Green Shoots Turn Brown . . .
By Barry Ritholtz - May 13th, 2009, 1:19PM
The cold slap across the face of reality that was the Retail Sales numbers this morning has caught more than a few traders by surprise. Dow down nearly 200, lots of red on the screens.
What we call the “News” is really the “Old” — cold data, older information, mostly reflected in stock prices already. Hence, as Andrew Upward notes, its reputation as a lagging indicator: “How quickly the spin and rhetoric reverse course to accommodate the direction of the market!”
John Roque (Natexis) mentioned in a recent research note that EVERY time Wall Street discovers a new mantra, it ultimately fails — Green shoots, contained, decoupling, long term-investor — all end in tears and lower prices . . .
May 13th, 2009 at 1:26 pm
Green shoots are just that…green shoots. As I posted in the other thread, we saw a dramatic slowing in the rate at which sales are contracting. For instance, electronics shrank 7.8% in March, versus 2.8% in April–so it would seem I was not the only one buying Blackberries! And sectors that should not be growing if the permabear case is correct–autos and construction–saw expansion.
The bears fundamentally oversold their case. They told us that the lawn was dead. And then they told us that not only was the lawn dead, but it was tinder dry and we were just one careless cigarette away from burning our entire house down.
Well, we had some March and April showers. Turns out the lawn was not dead–the roots were still very much alive, and parts of the lawn are turning green again. Does that mean we should expect a verdant lawn immediately? Certainly not. Does that mean that the lawn is showing signs of life? Yes.
Does it mean that the permabear Armageddon torch and pitchfork case that has been advocated so often in the comments section is off the table? Undeniably.
May 13th, 2009 at 1:27 pm
Pitchforks & Torches was a reference to political anger over the bailouts — not market action
May 13th, 2009 at 1:28 pm
GS is taking the week off. That’s all.
May 13th, 2009 at 1:30 pm
More like green sharts.
May 13th, 2009 at 1:31 pm
This is not to say that the pollyannas (not mentioning names) will suddenly become disillussioned and bail. Can’t believe CNBC will give up that easily. Even Bloomberg’s hosts keep talking about green shoots.
May 13th, 2009 at 1:33 pm
After this bizarre time period is over (gonna be a while), the terms “green shoots” and “better than expected” will be running jokes to repeated ad nauseum.
May 13th, 2009 at 1:43 pm
my lawn bounced back pretty quickly this year…
http://finance.yahoo.com/news/RealtyTrac-April-foreclosures-apf-15227840.html?sec=topStories&pos=5&asset=&ccode=
sales may be up but margins are thinning when you b1g1 on blackberries! is it just me or does it seem construction is always up in the spring.
May 13th, 2009 at 1:45 pm
Well, the boys that pump oil seem to have a little different idea about oil use next year…traders say up, OPEC says down….
Now where have we seen this movie before?
http://www.bloomberg.com/apps/news?pid=20601082&sid=a2XTXg5kzGiY&refer=canada
OPEC Cuts Forecast for Oil Demand as Economy Shrinks
“May 13 (Bloomberg) — The Organization of Petroleum Exporting Countries cut its 2009 forecast for the ninth straight month, predicting oil demand will fall as consumption shrinks in the U.S., the world’s biggest energy consumer. ”
Hope vs Reality….
May 13th, 2009 at 1:50 pm
Did anyone else catch Eric Dinallo on Power Lunch? Talking about “naked CDS” and “one-night stands.” This guy is an official of the State of New York, presumably a college graduate, and this is how he speaks publicly? I was waiting for him to this economy to (insert your preferred STD). I got the creepy feeling that he was actually speaking in code to someone watching much like the proverbial TV weatherman who uses signals during the telecast to appease his lady friends.
May 13th, 2009 at 1:53 pm
I had some green shoots this morning myself.
That’s what I get for chasing my sashimi/wasabi dinner with kamikaze shots.
May 13th, 2009 at 1:59 pm
As I mentioned earlier, YoY April retail is -10% and auto sales are -22%. Both numbers are unrevised — and guess which way the revision will go.
March 2009 was -9.6% YoY from March 2008.
March 2009 auto was -23.2% YoY.
So -0.4% is what I get with YoY comparisons between March and April 2009. Second derrrrrrr…
Yee. Ha.
May 13th, 2009 at 2:01 pm
BR noted:
The cold slap across the face of reality that was the Retail Sales numbers this morning has caught more than a few traders by surprise.
comment:
—————
Don’t those dumbasses ever get out of the house? People need to get out and see things for themselves. If lines are long then find out why and see if it’s a good thing to invest in. If everywhere you go you see no traffic, easy parking, and empty stores, then maybe those green shoots are just a sales pitch. Especially if retail looks worse now than before and some macro influences (gas prices and continual job losses) remove shopping from the list of obvious recreational activities. Since we are a consumer based economy, if consumption goes down, GDP goes down, and so do the things associated with GDP. Including the stock market eventually.
This is the crap Technical Analysis doesn’t tell you. Magic charts don’t report on empty interstates or much easier commutes, or good parking places at WalMart or Best Buy, or empty storefronts in tourist trap towns, or hearing about some friends who just got put out of work.
The cold slap of reality is an indication of Stupid on the part of the recipient.
May 13th, 2009 at 2:03 pm
Kass might get the line of the day….
“I think stocks are ahead of fundamentals. I would call the [rally] a ‘Miley Cyrus’ recovery. It’s very popular now, but in both cases, Miley Cyrus and the stock market may not have much talent underneath, which is reflected by prices. And perhaps, it won’t be enduring.”
May 13th, 2009 at 2:06 pm
@ BnT 1:45
Some months back, Mish was writing that, with the oil market in contago, there was an incentive to stockpile the oil for later deliver at a better price. He further postulated that this situation would reverse horribly once the stockpiles were full. We will have to see, but it fits nicely into AT’s EW call for a Wave C down.
May 13th, 2009 at 2:06 pm
Speaking of Idiots, I noticed yesterday, and I think I see today, that rallies start about 1:30 on the dot (See Yahoo S&P today only chart). Is this common in program trading, market moves are are scheduled? This is too coincidental.
May 13th, 2009 at 2:19 pm
I think the low is in for crude, but I agree with Andy we will see a sharp reversal soon, if not imminently. I am also of the opinion that the recent rise in Nat Gas may have been in part a short squeeze.
Has anyone else noticed how the news flow has toggled to “bad” as soon as the Bank Stress tests were over. I was kind of expecting that they would do this – in order to rotate money back into Treasuries, and thereby protect mortgage rates – but even I am shocked at the obviousness of this move. The new longs must be mystified…(?)
Clearly not only is there no Free Market, there is also no Free Press outside the blogs. Another Orwell sighting.
May 13th, 2009 at 2:19 pm
Bill Seidman died!
One of the few whose views I really respected
May 13th, 2009 at 2:19 pm
I thought everything was perfect?!
May 13th, 2009 at 2:21 pm
@Franklin
Everyone’s lawn looks great in April…
Then the grub eggs hatch in June and they go on to eat up the roots and kill the whole thing…Then there is no rain in July…
May 13th, 2009 at 2:25 pm
“Has anyone else noticed how the news flow has toggled to “bad” as soon as the Bank Stress tests were over. I was kind of expecting that they would do this – in order to rotate money back into Treasuries, and thereby protect mortgage rates – but even I am shocked at the obviousness of this move. The new longs must be mystified…(?)”
Yes. GS is god.
May 13th, 2009 at 2:26 pm
@hobo
And consider this…
Even though the parking lots are half full and stores are basically empty…Consider the fact that I had to go to Dick’s last week to buy a new pair of Nike tennis shoes for the gym…I hadn’t bought a new pair of shoes in almost 3 years…I was able to find the EXACT SAME model of shoe on the shelf as my old pair…
Are you telling me that sales are so bad they’re still trying to work off 2006 inventory?
May 13th, 2009 at 2:27 pm
@LB,
What sort of pullback are you thinking of in Oil? I didn’t see if AT had a price call on the other thread. Just curious if you have a target in mind.
May 13th, 2009 at 2:29 pm
http://www.forbes.com/2009/05/13/meredith-whitney-consumer-markets-economy-credit.html
More trouble for consumer spending. . .
