Yet Another Greenspan Housing Bottom Call
“We are finally beginning to see the seeds of a bottoming [in the housing industry. The U.S. is] at the edge of a major liquidation [in the stock of unsold properties, which may help to stabilize prices].
—Alan Greenspan, May 12 2009“I don’t know, but I think the worst of this may well be over.”
—Alan Greenspan, October 2006
>
Why does the public — and the Press — constantly seek out reassurances from the same people who misled them time and again in the past?
That was the question on my mind as I pondered yet another declaration from Alan Greenspan that the Housing Market has bottomed. That he has consistently made similar such statements before is cause for doubting him here. That these prior bottom calls were as far back as 2006 is cause for ridicule.
Few people have been worse than Greenspan in analyzing the Housing market. In fact, the only person / group I can think of with a consistently worse track record than Greenspan’s of analyzing the housing market was the group he spun his foolishness to yesterday: The National Association of Realtors.
Indeed, consider this golden oldie from David Lereah, the NAR’s chief economist, circa December 2005:
Home sales are coming down from the mountain peak, but they will level out at a high plateau, a plateau that is higher than previous peaks in the housing cycle.
That 2005 declaration, made 5 months after Hosuign prices had topped out, was typical of the reality denial we saw from the NAR over the entire housing cycle. They continuously got it wrong, spinning all data, good or bad, in a shamelessly self-promotional manner.
That this group of blind flacks paid Greenspan $100,000 plus to spin them lies is somewhere between ironic and pathetic. At least it wasn’t taxpayer monies . . .
>
NOTE: These older Greenspan/Lereah quotes were were pulled from Chapter 21, The Virtues of Foreclosure, Bailout Nation.
Previously:
Pending Home Sales Index, NAR Housing Market “Bottoms” (January 2008)
http://www.ritholtz.com/blog/2008/01/pending-home-sales-index-nar-housing-market-bottoms
Sources:
Greenspan Sees ‘Seeds of a Bottoming’ in U.S. Housing
Vivien Lou Chen and Dawn Kopecki
Bloomberg, May 12 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=af__GYb21Pz4&
Greenspan: Housing Market Worst May Be Over
Reuters, October 9, 2006,
http://www.msnbc.msn.com/id/15198805/
Greenspanity
Economist.com, August 14, 2008
http://www.economist.com/blogs/freeexchange/2008/08/greenspanity.cfm
Historically Strong Home Sales Expected in 2006
NAR Publication, Business Wire, December 12, 2005
http://www.allbusiness.com/economy-economic-indicators/economic-indicators-existing/5174031-1.html
See also Balloons Not Bubbles
http://
rodomino.realtor.org/research.nsf/htmlarchives/ResearchUpdate121505
May 13th, 2009 at 7:29 am
I though Larry Yun was your favorite real estate liar?
Heard a piece on NPR this morning from the meeting. Someone was praising the new plan to allow the new homeowner tax credt to be used as a down payment. So, now we get to both finance what will quickly become negative equity loans as well as providing the down payments. I suppose they are dancing on the tables.
May 13th, 2009 at 7:36 am
Maybe he took the $100K and paid his meat supplier, apropos of the earlier post…
May 13th, 2009 at 7:45 am
I can assure you, he will be right, eventually… and should be allowed to keep his Miss USA title.
May 13th, 2009 at 7:52 am
I’m with Venn, let Greenspan keep his Miss USA title… despite all the naked pictures you have of him. Besides, he’s become entertaining, hasn’t he? Much like the NAR. I mean what’s the harm? Maybe just causing those that might actually listen to him to make terrible personal and professional financial choices. Oh yeah, I guess there’s that…
May 13th, 2009 at 7:53 am
VennData:
Greenspan won that competition because he dominated in the bikini competition. When it comes to high finance, he should keep his opinions to himself.
May 13th, 2009 at 7:56 am
Someone said to me 3 days ago, that if Greenspan were still Fed chair this would not have happened.
I didn’t even bother responding.
That might help explain why when he speaks lots of people still listen.
May 13th, 2009 at 8:05 am
There is a very good reason why some like to call “Sir Allen” Mr. GreenSPAM.
Why bother listening to the same “broken clock” who is right twice per day…
So of course, he will eventually be right on something, someday.
May 13th, 2009 at 8:05 am
Greenspan’s policies have been thoroughly discredited- why anyone wants to hear what he has to say is beyond me- Bernanke is following the same policy prescriptions- stimulation at all costs-
maybe a time will come when we will view Americans as something more than “consumers”- and allow the economy to contract naturally by removing all the debt induced consumption that has been so much a part of our economy over the last 30 years or so
May 13th, 2009 at 8:10 am
Greenspan should get out of his Washington bubble more often. In Austin there is a growing supply of homes over $500k as there is in California, Florida, etc. because of the lack of Jumbo financing. Once again our great leaders attempt to solve one problem (foreclosures of homes under the Fannie limit) but total ignore the growing flood of homes over the limit.
May 13th, 2009 at 8:11 am
Ahab: A link posted by Barry last weekend explains why people want to hear Greenspan:
http://www.theonion.com/content/news/nation_ready_to_be_lied_to_about
All this reality is really depressing; even the Chinese are tired of it:
http://mpettis.com/2009/04/this-is-getting-tiresome-so-please-let%e2%80%99s-declare-the-crisis-over/
May 13th, 2009 at 8:15 am
http://money.cnn.com/2009/05/13/real_estate/April_foreclosure_stats/index.htm?postversion=2009051304
Careful, we’ve got a stray “worse than expected” data point on the loose.
May 13th, 2009 at 8:23 am
austincompany Says:
“In Austin there is a growing supply of homes over $500k . . .”
_______________
This is a snapshot of the problem – a glut of half-million dollar homes. I don’t care what they look like, or what level of luxury they have, the price is way too high. I guarantee they will moulder to dust before anyone but the indebted (the current occupant, and then the bank holding the note) admit the fact that they are on the wrong side of this pricing scam.
Social change will come down like a hammer before this is over.
May 13th, 2009 at 8:26 am
Hey BR:
Can we get an edit comment function in here?
Last comment should say:
“. . . before the indebted . . .”
May 13th, 2009 at 8:30 am
Baba Waters ask Alan Greenspan if she should buy into hoity toity eastside co-op for 350K, Alan told Baba she was buying at he top of the market… so don’t do it!
May 13th, 2009 at 8:33 am
Marcus Says:
“Social change will come down like a hammer before this is over.”
I like that – nice ring to it- I hope this includes the American public eschewing their ways of the past 30 years and becoming a more frugal society
May 13th, 2009 at 8:36 am
Marcus: “Social change will come down like a hammer before this is over.”
You should change the name to Savonarola :0
Transor: doubt that it will have a lot of impact. It’s green shoot season.
May 13th, 2009 at 8:38 am
YoY import prices down 16%, but of course CNBC only shows the MoM change. Typical.
Doug Kass just made a great point. Many companies are cutting completely or reducing qualified plan matching contributions. I count 23 companies in my general area that have done this. Either cut completely or reduced. This will further (or should) the push up in personal savings.
That’s trouble for spending moving forward, which means trouble for growth.
Credit Deflation is here.
May 13th, 2009 at 8:39 am
Published this on the last thread, but there are all kinds of little socialist ideas to get us out of this mess:
http://www.silobreaker.com/rich-norwegian-fined-109000-for-drunk-driving-5_2262312642481750021
Rich Norwegian Fined $109,000 For Drunk Driving
May 13th, 2009 at 8:41 am
Mike in Nola-
the Onion is so close to the truth- like the stress test and the subsequent rally- please tell us another lie so we can all start wetting ourselves with excitement before the hammer comes down- (sorry Marcus-had to use it)
May 13th, 2009 at 8:48 am
Retail Sales worse than expected and not spinnable. At least not at this moment.
Also, I told you so. About three weeks ago I noticed things looked pretty dismal on a shopping trip and posted it here. I knew it. Last week I noticed things were even worse, so May’s report should really suck. June should be horrible if oil and gas don’t fix themselves soon. It’s fun being handsome and smart.
HeyF411, how does this fit into Mayberry?
May 13th, 2009 at 8:56 am
The Greenspan comments got Franklins green shoots all the way up to the level of June corn…
Anecdotally, the corn I planted this year is WAY AHEAD of itself versus traditional years due to some abberrent fortuitous weather…
It usually takes until June for me to see it this high
May 13th, 2009 at 8:59 am
@dead hobo
Yeah, gas prices at the pump are back up to $2.35 in my area…AND WATCH NAT GAS…If those spot prices get high and then we have a real hot summer and people flick on their AC…
Well, maybe they’ll head to the shopping malls for the cool air…
More green shoots!
May 13th, 2009 at 9:01 am
dead hobo: ” It’s fun being handsome and smart.” I know the feeling
Don’t know if any of this will stop the rally, though. May just temporarily halt it til something spinnable comes out, like fewer than expected jobless claims.
May 13th, 2009 at 9:04 am
ben22 Says:
May 13th, 2009 at 7:56 am
Someone said to me 3 days ago, that if Greenspan were still Fed chair this would not have happened.
reply:
—————
Your friend was spot on. If Greenspan was in charge, things would be much worse. Thus, THIS wouldn’t have happened. Something more terrible would be here now.
