Overshoot Unwound
Mike Santoli has a nice turn of a phrase – “Overshoot Unwound” – in Barron’s this morning. His thesis is the panic sell off from 2008 until March of this year was mostly panicky liquidation. The surge since March 9 is the result of that deeply oversold whackage:
“The idea of a bear-market overshoot phase — when the market goes beyond pricing in weakening economic conditions and turns to liquidation and panic — was first invoked here in July and most recently in October, when the Standard & Poor’s 500 was almost exactly at its current level.
The relentless climb of 30% since the March 9 low has recouped the ground ceded in the disorderly, deleveraging, Depression-recalling, government-is-clueless selloffs of the fall and early this year.”
That rings true.
But so does the criticism that markets cannot be lead by single digit stocks, especially the former leaders of the last bull market (Banks, Home Builders) that were wrecked by their own poor assumptions and bad risk (mis)management.
Mike also notes the “frothy activity percolating” and suggests a rotation to quality from the junkier leaders of this rally might be advised.
While I am less inclined to stay long after a 30%, two month rally — at least until we clear the immediate band of resistance overhead — those with a bullish inclination would be wise to heed this advice.
A junk to quality rotation might be in order as markets digest their recent gains . . .
>
Source:
Hindsight From Higher Ground
MICHAEL SANTOLI
Barron’s May 4, 2009
http://online.barrons.com/article/SB124121854787778853.html
May 2nd, 2009 at 8:29 am
You are refreshingly pragmatic . . .
May 2nd, 2009 at 8:55 am
If you look at a 10 year chart, this rally is getting long in the tooth. With such a spike, the retracement is usually quicker.
May 2nd, 2009 at 8:58 am
If this “rings true” why have you been sitting in so much cash? Why didn’t you say to get all in when the Dow fell beneath 7K?
~~~
BR: I made a good bull market rally call at the lows. If you missed it, you should pay closer attention.
I try to be measured and appropriate. For the most part, the only people who have yelled “all in” have also done so at 12k and 10k and 8k — all the way down. And if you want over the top bombast where they yell ALL IN, or BUYBUYBUY, there is a TV show I can recommend . . .
~~~
If you are going to be critical, I make this small request: Get it right when (especially when it comes to market positions/postures).
May 2nd, 2009 at 8:58 am
I hate to pick on a guy, but Santoli has been so dead wrong during this entire bear market that I’m tempted to fade anything he recommends. If you’ve been following his advice over the past couple of years, you have literally been ruined. I still love his call to put an order in to buy the dow at 9000 last October as some type of “can’t lose” trade.
To his credit, he did apologize in his column for that suggestion.
Dunno…… from here it seems like the bears who have been fighting the rally to this point have capitulated, perma-bulls like Santoli are starting to crow about their trading prowess and there is a huge crowd of retail chasers buying as the market seems to have “stabilized.”
So, one of the worst bear markets in history seems to have vanished without a trace….. very odd indeed.
I think you’ve got it right BR.
May 2nd, 2009 at 9:03 am
I have to admit that I am worried about a potential rebalancing from bonds to stocks.
Lots of charts showing the incredible cash positions have been circulating. I’m just wondering if we’ll be seeing this go from cahs to equity or from cash to longer term bonds.
I’m thinking that the choice will be longer term bonds since most are still afraid of deflation.
Any thoughs?
May 2nd, 2009 at 9:12 am
i still believe this a massive short covering rally that is quant and momentum driven. watch how the market simply goes up in extreme bursts out of nowhere. the lead in collusion with the gov is none other than the head criminal syndicate godamn saks. as everyone is aware their principal trading is through the roof. they simply will not let the bears play as more and more dour news arises and yes it has. they simply squeeze the shorts immediately as soon as they try to knock it down and WALA!! up goes the market. yellow weeds are met with extreme euphoria. fundamentals are throw to the woodshed . this is momentum driven..only godamn saks knows where it will turn and when it turns it crashes.
May 2nd, 2009 at 9:14 am
only godamn saks knows where it will turn and when it turns it crashes.
————–
When they can make a helluva lot of money shorting it themselves!
May 2nd, 2009 at 9:15 am
in addition i am still of the opinion the market sees new lows probably this year as the eye of the hurricane passes and the crises once again comes back into play and may morph into something even greater.
May 2nd, 2009 at 9:41 am
great new show- “Auto Warriors”
http://www.theonion.com/content/video/autoworkers_compete_to_keep_jobs
May 2nd, 2009 at 10:07 am
I REALLY wish everyone–perma-bulls alike, would stop saying we are “overdue for a retracement”!!!. That’s how I’m position, but this market is vicious and i believe in the “Maximal Pain” theory oft discussed on Minyanville. Sigh…. Anyway,
Some evidence as to what’s behind the rally: Recent Fed data http://research.stlouisfed.org/fred2/series/WIMFSL Basically, it hasn’t been from institutions.
For me, THE $64K question is deflation v. inflation [and yes I conform to the CW of we must have inflation with trillions being "created" electronically] –but timing is key. And when it hits shorting treasuries will be the the best investment in the next 5 years. BUT, if inflation is perhaps best gauge on a macro level by the Money Multiplier which = M2 divided by the monetary base, then latest Fed data show M2 coming down some and monetary base up. That’s saying deflation > inflation on risk side.