May 13th, 2009 at 2:30 pm
@ben22
I’d be interested in hearing AT’s call too…generally – if a “deflation” scare starts to kick in again, I’d put a price of $36 on it…but that’s just my paper napkin approach…
May 13th, 2009 at 2:34 pm
Bill Seidman was one of the no bs guys on tv…too bad
May 13th, 2009 at 2:34 pm
@leftback: I not only noticed that (the news toggling almost universally to “bad”), but I thought it would happen after the stress tests hoopla died down. Didn’t think it would happen immediately after the stress tests though. Seems to obvious.
May 13th, 2009 at 2:36 pm
@ franklin411
not only is the lawn dead, the dirt is from a txic dump and under that is a sink hole………i hope you are long the banks…sold to you…hahaha
May 13th, 2009 at 2:40 pm
The obvious can be profitable.
No price target for oil, maybe it will retrace 50-60% of the big move crude has made from the “base” at $40 up to $60. Here I am neglecting the undershoot into the $30s. My plan is to watch and then get long the drillers again when there is a shift to a strongly bearish sentiment.
May 13th, 2009 at 2:40 pm
Mannwich Says:
May 13th, 2009 at 2:34 pm
@leftback: I not only noticed that (the news toggling almost universally to “bad”), but I thought it would happen after the stress tests hoopla died down. Didn’t think it would happen immediately after the stress tests though. Seems to obvious.
reply:
——————
Noooo. The couple of day delay in announcing stress test results had little to do with negotiation and everything to do with being able to pump the markets a lot more. The pump was intended to give the new capital the best possible price. Pity the poor suckers who trusted the game as being an honest one.
May 13th, 2009 at 2:45 pm
From 882 on the S&P 500 1010 is only about 128 points away.
May 13th, 2009 at 2:48 pm
ben22 @ 2:27
I think that the biggest threat to the oil bulls is the SPX itself…. if the SPX falls, e.g., 20% it’s going to pull oil down with it, although the decline in oil will probably be less. Once the SPX hits bottom (presumably within the next 5 months), I expect oil to significantly outperform SPX over the next 3 years.
May 13th, 2009 at 2:48 pm
No worries, franklin. The market always comes back. Eventually…..
May 13th, 2009 at 2:51 pm
The coming few weeks will be interesting to watch. The SLP began last October and just renewed for another 6 months. NASDAQ complained about the the renewal due to lack of transparency and I don’t know how this will turn out.
1) Now that the market has peaked for a while and the pump and dump profits have been maximized, will the program renewal be rescinded?
2) If it continues for the full 2nd term, how will GS add liquidity to a market that wants to go down? Legally, can GS short a market that is is trying to add stability to? Then pump it back and have a 2nd helping? If not, then it has to ride it down and assist the sellers, looking stupid all the way down. How’s this going to work? Even Uncle Stupid doesn’t have enough cash to defy gravity indefinitely.
May 13th, 2009 at 2:51 pm
No one here or much anywhere has said the economy (nor the lawn) is dead.
The root system may be more or less intact, but will/have the rainmakers be able to bring enough rain or fertilizer (BS) this spring to do anymore than give it a spurt of green shoots that then wither in the long, hot summer and into the fall?
Mostly TPTB sound like Chance, the gardener giving “pithy” advice to the prez and the press reporting it (uncritically, of course).
feh. enuff with the extended analogies… as any number of commenters hereon have asked for some time now, what’s going to drive this economy going forward? from whence profits on which to grow?
What saith Chance?
May 13th, 2009 at 2:52 pm
leftback @ 2:48
Tell that to someone who bought into the Nikkei 225 at age 45.
May 13th, 2009 at 2:55 pm
@Dead Hobo:
And there you were thinking that “Come on, gang — Let’s put on a show!” excluded putting on evil shows.
May 13th, 2009 at 2:57 pm
@DL
“doh!”
May 13th, 2009 at 2:58 pm
as in…
“DOH” -mo arrigato mr. roboto…
& sayonara mr. yen
May 13th, 2009 at 2:58 pm
Barry, if you’ve got the time, I’m interested in any thoughts you have on the current CDS news. CNBC says Obama may negate the contracts; that seems a huge negative to many i-banks and i-bank divisions, but GS is still around $130. Denniger is reporting that AIG CEO Liddy directly implicated the FR, via Maiden Lane, in the CDS unwind.
May 13th, 2009 at 3:01 pm
DL: Irony was implicit in my comment to f411. I agree with your oil/SPX comment completely.
May 13th, 2009 at 3:15 pm
BTW, I am guessing that today’s action is related to options expiration – there is a big magnet at SPX 875.
I am planning to be mainly out of the market tomorrow and Monday and let the action dictate my next move.
It is often better to play the market reaction to events, rather than let it play you.
May 13th, 2009 at 3:16 pm
Hmmm. No 2 o’clock reversal evident, yet. Will we see it in the last 20 minutes or are the MM’s waiting for Obama’s press conference to pump/dump the S&P E-mini contract in the illiquid AH market? Optionpain.com still shows max pain for SPY at $87; SDS is $61 and FAZ is $6, though, and those have been met.
May 13th, 2009 at 3:18 pm
I thought we voted Franklin off the island, anyway.
May 13th, 2009 at 3:24 pm
I forget who on this MB nibbles at SRS. Is it time to take a bite?
Gordo
May 13th, 2009 at 3:28 pm
gordo365:
I think a reversal the next two days is more likely than not.
May 13th, 2009 at 3:29 pm
@Gordo: I like SRS longer term, but I expect we will see a rally in all the Zombie Debt instruments again before the serious shorting starts. The IYR has support at $30 so the risk:reward is not good enough for me here.
May 13th, 2009 at 3:30 pm
Cursive @ 3:16
“optionpain.com”. Interesting website. Hadn’t heard of it before.
May 13th, 2009 at 3:36 pm
Closed all shorts. Holding small amount of materials longs, mainly dividend stocks.
May 13th, 2009 at 3:38 pm
in re: oil….
I’m not predicting a rollover right here in oil. I really haven’t studied it that closely, and also it will need to break down a lot further to confirm that “it’s over for the year…”
The initial leg down in oil was a whopping 78% drop, which means that we need to think about the next leg down in % loss. So, an A=C target in %, if we happened to have peaked at 60, would be $13 bucks (gulp). I know, I know….”That’s CRAZY A.T…..we’re running out of oil….new production costs are 50-60 bucks…Matt Simmons and T.Boone both say it’s going much higher…You don’t know SHIT!!!”
Just telling you how a wave technician would come up with a target once it’s clear the C wave is underway….
In the much bigger picture, though, we’re very much in a huge no man’s land technically speaking. i.e. we could fall all the way back to 43-38, and then rebound to 76 bucks and still all fit nicely in a large B wave. As a general rule, B waves take longer to complete than A waves (1.5-2.0 X as long). So, the move down took 23-28 weeks to complete (depending on how you measure it). This current move, which began in Dec 08 or Jan 09, could take up to 12 months.
Maybe we’ll see a traditional “spring” peak now (smaller A)….get a summer pullback (smaller B)…then we get our traditional “winter rally” (smaller C) that ends up completing the larger B wave. Then, we will see the dramatic conclusion 2010? Who knows….just sketching out one scenario…
in re: NatGas. That chart looks MUCH different to me than oil. It’s definitely “due” for some consolidation now, but that whole move off the lows looks quite bullish longer term.
FWIW
May 13th, 2009 at 3:39 pm
Franklin is dead to me.
May 13th, 2009 at 3:40 pm
Thanks DL and Leftbank. Please do post when it looks right to you.
Gordo
May 13th, 2009 at 3:41 pm
Leftback, I’m still holding my FAZ that I bought at $6 even. Did you sell your FAZ position that you had? I made all my losses up now, so am I being too greedy trying to pull $7 or $8 out of FAZ in the next week or so?
May 13th, 2009 at 3:42 pm
@gordo365 3:24
Similar to what many had proposed about the stress test short-squeeze pump/offer/dump that many bloggers speculated about the banks, Tyler Durden at Zero Hedge has speculated that the bottom will drop out of CRE once Merrill Lynch has completed all of the REIT equity offerings. In a post last night, he speculated that Merrill would not be done for another week or two.