Also, I normally ignore F411 but wondered a couple of things. 1) Is his shtick an intentional parody of 1950s – 1960s Establishment Speak. It fits. Kind of a Colbert wannabee without being clever. As circumstantial proof, I suspect his name is really an old 5 digit phone number, FR-411. Ha Ha. Busted.
Else, education is a growth process. If he ’s really as ignorant as he posts, then he’ll eventually come around if he hangs out long enough. I may be perpetually handsome, but I wasn’t born this smart.
May 13th, 2009 at 9:04 am
NattyGas is up over 1/3 off their lows..
http://quotes.ino.com/chart/?s=NYMEX_NG.M09.E&v=dmax
looks like another 1/3 is on tap..
May 13th, 2009 at 9:05 am
The funny thing is that all this catastrophe in the housing markets (Greenspan’s idiotic comments notwithstanding) is happening in the face of massive cash infusions from the Fed.
Interest rates are at truly (not just mortgage broker talk) historic lows. Yet no one is buying, or hardly even refinancing, although practicallly all I am seeing are refinances.
The local retail mortgage branch of a TBTF bank with whom I do business has already let go its temp workers that Bernanke, Geithner and Bill Gross (yes, he should be in that list) told them to hire in anticipation of a “busy summer”.
And what kind of an observation is “seeds of a bottoming”? What the hell does that mean? Oh, I guess that’s just the point–to say something that sounds like it means something but that doesn’t, mixed metaphors and all.
May 13th, 2009 at 9:05 am
dead hobo: And you said Macy’s report would suck:
CNBC: “Macy’s Posts Narrower Than Expected Loss ”
So you were wrong. They only lost $88M.
May 13th, 2009 at 9:10 am
@dead hobo
yesterday someone conjectured that Franklin is actually BR in disguise…drumming up business
I concur with that notion
May 13th, 2009 at 9:11 am
Mike in Nola Says:
May 13th, 2009 at 9:01 am
Don’t know if any of this will stop the rally, though. May just temporarily halt it til something spinnable comes out, like fewer than expected jobless claims.
reply:
————–
I think the rally is spent. whoever was pushing it will now make money on the way down. My guess is that it will fall comparably to March. I’m going to start dollar cost averaging in when it drops below 800 … how far below 800 depends on the velocity of the fall and the back story that is powering it. I’m ecstatic over the rally just completed. The next one should be even better. I’m going to make some money. I also suspect thee might be mini sucker rally on the way down.
May 13th, 2009 at 9:14 am
Mike in Nola Says:
May 13th, 2009 at 9:05 am
dead hobo: And you said Macy’s report would suck: CNBC: “Macy’s Posts Narrower Than Expected Loss ”
So you were wrong. They only lost $88M.
reply:
———–
I bet they’re relieved at Macy’s.
cvienne Says:
May 13th, 2009 at 9:10 am
yesterday someone conjectured that Franklin is actually BR in disguise…drumming up business. I concur with that notion
reply:
—————-
It fits.
May 13th, 2009 at 9:16 am
regarding the oil trade-
what is everyone’s read- USD to trend down- oil up-
my impression is the world recession will keep a lid on oil prices due to demand-
does anyone see a replay of oil to $100- hard for me to believe
May 13th, 2009 at 9:17 am
“Why does the public — and the Press — constantly seek out reassurances from the same people who misled them time and again in the past?”
It’s not necessarily “reassurance seeking”.
Rather, it’s a society that’s too dialed in financial speculation. Everybody’s a F*ing trader.
At the direct level, these kinds of comments from Greenspan aren’t taken seriously. By the previous sentence, I mean…few rational people say to themselves, “Greenspan said X, therefore it must be true.”
But plenty of rational people say to themselves, “Greenspan said X. I haven’t a clue as to whether he’s correct. And frankly I don’t care. But I bet a lot of other traders will bet that other people will take it seriously, therefore, I had better play along.”
This kind of garbage happens all the time.
Employment Reports…another example.
8:30…drumroll, please…CNBC reads the results
“Minus 539K jobs!!!!”
The calculus isn’t “what does this mean?” [As if that could be delineated from a single report...] Rather, the calculus is “what do others think this means?”
And the subsequent flurry of activity results in a rapid feedback loop where people forget that no rational person actually takes a single comment or a single report seriously…
…And the news people report on the matter as if they did.
May 13th, 2009 at 9:19 am
Actually, I’m Franklin 411…in drag.
May 13th, 2009 at 9:20 am
I know LB is the boss of Schadenfreude Asset Management, but I’m feeling a bit of it myself after warning f411 yesterday about the EU’s immenent anti-trust decision on INTC. So much for that green shoot. At $1.45B, it represents 4.5% of INTC’s annual revenue. Protectionism is on the rise and it doesn’t necessarily take the form of Smoot-Hawley. For anyone who is waiting for the government, any government, to solve our economic problems, I would only remind that person of New Orleans after Hurricane Katrina.
May 13th, 2009 at 9:22 am
“Only monkeys pick their bottoms” ~ Hugh Hendry
http://economicedge.blogspot.com/2009/05/hugh-hendry-on-latest-rally.html
I suppose that makes Easy Al a monkey…
May 13th, 2009 at 9:22 am
@dead hobo
One characteristic of the RALLY was that there would be several UP days followed by a “single” vicious down day (which then got supported)…
I’d suspect this pullback mirror that pattern to keep everyone on their toes…In other words, AFTER the first move (which might be today), that collapses some of the technical indicators, we might see some GRINDING days down followed by quick 1 day rallies…
Anyway, that’s just a theory (or pattern) that I look for…but I don’t have anything to support it…
My main theory when trading is this:
“try to figure out what scenario would cause the greatest deal of pain to BOTH sides of the trade and THAT is what’s likely to occur”…That way, the market can punish EVERYONE…
May 13th, 2009 at 9:23 am
[...] The Big Picture: Barry Ritholtz on Greenspan’s comments: [...]
May 13th, 2009 at 9:26 am
@Cursive
INTC has always “lived or died” based on their margins…
So the main thing that has me worried about them has less to do with any “anti-trust”, and more to do with the fact that they’re going to increasingly have to rely on lower margin chips in the near future…
Although the “anti-trust” case is an interesting one to consider when you apply it to the 360 degree spectrum of industry…
May 13th, 2009 at 9:27 am
cvienne Says:
May 13th, 2009 at 9:22 am
@dead hobo
One characteristic of the RALLY was that there would be several UP days followed by a “single” vicious down day (which then got supported)… I’d suspect this pullback mirror that pattern to keep everyone on their toes…In other words, AFTER the first move (which might be today), that collapses some of the technical indicators, we might see some GRINDING days down followed by quick 1 day rallies…
reply:
————
Good call. I think you got it.
May 13th, 2009 at 9:28 am
@ davossherman
Hugh Hendry is a hoot!
I lived in Europe for 12 years where I basically only had access to CNBC Europe and he was on there all the time…He cracks me up!
May 13th, 2009 at 9:32 am
I don’t care what anyone says, Franklin411 is on the verge of breaking into my “top 5 favorite posters” list.
May 13th, 2009 at 9:35 am
Mike in Nola Says:
re: Marcus: “You should change the name to Savonarola”
If I’s gonna’ change it to somethin’ revolutionary and anti-establishment, I’d rather it’d be John Brown. But I ain’t lookin’ to be a martyr, so’s I ain’t a’gonna’ change it.
MA is my aspiration.
A few quotes from the man, in light of our present circumstances:
A noble man compares and estimates himself by an idea which is higher than himself; and a mean man, by one lower than himself. The one produces aspiration; the other ambition, which is the way in which a vulgar man aspires.
Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.
Look back over the past, with its changing empires that rose and fell, and you can foresee the future, too.
Natural ability without education has more often raised a man to glory and virtue than education without natural ability.
Poverty is the mother of crime.
That which is not good for the bee-hive cannot be good for the bees.
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.
To understand the true quality of people, you must look into their minds, and examine their pursuits and aversions.
May 13th, 2009 at 9:39 am
@ cvienne
I view the INTC news as yet another example of why you can’t be constructive about any company’s earnings for the foreseeable future. Not that we’ve ever had unfettered markets, but the level of government intervention is frightening. It was Greenspan’s easy money that created this bubble, now the FED and Treasury are trying, in vain, to re-inflate it. The actions of the government have replaced and are continuing to crowd out private capital, therefore the real economy is shrinking and we are going to get more wasted “mal-investestments.” In that environment, aggregate S&P earnings will be below historical highs for years to come.
May 13th, 2009 at 9:42 am
David Rosenberg called it months ago. We saw a big drop in consumer credit last week and people aren’t jumping on the sub-5% mortgage rates. The US consumer is still deleveraging. Not surprisingly, retail sales are down with a drop in credit usage. One of the mantras here is that so much of the US economy was based on credit — and Rosenberg pointed out the 14% share of income allotted to servicing household debt.
Speaking of Hugh Hendry, he also makes the point that so much of global GDP is illusory because it was based on credit.