May 2nd, 2009 at 10:15 am
well, it is a market of stocks, afterall..
some productive companies were sold, last Fall, down to some extremely low levels..
there, “Overshoot unwound” seems to fit..
though, w/this: “..markets cannot be lead by single digit stocks, especially the former leaders of the last bull market (Banks, Home Builders) that were wrecked by their own poor assumptions and bad risk (mis)management.”
hh’s point: “..this a massive short covering rally that is quant and momentum driven. watch how the market simply goes up in extreme bursts out of nowhere. the lead in collusion with the gov is none other than the head criminal syndicate..” draws an appropriate arrow to understanding a large part of the recent ramp..
LSS: if you’re a “Long-Term” Investor, you’d be better off investing in your Self/Family/Community to increase your odds of buoyancy in the face of the hyper-deluge of Fiat that is precipitating at ever-increasing rates..
http://hyperphysics.phy-astr.gsu.edu/hbase/pbuoy.html
http://www.thefreedictionary.com/precipitate
May 2nd, 2009 at 10:16 am
People should stop reading the opinions of others and do some very basic due diligence on the economic environment.
Start by looking around.
1. Are there any empty or largely empty office buildings where you live? If so, are more currently under construction?
2. Are homebuilders still breaking ground in your area?
3. Are the malls, strip malls, and shopping centers in your area full? Half full? Empty? Are there new retail developments coming on line?
4. Can you name a company that you think will post a profit this year, and if so, do you think that will profit be greater or less than last year’s. Of the companies that you are projecting will have healthy profits, do any have a large market share in low cost consumables (e.g., fast food restaurants)? Of the companies that you are projecting will have healthy profits, has any had layoffs, sold or shut down dead-wood business units, liquidated holdings, or otherwise taken steps to cut cost or liquidate holdings?
5. Are the car dealers in your area moving product?
6. Are you or anyone you know day trading as their sole source of income (especially if they formerly had a different career, of if they only started doing this in the past two years)?
7. Are people at cocktail parties or other social gatherings discussing the money they’ve made or lost in the markets recently or discussing their investment strategies? Are these people stock brokers or otherwise employed in the financial services or investment banking fields? Have any of them recently moved to Schwab to make their trades?
8. Has anyone you know started a services company recently (e.g., lawn service, window washing, home improvement)?
9. Has anyone you know been laid off, taken a job outside their chosen career field, or had their bonuses or compensation cut?
10. Can you advance any realistic reason or justification for the broader economy to improve in the foreseeable future?
May 2nd, 2009 at 10:21 am
MA,
it’s a lot like that.
Exhaust Fumes always make anyone a better Economist.
May 2nd, 2009 at 10:24 am
That’s saying deflation > inflation on risk side
—————
When inflation starts to pick up, assets will deflate in the very beginning (because the economy will need to adjust to the new reality). Then as time goes on and inflation expectations start getting incorporated into financial decisions assets will soar.
I’ve been looking at a lot of hyper inflation situations and that’s how it seems to go. In the Weimar republic, stocks tanked when inflation pointed its nose. It took a while for people to understand what was going on. And when inflation started to accelerate, the market took off.
I don’t think people have changed. We got the bubble in real estate because people people have not evolved.
May 2nd, 2009 at 10:33 am
MEH:
No wonder CA is leading the nation in decline.
May 2nd, 2009 at 10:34 am
Agree completely with insaneclownposse & cttfinder for far more reasons then they state.
What about your fed balance sheet facts? Or as yet booking of CDS writedowns? Or your accurate description of accounting gimmics underlying financial’s rebound? Not to mention very little underlying fuel in this economy of real value.
Santoli’s mocking: “disorderly, deleveraging, Depression-recalling, government-is-clueless selloffs”, AFAIC, is only another example of what you have called “economic illiteracy”. Mortgage CDS was fraud, period. And it’s perpetrators have not been chastened, nor have means by which they perpetrated.
Incredible to me that, just weeks after a bottom arrived at not through “sell-offs & deleveraging” but junk sold as AAA reaching it’s “fair market value”, with pension/insurance funds not yet having fessed up to consequences on their balance sheets… that all this is forgotten, thrown out the window to ride a last gasp bubble w/virtually no substantial fundamental underpinning.
Sheesh…
May 2nd, 2009 at 10:48 am
I respect Barry and David Rosenberg for having the integrity to express uncertainty and admit to the possibility that they have been over-long bearish and may have missed a true bottom in early March and that a recovery may be beginning earlier than they predicted. But in legal terminology, I think the burden is on the economy to demonstrate real stability after everything that has happened. That’s just another way of stating MA’s really good point above. How can we really move to quality when the ground is still shaking and dominos are still falling? Economic crises put good companies under.
As a skeptical person I also can’t help but wonder whether a false black hat/white hat dichotomy has been set up between “evil banksters and their minions” and the “good guys who get it.” Captain Sullenberger’s successful water landing wasn’t an endorsement that the plane he had to ditch was in great shape and well maintained. He had to play the hand he was dealt. Will the same economic team be in place to manage years 2-4(8?) of an Obama administration?
~~~
BR: I sure haven’t been overly bearish this go around.
It just goes to show you that no good deed goes unpunished. The call on March 9th was about as good a bottom tick as you will see.