May 13th, 2009 at 3:46 pm
“that was the Retail Sales numbers this morning has caught more than a few traders by surprise.”
Isn’t “surprise” the same as “unexpected”? Last I checked, 600K+ Americans were still losing their jobs each month while their assets (house and retirement plans) were eroding. And they say that the rest of the world is even in worse shape. Earth to traders, wake up! Fewer people able to afford those widgets.
“EVERY time Wall Street discovers a new mantra, it ultimately fails”
Anyone not brain dead can see through the sales pitch (mantra).
May 13th, 2009 at 3:47 pm
Lots of talk on this thread of market pump so I’ll just chime in on this:
Maybe people might just be referring to GS or James Simons pumping this up but I’ll just comment on the PPT. I don’t really doubt at all that the PPT, or whatever they are called, actually does exist. I suppose in the fullness of time we will really find out if I’m right but I think the PPT is completely powerless against what is coming. There has been much talk about them pushing the market up during these bear market rallies but I don’t buy into that. If that was really true it would skew AT’s wave counts, for example, but obviously that isn’t happening based on how accurate he is. In a Credit Deflation downturn the bags of credit held by the PPT won’t be enough.
@ahab,
this idea here might further help you understand from a very high level why I’m still a bull, it is from a book I’m reading right now:
“The Role of Fundamentals. Many people insist upon being given ‘reasons’ for market action… However, conditions and events outside the market that are presumed to cause market trends in fact lag those trends. (Example: Franklin, like most economists or CNBC hosts, thinks the market is rallying due to fundamental “green shoots”) The true fundamental cause of market movements is the nature of social man, which in the aggregate is governed by unconscious forces that produce wave patterns. (These forces include the fight-or-flight and herding instincts, which are unconscious as opposed to reasoned.) Thus, an armchair argument about why current extra-market conditions do or do not support the case for change is a waste of time and often counterproductive to reaching a correct conclusion. …Investors often allow such events to persuade them to join a market’s trend after it has substantially progressed, or even after it has ended. This is the reason they are caught fully invested at the top and in cash at the bottom.”
May 13th, 2009 at 3:50 pm
@Jdamon,
You caused a little stir here I think with that link about shorting both the long and short leveraged ETF”s. Nice.
May 13th, 2009 at 3:52 pm
@jdamon: holding FAZ can be hazardous to your mental/fiscal health. Pigs, slaughtered etc… FWIW..
@gordo: SRS is a winner, but wait for the counter move. Johnny Retail still sees “bargains” in banks/REITs.
May 13th, 2009 at 3:53 pm
ben22, happy to contribute.
I have been watching FXP (for a while now) and FAZ just recently and have noticed that each has made lower lows, while the market has rallied. If you looked at the price of these 3x’ers one year ago, they were markedly higher even though the market was also higher. Doesn’t take a rocket scientist to figure out something crazy is going on with these things.
May 13th, 2009 at 3:55 pm
@Barry
I finally got around to looking at your video (I have a deal with myself…I can’t screw around on the internet until I’ve graded at least 4 exams every day…otherwise I’ll never get work done!). I mainly had the commentators on this site in mind when I used the phrase “torches and pitchforks.” It’s clear from your video that you regard the bailouts as a waste of money and morally reprehensible. However, the commentators regard the entire economic situation as presaging the end of civilization on this planet. They’re talking about burning banks and returning to the gold standard. Next thing you know they’ll be insisting that barter is the only reliable form of transferring wealth between individuals!
It was interesting to watch your old video, though. Frankly, I still believe what I argued then: Nationalization was never on the table because it was an absolute political impossibility. You cited Lindsey Graham and John McCain as two Senators who favored nationalization, implying that we could achieve bipartisan support for allowing the FDIC to put the banks in receivership.
Well, as the recent vote on the cramdown legislation showed, the President can’t even rely on Democrats to support any proposal that vacates any part of these debts. That’s just political reality, and the President was smart to make it clear that nationalization was a non-starter. The comments section would have been full of remarks about his “unprecedented power grab” and “dictatorship” and “fascism.” Nationalization was not, and never will be, politically achievable. Morally, yes. Politically, no.
May 13th, 2009 at 3:57 pm
cmon left… dont leave yet, the fun has just begun…
May 13th, 2009 at 4:01 pm
A negative close today and it is our first time with 3 consecutive down days in 2 months. Maybe a sign of trend reversal? If I remember correctly, CNBC reported that BHO was speaking at 4:00 ET. Let’s see how he moves the market. This could be further validation of the trend change. The CDS saga is getting interesting, too.
May 13th, 2009 at 4:02 pm
Leftback, you don’t have to tell me about these 3x shorts, I’ve been holding onto a decent chunk of FXP since the $50’s. I made a nice chunk on it last year, but this year I’ve gotten murdered with it. I think I’m going to try to ride up FAZ for a while longer. I may put a stop in, but since the things are so volatile, I tend to not do the traditional 7% stop. I do think we are in for a 10% or more correction in the S&P over the next several weeks, so I guess I’ll put my money where my mouth is.
Like I-man says, the fun is just beginning…..
May 13th, 2009 at 4:03 pm
I-Man: I’ll be back…. but there be market manipulation ahead
This next story isn’t exactly a green shoot. Donny Dealer will be selling his Jumbo McMansion:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCt57sGwi4f4&refer=home
Franklin, this isn’t all political. We are simply asking for those who made bad investment decisions to take losses.
We’re not advocating the end of civilization, just the end of Citibank and TBTF. They are NOT the same thing.
BTW, kiddo, a secret about universities. DEBT. Can you guess what happens next? Yes! CUTS. Enjoy!
May 13th, 2009 at 4:06 pm
It’s not at all political with me. I just want an end to the Tyranny of the Incompetent (hat tip: leftback) so that we can get on with the big task of fixing things in this country once and for all. The rottenness and incompetence need to be purged from the system so that we can allow others to step in and fill the void.
May 13th, 2009 at 4:15 pm
Manny: Agreed – but the Tyranny of the (Indebted and) Incompetent™ is going to continue for a while.
Purging takes a long time – the country has to drink some very nasty stuff first. There will be at least another Imminent Breakdown of Western Civilization before this is over, as Tiny Tim and Lounge Lizard Larry will head to the Hill for more help. I am sure that we will all be talking Pitchforks and Torches again before too long.
May 13th, 2009 at 4:16 pm
Franklin,
I told myself not to respond to all of your posts but I gotta agree with lefty and mannwich on this one. I don’t think most of us here that comment on a regular basis are as you describe. Not at all really.
May 13th, 2009 at 4:18 pm
This is way OT but anyone want to make any predictions about pot being legal before this is all over. I hear more and more discussion about this by the day. It is an interesting social development during the bear to say the least.
May 13th, 2009 at 4:19 pm
Agreed, leftback. Unfortunately I fear you may be right. This story has many chapters (and possibly years) to it with many nasty twists and turns to come.
May 13th, 2009 at 4:23 pm
@ Cursive:
> A negative close today and it is our first time with 3 consecutive down days in 2 months. Maybe a sign of trend reversal?
If life were a movie, I’d be cueing the theme to ‘The Empire Strikes Back’ right now….
HCF
May 13th, 2009 at 4:39 pm
It’s been almost 2 months since the market put/call closed above 1 for even one day…yet it needs to get to about 1.15 on the 21 day MA for the market to be a buy…astounding complacency. This will be very, very ugly…NDX Bulls at 85% also a major warning sign.
May 13th, 2009 at 4:42 pm
Here’s a green shot:
‘Shit on the Grass’
In a shot glass add 1/2 shot Creme de Menthe on bottom and then carefully add 1/2 shot Baileys Irish Cream on top.
A sweet delight for sour times.
May 13th, 2009 at 4:46 pm
You guys need to go easy on Franklin. He has let slip enough that it is obvious that he has not yet reached 5 digits worth of days in this life, and has almost certainly not been aware of economies and markets for more than a couple of thousand days. He has not a clue as to the strange twists and turns large numbers of human beings can weave into their collective fates. Kinda reminds me of the scene in Return of the Jedi where Yoda asks Luke if he is afraid, before he undergoes the trial of fear.