@MA: Love the quote about escaping the ranks of the insane.
May 13th, 2009 at 9:45 am
Apparently We The (delusional) People enjoy being lied to.
May 13th, 2009 at 9:48 am
Well, if Greenspan has called a bottom that must mean we’re due for another big drop and it’s time to head for the hills!
May 13th, 2009 at 9:48 am
More green shoots, franklin? B…..bu….but, your Costo’s doing just great, right?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAVTaAOx8t3g&refer=home
May 13th, 2009 at 9:49 am
@Cursive
Unless they decide to come up with yet another USG Agency…Like the “Office of S&P Earnings Reporting”…That ought to keep those green weeds popping up…
May 13th, 2009 at 9:49 am
Interesting retail sales numbers…Gasoline sales slipped (fine w/ me!), but construction materials and autos increased. We went from -1.3% to -0.4%, and the expectation was for 0%. The individual numbers show definite improvement, however:
Autos…-2.0% to +0.2%
Gasoline..-3.2% to -2.3%
Electronics..-7.8% to -2.8%
Construction..-0.8% to +0.3%
That’s a pretty hefty improvement if you ask me. It’s not a V-shaped recovery (was anyone predicting that?), but it’s definitely improvement. Nothing ever goes from “Excellent > Horrid > Excellent.” It goes “Excellent > good > less good > bad > horrid > bad > less bad > slightly good > good > excellent.” We’re at the “less bad” stage.
I see no fuel for the torches and no iron for the pitchforks to supply the Armageddon scenario people like to advance in these comments.
One more thing: We haven’t even begun spending the stimulus money yet. Only $14 billion out of $787 billion has been spent so far.
Green shoots, friends. Green shoots.
May 13th, 2009 at 9:51 am
We haven’t even begun stimulating yet:
http://money.cnn.com/2009/04/27/news/economy/stimulus/index.htm?section=money_latest
May 13th, 2009 at 9:51 am
BR:
Why does the public — and the Press — constantly seek out reassurances from the same people who misled them time and again in the past?
I-Man:
Because 90% of the public is dumb.
Let’s all strive to be the 10%!
May 13th, 2009 at 9:53 am
@Transor Z
With credit usage down, that means more people paying CASH instead of using credit or debit cards for transactions…
So the # of “transactions” for V and MC dwindles…
Of course, when they kick GM out of the Dow, there’s speculation that V might become a new Dow component…It would be just like the DJ crew to make this type of re-shuffling move…
May 13th, 2009 at 9:53 am
@hobo,
Good call on my comment. You are right, it would have been worse.
@Mark,
Nat gas has been booming but yes, looks like more is on the way. Happy days for people that picked up some XTO or CHK late last year, among others.
May 13th, 2009 at 9:59 am
This was a nice article written back in 2002 by Faber on the “treacherous nature of bear market rallies.” It’s worth a read. It was very timely as the market soon reversed course and tanked to new lows. I like the parts in their where he cites all the “authorities” who were bullish on the way to new lows back 1929…..
http://www.ameinfo.com/16529.html
May 13th, 2009 at 10:02 am
@cvienne:
Are you sure that is correct about debit card transaction #s also being down? Debit card transactions are normally real-time draws from checking/savings accounts . . . IOW ATM draws without the trip to the ATM kiosk.
Also: Someone (Barry?) made the point the other day that *you would think* an actual industrial should be added to replace GM instead of a financial.
May 13th, 2009 at 10:06 am
@Franklin (9.51)
Great Franklin…So does that mean that when we get to the next crisis (where the equity markets are testing the march lows, and breaking it to the downside), will the Government then say we NEED MORE STIMULUS to go on to[p of the $499 billion that we are still holding back from the previous stimulus?
More and more, this all sounds to me like…”OK let’s get authorization for as much money as possible for as long as possible but we’ll keep that money in our pockets”…We’ll start spending it about 6 months before my RE-ELECTION campaign gets underway…
Economic Recovery & Re-Investment Act, OR Re-Election Act?
May 13th, 2009 at 10:09 am
@Transor
All I know is that V & MC get fees on the number of transactions…Less transactions mean less revenues…
As far as the Dow is concerned…I’ve heard many different companies nominated (CSCO, V, etc.)…BR is probably right in that an industrial “should” replace GM…But what then would replace an AIG or a BAC should they get kicked out as well?
May 13th, 2009 at 10:10 am
Franklin, as you parse the retail sales numbers, and consider their implications, do your economic projections include what the GDP, unemployment and other macro numbers will look like with a multi-week shutdown of auto production from Chrysler and GM? Have you thought about what might come of consumer confidence numbers in the aftermath of the GM filing? I think it’s gonna play as a pretty big story. CNBC will have to report it, much as they’d prefer not to.
May 13th, 2009 at 10:12 am
Franklin,
All those figures you spout off are MoM not YoY. BR has taught us all not to use that to build any kind of investment or economic thesis. Most of us here are going to pick up on that right away. Also, in case you missed it, all the retail sales data was revised DOWN for the month of March.
I wouldn’t try to read too much into retail sales directly during tax refund time. There might be some short term spikes there but you clearly aren’t paying attention to consumer behaivor. Most adults did not run out and buy the new Blackberry like you buddy. The average person out there is still very afraid right now.
I saw you say yesterday that all your money is in an IRA. I can only think that’s a Roth so there can’t be all that much in there. Lucky for you b/c I think you are going to lose a lot of money if you are actually investing based on what you are saying on this board.
Good luck to you.
May 13th, 2009 at 10:13 am
@scm0330
On top of that, what do you think the ramifications to confidence are going to be when it is finally announced that GM simply decides to move most of its production overseas?
Pour $$ down the rathole, then watch ‘em skip town…
May 13th, 2009 at 10:15 am
YoY March retail is down 10% — and auto sales are down 20%.
May 13th, 2009 at 10:16 am
@cvienne,
I know what you are getting at but debit card usage is actually now, for the first time, equal to that of credit card usage. In other words, more people are paying cash for things.
The WSJ just published a nice article about this with a pretty chart on page C1 maybe two weeks or so ago. I talked about it here at the time, for me, it spelled more credit deflation. Just one of many areas I’m seeing it with each passing day.
This will blow a hole in anyone who is saying retail sales will rebound. Average household income when adjusted for inflation has gone nowhere in the last decade, the incremental increases in spending came from credit or mortgage equity withdrawal. No both are out and unemployment is still ticking up.
Chinese citizens don’t have the fire power to pick up that slack in spending. It’s getting easier to put this all together.
May 13th, 2009 at 10:16 am
April, sorry.
May 13th, 2009 at 10:17 am
@ben 22: At this point I am wondering if Franklin is actually the brother of Lawrence Yun, the famed NAR spin doctor.
@ Cursive: You are certainly allowed to join Schadenfreude Asset Management™ as an associate. For a fee. Leftback would be falling down on the job if he were not to be remunerated here in the land of 2 n 20.
I expect a sell off in crude and firming of the US$ soon if not today. Bullish energy long term but not here.
May 13th, 2009 at 10:17 am
Despite all my bearish posts I am still short term bull. I’m still looking for 965-1k on the S&P before a crash but we’ve got to hold 850. We were due for a pullback clearly so I’m not sure I’m reading too far into the market action just yet. time will tell.
May 13th, 2009 at 10:18 am
@cvienne
i doubt the Rattner/Administration axis will allow too much of that to happen. Remember, UAW will be owning the GM carcass (no pun). Will they permit the offshoring of the enterprise. This is going to be sprawling, messy, and needlessly costly because we’re going to “zombify” the domestic car business and not let capitalism take its natural course. And pity F. Trying to compete honestly against government-subsidized businesses.
May 13th, 2009 at 10:19 am
@ben22
To further your point on “seasonality”…The present numbers are actually “juiced” a little because of the $250 one time check that Social security recipients just received…
That class of consumer WAS most likely to spend that money as many of them (like my mother), perhaps are some of the lucky percentile that own their own homes and have no debt…She spent her $250 on a nice dinner for my birthday…
Anyway, keep in mind the “factor” of those $250 checks…They ain’t coming in June
May 13th, 2009 at 10:19 am
Marcus: used to have a small book of his meditations in my office in Pre-K New Orleans. Guess it’s in storage now. One of the best early “christian” philosophers. Also, he and the son, like Bush 1 and Bush 2 were good examples of the fact that competence is not an inherited trait.
Re: oil
Speculation driven, based on the inflation trade and china stockpiling to no purpose. Take a look at last year’s chart, in the midst of collapsing demand. Remember the $200 oil talk. The market is no indicator of anything but what people are willing to pay at the moment.
May 13th, 2009 at 10:20 am
hey i got my login back!
franky,
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAVTaAOx8t3g&refer=home
“The second quarter is going to be tough,” Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in a Bloomberg Television interview. “Consumers are losing their jobs, concerned about losing their jobs and losing wealth.”
it has been gorgeous the last few weeks here in kc and the country club plaza has been dead. never in the 5 years i have lived here have i seen the ccp as empty as it has been the last few weeks. case in point, kona on a wednesday night with the windows open is usually a*****es to elbows. i walked in and got a table. nice for me but bad for kona.
cheers all
wps
May 13th, 2009 at 10:22 am
ben22-
please expound on your short term bull stance- that case is hard to make outside of some technical factors I may be unaware of
May 13th, 2009 at 10:25 am
@LB,
Yes, oil is getting real interesting here and the $US is right at the bottom of the trend channel that I’m seeing on the charts. I suppose that even when it starts to rise higher, as I predict the $ will, the market could also move higher for a time and push up to the 200 day ma, but eventually that will reverse and they will move opposite each other.