“Big Bear Market Rally Coming,” Says Noted Bear Barry Ritholtz
(Recorded March 9, 2009)
There have been several long trading calls since October that were money makers. I just am not convinced the recession is now all but over . . .
May 2nd, 2009 at 10:55 am
@danm
Equities like a little inflation–not a lot. 2.5-3% is generally the sweet zone, over 4 and certainly >5% is bad for equities.
May 2nd, 2009 at 11:01 am
Transor,
this Financial “Economy” has been Professionially stripmined.
jdmckay, above, points in the right direction..for starters.
also, to my comment, above, re: Fiat
http://www.thefreedictionary.com/fiat
there was an, intended, 2x-entendre: Rules&Regs, and ‘Currency’/Debt..
May 2nd, 2009 at 11:02 am
@Marcus Aurelius – Ditto to every point you make. I have long been in the ‘practical bear’ camp based purely on fundamentals. No matter how one assesses the current situation, there is simply no basis whatsoever for sustained economic growth in either the short-medium term (6-18 mos). Traditionally, this would be reflected in (non)earnings, hence lower share prices.
However, I have recently had some sort of epiphany. But, from the look of things at the various financial blogs, there are only a few that are experiencing the same revelation. And it is this: everyone is so busy criticizing Ben & TTT and the various TARP/TALF/PIPP, etc bailout plans that we have neglected to overlook (or, we acknowledge it, yet fail to consider its effect) the astounding impact of the Fed’s QE program.
Steve Keen suggests that the Fed would need to add $25T to pull of re-inflation; some posit that the Fed/Treas could mail a $1m check to every citizen. Well, why not? See, the key is if USA QE is coordinated with every other major G20 central bank to ensure that currency values remain constant **relative to each other** so as not to disrupt repatriation, import/export, capital investment programs, etc.
I believe this is what is occurring, which is why we could see home prices not only stabilize, but increase in value to the point of being back in the money. Not coincidentally, 100% inflation would support the DJI back @ 16k.
The traditional argument against inflation is that it wouldn’t work with a wage->price spiral. Yet, with the FedGov now directly and indirectly in control of the private economy, it is within their power to match wages with prices.
None of this is to say that we would have a new basis for renewed economic growth. I still expect to see 20%+ unemployment over the next 24 mos, with GDP bumping along somewhere at a 10-15% contraction from the peak. But it does suggest that we can the debt/GDP ratio back to 150%.
I guess what I’m describing is the class L. The ‘real’ economy will experience a prolonged recession, yet the stock market will continue to rise simply to reflect the globally coordinated inflationary efforts being undertaken by the Fed and G20 central banks.
May 2nd, 2009 at 11:02 am
Between inflation at much higher than reported rates and competition from the global workplace, the middle class has seen its earnings erode dramatically. For many years the decrease in buying power of the middle class has been supplanted by excessive credit.
That has ended with a bang and people are saving instead of over spending. Unless something happens to restore buying power to the American middle class, the world’s economy must adjust to a significantly reduced consumer demand.
This rally looks overheated to me. for example, REITS like Simon Properties selling at a PE of 25! As long as a business that relies on consumer spending is judged solely buy the phony government induced capital markets, the market will miss the fact that its underlying business model is trash; on top of that – what happens when the government stops propping up the bond market?
May 2nd, 2009 at 11:06 am
next week will prove to be interesting and will possibly set the mood through the summer-
Stress tests on Thursday and non-farm payrolls on Friday-
the question is whether the “fix is in” on the stress tests- as was the case with the earnings announcements from the TBTF banks and the market rejoicing on the juiced and manipulated numbers-
My own impression is that much emphasis is going into an avoidance of another market plunge and that the USG is only too happy to make things look “less grim” than they might otherwise be and the market is willing to play along.
May 2nd, 2009 at 11:07 am
@MA
1. No. In fact, vacant retail space in my area has been snapped up recently and new stores are opening. Best Buy and 2 new restaurants.
2. No. Looking for a housing rebound is like refighting the last war, though.
3. Yes, malls are doing healthy retail business in my area. So healthy, in fact, that we have two Macy’s that are able to survive just 3 freeway exits (4 mi) away from each other).
4. Yes. Costco’s business is healthy, and they’re hiring people. There were lines at Staples last weekend, which is unusual for a Sunday morning. And I don’t own stock in any company that isn’t profitable: UTX, PM, VZ, BA, RIG, DEO.
5. Don’t know, but Ford cleaned Toyota’s clock in the recent sales data.
6. Only idiots day trade.
7. People I know are talking about buying, not selling. But they’re not talking about 30 minute or 30 hour trades: they’re talking about 30 year trades. People I know are itching to get into the market for their IRAs.
8. Not services…worse–retail! I know a young man who opened a 7-11 last year, and just opened his second 7-11 a week ago.
9. Nope. The last person I know who got laid off was fired in December. My friend recently got a raise, and one of his bosses tried to lure him from his present company to a rival that the boss was leaving to work at.
10. I can name 3: A. People were altogether too pessimistic about the economy, as BR has noted. The world isn’t over. B. Recent data indicates that the economic slide has petered out, and the fact of the matter is that people simply cannot stop consuming altogether. C. The Economic Recovery and Reinvestment Act’s tax cut provisions have only begun to hit the economy, and the lion’s share of spending won’t occur until the 2H 09 and 1H 10.