Young Luke, like our young Franklin, hasn’t a clue of what lies ahead.
Naifs such as he need to be nurtured and protected, lest the future be entirely populated by grizzled old bears (which roast nicely if you can catch one in a sufficient trap, but are hell to deal with if they catch you instead). And besides, just imagine the irony of an older (hopefully wiser) Franklin becoming the Fed chairman several decades from now.
On the subject of the desirable purging of long-standing corruption and cleaning of the Aegean stables, It took several years of much harsher Realities trashing people’s repeated sightings of green shoots back in the 30’s before society got serious about restructuring the stock markets and financial industry to make it a LOT more difficult to operate in the crooked manner that is commonplace today (and was even more common in the time preceding the GD).
And we may not get there this time around — it’s possible that we may be able to print enough credit to float the system long enough to get to the Next Big Leveraged Disaster by the Wall Street Brain Trust (WSBT). But if we do not get motivated enough this time around to clean the stables and fix the roof, the next time we will for sure, as the roof will fall in as the walls are blown out by the next debacle from the Smart Money.
But eventually we will start putting in place some New Rules — things that will function as systemic firewalls, in a similar manner to the Glass-Steagall Act, things like making CDS formally regulated, with audits to ensure that the assets to back them are in place, along with strict limits on leverage employed by publicly-owned firms (private firms and individuals should be free to blow themselves up in any way that they like — it is, after all, their money), and controls/regulations to ensure than no company in an essential industry (e.g., banking) grows to represent more than 1% of the assets or liabilities of that industry as a whole — something like an extension of the antitrust laws is what I have in mind, with mandatory breakups if a company should be found in violation of such legislation.
We are presently light-years from such thinking in the Congress. Perhaps after a few elections in which incumbents are thrown from the train (this is where I slip into surreal fantasy) will bring about a mindset of protecting the public (and the system) in the Congress, and whatever president is in power at that time, some several years in the future. Until then, it will be the status quo in the United States of Goldman Sachs.
May 13th, 2009 at 4:55 pm
Ben22-
you’re cracking me up- my guess is that marijuana won’t be legalized but maybe decriminalized- already is in some states- my personal opinion is that all drugs should be legal- and regulated- the same people who are using now will continue to use- but does not mean people will start “hitting the bong” just because it is legal-
I mean once I drink a 12 pack or two of PBR- well my faculties are impaired- perfectly legal- also- our drinking laws in this country are ridiculous and leads to binge behavior in college- legal age to “purchase” should be 18- no age for drinking- it isn’t like parents are going to let their 12 year old “tear one on” just because there is no drinking age-
also thanks for the follow up- I will have to look the book up- sounds interesting- human psychology obviously in play with any trading decision- or any decision for that matter
May 13th, 2009 at 4:59 pm
@ Ben:
Soon. The city of San Francisco will probably legalize within the next year or so. They already want to systemize the dispensaries. They see the potential. In time, going to the cannabis dispensary (for those with medical cards, which are so easy to get its laughable) will be like going to the DMV… which sucks for the patrons, but will be a bonanza for the city.
Think of the potential tax revenue for the state of CA alone… mind boggling. In Humboldt and Mendo alone thats like a 5 billion a year industry.
IF it were legal to grow Jah herb, I-Man would quit trading and turn Ital farmer… for all of I-ternitiy and quit this babylon show.
May 13th, 2009 at 5:02 pm
constantnormal Says:
May 13th, 2009 at 4:46 pm
Nice post constant, well put. (no pun intended)
May 13th, 2009 at 5:08 pm
I-Man: Now I and I back to righteous green shoots, mon.
May 13th, 2009 at 5:13 pm
Somebody smoked all the green shoots.
Lotsa broken trendlines the last couple. Sad to see the trailing stops on my energy positions all hit.
May 13th, 2009 at 5:13 pm
@ahab,
I’m good for a laugh here and there. Every once in a while I have to stop taking everything so seriously. I’ll put myself in an early grave. I suppose that would be easier if I smoked some green shoots….
The book is At the Crest of the Tidal Wave, by Bob Prechter. It’s very good, that quote came from Chp. 12. I would suggest it if you are interested, can probably get it very cheap on Amazon.
When I think about that quote I think about the social mindset of the average american today. Really since the 2000-02 market downturn and especially after 9/11 the social mood has shifted negative whereas after WWII I think there was much optimism about America’s future, though I’m only speculating as I was not alive then. Now on top of the worst recession and market downturn in decades at every corner average people are getting bad news. Social Security and medicaid problems, pension issues, job losses while Wall Street fat cats get mulit million dollar golden parachutes. It is hurting people emotionally.
I saw someone post on here not long ago that people who were saying a year or two ago they wanted to buy two homes and a boat and a new car, etc. are now just worried about survival. That stood out for me and I can even apply it to a lot of people I know, I think most of us can.
Last, back when I was dirt poor in college we opted for Natural Light instead of PBR. Lol. Every once in a while for we’d splurge and get some Hurricane 40’s.
May 13th, 2009 at 5:16 pm
@HCF 4:23
Ha! I was thinking “Star Wars” when I wrote “CDS Saga.” Contrary to the the belief that we need to touch the 200 DMA, I’m beginning to think the Southbound train left the station after last Friday’s close. We’ve got three black crows painted on the daily charts, but will probably get a bounce before resuming the decent. Now, if I knew where we’d bounce to and then drop to….
May 13th, 2009 at 5:16 pm
I-man,
California was basically what made me ask the question. When your state is broke I suppose you do what you have to. I heard last night that weed is the #1 cash crop in the states, maybe the world, so yeah, there is potential. Then though, I could see dirty wall street getting into that and somehow packaging it and selling it and turning it into a bubble, which I suppose has more than one meaning.
May 13th, 2009 at 5:20 pm
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXT_cLUZMwsU&refer=worldwide
“Geithner Urges Electronic Over-the-Counter Derivatives Trading”
May be of interest.
Also, ouch, my freakin’ FAZ hurts.
May 13th, 2009 at 5:23 pm
This might be worth reading for anyone that doesn’t want all cash but also doesn’t want any equity. Vanguard has some very cheap ETF’s for sale. Why pay 1.5% for Bill Gross when you can get the same basic thing in BND for .11%
https://advisors.vanguard.com/VGApp/iip/site/advisor/researchcommentary/asktheexpert/article?File=AskExpertVolpert
May 13th, 2009 at 5:38 pm
@Cursive,
Re 5:16
I’m not ready to give up my short term bull case just yet. Though, something worth noting as I’m checking stats from today and going back to my notes:
NYSE advance/decline ratio was 5.71/1 Monday, today it is 10/1.
that suggests this pullback could be pretty powerful. That didn’t happen on the big down day on 4/20. I’m still thinking though that there are too many hold outs to call a peak at 914 SPX. I mean, look at all of us and what we are saying. Every single money manager I see on Bloom or CNBC was selling this rally.
On the equity side I think all eyes should be on the NAS. If it breaks 1600 I’ll probably flip bearish. Some of my stops came close today but I didn’t get forced out of anything yet.
Steve makes his usual good points above however the Investors Intelligence survey was only 41% bulls on Friday.
Still no clue what to make of gold at this point. I don’t know that anyone really knows what to make of it.
May 13th, 2009 at 5:48 pm
Mozillo being charged soon in a civil suit by the SEC? Day late and a dollar (many) short. If there is any sense of justice, this man will also find himself behind bars. Maybe he can share a cell with Skilling.
http://online.wsj.com/article/SB124224647957816523.html#mod=testMod
May 13th, 2009 at 5:49 pm
ben: You’re busy today… Good stuff man.
I am short gold, but small and without conviction.
I smell an equity bounce but not enough to add longs. I’ll leave the bat on my shoulder here, for now.
I’m thinking there might be some more InvestTools™ out there who want to buy on the dip. I’ll sell the rip.
Bear in mind that non-apocalyptic claims numbers have all been bought recently.