May 13th, 2009 at 10:28 am
ahab,
my short term stance is purely technical, as was the whole reason I got bullish when I did. There is no particular formula I came up with to use my targets, just the level I think emotions will take us to before we crash and burn again. as you can probably tell from my posts, fundamentally I think we are beyond being in deep sh*t.
@cvienne,
yes, that is also a good point about the SS checks. If any of those poor folks just got a pension cut, certainly all that money was spent. Too bad for them they aren’t going to get the COLA increase they got for this year.
May 13th, 2009 at 10:30 am
@ben22
This is NOT a warning, JUST a perspective…
I can TOTALLY see your 965 – 1k thesis (and have agreed with you in the past about this), but be careful…
I TOTALLY MISSED this rally NOT because I didn’t see it coming so much as I was arrogantly waiting for numbers to be hit…
I was CONVINCED back in March that the S&P would print something in the 640-600 range so I was waiting for that capitulation (and it NEVER CAME, then NEVER LET ANYONE after the initial surge)…And back then I was ‘refusing’ to buy even 720-750…
So I’ve been on the sidelines for this entire rally…I actually NEVER exited the ’shorts’ I had on at 666…I simply started incrementally ADDING to those shorts eventually at 875, then 900, then 930…
So we’ll see what happens…Ultimately I expect we’ll test the lows for real (and I’m still convinced we’re going lower)…
I do hold HOPE to see your 965 – 1K call…Even ‘cheaper’ to short…But since I got ‘cheated’ on that last 7% on the downside, I’m wondering if the market will ‘cheat’ those waiting for 1k the last 7% on the upside…
Just a theory…It doesn’t matter either way…
May 13th, 2009 at 10:32 am
Mike in NOLA-
agree w/ you take on oil- I see the worldwide recession keeping a lid on prices-
LB-
what is your long term horizon for oil- future inflation hedge?? deflation I think will be our fate for a while
May 13th, 2009 at 10:36 am
Looks like we’re in GAP FILLING time here for a few hours…
Or is the market simply “breathlessly awaiting” the next comments from Greenspan?…
May 13th, 2009 at 10:38 am
@call me ahab
Probably Boone Pickens is in there “singlehandedly” calling up oil to a $60 print so he can be CORRECT with his “on air” prognostication two months ago that oil would hit $60 before $40…
May 13th, 2009 at 10:39 am
Mike in Nola (sorry to everybody else for the OT):
Meditations is a good book, but MA was far from a Christian (maybe you’re thinking Costantine). MA saw the Christians as nothing but a threat to the Republic and Stoic philosophy. His biggest screw up was to let Commodus succeed him as emperor. GHW an GW Bush is a fairly apt analogy.
Oil:
It’s still a dwindling resource. Yes, global demand is shrinking, but so are easily recoverable reserves. Profitable extraction is the other economic brick wall oil will soon hit (mid term — a decade, or so). The cost of extraction, in units of energy, is getting pretty close to the yield, in units of energy. When we hit that wall, oil will be a dead industry.
May 13th, 2009 at 10:40 am
I note that Greenspan said we are, “…at the edge of a major liquidation…”. Although he didn’t say which edge, it would be nonstandard usage for him to mean the trailing edge. And he said this contained the “seeds of a bottoming”, not the bottoming itself. Moreover, what he said implies, at least to me, that the bottom being seeded is far below current wishing price levels.
So I think his comments may be justified. How much longer can the people owning the nearly 1000 overpriced, mostly-vacant homes listed on my local Chicago northwest suburbs MLS hold out? Most of these have been on the market more than a year. I, too, suspect that we are on the edge of a major liquidation, which will contain the seeds of a bottoming, and that that major liquidation will send prices crashing to the levels of the early 1990s — a reasonable level to bottom at.
May 13th, 2009 at 10:41 am
@ahab: Oil is going to explode upwards at some point (late 2010?), but until we see sustained declines in supply and/or a plunge in the US $, we will probably be in a range, maybe between $50-$80. We have seen the lows, obviously. Unfortunately, asset and debt deflation and oil, commodity inflation may at some point co-exist.
May 13th, 2009 at 10:42 am
@cvienne,
Good looking out. I’ve got trailing stops on everything and now, instead of being net long, for the last 2 1/2 weeks or so I’ve been neutral with market exposure easing more money into short term bonds (no muni’s though in my taxable accounts) and cash and out of equity. I haven’t bought any equity on anything in above a month now and I don’t plan on it. Stocks in general are very expensive IMHO. If I’m wrong about my targets, which I will almost certainly be, I’ll just let the market take me out without giving back all of my gains. I won’t be upset if I don’t sell right at the top with my equity holdings. I just try to buy low and sell high, not buy lowest and sell highest.
since I can’t usually call bottoms and tops like AT or Lefty I typically will set a range and begin buying (if bullish) or selling at the start of my range, so if we hit 965 that’s when my exits will start, I won’t be waiting for 1k. When this all started, like you, I thought we could go to 600 (still think we will and lower eventually) but I started my buying at 700 using a reverse pyramid building strategy on the stocks I had targeted. I’m not a day trader but like most of us, I’ve been forced to become much more active due to where we are at. Ideally I’d just be sitting in cash right now but I felt since November there were things I could really take advantage of that I thought went to far. I’ve posted a lot of examples of what I’ve been using over the last several months.
If we don’t get there (965-1k) then all is not lost as those stops kick in and I can still move out with some very nice gains on a few things I’ve picked up.
This rally has been good for me but I am afraid of overstaying my welcome, that is always in the back of my mind.
May 13th, 2009 at 10:43 am
Marcus-
agreed- but folks have been saying that for a long time- I am sure it will happen- but the question is when- oil will eventually become very expensive and scarce- Mad Max anyone- but you could get crushed with too early of a position on that occurring
May 13th, 2009 at 10:46 am
cvienne: I understand you. I waited til the market got up to 900 to short, but still taking a hit waiting for it to reverse. Hoping it will go to 1000 so I can feel comfortable shorting more.
The last year has taught me that things will always be more irrational and not based on obvious long term trends that you think. Just wish I would remember that when I place trades
May 13th, 2009 at 10:48 am
leftback-
if we do enter into a slow downward spiral a la 1931- don’t you think oil prices will decline- outside of the USD trade- I think oil prices have just as much chance to go down-
could be wrong of course- but I have feeling we are in for a longer contraction than the pundits are expecting
May 13th, 2009 at 10:49 am
Sold some of my materials longs, which had led the rally. Real weakness in that area as XLB hit the 200DMA.
XLF also off. The leaders are fading. Draw your own conclusions regarding the rally.
Doug Kass this morning mentioned that he is net short and sees a 7-10% pullback. I think we see 875 here and then a bounce, before heading lower. I am playing small and just taking what I see for now.
May 13th, 2009 at 10:51 am
@ ahab: You would be correct – except for all the printing and a limited recovery in emerging markets.
May 13th, 2009 at 10:51 am
Ahab:
The longer they say it, the truer it gets. I use very little of it, anyway, and I don’t own any oil stocks. OTOH, it is the basis of our culture (personal transportation and plastics), so the health of the industry is something to keep an eye on.
May 13th, 2009 at 10:51 am
@jm
Well then Greenspan ought to have called it the “bulbs” of a bottom not the “seeds” of a bottom…
Bulbs are things you plant in the fall but then sit there dormant for a long freezing winter before sprouting the next spring…
May 13th, 2009 at 10:52 am
lefty – I was thinking about darting out of these uranium stocks that I’ve been holding after this rally. Sound like you’ve already left the building
How ’bout that retail?
May 13th, 2009 at 10:53 am
Ahab @ 10:48
Oil is going to start hauling ass before long.
May 13th, 2009 at 10:58 am
I see we jumped to some oil talk…..
One thing is for certain….that enormous move down in such a short period of time was not some decades’ long secular bull market correction. That was only an initial “A” wave down of some sort. We’ve been doing a classic “B” wave now. Not sure when and where it ends, but when it does, we are certain to have a “C” wave lower at some point. I don’t have a great feel for top tick targets on oils, but if you’re bullish I would use the uptrend line from the lows as definite stop out point. When those trend lines break, we’ll probably be heading for new lows.
May 13th, 2009 at 10:59 am
Diamond talk? think the world isn’t awash in fiat?
http://www.guardian.co.uk/world/2009/may/13/blue-diamond-record-sale-sothebys
May 13th, 2009 at 11:01 am
@karen: Enjoying my GDX over the past few weeks. Slowly rising.
May 13th, 2009 at 11:03 am
AT,
Prechter shows his future resistance line for oil, lets just say it’s much lower than where it’s trading right now. He’s calling it just like you are.