May 2nd, 2009 at 11:07 am
Right on, MA.
One of the great unanswered questions is why would anyone be inclined to believe that there is any semblance of an actual price discovery process at work right now?
Are we supposed to believe that Madoff (former NASDAQ chairman; 6th largest market maker in 2008, #1 in the third market), ran a ponzi scheme (that never traded) on one hand, but was an honest market maker?
Madoff “specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.” (from Bloomberg) But we’re cool now, right?
Sometimes I wish someone would hit me with the flashy-flashy thing too.
May 2nd, 2009 at 11:08 am
there is no doubt that the debt driven, wealth effect binge is over. and, i hope that the aftermath of this “crash” initiates a more virtuous, sustainable, and conservation driven socio-economic model. but those of you anticipating dow 5000 or spx 500 better not be holding your breath. imo, you are not factoring inflation into the charts. i am convinced the lows are in and have stated many times that we fell too far, too fast under unprecedented circumstances… i see the dow can eventually hitting 10000 in 2010? and the spx to 1100. i do plan on corrections along the way. i also plan on a continued decline in real estate prices… although in some areas, prices crashed nearly as hard as the market did. i think job destruction will be sopped up, albeit slowly, with job creation. and, finally, i am still concerned and disgusted that those that engineered the financial fiasco haven’t been brought to justice. but, we all know life isn’t fair, right?
May 2nd, 2009 at 11:16 am
You might as well just set all that analysis aside – it is completely meaningless now.
You aren’t buying stocks anymore, you are buying government – indirectly. The decisions some bureaucrat makes will not be made for the same reasons that a business owner would use… which is what all that past analysis is based on.
May 2nd, 2009 at 11:19 am
karen-
may I inquire as to where this job creation you’re talking about will come from? What industry will do heavy lifting?
franklin-
great idea- we’ll open a bunch of retail stores and sell stuff to each other- great economic plan- I wonder why it wasn’t thought of before
May 2nd, 2009 at 11:31 am
@ahab: What do you mean, “jobs” and “industry”? We don’t need jobs or industry. We’re just going to go from flipping overpriced homes to each other to flipping overpriced (often worthless) stocks to each other. After all, flipping stocks is much easier. We don’t even need to leave our homes to do that. We can all play “pretend” for a while, right? It will work until it doesn’t. The key is to figure when the game stops again and what what the ramifications will be. It won’t be pretty. Could take a while though. I’ll give you that. We human beings (Americans, especially) seem to have this unrivaled innate talent to delude ourselves for a pretty damn long time. We shall see how long this lasts.
May 2nd, 2009 at 11:34 am
Humorous to see some of the headlines on some financial sites (including CNBC): “Sell in May and Go Away? Maybe not this year.” Articles all go on to say that “this year will be different because….blah blah blah.” What’s really funny is that last year you could find very similar articles. Last year was going to be different because we didn’t have a Nov-May rally….so therefore we “shouldn’t” get a summer decline. HA.
Every year there’s a reason why seasonal cycles will be turned upside down and not come true. Every year there is a good reason. But for some reason, seasonal cycles remain powerful forces. There are certainly exceptions and it’s not impossible to get a continued strong rally for next several months (nothing’s impossible), but fighting seasonal cycles is a true SUCKERs game.
The market is a living breathing organism, because it’s direction is determined by a bunch of living breathing people who exhibit a range of emotions. We get spring rallies because Spring is nature’s rebirth…it’s a hopeful time in the natural cycle. It’s no coincidence we get rallies across stocks and commodities into a “spring peak.” And, as with every up cycle, there is a down cycle, as nature looks forward to the fall and winter…
The Dollar Index looks very much like it needs one more little leg down to 80.6, which should give all asset classes the artificial push required to put in spring peaks by the end of May. For SP500 watchers, pay close attention to that shallow trend channel that developed starting Mar 23rd. My theory is that particular trend channel encapsulates the end Waves 1 & 3 (top of the channels) and Waves 2 & 4 (bottom pts of the channel). If this market can hit the top of that channel in the next few weeks (900-930?), it will mark a very serious point of resistance as the Wave 5 would have concluded. I’m strongly recommending that long term holders of stocks at least take out put protection over the next few weeks to prepare for a long, rough summer.
Good Luck “Investing” – AT
May 2nd, 2009 at 11:38 am
guess what I’m describing is the class L. The ‘real’ economy will experience a prolonged recession, yet the stock market will continue to rise simply to reflect the globally coordinated inflationary efforts being undertaken by the Fed and G20 central banks.
—————–
I agree with you on everything except one part.
When inflation starts moving up, margins will compress even more and many companies will become cash flow negative. Meaning a huge whack of companies are going to disappear. That’s when the market tanks again.
Inflation picks up even more as the remaining companies start getting more pricing power and as inflation expectations start going into financial plans. Companies start focusing more on inventory contro and cash management activities than production. Momentum picks up in hoarding and asset prices take off again.
Conclusion: 2 phases, not one.