May 13th, 2009 at 6:01 pm
leftback Says:
“Bear in mind that non-apocalyptic claims numbers have all been bought recently.”
tomorrow’s numbers will be interesting- anything less than expected should send the markets down another leg-
mannwich-
justice does move slow- but as long as all the heavy hitters are brought up on charges and successfully prosecuted- I’ll be happy
May 13th, 2009 at 6:06 pm
re Gold, I only look at the weekly and daily charts. On the weekly charts it’s possible to draw trend lines that form a kind of rythmic stair upwards. Downward sloping lines that get broken to the upside at 12 to 18 month intervals. On the daily chart there is the gigantic inverted head and shoulders that is continuing to form very nicely. In my limited experience these patterns on the longer term charts seem reliable. I fully expect gold to be at 1300 before the end of the year.
I’m kind of thinking I should have taken the dude who was betting 1M on gold @ 1500 within 12 months. I think his deadline has passed by now. Disclosure I don’t have anything like 1M $US.
May 13th, 2009 at 6:08 pm
For those who enjoy a little polemic with their dinner (polemic, not polenta…), here is a doozy of a rant.
A nice combination of data and righteous indignation. Well done Mr Quinn:
http://theburningplatform.com/economy/jesus-of-suburbia
May 13th, 2009 at 6:09 pm
I have some clues…
1. If you look at GLD on a monthly chart going back to 2005 you see very clearly that the multi year uptrend was violated during Sept-Dec of 2008. However, GLD strongly reclaimed that uptrend line in Jan… and then came very close to making a perfect double top at 100. It has yet to make a new high… a bearish sign. We have seen some clear signs of liquidation in GLD in Feb-April, and now find ourselves once more at the support of that multi year trendline. Thus, if you are bullish on GLD, it would make sense to open a third position here, with stop 5% below that trendline.
2. Looking at that same chart of GLD, one could make a case that you might be able to strip out that Sept-Nov period of the chart due to all the craziness going on at the time, creating false signals in gold due to the volatility and fear trade. Now switch from Monthly chart to Weekly chart and remove that period… and you see a clearly defined base formation from 85-100. With support obviously at 85. Thus, if you buy this argument, this base could be setting up a HUGE bull run in GLD… where to no one knows… but I’d say at least 150 on GLD… and thats probably conservative given the size and duration of the run from 2005.
3. Back to the Weekly GLD chart… Obvious Inverse Head and Shoulders pattern developing. Head at 70, LS at 85, RS at 85… Neckline at 100. Inverse H&S’s are typically base patterns… please correct me if I have this wrong. If this is the case, then again, it sets up a huge bullish continuation of the long term uptrend.
So… given that two out of three of my scenarios indicate a potential bull run, my preference is to be quite bullish on GLD from here… but without any confirmation yet.
Thus, in my Model Portfolio, I am opening a long position in GLD here, with only 1/3 of the position to be bought here. On a breach of 85 I’m audi like 5 g’s and long some DZZ. On a move over 95 I add another third. If it takes out 100 and doesnt get the smack down, I’m long the final third on a successful backtest of 100, which should be clear support going forward.
Obviously the last paragraph of my tirade is crystal ball bullshit… but you gotta start somewhere. I’m also a bit afraid of a potential unsuccessful backtest of the broken uptrend from the November GLD low… which would occur at 98… a failure and bearish reversal there and all long bets are off.
May 13th, 2009 at 6:11 pm
@ MReagan 5:20
wow …
electronic trading of credit default swaps for the masses … with 100-to-1 leverage … what’ll they think of next !!
The mind boggles at the possibility of being able to bankrupt oneself (or a major banking institution) by a single press of the enter key, with catastrophe lying only an indeterminate number of nanoseconds into the future. I notice the absence of any mention of CDS regulation to make sure that the contracts are appropriately backed — leaving the implicit backing by the US taxpayer of any/all bad debts.
I expect CDOs and SIVs to also be included in the proposed electronic marketplace of leveraged nothingness. If such an electronic marketplace could be brought about, this would provide a fine vehicle to allow AIG to unload their mountain of toxic leveraged junk into the hands of (even more) clueless idiots. And Warren Buffett might be able to get out of his bad options plays, provided long-term European index options are included in this proposed cornucopia of disaster.
This is a sure winner, an excellent way to bring stability and confidence into the markets. Oh, yeah.
========================
“Live longer than you prosper”
— ancient Vulcan curse.
May 13th, 2009 at 6:12 pm
Mannwich @ 5:48
Civil, schmivel…. It’s only money, and he can afford it. Anything less than a prison cell is meaningless in his case.
May 13th, 2009 at 6:15 pm
ben22 5:38
Congratulations making money on the upside. I was going to try going long after the Leftback Bottom(TM), but was always chicken. I have a hard time, psychologically, going against the trend. We are definitely in a down trend. So, I have a bearish bias for anyone reading this. FWIW, I thought 870 was going to hold before a retrace to 750 and then an eventual top around 940. So you can imagine my surprise at where we are now. Still, this rally started to feel tired last week and it seems, after a nice bounce soon, perhaps tomorrow, we should be set for a retrace of the rally. I thought about going short with SDS and FAZ last Friday, but feared the uncertainty of opex week. Enjoyed yor posts today and G/L tomorrow….
May 13th, 2009 at 6:18 pm
@DL: I agree completely. Anything less than criminal charges vs. the Tan Man (wonder if they have tanning beds in prison?) and other ne-er-do-wells will be a major disappointment and travesty, a mockery of any sense of justice (stop laughing).
May 13th, 2009 at 6:27 pm
S&P500 52-week low on March 6: 676.53
Rally high on May 8: 929.23
Today’s close: 883.92
% off high: 4.88%
Short S&P500 here with your stop loss of at 930 or 4.95%
First target (June): 50% retrace of this last rally puts the index at 802.88, a drop from here of 9.17%
Second target (September): 100% retrace of this last rally puts the index at 676.53, a drop from here of 23.46%
Third target (December): 40% drop from rally high to 557.54, a drop from here of 36.92%
May 13th, 2009 at 6:28 pm
A long, dull post sticking a hand out for help…
I originally came to TBP trying to figure out why things seemed so topsy-turvy in the housing market, back in late 2007, after we sold our house in view of the economics here in sunny South Florida. One day I want to buy it, or something like it, back. I kind of missed all the business and economics classes in the various schools I attended, but I knew enough to look at past trends and sustainable debt loads and could see that the party wouldn’t last. The education and news I’ve received here and on other various blogs has been invaluable, and is much appreciated. The only problem I have with TBP is my own obsession with it. Thanks BR.
I’d like to see the economy put on a sustainable path. I’d like to see the imprudent and unethical punished appropriately, whether by the market or the law. And… I want to figure out how you guys trade.
I don’t want to look over the shoulders of leftback and karen and AT (well, ok, I do, but I do have some respect)… but I do want to do the foot work to learn what you guys know at the ground level. The philosophy discussions here are invaluable, but it’s sort of like watching NFL PrimeTime… good analysis, but it’s not about putting on cleats and pads and going out there on the field and blocking and tackling. The out of debt, emergency fund, etc. parts are done, and I’ve got a little cash to loose. I picked up ‘Market Wizards’ and ‘Way of the Turtle’, am looking at thinkorswim, and am thinking I could easily loose the little pool of capital I have for this if I don’t put two and two together properly. Part of that is tuition, I understand, but I’d appreciate even a sentence or two that shows how you got to where you are. There seems to be a pattern, with personal variation, to how each of you match your world view to the specific stocks you trade, and to when you buy and sell. How do you get to where you are?
May 13th, 2009 at 6:31 pm
Speaking of the eponymous Bottom™, I was long from 666 to 845 and reeled in some good profits, but I didn’t want to overstay my welcome at the Short Squeeze Motel. I did keep a few commodity longs.
One thing I have learned in this market is there are a lot of tools out there, and I am banking on a few of them to drive this market up again to a lower highs, maybe 910-915, which would be an excellent entry point for short vehicles. As Andy T would remind you, we need to see a breakdown of the 875 support before we can confirm that the downward trend has been re-established. For the time being, we should stay more liquid and less dogmatic, eh?
I don’t like to be very long or short in these grey areas (875-905) and the easiest way is to be OUT.
May 13th, 2009 at 6:42 pm
@pmorrisonfl: Where am I anyway? I learn by screwing up, losing money and learning from my mistakes.