I don’t follow the oil markets as close as a lot of people but it seems like China has caused a lot price action over the last month and half. I’m thinking it is the same thing happening to coal. The KOL is up something like 130% since November 21/08.
May 13th, 2009 at 11:05 am
@karen,
Any new opinion on gold? Still tracing out that big head and shoulders? As you know I have been bearish but my case is weak obviously. Not sure what to think of it lately. We still haven’t been able to go back to the Feb highs and gold has a history of making movements early in the year to start a trend. Just watching that from the sidelines now, no exposure and I don’t have any physical gold.
May 13th, 2009 at 11:06 am
Jeff, about to jump on a plane but I did sell-off about 1/3 of my gold holdings yesterday… fwiw.
May 13th, 2009 at 11:07 am
@karen: Thanks for the heads up. I was thinking about dumping some of it in the coming days. Maybe even today.
May 13th, 2009 at 11:08 am
@Matt: Can’t argue with a 200% gainer, old chap.
Wonder how Johnny Retail is liking those bank stocks he bought last week? When he bails, FAZ is going to fly. Right now, it’s the smart money that is dumping the XLF, the people who rode the squeeze up.
May 13th, 2009 at 11:08 am
@Mannwich
Longer term I like GOLD as well, but take a look at Andy T’s most recent post…
If he is right, and oil is going to do a “C” wave down, then gold is going to come with it for a ride…
Oil has been playing “catch up” to gold recently (and still hasn’t caught up frankly)…
Technically, gold could pull back to $680 and still have a VERY STRONG bullish upwards chart in tact…
It always seems to me that whenever I hear the INFLATION rhetoric on TV, we sunsequently see bouts of DEFLATION (and vice versa)…
So I’m in the “short term” DEFLATION camp for the time being…Which I don’t think is going to be good for equities over the next 6 months…
May 13th, 2009 at 11:11 am
@Karen: Fly safe, we’ll watch the markets for you. I have a surfing lesson this afternoon….
May 13th, 2009 at 11:12 am
gold looks a bit “uninspired” here…circa june futures….see a little more room to 937, but should be some resistance there. If we can jump 937, it clears room to 967 where there will be formidable resistance.
May 13th, 2009 at 11:13 am
@LB
I think when you see GS trade under $125, the game will be up for financials on this go around…
May 13th, 2009 at 11:14 am
Cvienne,
That seems to be a very powerful question for me to try and answer now. I’m pretty firmly in the deflation camp at this point. Now the questions becomes for how long and how low. When I look at charts of consumer credit they scare the hell out of me. It just popped.
I got bearish on Gold and was also predicting a correction to $680, so far, since I said this, gold hasn’t really moved up, but it certainly hasn’t moved down either. So, at this point, I’ve been really wrong on that one.
May 13th, 2009 at 11:17 am
@Andy T
I literally think GOLD could stay flat clear to around ‘11…Then when it moves, it moves fast…That has been the pattern…
May 13th, 2009 at 11:18 am
When I say flat…I’m talking TRADING RANGE between, say $950 and $680 (ceiling to floor – give or take)
May 13th, 2009 at 11:20 am
@cvienne: I agree with you. Still think we get deflation first followed by severe inflation. My GDX play is mostly a hedge at this point.
May 13th, 2009 at 11:21 am
I’m not a trader. I don’t try to make money in the markets, I rather just try to conserve it. Along those lines, I think a bit of oil is prudent (about 5% for me, gold another 5%). It is the main vehicle through which dollars are internationally priced (as we saw in 2008). If you think there might be consequences for the printing of 9-12 trillion of new dollars that don’t reflect new wealth or new output or new anything, really, then it might be a smart thing to buy some oil, which is still valuable and capable of powering real things. And make no mistake, the fact that oil has not plunged in these times of demand destruction is not a supply issue. There is plenty of oil. Like 2008, oil prices reflect dollar values and expectations more than they do supply and demand considerations.
I don’t think it is an accident that the Chinese are buying oil and gold (and oil far in excess of their needs). They’re hedging their dollar bets.
May 13th, 2009 at 11:21 am
So as far as TRADING gold (according to my thesis)…
1. I’m a HOLDER (not a seller or a SHORT SELLER at $950)
2. NO initial position at $950
3. HEAVY BUYER at $680 (adding to positions OR starting new positions)
May 13th, 2009 at 11:22 am
Speaking of precious metals:
I have gold and silver holdings and between the two, I am seeing silver as being more bullish. It’s been consolidating for over two months now and the SLV ETF is sitting just below $14. Above $14.50 or so and it’s a breakout. I agree that gold is in a long term uptrend, but I have to admit the recent sideways action has been annoying me!
HCF
May 13th, 2009 at 11:29 am
Remember that the US has over 8,000 metric tons of gold reserves…
China still has less than 1,000…(less than even the GLD)
China has expressed its desire to take it’s gold reserves up to 6,000 metric tons…
Keep those figures in your head when you start forecasting the effects of either buying US Treasuries, OR, the fact that some of the US deficit to China could be funded through gold transfers (if push came to shove)…
What I’m saying is that it is unlikely that the spot price of GOLD in the near future is going to be significantly altered by the Chinese buying on the spot markets…
I’d be more influenced by the possibility of a RAMP UP in gold prices AFTER I saw the desired RESERVE RATIOS come into equilibrium…
May 13th, 2009 at 11:30 am
The NAR is calling for an expansion of the tax credit to anyone of any income level. Because the real problem with the housing market was that not enough money was thrown at it..
http://www.realtor.org/press_room/news_releases/2009/05/elected_officials
May 13th, 2009 at 11:30 am
“In Austin there is a growing supply of homes over $500k . . .”
Same in CT, except that it in Greenwich it is over $1M… Peep are going to have to take big losses in Hedge Land.
May 13th, 2009 at 11:34 am
Curmudgeon,
The Chinese might be hedging their dollar bets, but it looks like they’re not going to continue extending us credit. If they start dumping dollars, and with all of our recent dollar creation, they could very well do that, their gold holdings will become more valuable/powerful still. China hold the keys to the future of money, in a global sense, and their current gold binge will be a big part of whatever comes next.
May 13th, 2009 at 11:36 am
Does anyone have any thoughts on the difference in prices in Silver vs. Gold lately. That’s a bit odd to me.
May 13th, 2009 at 11:37 am
It’s still very early but notice the continued lagging of the NAS versus the DOW and S&P. That is worth paying attention to.
May 13th, 2009 at 11:39 am
@leftback
Now think about this…
Remember that about 1/3rd of all the homes out there are OWNED OUTRIGHT…
So now let’s say a large percentage of THOSE people are retirees (who had been living on pensions & social security)…
Now factor in that pensions are being cut, social security is going bankrupt, and investment portfolios have been shrunk…
What if a lot of people (over 62), then decide to go the REVERSE MORTGAGE route?
In the end, those ar just “actuarial contracts” that last for 12-15 yeras or so…In the end, the BANKS will end up owning all those homes because the heirs won’t want to fork over the amortized costs to acquire them…
Then the banks will be forced to DUMP MORE supply on the market?
Good news is…Greenspan will see YET ANOTHER BOTTOM at that point!
May 13th, 2009 at 11:44 am
@ben 22
I’ve heard theories before that during times when silver prices came into relative alignment with gold prices, THAT’s where an INFLATIONARY environment exists…
Therefore:
silver bullish = INFLATION
gold bullish = FEAR & ARMAGEDDON
Also:
I’ve NOTED the NAS vs. DOW & S&P…Tech has led the way all this year (probably simply due to balance sheets being relatively better)…
However, if TECH can’t be sustained, what does that say about the REAL STRENGTH in the economy?
May 13th, 2009 at 11:46 am
@cvienne: I’m betting tech has a big pullback soon. Too fast too soon. Have been adding to my QID position in recent days/weeks.
May 13th, 2009 at 11:48 am
IF Greenspan bends over far enough, eventually he will be able to see his own bottom.
House “prices” at the higher end are currently just “exit” numbers, and have no relation to market supply/demand.
People are just praying that they can get their number and get out before this thing really goes to hell in a big way.
As municipalities begin to struggle and raise RE taxes to cover expenses, retirees who lost investment income will have to leave expensive areas where they can no longer afford the RE taxes. Add in the demographic shift as the Boomers start to retire and move to Florida etc.. All of those sales will add to an already crowded market. Seeing this just beginning in CT, and will probably be a 10-15 year process.
May 13th, 2009 at 11:49 am
@Mannwich
Might as well…It’s a seasonally tough time for tech to boot…Maybe we’re looking at a little SPRING/SUMMER ‘06 scenario…
May 13th, 2009 at 11:50 am
@Mannwhich..
Yes, but they are in a bit of a pickle. We power their export-driven economy. They’ll keep lending to us, and keep their currency on sort of a moveable peg (thereby mostly off-shoring their monetary policy to the US Fed), but in the meantime it appears they’re hedging their bets so that they’ll not be the one holding the bag like in 2008 when the trade loop went haywire with the loose-money Fed.