May 2nd, 2009 at 11:49 am
ahab, some job creation will come from job migration… welders working on bridges vs. automobiles, for instance. realtors going back to being nurses : ) although, i think leftback was hoping for more pole dancers and ladies of the evening.. and think of the jobs that could be created if they legalized industrial hemp as well as cannabis. seriously, though, health and medical research, health care, structural engineering, electrical engineering, geology, earth science, space/astronomy, aviation, clean energy, education, computer science,.. are all areas that I can see providing jobs… i’m sure i’ve overlooked a few important ones. remember the jobs lost to the factory automation and robotics revolution? new took their place.
May 2nd, 2009 at 11:54 am
Marcus Aurelius
“6. Are you or anyone you know day trading as their sole source of income (especially if they formerly had a different career, of if they only started doing this in the past two years)?”
- While I concede the odds are heavily stacked against the novice but I’m not entirely sure this thesis is as accurate as it was during the early part of the decade simply due to tech. advances. For ex: I’m aware of a handful of 2 yeas or less day traders making a very comfortable living. fwiw.
Anyhow, I’ve learned quite a bit from your comments and make a daily habit of searching them out.
May 2nd, 2009 at 12:01 pm
just a reminder- we are not in a classic recession- the federal government has for the most part taken control of all capital markets- not a good sign of a healthy functioning economy- and in the past people returned to their jobs once the economy picked up- V shaped recessions- however- there is no longer a job to return to- L shaped recessions
also- a lot of people lost their ass in the 1929 crash- but a lot more people lost their ass in the 1931 collapse- when many folks thought the coast was clear and the market had been improving
unfortunately- I do not see rainbows on our horizon in the foreseeable future- does not mean however that the country won’t plod along- but something is going to have to shake me silly before I think we have another leg of prosperity right around the corner
May 2nd, 2009 at 12:02 pm
I know of a couple of people who sold their businesses in the last few quarters at the peak (slowdown just starting in Montreal) and now they are not working. Just trading commodities!
May 2nd, 2009 at 12:02 pm
@karen: It’s too bad we’ve de-emphasized those areas (except for health care/medical, but not everyone can go to those industries) in our economy as our so-called “best & brightest” chased the lavish rewards of Wall Street. So we’re just going to flip a switch and go back those industries all of a sudden? Me-thinks that many of those jobs, if they do end up being created, will go to more qualified foreigners because they can be paid more cheaply and because we don’t have tons of talent in those areas who are ready to go. I hope you’re right. I really do but I have this nagging sense that if those things do happen, it’s going to take years to make that transformation. We’re still wedded to this idea of easy money (and fame) in this country and those fields aren’t easy money (or glamorous).
May 2nd, 2009 at 12:11 pm
@ahab
Why is having the government in control of financial markets any worse than having the investment banks, mortgage companies, and ratings agencies in charge of them? They haven’t exactly been earning themselves a stellar reputation. In fact, recent polling shows that more people trust the government than trust business to do the right thing when it comes to managing the economy. I think that trust is well placed.
May 2nd, 2009 at 12:13 pm
“just a reminder- we are not in a classic recession- the federal government has for the most part taken control of all capital markets- not a good sign of a healthy functioning economy- “–ahab
needs to be accepted.
see:
http://www.nytimes.com/2009/04/30/business/energy-environment/30smart.html
as one reflection…
there will be ‘jobs’, at the minimum, building the Panopticon of the 168. Track n’ Trace “Economy”/Pachinko Parlor
May 2nd, 2009 at 12:16 pm
centiare:
I have suggested the $1 mil (taxable at 50%) check to every taxpayer in the past (actually, I suggested $3 mil, WTF, it’s fiat), and a 2 year freeze on wages and taxes (but not intellectual property or assets).
I think the solution to our dilemma is to apply the relief directly to the middle and lower classes. They retire debt, the banks are made whole, and the government pays off a huge portion of the national debt. On the downside, the dollar crashes, but as you point out, that’s relative. there’s also a downside to the entrenched wealthy and banking classes. You’re not so special when everybody’s a millionaire.
It’ll never happen.
erikvonstronhiem:
I only added that because I was at a funeral last week, and the after-services get together was filled with novice day traders. Thanks for the compliment.
May 2nd, 2009 at 12:18 pm
franklin,
the old adage: “out of the frying pan, into the fire” should, if it is, at all, possible, help you out.
or, differently, where is it that you procure your Supply of Kool-Aid 151 ?
May 2nd, 2009 at 12:21 pm
>> Me-thinks that many of those jobs, if they do end up being created, will go to more qualified foreigners because they can be paid more cheaply and because we don’t have tons of talent in those areas who are ready to go.
This is a feedback loop.
As long as we keep bringing in H1’s to replace engineers instead of real estate agents, mortgage brokers, salespeople and bank execs, then the wages of engineers stay depressed within the US relative to other occupations.
May 2nd, 2009 at 12:22 pm
franklin411:
There’s a small distance but a large difference between optimism and cock-eyed optimism.
As for your question to ahab:
“Why is having the government in control of financial markets any worse than having the investment banks, mortgage companies, and ratings agencies in charge of them?”
We have a hybrid of the government and he other entities you cite running the show. By one definition, that’s fascism. Fascism is not a very good form of government.
May 2nd, 2009 at 12:23 pm
@Mark
Lies. 1. I don’t like Kool-Aid (too sweet, too synthetic tasting), and 2. I don’t like 151 (why spend good $$ on 151 when Popov vodka is only $4 a liter?).