Also by reading Andy T and Karen, I-Man, ben22, DL – and of course Barry and Todd Harrison at Minyanville (the rules below are his, basically).
Experience is the best teacher, in part because you have to develop your own style. Start small (or paper trade for a week), control your risk and remember – sometimes the best trade is no trade. Don’t force it, if you don’t see a good trade today, one will come to you tomorrow. Don’t fall in love with your theory. Trade what you see and in this market, take your gains. Be suspicious of almost all commentators, especially those who seem very certain.
One last thing: you can learn a lot by watching. Watch for a while, and you’ll see what I mean.
May 13th, 2009 at 7:00 pm
leftback @ 6:08
thanks for the link- here is an excellent quote from the article-
“America has degenerated into a materialistic, corrupt, me first, soul-less society. Nobody is right. Nobody is wrong. Everyone deserves to win, even if they made horrible decisions. Unless this changes soon, this country is doomed. By 2020 the United States will essentially be an old aged pension fund with an army.”
exactly- I have been thinking that for years- sad
May 13th, 2009 at 7:08 pm
@Lefty,
Last couple days I haven’t had much to do so I’ve spent most of my time here. I have to admit I love this site. I might even be addicted.
You are short gold eh? I had that idea not long ago when I first started getting bearish on it then Karen and MEH hit me over the head on that one. I respect them both and thought better of it. I’d probably do the same as you which is keep it small. I just don’t have any conviction on the metal up or down right now.
I’ll watch from the sides at this point, though taking small opportunity positions like you are doing, or I-man’s strategy might be pretty rewarding. I’ll let you guys show me how it works out.
On the equity side I don’t want to add to any longs either. Maybe when we go below 700 again but I haven’t established targets on that yet as I’m still short term bullish.
May 13th, 2009 at 7:13 pm
more like green farts, pardon my french
May 13th, 2009 at 7:20 pm
@pmorrison:
I know you didn’t direct that ? to me but just a couple thoughts.
Before you invest you must have a cash reserve. The reserve should be 3-6 months of living expenses at minimum and it should be liquid with no risk. The last thing you want to have happen is an emergency and you need to unwind a position because you’ve got no cash reserve. IMO when stuff really starts to get bad you’ll want cash so that you can live a normal life. Also, if you are still working, and you don’t work for yourself, your job is at risk so all the more reason to have a back up.
Second, make sure you have the proper amount of insurance. When you state that you don’t have a lot to lose I read that as you can’t self insure. Disability is probably more important than life insurance but both are essential and you can find policies with low premiums. No stock market gains are going to help you if you can’t live off of 60% of your income, which is most likely what your long term DI pays at work, and btw, that’s all taxable if your employer pays the premium not to mention it is integrated with social security as well as workman’s comp. If you already have this good for you, most people don’t.
After that is in order then you can invest/trade, though IMO you’ll want to do more of the latter in the coming years.
From there, my biggest learning has come from time, mistakes (plenty of them) and lots of reading of others, just like leftback said. This site is wonderful for that as are a handful of others that I visit on the regular. I’ve learned so much here in the last 2 years it’s almost hard to believe. I actually started to learn a lot more when I started posting and reading the comments instead of just coming to the site to read what BR put up. There are some very bright people that come round here.
I would suggest like someone else did above trying things on paper for a couple of weeks before you put real capital on the line. This is not the type of market you just jump into.
Buy the Stock Trader’s Almanac or ask for it as a gift and leave yourself trading notes in it. My biggest eye openers are when I go back and review my notes at the end of each day. There are great tables in the back of it built in for you to do this.
Consider signing up for a trading site to help you learn to spot patterns since this is new for you. I would suggest two that are low cost:
1. Fusion IQ, I think BR only charges around $45/month for this. Dirt Cheap.
2. visit http://www.thekirkreport.com, also cheap and useful for starters. I think it’s only $50 per year.
Last, but probably most important is you need to make a commitment to this. I spend most of my time day and night watching the markets but it’s because I enjoy it. If you don’t you’ll fade away quick or you will lose money b/c you aren’t paying enough attention. It can be pretty hard sometimes to come back to it every day so you have to have some passion.
May 13th, 2009 at 7:29 pm
@pmorrisonfl:
Market Wizards is a great place to start. Key in on Ed Seykota, Richard Dennis, and Paul Tudor Jones.
Best advice I could give anyone who has the inclination and passion to learn and stay learning trading:
Trade small. Never, never, never risk more than you can afford to lose… both financially and emotionally. The psychological damage you can do to yourself in the market from losses is beyond words. If you’re anything like me… the tendency is to focus more on the money you might make in a trade, lets face it we all wanna get rich. That kind of thinking will blow your ass up faster than a freight train. Always think “what can I lose if this doesnt work out” … not “what can I make.” Assume that you are going to be wrong. Trade small, be nimble. Cut losers early and let winners run. Easy to say, hard to put into practice.
Second advice, and its so cliche I hesitate, but as well it is hard to internalize: The Trend is your Friend. We all seem to be programmed to want to be smarter than the market. Impossible. Trade with the trend. Just position yourself in the path of least resistance. Dont fight the tape.
Other books worth study: “Trading for a Living” Elder , “Reminiscences of a Stock Operator” Lafevere, “Getting Started in Chart Patterns” Bulkowski… and of course the most important of all:
BAILOUT NATION ( by some dude named Ritholtz)
Stepping down from soapbox… now.
May 13th, 2009 at 7:29 pm
ben22: Great advice. Gotta love it, and live it. I forgot to say, watch bonds and currency markets, to see “TBP”.
Quickest way to get lost is to only see equities. These Marts, as Mark would say, are All Connected, see.
May 13th, 2009 at 7:34 pm
http://dshort.com/charts/bears/mega-bear-quartet-real-extended.gif
I believe this chart says an awful lot. At least it does to me. 4 massive events. Each different and unique with various cause, various reactions, various solutions. So what is the the common denominator? Humans. Humans and how we as a species react to crisis. Our hopes. Our hopes dashed. More hopes. Elation. Disappointment. and on. and on. and on… This is a PROCESS. There is no short cut. There are ways to prolong it (see Japan), but events like this take time. From October of 2007 to now is what? 19-20 months? Look, 2000 took 3 YEARS to break the downtrend. It took until May of 2007 for the S&P to get back to even! Obviously still waiting on the NASDAQ.
The longterm downtrend has not been broken, and if you think it has you simply are not looking at a long enough period of time. Enough on charts alone.
I am tired of inaccurate stats. Like, “well this is not the great depression because unemployment was double digits” What? You mean, one day they were at 4% unemployment (close estimate to 1929), and woke up in a 18-25% unemployment world? WRONG!! (Haven’t seen that in a while from anyone…ahem, accurate) It didn’t break into double digit unemployment until the third year…teens when FDR took over. We have approached double digit unemployment (headline unemployment), faster than it did at that time period.
Well, it was made worse because of the plight of the farmer… the industrialisation of farming placing many out of work, and of course the dust bowls from over farming, poor land management and drought. Yep… Well, do you see another sector of the economy going the way of the buggy whip, farming (family style),….hmmm, perhaps Automotive???? Anyone? Anyone?
Just Google for depression headlines and see if they rhyme with what you are seeing in today’s rags. Municipality strains? Laid off/unpaid teachers? Silver tongued politicians? Industry leaders saying “the corner’s been turned” ???
I truly wish this could be as simple as all want it to be. A magic bullet from the government, a few steadying words to give confidence and start the engine back up. But is isn’t that way. We WILL recover, but it will be slow, hard, and not fun. Tell me you don’t know that credit is being removed from individuals and businesses?Just simple math on the fact that people were spending more than they earned a year or so ago, and now the savings rate is over 4% and climbing is going to have a meaningful impact on the GDP…Now factor in those who are jobless and not saving and running on fumes. Come on people this is not hard. Localities coming up short and raising taxes? Think that will impede spending? Don’t need fancy metrics and government numbers for this exercise. The logic of Columbo… don’t need to be a respected economist. Look around.
So I hope you enjoyed the last nine weeks.