In 2008, the Chinese had to buy oil on the international markets (to power their economy) but which was priced in dollars, to which the Yuan was more or less pegged, thereby increasing their cost of goods sold without much ability to increase the prices they were getting without upsetting the Yuan/dollar relationship, i.e., without crashing the dollar relative to the Yuan. It was a classic inflationary squeeze.
I think this time, they’re trying to plan against it. And they’ve got plenty of reserves (about $2 trillion) with which to hedge.
May 13th, 2009 at 11:53 am
@leftback: Same thing playing out here in the TC. Anecdotally, I’m seeing basically all homes that are in jumbo-land languish in the market. Absolutely NONE are selling. Zero. They’re just sitting there on the market for months/year+ and I imagine there’s tons of shadow inventory where people are either renting or trying to wait this out so they can exit without taking a big loss. They’re going to be waiting a long time.
May 13th, 2009 at 12:00 pm
@Curmudgeon: “a bit of oil is prudent (about 5% for me”
How do you invest in oil?
May 13th, 2009 at 12:03 pm
@Pete: You can try one of the ETF’s. I’m in DIG. A small amount for long term play.
May 13th, 2009 at 12:04 pm
@leftback
Here’s an anecdote for you…
I did a simple trendline on the VALUE of a house over the past 40 years…I used MY MOM’s house as an example (because they’d purchased the house in 1969)…It is long since paid for…
Anyway…It was purchased in 1969 for $35,000…At the top of the REAL ESTATE boom, prices in the area for similar homes went as high as $650,000…(current appraisal $440,000)…
Anyway, I said, FORGET THAT…let’s just assume that the house appreciated at a normal constant rate of about 6-6.5%…That’s not a bad return on asset, but STILL would only make the price worth about $366,000 after 40 years!
So if FNMA is offering to basically REVERSE MORTGAGE the property (and pay ‘appraisal value’ for it, although their limit is $417,000)…How many ‘retirees’ do you think will eventually figure this out?
Basically if you can’t SELL your house on the open market (if you’re in that range – you can get the government to OVERPAY for it)…
And you might as well do so now b4 either the appraisal price comes down, your taxes get too high, OR there are not enough qualified buyers out there to take it off your hands…
May 13th, 2009 at 12:12 pm
@cvienne: Here’s one for you – my parents are on the verge of finally selling my childhood home in MA for $267K or so. They had originally listed it last year for well over $300K and have dropped the price several times since then because they are motivated to finally move to a warmer climate (The Villages in FL – someone should do a documentary film on this place, by the way, it’s a riot) where they’ll probably buy for $180-$190K and pocket the difference. They bought the house in ‘64/’65 for $16K. Homes in this price point are indeed selling but I still think they’re overpriced and will come down more once the higher-tier above them come down (and they will) putting pressure on those lower priced homes.
May 13th, 2009 at 12:16 pm
http://www.cnbc.com/id/30687150
The New National Debate: Shop Or Save
“The responsible thing right now is to go on a shopping spree.
If you want to be prudent, it’s time to break the bank. Even compulsive savers should be able to handle the idea that at this moment in time, you can buy for stuff for less money, thus allowing you to hoard more cash over the long run.”
…This is from some idiot at Mad Money…I am thinking that GE and Cramer are putting pressure on the employees to make happy sounds.
If this fellow has a future in investing, I wonder what peeps who read this will say to him in a couple of years?
…Buy stuff!
May 13th, 2009 at 12:20 pm
@Curmudgeon: “a bit of oil is prudent (about 5% for me”
How do you invest in oil?
I use an etf…and if I could log into my trading account, I could tell you which one…grrh…but anything that tracks the price of crude should operate as a hedge against fiat-happy central bankers.
May 13th, 2009 at 12:22 pm
@cvienne,
two things
1. I have a great paper on how Reverse mortgages work and all the details to watch for. it is long but well worth the read. If I can find it today I’ll post it up here. You might be on to something there.
2. I could def. be wrong about this but I think the long term return for residential real estate is closer to 4%.
May 13th, 2009 at 12:23 pm
@ Pete,
On top of DIG, there is USO, or DBO. Those are the others I know off the top of my head.
May 13th, 2009 at 12:25 pm
@Bruce: Thanks for the contrary indicator. Now I know FOR SURE what do with our money (hint: it’s not going to the mall and mindlessly spending).
May 13th, 2009 at 12:26 pm
@Mannwich
All of this discussion leads us back to the EXACT SAME point that we were in August 2007 (when finally the first “long overdue” fissure became reflected in the markets)…
Housing bust = economic bust
A robust housing market floats ALL boats (from construction jobs, to finance jobs, to retail jobs, to positive wealth effect, YOU NAME IT)…
Until THAT comes back into equilibrium (and I still see another 20% – 25% DOWN in prices across the board before we reach that point), then we will continue to languish…
So this could occur in two ways…STOP INTERVENING IN THE PROCESS by trying to artificially prop up prices with government spending, LET IT COLLAPSE to where it needs to go, and begin the rebuilding process from THERE…
OR
KEEP INTERVENING (and watch the entire process get dragged on for decades, like Japan)…
Unfortunately, BHO seems to prefer the 2nd approach because his desire to preserve what he understands to be his political capital is stronger than the desire to bring about a painful, yet expedient end to this downturn…
History will remember this as his “cryptonite” unless he finally decides to amend his approach…
May 13th, 2009 at 12:26 pm
Bruce,
Another nice link.
That article is about the dumbest thing I’ve heard all week. It is only Wed. though. Spend now b/c stuff is cheap so you build more cash later! Huh?
May 13th, 2009 at 12:28 pm
@Mannwich QID still? Leveraged and Short ETFs are poison, both together is double poison. Thought that was pretty clear by now. QID is not a bet that the Nasdaq will go down, it’s a bet that the Nasdaq will go down in a straight line with minimal volatility. Any choppiness in it’s decline (like the last couple month!) is going to decay away any of your gains.
May 13th, 2009 at 12:29 pm
@Mannwich 12:12
Re: The Villages. I’m not sure if by riot that you meant good or bad, but I visited it and would move there except that I’m not allowed, since I’m in my 30’s. One of the employees told me that they are asked that question all of the time.
May 13th, 2009 at 12:31 pm
@ben22
You might be right about 4% (but I was referring only to a particular encapsulated time period)…
Further…to that point (re:4%)
If, in fact, a person knew that the average ROI for buying a house was 4%…
And if the BEST rate to qualify would be a 30 year fixed at 5%…
And with that came property tax expenses, insurance, homeowners association dues, casual maintenance, yard maintenance, etc.
Who the hell would EVER buy a house in the first place?
May 13th, 2009 at 12:35 pm
@Cursive: I actually really liked it a lot and was surprised by that. It’s an impressive place and the community is designed/planned very smartly. I’m glad that my parents are moving there. There’s always something going on there to keep them active and busy (any activity you can think of, they seem to have), not to mention we’ll probably visit every winter to get out of the North Pole. It’s like like extended summer camp for seniors.
May 13th, 2009 at 12:36 pm
@Outlier: We’ll see. QID is not a long term holding by any means and the ETF’s are mainly disaster end of the world hedges against the longs in my portfolio. I think tech is in for a reversal this summer/fall. Stay tuned.
May 13th, 2009 at 12:38 pm
A sigh of relief… inflight internet and bloody mary’s, what more could a girl want. agree with Andy above, gold is not inspiring… will check in to see what else i’ve missed. FAZ is also uninspiring me… can’t believe it isn’t over 6 and giving me a better gain…
May 13th, 2009 at 12:39 pm
“I don’t know, but I think the worst of this may well be over.”
Well, he got the first part right.
May 13th, 2009 at 12:40 pm
Outlier @ 12:28
QID and SDS are nowhere near as bad as the others (e.g., FAZ). That said, outside of an IRA, it is generally better to short a “long” ETF than to buy an ultrashort (except for day traders).
May 13th, 2009 at 12:42 pm
Ben 22:
sometimes when I think about what all of us thought about credit, and saving, and buying, and government spending…back as far as say, last summer! , then it sometimes seems like we’ve landed on the moon…
May 13th, 2009 at 12:43 pm
@Outlier
That’s not exactly true about leveraged ETF’s…It only “appears” that way due to the way they’ve behaved over the past 6-9 months…
But think about it…you could create any number of scenarios in which an index made, say, a move from 930 to 700 (or vice versa), and then toss in a time variable on that…
To give you an example…
1. Let’s say the S&P over the next 90 days was 930 one day, then 700 the next day, 930 the next, 700 the next, etc. Plug in your “daily” percent moves and see what you come up with…
2. Let’s say that it LOST 2 points per day every day (with ZERO up days)…
or, create your own scenario…
You’d see that the numbers could vary considerably depending on a lot of factors…
I don’t think anyone has yet figured out this “animal” of leveraged ETF’s yet…
My favorite theory on it was what I’d heard the other day…It would seem to be a LOCK to simply SHORT both the long and short ETF’s on any index you want…
As soon as you do that, WATCH, you get your hat handed to you…
May 13th, 2009 at 12:43 pm
karen @ 12:38
You actually bought FAZ…? This is indeed a “sea change”.