May 2nd, 2009 at 12:24 pm
Marcus Aur:
Very good questions…thanks…
http://www.bloomberg.com/apps/news?pid=20601170&sid=aGH_rFa9KgqY
Buffett Says He Sees ‘No Signs’ of Recovery in Housing, Retail
May 2nd, 2009 at 12:25 pm
@MA
That’s statism, not fascism.
May 2nd, 2009 at 12:26 pm
Mark, we’re already in the fire. Massive criminal *private* enterprise (credit/debt counterfeiters) and a complacent, industry-will-regulate-itself mentality put us here.
May 2nd, 2009 at 12:27 pm
I really do but I have this nagging sense that if those things do happen, it’s going to take years to make that transformation
————-
Makes sense.
During inflationary times, companies spend more time managing cash than anything else.
So I think we’re still going to see a lot of demand for some kind of finance work. Maybe lucrative for those in it but not very productive for a nation!
Fascism is not a very good form of government
————
According to whom? You or Hitler?
Actually fascism worked wonders in Germany for quite a few years!
May 2nd, 2009 at 12:31 pm
I saw that Yahoo video when you posted it — it was the last piece that tipped me into a more “constructive” posture.
A belated thanks
May 2nd, 2009 at 12:31 pm
franklin-
capital markets are not the function of government- unless you’re into 5 years plans-
may I suggest you get your head out of Das Kapital-
America will always be about freedom – should people mistrust business financiers- shit yeah- but you wouldn’t see me run to the embrace of the federal government as a response- AND I most definitely do not want to see the USA turn into a European social democracy- talk about ‘numbing contentedness”- I’ll take a pass on any future menu that has me select the services I want the government to”provide”.
May 2nd, 2009 at 12:32 pm
@Franklin:
Well, how are the computer games, bicycle, and Obama’s extra $40/month working out this week?
You don’t work in an Applebees do you?
May 2nd, 2009 at 12:34 pm
So silly…
May 2nd, 2009 at 12:37 pm
danm:
The mention of Hitler is a thread killer.
How did things work out for the H-man and the Germans in the end? How about Mussolini and the Italians (great name for a lounge band, BTW)?
Yeah, let’s go that way.
May 2nd, 2009 at 12:38 pm
AND I most definitely do not want to see the USA turn into a European social democracy- talk about ‘numbing contentedness”- I’ll take a pass on any future menu that has me select the services I want the government to”provide
——————–
I’ll never understand America’s anti-socialist bias.
What’s so bad about Scandinavia? Quality of life much better than that in America unles you are in the top 1% that is.
I get the feeling that your government is so bad that you can’t even imagine one working for the people.
May 2nd, 2009 at 12:38 pm
From Wikipedia (yeah, I know, not the definitive source, but neither are you):
Fascism is a radical and authoritarian nationalist political ideology.[1][2][3][4] Fascism is also a corporatist economic ideology.
May 2nd, 2009 at 12:39 pm
wunsa-
I hear you, though, the “Gov’t”, from the majority of Both sides of the aisle, has been aiding & abetting/Cheerleading the: “Massive criminal *private* enterprise (credit/debt counterfeiters)”
that would be the “Pan”, I was referring to..
Total Gov’t, the “Fire”, coming to a theater near you..
May 2nd, 2009 at 12:45 pm
Marcus:
I don’t care. You can’t wipe out that stretch of history. If people can’t tell the difference between a decent argument or that of a nutbar, it’s their problem.
Look I agree with you that it did not work out very well for the mustache man but it worked very well for many years.
A lot of people suffered and a lot of people prospered. It all comes down to what you are measuring. Whether or not it is working must be looked at through different eyes. ALL systems acquire too much entropy and die. No system will ever last forever. There is no good system.
May 2nd, 2009 at 12:47 pm
@MA:
Statism is a part of Fascism. The reverse is not necessarily true.
http://en.wikipedia.org/wiki/Statism
@Bruce
Haven’t had too much time for gaming this week. I’ve had more work than usual–the school is having a hard time finding enough people to teach courses. And the $40 a month is working out well. I love my new Blackberry, but I wish Barry would add a mobile-friendly site for us smartphone users!
May 2nd, 2009 at 1:13 pm
Posted via Blackberry:
Funny, I mentioned Godwin’s Law just the other day.
Reductio ad Nazium
May 2nd, 2009 at 1:25 pm
what the bulls and hopefuls miss is that our financial system is broken and to hope things get back on track is the same short term thinking that most braindead have in this country. as long as asset prices rise the braindead forget the structural underlying issues.. I for one hope things continue to deteriorate and collapse. we need some innovative thinkers and not buffoons who want to continue the same mindset that being more credit and debt is good for the country IT”S NOT. the system has been broken for decades. the gov is now infiltrated every single aspect of the economy. how on earth do bulls see that a sa positive. this could be a bubble even larger than the mortgage fiasco. welcome to the global depression
May 2nd, 2009 at 1:37 pm
@franklin:
What kind of school are you working for (is it a CC)? And what type of teachers (at the post-secondary level they are typically called professors, no?) is your school looking for, include pay ranges and position titles if possible so we can judge for ourselves? People that teach at universities (at least in B schools) fall in one of several categories:
A) tenured/tenure track faculty (very expensive and teach very little)
B) Doctoral students (i.e. not for hire and when they are its usually for a tenure track position, so expensive)
C) Lecturers/Clinical Professors (do no research and get no respect/acclaim for school): these are seen as ‘necessary evil’ hires by the growing b-schools, so if your school is looking for these sort of people, and no offense here, but your school isn’t very good.