May 13th, 2009 at 7:35 pm
God blessed Bill Seidman with a long and meaningful life. An Ivy leaguer and a Navy combat vet, he could disagree without being disagreeable and excelled at all facets of his professional life.
I’m afraid his management of the RTC will be benchmark for what we should have done vs the mindless support of the zombie banks. We have zombies minding the zombies, zombies squared!
May 13th, 2009 at 8:00 pm
jasRas-
good observations- it will be a long drawn out affair for sure- people are naturally disposed to hope for the best- but the best that happens may not be what they anticipated-
from a trading perspective- it’s long term short- market will do its thing and gyrate up and down- but in the end it will grind down- and all these empty optimists will unfortunately get their hopes squashed
May 13th, 2009 at 8:04 pm
Right on jc…
RIP Bill Seidman!
May 13th, 2009 at 8:06 pm
JasRas,
Nice post, lots of good points, they echo a lot of my own thoughts. It can all easily be summed up:
Credit Deflation!
May 13th, 2009 at 8:09 pm
check this
http://zerohedge.blogspot.com/2009/05/foia-disclosure-busts-paulson-geithner.html
May 13th, 2009 at 8:19 pm
@pmorrisonfl 6:28
First off, TBP is addictive. Congratulations to Barry Ritholtz. The intellecutal discussion here is rare.
I don’t consider myself a trader, but I trade. LB, ben22 and I-Man have given you invaluable advice in a succinct manner. Read and re-read what they wrote. I will add this: everyone’s style is different. This stylistic difference usually presents itself in the time frames that people trade. Some people day trade and are “flat” at the end of the day. Some people swing trade over a week or a couple of weeks. I can’t psychologically flip flop like that, so I generally do neither of these. I put positions on for weeks or months at a time. This means there are times when some pieces of my position (please refer to LB’s kitchen sink units or KSU’s) are seriously under water. Works for me, but I wouldn’t recommend it to you or anyone else. In fact, I don’t recommend trading at all as it is akin to a casino. So, in closing, learn to put a 7% to 10% stop loss order and stay away from leveraged ETF’s like SSO, SDS, SRS, FAS, FAZ, etc.!
May 13th, 2009 at 8:32 pm
JasRas,
Interesting perspective on the time equivalency. It is amazing how successive generations seem to think we are somehow smarter than those who have gone before us. Maybe if so many talking heads weren’t so dismissive of the potential for another depression, I wouldn’t be so persistent. As a society, if we could stop the denial, perhaps we could start progressing through the Kubler-Ross model. As CNBC Sucks would say, just kicking the can down the road….
May 13th, 2009 at 8:33 pm
Thanks benn22 and ahab for the nod. I really am not a bear, but a realist. I think we need a bit more of facing reality and a little less wishful thinking.
May 13th, 2009 at 8:36 pm
“America has degenerated into a materialistic, corrupt, me first, soul-less society. Nobody is right. Nobody is wrong. Everyone deserves to win, even if they made horrible decisions. Unless this changes soon, this country is doomed. By 2020 the United States will essentially be an old aged pension fund with an army.”
That reminded me of this……………….
“There was madness in any direction, at any hour. If not across the Bay, then up the Golden Gate or down 101 to Los Altos or La Honda. . . . You could strike sparks anywhere. There was a fantastic universal sense that whatever we were doing was right, that we were winning. . . .
And that, I think, was the handle—that sense of inevitable victory over the forces of Old and Evil. Not in any mean or military sense; we didn’t need that. Our energy would simply prevail. There was no point in fighting—on our side or theirs. We had all the momentum; we were riding the crest of a high and beautiful wave. . . .
So now, less than five years later, you can go up on a steep hill in Las Vegas and look West, and with the right kind of eyes you can almost see the high-water mark—that place where the wave finally broke and rolled back.”
Hunter S. Thompson
I miss him very much.
May 13th, 2009 at 8:42 pm
@ben22 8:09
Who can keep up with Tyler Durden? That man is to blogging what amphetimines are to a long-haul trucker. Wow. Just Wow. No surprises at the facts, just surprise that it is now public. This should be the story tommorrow. Thank God for Judicial Watch. What happens when we find out about the $9T?
May 13th, 2009 at 8:47 pm
pmorrisonfl: Love the comments above….especially in re: the chapters from Market Wizards on Seykota, Tudor-Jones, the Turtles….genius insights there. I reread those chapters and the Jimmy Rogers chapter all the time…..
in re: technical analysis…..because you seem to genuinely want to understand and get into some nitty gritty junk, if you send an e-mail to AndysTechnicals@gmail.com, I’ll include you on my distribution list whenever I send some stuff out…it may be helpful. That offer goes for any other big picture readers. I write things here, but sometimes a picture can tell a thousand words…..It’s a free service (for now), so take it for what it’s worth. Happy Trails – AT
May 13th, 2009 at 9:07 pm
leftback: You, and the people you listed are definitely on my list for ‘learning a lot just by watching’
ben22: My ducks are in the rows you describe, cash and all. At the start of 2008 I went to work for the dullest, most stable company from my former client list. Gold plated benefits, solid pay, decent odds of surviving the next decade and beyond. Thanks for thinking so thoroughly about safety, it’s important.
I-Man: psychological wounds in live, small, trading led me to ask for advice, so I grok your wisdom. Thanks for the tips.
Andy T: Your technical insight is exceeded only by your generosity. I’ll take you up on your offer.
All: thank you for providing one of the most consistently smart and interesting conversations on the web. And much gratitude for sharing these things with me.
May 13th, 2009 at 9:26 pm
pmorrisonfl Says: May 13th, 2009 at 6:28 pm
pm,
lb is correct w/ :”Quickest way to get lost is to only see equities.”
remember, Equities are, merely Derivatives, in the first place, and are, only, a mere fraction of the total “Investable Universe”.
w/that, I’d suggest picking your fave non-Financial Commodity from:
http://www.cbot.com/
and, Knowing it from ‘Earth to Earth’–from pre-Production, all the way through its Chain of Demand(Intermediate Processors), to End User and its ‘final’ destination.
with that one Deep pt. of reference, you’ll begin to see the inter-relatedness of the Economy and, with that the, similiar, inter-relatedness of the various Marts..
the more Deep pts. one has, obviously, the better, but in order to have a few, you must have One, first.
Also, the other thing that ‘Commodities’ will lend, in their study, is the application of Leverage. That Mathematics is Critical to understanding the “(Stock) Market” and its relative Pricing, at the very minimum, even if you choose to employ None.
from a different Tangent, Robert Redford Directed a Movie, printed in 2000, “The Legend of Bagger Vance”, even if you don’t Golf, its Message is applicable to your Query.
as always, there’s more, if you have further Q’s, feel free..
May 13th, 2009 at 9:34 pm
Mark H: I don’t know of anyone who quotes more widely from all forms of literature. As it happens, I started reading ‘Uncommon Grounds’ (coffee) a while back… and through that I certainly see your broad point. As it happens I was taking various forms of math and programming classes rather than business and economics while in school, so I’m reasonably comfortable in that regard. Nonetheless a valuable point, and I thank you for it.
May 13th, 2009 at 9:37 pm
pmorrison,
sounds good and best of luck to you. Oh, btw, I didn’t mean literally that your job was at risk, just that it’d be smart to think that way if you worked for someone else. Anyway, I hope you do well.
May 13th, 2009 at 9:51 pm
@I-man
This is VERY late because I just got back after a few hours…
I was reading all of the previous posts about GOLD…My “chime in” is as follows…
I really think you have to look at this from a VERY WIDE timeframe…I’ll give you my FULL DISCLOSURE on this (with respect to my holdings) to give you some perspective:
- I’ve owned GOLD since 2004 (original purchase @ $385 an ounce).
- Everything I own in gold I own in bullion (not shares)…I have various stuff (maple leafs, kuggerands, jewelry, bars, and even some various discarded technology components like CPU’s from old computers, cell phones, etc.)
- I’ve continued to ‘accumulate’ it REGARDLESS of spot price.