May 13th, 2009 at 12:45 pm
DL,
I agree, not all those ultra’s are built the same. I’ve spent so much time looking at charts on those in the last 8 months, QID for example, looks much different than say, FXP or DUG for that matter.
When I go short though, I’m just planning on using SH for myself.
May 13th, 2009 at 12:47 pm
ben22 @ 12:45
But why is going long SH better than going short SPY…?
(Of course, another option is to do both, i.e., long SH and short SPY, but that’s another issue).
May 13th, 2009 at 12:47 pm
I told Jeff FAZ would go to the 4s… i got impatient and began in the 5s but really loaded up in the 4s…
May 13th, 2009 at 12:49 pm
I’m only guessing here, but my guess is that with QID and SDS, they use futures, whereas with others like FAZ they use options, thereby getting more “slippage” or “time decay”.
May 13th, 2009 at 12:51 pm
@cvienne,
It was Jdamon that posted the link about shorting the long and short Etf’s at the same time. I haven’t had a chance yet to really look hard at what he posted but it was pretty interesting at first glance.
Bruce,
I couldn’t agree more.
May 13th, 2009 at 12:52 pm
i think i’ll start living on Virgin America… can’t believe the appetizer’s they’ve just delivered, not to mention 4 baby bottles of absolut… bot and sold SRS, too. since i was flying today, i sold a lot of stuff yesterday not knowing I would be able to be active today…
May 13th, 2009 at 12:52 pm
@DL,
I didn’t mean to say that it was better, it’s just my plan is all.
May 13th, 2009 at 12:53 pm
@DL
Hang on a minute there…
I never pulled the trigger, but back in March I was just about to “short” the FAS at around $4.50 (after it made it’s initial jump off the bottom)…It eventually went to $13.27
A 100 share $450 risk would have produced a $877 loss…
At the exact same time, the FAZ was at $50 (so the same $450 would have bought me 9 shares)…
If I’d closed at the bottom ($4.50), I’d have lost $45.50 per share times 9 shares = $409.50
MY LOSS ON “shorting” FAS would have been twice my loss from buying FAZ…
May 13th, 2009 at 12:53 pm
I’ve never flown virgin but I heard it was nice.
Nice trade on SRS karen. You are money!
May 13th, 2009 at 12:53 pm
QID and SDS are double long so the decay is not as strong as a 3x leveraged like FAZ, but they still are mathematically constructed to decay with volatility. Shorting a leveraged bull is a great move but I understand they are impossible to borrow as its close to a sure bet. Shorting both sides of a bull-bear leveraged pair is as close to a sure thing as you get.
Quick example to show how these things decay. Index and 3xFund both are at 100. Index goes up 25% to 125, 3xFund goes up 75% to 175. Next day index corrects 20% back down to 100. 3xFund corrects 60%, which takes it all the way down to 70! Because these things track percentage moves and not point moves they are constructed to decay with any volatile price action.
Spent a bunch of time working it out for myself: http://abstractdynamics.org/2009/05/etf_fail_understanding_timevol.php
Plenty of other articles around two. These things are poison…
May 13th, 2009 at 12:56 pm
just another though on the ETF’s, curious to see what people think.
You could just use margin to buy SH. Then you get your leverage minus the higher volatility and higher risk of time decay. If it’s a taxable account the margin interest is deductible assuming you can itemize and I believe margin interest isn’t all that high right now, I could be wrong bout that though.
May 13th, 2009 at 12:57 pm
cvienne @ 12:53
I’m not disputing your calculations, but you’ve got to look over a time period when there’s little net change in the market; or else look at gains and losses RELATIVE to the underlying index.
May 13th, 2009 at 12:57 pm
Bottom line:
“short selling” can expose one to indefinite losses in a market that continues to trend upward…
Whereas:
Buying a SHORT ETF caps your losses (it can only go to zero at worst)
May 13th, 2009 at 1:00 pm
[...] old man Greenspan Jump to Comments Haven’t you done enough? Possibly related posts: (automatically generated)Needs no [...]
May 13th, 2009 at 1:00 pm
The key to understanding how the decay function works in these ETFs is to ignore all the internals and just look at the math, they are constructed to track percentage changes in both directions, but these changes are not symmetrical but biased on the down (decay) side.
When they move in one direction only they can be wildly profitable (if you are on the right side!) But as soon as they start correcting and bouncing they are awful. Think about it, the first move is symmetrical assuming they pair starts at the same value. But when they change direction, the smaller one is moving up by x% of a smaller number, while the larger one is moving down x% of a larger number, net result is that the sum of the two numbers is moving downward anytime the markets change directions.
May 13th, 2009 at 1:00 pm
hardly, ben; and i’d rather have love than money anyway : ) don’t forget my underwater shippers, too.
i’ll be looking to rebuy erx, next, i think..
May 13th, 2009 at 1:03 pm
Karen,
when I think of you I think of that call you made on TBT late last year. For me you get a pass on a few misses b/c of that one. That was a tough time to be calling action in the long bonds.
But, as you say, money isn’t everything.
May 13th, 2009 at 1:03 pm
Off topic but I just checked my e-mail and there was something in there from JC Penney…
Subject line: Sneak a peek: Biggest sale of the season…
LADIES & GENTLEMEN…
“There’s a SALE at PENNY’S!”
May 13th, 2009 at 1:04 pm
Thanks to all who responded to my “how to invest in oil” question.
A note of caution, if I may. I don’t think any of these ETFs tracks the price of crude oil. USO most certainly doesn’t. Please correct me if I am mistaken.
May 13th, 2009 at 1:04 pm
cvienne,
I got one from Macy’s in my yahoo this morning. it’s another one day only sale from them, except they have them every day, every week.
May 13th, 2009 at 1:05 pm
@karen: Trust you to travel in style AND make money at the same time….
May 13th, 2009 at 1:05 pm
Outlier @ 12:53
“Shorting a leveraged bull is a great move but I understand they are impossible to borrow…”
I’ve shorted SDS and QLD… no problem at all. (But you’ve got to watch out for dividends).
I haven’t yet tried shorting FAZ or FAS, but I intend to.
May 13th, 2009 at 1:06 pm
@cvienne the move is not to short one or the other, the move is two short both of them. Look at the returns on both since their inception: http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chdet=1242244800000&chddm=50439&cmpto=NYSE:FAS&cmptzos=-18000&q=NYSE:FAZ&ntsp=0
FAS down 82% so you’d think FAZ should be up, but no FAZ is down by 92%! Toxic stuff, avoid it. Great when you catch just the right wave with it, but as I said before you are not just placing a directional bet, you are also placing a bet on market volatility.
May 13th, 2009 at 1:06 pm
The media is more than happy to give proven failures like Greenspan plenty of play because what Greenspan has to say is all about getting the rubes back into the casino, and the folks that own the casino are the same folks who own the media.
Buyer beware.
May 13th, 2009 at 1:07 pm
I have to concentrate…I have to concentrate….Echo…Echo…Hello…Hello…
Looks like I picked the wrong week to stop sniffing glue!
May 13th, 2009 at 1:07 pm
leftback @ 1:05
“Trust you to travel in style AND make money at the same time….”
And those bloody Mary’s will give her confidence to make BIG bets.
May 13th, 2009 at 1:08 pm
@Pete,
USO is full of futures contracts on crude if I’m not mistaken whereas DIG is full of oil and oil services stocks such as RIG.
May 13th, 2009 at 1:09 pm
@DL,
I heard that the Div’s on some of those ETF’s get taxed at a very high rate, not orindary income in some cases. Is that what you are talking about?
May 13th, 2009 at 1:09 pm
I think that scrutinizing past forecasts for accuracy is very important.
Along those lines, here is a list of forecasts made during the financial crisis…
http://www.prosperitybypen.com/art-predictions.html
May 13th, 2009 at 1:10 pm
@DL Ameritrade won’t let me short any of those, pretty sure enough people are on to this that the game is up on that maneuver.
May 13th, 2009 at 1:11 pm
Outlier,
I think that may be the conclusion, those 3x’s will work best with low volatility, which we aren’t going to get any time soon. I wonder if they will be around long enough to see low volatility again. Is it possible they both go to 0 first?
May 13th, 2009 at 1:13 pm
@ Pete::
USO is as close as you will get. Remember that crude futures are priced by contract month… so there isnt one exact “price”.
Here is a helpful link:
http://www.nymex.com/CL_spec.aspx
USO does a fairly good job of tracking the average price, but its not like the GLD for example where its an exact fraction of the price of spot gold.
On FAZ:
Seems to be trading just fine for my money. Remember folks, its a “daily inverse vehicle”. I track FAZ off of XLF, and it does a pretty close job of being 3X Inverse.
Today for example:
XLF down 4.5%
FAZ up 12.5%
Sure, I’d love to see it hopping up a couple bucks a day as much as the next guy (or Mistress of the Stick) but we need to see XLF start dropping fast for that to happen. Just my 2 cents.
On QID:
If it can hold up above the upper channel boundary of the bull price channel on the 15 min chart that it just peeked through today, I’m adding my second third of my initial position.
The rollover of the Q’s is on.