As for the first two types, school budgets have been cut drastically, the number of tenure track positions has been slashed and many of the offers that were made have been pulled from the 2009 class. On top of this many chair/full professorships are also being eliminated. Please enlighten us as to where have found this magical place where the economic reality of the last year has completely passed you by?
May 2nd, 2009 at 1:53 pm
I’m at a university, and budgets have been cut. 4-5 years ago they started dramatically cutting grad admissions, and the result is that there are far fewer PhDs “in the pipeline” than there were 10 years ago. My entering class was 40 students. This year, we offered spots to fewer than 10 students. The shortages are most acute in the positions that require grad students or recent PhD recipients–temporary teaching positions, assistantships, etc… The question is whether that’s a permanent thing or a short term phenomenon. Think about it, though–we’re producing 2/3 fewer qualified professionals to fill a growing need as faculty die off and students increasingly go on to college. For the short term, they can fill those positions with younger people such as myself. Everyone’s going to have to settle for hand to mouth for a year or two, but that won’t last forever. Basic supply and demand.
Now, as for myself. I have more work and offers than I’ve ever had, and it’s not just me. My university is actually asking people who are still in the program but moved across the country to write if they’d be willing to come back and TA or teach a course. Our personnel secretary actually asked me (quite desperately) if I knew anyone who might be interested in teaching.
May 2nd, 2009 at 2:25 pm
@franklin: What school? What discipline? What level: i.e. MS or PhD? If your school is taking/took 40 students in a first class I guarantee at least half was being cut by the qualifier after the first year. Admissions (in relative terms) had to be cut because even the second and third tier schools had PhD admissions rate (for bschool PhDs at least) of around 2-4%. Also I am not talking about temp teachers/assistantships (these are much lower paying positions). I am talking about new PhDs going to research schools for tenure track positions (in acct/finc these pay about $150K for 9 months for new grads). It is this kind of pay that attracted the best and brightest, which is why applications have skyrocketed and admissions have plummeted. However, while in years past positions may have been plentiful the people coming to market this year and next may have to settle for those post doc/teaching/assistantship type position instead of the tenure track positions which have been and are being drastically reduced due to budget cuts. Replacing tenured faculty with “teachers” is not a good thing. So when you say your school is hiring teachers, do you mean that this is in lieu of tenure track positions.
Another sign of the worse than usual job situation in the finance departments is that in prior years you didn’t need an RR from an A journal (i.e. JF, JFE, RFS, JFQA, Econometrica etc.) to get a job for a mid level state school (ex. IU, OSU) but now you would be hard presses to get a tenure track position at these schools without an RR (historically an RR from a tier 2 journal or a pub in a tier 3 would get you in). Things fing such in the academic realm right now particularly for new PhDs from decent to good schools,
May 2nd, 2009 at 3:08 pm
It is indeed humorous to see the radical shift in sentiment that follows this rally. Nothing like a shot of quick asset appreciation to numb the senses and make the predominant mood shift to think it’ s all going to go back to “normal.”
The thesis of his argument is that we were ridiculously overdone on the downside and now we’ve corrected to a proper level. I say B.S. Wow, is he ever backpedaling and positioning himself for any outcome here.
And his dismissal of the whole bank balance sheet problems as being overdone and that they’ll just earn they way out is unbelievable. We’re going into deeper denial again. And the zombies will trudge forward.
Once again, to echo ahab and some others, this is much more than a good old fashioned cyclical downturn driven by an inventory overshoot. We’ve got serious structural issues that we didn’t deal with in ‘01-’02 and huge sectors of jobs have disappeared that were supported by the debt bubble. Finance, home building, endless numbers of service jobs (dog walking, etc.), retail supported by gross overconsumption, etc.
I’m not convinced on the inflation leading to higher stock prices yet either. And I’m of the opinion that deflationary forces will be predominant for a while anyway.
The truth will start to sink in again, and with it the market will sink. At minimum we’re looking at a retracement to a level at least approaching the 666 low, as we saw in ‘02 from the Oct highs. Worse we may see this as being more like ‘01, with more downside to the ‘02 lows.
May 2nd, 2009 at 3:10 pm
Marcus Aurelius Says:
10. Can you advance any realistic reason or justification for the broader economy to improve in the foreseeable future?
Yes,
Credit crisis = frozen credit markets = sudden and severe restriction of liquidity = rapidly falling demand in both corporate and consumer sectors = falling corporate profits and asset prices, including equities.
Massive injection of funds by the Fed and the government = easing of the credit crisis = thawing credit markets = increasing liquidity = rising corporate and consumer demand = rising corporate profits and asset prices, including equities.
Can you tell me how massive infusions of liquidity will not improve the economy?
Reg. FD — I am short, but I am very worried, and I am trying to stay objective based on the evidence. Thus my recent questions and bullish comments are intended to spur debate, not to proclaim a definite position.