- I don’t intend to sell any of it (for now or ANY time until I see a bonafide spike which I consider to either be the price of gold crossing the DOW, or, the price of gold at 4.5x – 6x the value of the S&P)
Otherwise, I’m not INTERESTED in the daily spot price (even though, value wise, at today’s spot price, my holdings represent about 20% of my total asset holdings)…
So…before you read on…ask yourself if you’re interested in hearing words from a BULLION HOLDER (for the past 5 years), what THEY think of gold…After all, it’s NOT a trading mechanism to me…Instead, it’s a LONG TERM HOLD against other asset classes…
In fact…It’s PERFORMANCE has actually EXCEEDED the performance of all my other assets over the same timeframe (an idea not to be discounted)…
I’ll make the rest simple…
- Long term I think we’ll have an inflation problem (which makes gold either cross the DOW or go to 4-6x the S&P)…I don’t know what those levels would actually be, but currently my notion is that it’ll be around $3,000 an ounce for gold (same level for DOW & around 500 on S&P)
- The notion on HOW those numbers might be reached on the DOW & S&P have more to do with changing society rather than the depth of the recession…In the last 25 years there is a HUGE CHURN with respect to index components on both…Technologically speaking, there is no reason to believe that that pattern won’t repeat…In 1984, who ever heard of MSFT or INTC…Who ever heard of half the present makeup of the S&P…The pattern will repeat, and there is every reason to believe that the present re-shuffling will cause changes that none of us can monetize…Gold, in fact, is more of a KNOWN factor…That is how those ratios will be reached…
- In the meantime…we have an INFLATION vs. DEFLATION debate…I’ve concurred with ben22 on this site that we believe the DEFLATION side of that sword will actually kick up before the INFLATION side (despite QE and all the rhetoric to the contrary at present)…I’m an ENERGY BULL long term, but over the next 12 months, I see commodity prices COMING DOWN possibly testing the lows they hit in late ‘08 before TRUE INFLATION starts to kick in…
- Gold, at present, is STILL overpriced versus those other commodity assets (oil, copper, etc.)…
- Therefore, if basic commodities begin to deflate in the near future, then gold will come down to BASE TRENDLINE…
- That would price GOLD somewhere between $720 – $680 an ounce (depending on WHEN that line was hit)…
So for ME…Considering the AMPLE gold bullion that I already hold (and have NEVER sold since 2004), I’m waiting for, let’s call it, a $700 price to get in and actually ADD to my holdings…
On the BULL side…consider the fact that I’ve NEVER sold and therefore am a LONG TERM BULL on this asset class…
That’s just my 2 cents…
May 13th, 2009 at 10:39 pm
pm,
w/this: “As it happens I was taking various forms of math and programming classes rather than business and economics while in school..”
that, actually, puts you ahead of ‘the game’..
you have fewer Poli-Sci-Fi Pathogens to innoculate, your Self, against.
btw, that’s another + to studying a single Commodity, you’ll pick up all the business/eco(n)/poli sci you’ll need, along the way..
and, to be clearer, one of the, implied, points, about Leverage, above, is the old adage: “Chicago Owns New York.”.
past that, the others, above, have proffered Sage counsel, and be sure to take AT up on his offer.
as lb puts it ~ he knows Top Witchcraft.
May 13th, 2009 at 11:17 pm
I’m long marijuana futures.
May 13th, 2009 at 11:27 pm
@pmorrisonfl
I posted something earlier, but it went to Blog Heaven. Everything AT, LB, ben22, and I-man said is spot-on. I will add this: Take it from a reluctant trader – it’s very, very hard. The baseball analogy is very appropriate. Even the best hitters only bat 0.300. You are bound to make huge mistakes, that’s why someone invented the stop loss order. Don’t enter a trade unless you are willing to lose at least 10%. Be yourself. Once you stop thinking about trying to throw the ball like John Elway, you’re on your way to becoming a better quarterback (but you’re probably still no John Elway). Having said all that, I don’t recommend anyone try it.
@cvienne
I USED to think anyone who bought gold was a LOSER. Well, I don’t think that anymore. Now I understand what so many were telling me about fiat money and the FR. Wish I had listened years ago and I watch it with interest now. Currently, I am prefering SLV.
@AT
Thanks for the invite. I accepted your very generous offer. Hope things are well in Space City.
May 13th, 2009 at 11:36 pm
@ben22
Still no clue what to make of gold at this point. I don’t know that anyone really knows what to make of it.
FWIW, Richard Russell is very bullish on gold and pointed out the other day it had formed a massive inverse head and shoulders bottoming pattern. We shall see, but I think it is getting ready for the next major upleg, but it would need to hold 850ish in my opinion. A break below 850 would violate major support and the neckline
May 14th, 2009 at 12:08 am
@ Cursive: Thanks. Sometimes we have to look at things and think what it says about us and not what it says about the thing itself. We (humans) are the one constant throughout centuries of events. Our reactions now, are no different now than before. Sure with communication at current speeds, info dispersion might change some things and compress actions, but it might not. Maybe speed of info has more effect on amplitude of action. Because regardless of how quickly the information comes, it is still hitting that same brick wall we call a skull. But it hits more of them quicker. Liquidity is greater now in many aspects and absorb the effects of info dispersion somewhat, but again, we are still in the mix with all our foibles. So whether it is tulip bulbs, tea companies, robber barons in a guilded age, roaring 20’s, opec, portfolio insurance, S&Ls, Japanese real estate, Russian defaults, Thai Bahts, Year 2000, 9/11, 120% mortgages, subprime and CDS’s…it’s all rhymes. Only the magnitude of the screw up has any relevancy to the amount of time it takes to work it out… I’d say this was a doozy–even adjusted for inflation.
Considering downside’s knife cut is a more devastating cut, people should focus much more on downside avoidance than they generally do and much less on upside capture… With humans being inherently optimistic, the upside usually can take care of itself. The devil is in the downside, because we are innately positive in our outlook.
Always enjoy the discussion threads here… Barry’s stringent patrol of the comments in his early days have reaped a pretty good community of participants…
May 14th, 2009 at 12:26 am
@Cursive
7 to 10 % stop loss? Yikes that sounds high, what is your timeframe? – if you are only right 50% of your buys, then you’re depending on your correct calls to have 10% gains just to break even (not including your trading fees if you’re placing small bets)….
May 14th, 2009 at 2:06 am
@gregh
No one should ever, ever buy a leveraged ETF. Having said that, 10% is nothing for FAZ.
May 14th, 2009 at 5:59 am
Cursive: I read both your posts (missed the first until after I’d said thank you to the others…), and thank you as well. By my own limited experience, you speak the truth. Stops, and trailing stops, be they 10%, 7%, 5% (is there a KSU-equivalent unit for this? Does it pair with the leverage of the ETF, if you go that route?) are certainly the first tweak to my present style, said with both a smile and a grimace.
I figure even Elway himself wouldn’t do so well if he didn’t work out, practice or study the playbook. I don’t think I’m Elway, or even NFL material, I just think I might do better serving my own interests than leaving it up to the managers of options 3, 6 and 11 on my 201(k)’s fund menu. But first I want to practice with a little pot of money that isn’t committed to anything else.
May 14th, 2009 at 10:00 am
@pmorrisonfl:
on stops… real quick- stops should correlate to your position size above all else… not the trading of the vehicle.
It’s easy to get caught up in the vehicle itself sometimes, but far more important to protect the capital that allowed you to drive it in the first place.
Happy trading, -I-Man
May 14th, 2009 at 12:27 pm
re: failing wall street mantra’s ending in tears,
The path we everyday Americans walk down now is our own veritable “trail of tears” v2.0 – forced upon us by the “sharp knives” in Washington and Wall Street.
May 14th, 2009 at 12:39 pm
Andrew Jackson quotes:
The bold effort the present (central) bank had made to control the government … are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.
Andrew Jackson quotes:
You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.
Andrew Jackson quotes:
Every man is equally entitled to protection by law; but when the laws undertake to add… artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, and laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government.
Andrew Jackson quotes:
Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.
Andrew Jackson quotes:
The brave man inattentive to his duty, is worth little more to his country than the coward who deserts her in the hour of danger.
but, but, it’s the 21stCentury, it’s 2009, it’s All-New, “Whoocoodanode?”
GMAFB–sell it to children and slaves.
http://quotes.liberty-tree.ca/quotes_by/andrew+jackson