I’m under the impression that the NOKs float isn’t very big..re: ETF
I hear you re: SWF, it’s the way I understand it.
It’d be interesting to see if they circulate a ‘year-end’ port. snapshot to their peep..
the other way to go about ‘exposure’ is set up an ‘off-shore’ account, there are many funds/markets that ‘Caines are prohibited from buying..
April 6th, 2009 at 3:21 pm
At least Cubs fans have hope and a rather cool stadium.
We are stuck with the Rangers/Senators
The good news is that the ‘genius’ bidness man Tom Hicks
has been skinny-dipping in the Sea of Debt.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aNnhR1aBPsQk&refer=us
#43 threw out the opening pitch today
Wonder how long and loud the standing O was for shrubya?
April 6th, 2009 at 3:21 pm
MEH -
RE ‘off-shore’ account’ not possible, working out of my IRA.
Curious, just how well their model has served them and how the Norwegian market has held up against other markets over the last 50 years. Any of you data/chartmasters know where/how to look-see a quick peek?
April 6th, 2009 at 3:34 pm
http://www.site-by-site.com/europe/nor/astock.htm
http://www.emerginvest.com/WorldStockMarkets/Norway/Markets.html
April 6th, 2009 at 4:17 pm
MEF and batmando
The Everbank offerings include a Norwegian Krona CD
April 6th, 2009 at 4:20 pm
Meant MEH
April 6th, 2009 at 4:51 pm
nice point pb,
everbank should be spied..I still can’t believe they don’t have a field of competitors..
https://www.everbank.com/
http://www.dailypfennig.com/
April 6th, 2009 at 4:54 pm
MEH -
Thx for those, however FYI –
- on http://www.site-by-site.com/europe/nor/astock.htm#Market, links for Quotes and Charts Oslo Stock Exchange, Oslo Stock Exchange, Oslo Stock Exchange would not function (for me )
- I could only obtain a 1-year range on http://www.emerginvest.com/WorldStockMarkets/Norway/Markets.html
May be operator error
April 7th, 2009 at 12:21 am
batmando,
those sites had probs here, too, on 2x-checking
try: http://www.oslobors.no/ob from the horse’s mouth..
or, http://www.oslobors.no/ob/?languageID=1 in homespeak
April 7th, 2009 at 12:24 am
w/vids http://www.smartcom.no/osloborswebtv/index.php
and info pimp: http://www.oslomarketsolutions.no/oms_eng/About-us
April 7th, 2009 at 12:48 am
there is a “demand” for stocks, now. every pullback is attracting bigger demand than supply.
i think this rally will end this week. Next week will be a down week. lately, all options expiration weeks
was bloody for the bulls. i am playing both ways, mostly long.