May 2nd, 2009 at 3:19 pm
@KJ: I would argue that most (at least many) of the jobs that have gone away, and will continue to go away in the coming months, aren’t coming back. How in the world then does the economy come back again (and not just limp along) without a marked improvement in the job situation? We need to make big structural changes and even if we do (which I don’t see happening yet), these changes won’t happen overnight. They’re going to take years, maybe decades to reach a point where our economy is a truly healthy one.
May 2nd, 2009 at 3:38 pm
KJ Foehr writes:
> increasing liquidity = rising corporate and consumer demand
This is the step in the argument of which I am skeptical.
Five years ago, I knew numbers of friends who were buying multiple houses/condos on 100% credit.
Others were taking out HELOCs to buy their Hummers and HDTV’s.
Now the same friends aren’t making new deals and are trying to get out of old ones.
Multiply that by millions of people, and I suspect that increased liquidity does not necessarily mean increased demand, at least not by consumers. Where’s your evidence that your assertion is so?
> Can you tell me how massive infusions of liquidity will not improve the economy?
Can you tell me how they will? I don’t see how a massive increase of borrowable funds helps a population that can’t and won’t borrow more. Perhaps I am missing something.
May 2nd, 2009 at 3:49 pm
> Can you tell me how massive infusions of liquidity will not improve the economy?
Economic growth that is spurred and sustained by consumption of borrowed funds is not in fact sustainable. Making liquidity available to consumers again will only result in similar type collapse some years down the road (that’s if they choose to borrow and if the banks choose to convert their [electronic] reserves into currency and lend). Economic growth (REAL economic growth) can only be sustained through technological, capital, and productivity gains. Its okay to borrow money if we commit it to productive uses (i.e. towards direct growth), but if we continue to ‘grow’ our economy via consumption we will go the way of Rome.
May 2nd, 2009 at 3:57 pm
Didn’t Barron’s also recommend buying GM shares when the pps was >$10? Non stop doom and gloom pull back posts and bear market articles and charts from bloggers almost entirely throughout the last 8 weeks of mysterious gap ups and bought pullbacks. Let the panic buying begin as we approach dow 10,000 …
~~~
BR; Yes — Horrific cover article about a year ago
May 2nd, 2009 at 4:42 pm
@franklin411
This formerly employed cancer biologist turned day trader is making far more money scalping index options than he did at his start-up gone bust. Life has been pretty good for this idiot. That said, I would much rather be doing something useful with my talents than rent-seeking, so am still actively looking in a dead market.
May 2nd, 2009 at 4:44 pm
I count more bullish posts on this than bearish, haven’t seen that on TBP in ………ever?
May 2nd, 2009 at 4:50 pm
Franklin:
That explains part of your thinking…In the 74 recession, my classmates and I who were working on our doctorates didn’t even realize there was a slowdown…hell, we didn’t even know what sleep was, much less the economy….
May 2nd, 2009 at 9:07 pm
FWIW,
I went on a test driving spree today, visiting 4 dealerships.
Honda: 2 customers (8 salespeople waiting)
Mazda: 1 customer (1 salesperson)
Chevrolet: 2 customers (8 salespersons waiting)
Hyundai: 4 customers (5 salespeople)
Almost every sales person lamented slow floor traffic. Most said that March was fairly busy, April was much slower.
May 3rd, 2009 at 7:00 am
>>>>
May 2nd, 2009 at 3:38 pm
KJ Foehr writes:
> increasing liquidity = rising corporate and consumer demand
This is the step in the argument of which I am skeptical.
Five years ago, I knew numbers of friends who were buying multiple houses/condos on 100% credit.
Others were taking out HELOCs to buy their Hummers and HDTV’s.
Now the same friends aren’t making new deals and are trying to get out of old ones.
Multiply that by millions of people, and I suspect that increased liquidity does not necessarily mean increased demand, at least not by consumers. Where’s your evidence that your assertion is so?
> Can you tell me how massive infusions of liquidity will not improve the economy?
Can you tell me how they will? I don’t see how a massive increase of borrowable funds helps a population that can’t and won’t borrow more. Perhaps I am missing something.<<<<<
massive infusion is sure heck helping the stock market, that is what wallstreet cares about,
seeing the share price rise, regardless of what mechanism.
May 3rd, 2009 at 9:17 am
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May 3rd, 2009 at 9:58 am
$25T to inflated the economy and created by the FED??!
I don’t know what the number is to re-inflate the economy, but i do believe Bernanke has a # in his head where he just won’t be able to hit that “create $100B of electronic money” button on his computer. IT is NO where near 25T IMHO. When that time comes, it will be for one of two reasons 1. inflation is occurring–go short T-bonds; 2. “quantitative easing” was a failed idea, and deflation/depression is a cycle that has to be endured. Plant a veggie garden.
May 3rd, 2009 at 11:20 am
tranchefoot,
Is your handle a play on “trench foot”? (If so, then … “ewwwww”.
)
Here’s my (MEH-inspired) definition URL for other readers:
http://en.wikipedia.org/wiki/Trench_foot
May 3rd, 2009 at 11:53 am
@call me ahab:
“capital markets are not the function of government- unless you’re into 5 years plans-
may I suggest you get your head out of Das Kapital- ”
Admit it. You don’t know what Marx’s Das Kapital is about.
rc