May 13th, 2009 at 1:14 pm
interesting that spike in faz didn’t take any of my limit sell order with it.. even tho i was a few pennies lower…
May 13th, 2009 at 1:17 pm
@Outlier
I understand what you are referring to, but I’m telling you…I was sitting there on March 12th and was ready to pull the trigger on ’shorting’ FAS at $4.50 to the tune of about 100 shares just for fun…
Then I thought better of it and nixed the idea…
What I DID do was to start a little experiment (on paper)…I checked the FAZ price at the same time (it was $50 bucks)…
So let’s say I “shorted” FAS at $4.50 & “shorted” FAZ at $50 (with a $450 investment)…
If I’d covered both at their peaks…FAS was at $13.87 (I’d have lost $877 on that short)
If I’d covered FAZ at $4.43…I’d have made $410.13…
net difference: I’d have lost $466.87…
So I can’t see how “shorting” both is always a lock…
May 13th, 2009 at 1:18 pm
ben22 @ 1:09
The problem is that the dividend payouts are large (on the order of 5-10%), and often they are not announced in advance. Also, the dividend payouts cannot be deducted against capital gains. And of course, if you’re short, you PAY the dividends, so the problem isn’t the tax RATE.
(Note, however, that I’m not a tax expert).
May 13th, 2009 at 1:20 pm
cvienne @ 1:17
“So I can’t see how “shorting” both is always a lock…”
I haven’t looked at it carefully, but that’s probably the “catch”, i.e., periods over which you have to sustain a loss.
May 13th, 2009 at 1:23 pm
@cvienne: Why would you cover a short at the high?
May 13th, 2009 at 1:26 pm
Guys. Bottom line – if you get the direction wrong in a volatile market, you lose money !!
May 13th, 2009 at 1:28 pm
It’s pretty easy to see in Google Finance. There are periods where the shorting both is a net loss, (basically periods of the market moving more linearly than usual) but there are WAY more periods where it’s a win-win
May 13th, 2009 at 1:29 pm
If you want a 3 or 4X bull what about AA. Volatile as hell.
May 13th, 2009 at 1:29 pm
lol leftback
May 13th, 2009 at 1:30 pm
@leftback the point is with the leveraged ETFs you can get the direction right and still lose money.
May 13th, 2009 at 1:33 pm
Who ever knows what “the high” actually is (unless in retrospect)…
My point is…If you SHORT both at the exact same time, at any given time in the future, you might be profitable or not…Like all trading it depends on when you sell…
So even in this case there would be many different scenarios…
1. What if the market kept going up? (you’d continue to LOSE money)
2. If the market RETRACED, then you’d probably be profitable at some point
3. If the market retraced and then held support and went up (you’d be back looking at losses again)
4. If the market made new lows, you’re ratios would flipflop and you’d either make some profits or be near even…
Just like anything else, NOTHING is a lock 9it all depends on when you buy and when you sell)…
May 13th, 2009 at 1:36 pm
@Outlier: It’s not a buy-and-hold environment. LOL…
May 13th, 2009 at 1:38 pm
I’m more of a curious onlooker to these leveraged ETF’s anyway…
My theory is that OVER TIME, the patterns they draw will ‘technically’ appear to me more or less like regular chart patterns…
Like FAZ for example…There is a GAP between 14.45 and 17.00 (on April 8-9)…I’m guessing it will eventually FILL IN that gap…
May 13th, 2009 at 1:38 pm
cvienne @ 1:33
“NOTHING is a lock…”
True. But it is better to swim with the tide than against it.
May 13th, 2009 at 1:41 pm
cvienne
What’s the theory on the gap filling thing? I’ve meant to look it up to understand, but haven’t.
May 13th, 2009 at 1:42 pm
leftback @ 1:36
“It’s not a buy-and-hold environment…”
Yes, well, someone who had simply shorted QQQQ 24 months ago (and stayed with it) would be outperforming 99+% of all money managers right now.
May 13th, 2009 at 1:46 pm
@onlooker from troy
A “gap” in a chart is exactly what it looks like…An overnight move where there is a hole between the previous days closing price and the opening price the next day (either higher or lower)…
The market HATES gaps and will usually move in a way to FILL up that space by trading in that VOID range at some point in time in the future…
Look at the chart of FAZ (between 4/8 & 4/9 and you’ll see that gap was never filled)
You have to use BAR or CANDLE graphs not line graphs to see gaps…
May 13th, 2009 at 1:48 pm
@leftback, ha true enough.
@cvienne, last post on this I promise. There are no sure things in this world, but those ETFs are constructed in such a way that there value decays overtime regardless of market direction. The only scenario where you lose out on shorting both over the long term is one in which the market goes one way with little to know corrective days. 4-5 days a week in one direction with only small corrections will hurt. But 3 one way, 2 the other will eat away at the value of both the bull and bear side even if the net change in market value is big. And if there is one thing that is clear on stock charts is that market loves to bounce around…
May 13th, 2009 at 1:52 pm
Trading around a core is a good strategy in this market. Just cut half my FAZ/SRS positions.
Locked in profits, reduced risk and don’t have to play will they won’t they games at 3.30pm.
If someone wants to give me money, I say “thanks, old chap”. That’s how we roll at Schadenfreude.
May 13th, 2009 at 1:53 pm
Similarly,
There remains a GAP on the S&P chart around the 730 level (2/27 to 3/2)…
It was never really CLOSED on the way up (because on March 12th it blew right through it to the upside)
Many PURE TECHNICIANS would point to that as making a case that this has all simply been a bear market rally and that we’ll eventually go to new lows on the S&P…
Because if we DO have to fill that gap, then ALL Fibonnacci support levels on the S&P will be technically breached…
Also, it is LOWER than even the 740 October low (which many had been using as a “capitulation” indicator last fall)…
In any case, if the market can’t do some REAL TIME (a week’s worth of trading) battling it out at the 730-740 range bull vs. bear…And can’t support and move higher…It’ll be LOOKOUT BELOW time…
That battle ought to occur in the August – October timeframe…
May 13th, 2009 at 1:54 pm
on faz, nevermind, it was a bad tick and has been corrected on all my sources.. showed 6.29 when i posted above. current high is 6:12.. not 6.29 as earlier reported.
May 13th, 2009 at 2:01 pm
Mistress-
So how do those “bad ticks” occur… I still see the upper wick of that candle touching 6.29 on my charts, but the intraday high has been moved back down to 6.12…
So the money question is… how many shares need to be bought at that moment to push the bid up so high???
And if that was the case… how could that be changed now?
BTW- I see this same kind of thing happen on SPY and QQQQ all the time, and have never heard a good answer. This is open to everyone, not just Karen.
May 13th, 2009 at 2:05 pm
@Outlier
I’m fine with your premise (as a “probability” quotient)…I think this is more of a curious fascination for most of us here anyway…
I’m more of an OVERALL MARKET guy anyway (and I think the direction is DOWN, over time)…
For traders out there (this being OPEX week)…I’d be looking at S&P 865 level as possibly some support coming in…
It connects the 1/20 low as support with the “open” on 2/17 (where the market lost it’s way), and then REGAINED that trendline with SUPPORT on 4/29…
So perhaps (this is for you ben22), if 965-1k is still in the cards, the S&P is going to have to have some willpower to stay above that trendline…If it breaks below, I’d be thinking of “stopping out” rather quickly because 2/17 to 3/4 didn’t look too pretty…
It looks like 865 could be reached this Friday…There’s going to be A LOT of decidin’ to do come this weekend…
May 13th, 2009 at 2:09 pm
@I-man
I don’t know the answer to that “tick” thing either…
I remember seeing a 616.87 “tick” on March 6th (which was part of the reason I kept staying “short” when the market was at 666)…I’d fully been expecting to see 640-600 before that 9notwithstanding the tick)
May 13th, 2009 at 2:15 pm
Bill Seidman died!…:-(
One of the few voices that i actually enjoyed listening to.
May 13th, 2009 at 2:16 pm
I even called Powershares once to ask, and they gave me a bunch of gobbledeegook about ETF’s and volume… and how that large trades could not generate up swings in an ETF like they would do for a stock because they can just create shares… there isnt a fixed float.
But they never answered my question, which was how these “bad ticks” are created if thats the case.
May 13th, 2009 at 2:21 pm
i-man, there’s another explanation for bad ticks… it’s known as software. seriously.
May 13th, 2009 at 2:23 pm
i want ure at 3 and erx under 30… well, i have a lot of wants but will settle for those.
May 13th, 2009 at 2:31 pm
I guess we must ask CNBC. last night I was watching a video from Jim Cramer on how Krugman, Roubini and Stieglitz are preventing a recovery. Not that I was ever a fan of Jim, but this is one of the most absurd pieces of commentary that I have ever heard. How could a group of economists that have no official government position and no influence over industry or productivity or housing supply “prevent” a recovery. And despite his many dumb predictions, we are forced to not watch CNBC for an entire hour every evening. Can anyone tell me why this guy can’t be fired?
May 13th, 2009 at 2:33 pm
Cramer wont be fired until the last low of this bear… then he’ll be carried out on his shield.
May 13th, 2009 at 2:41 pm
As more evidence of just how out of touch that dude is… I was flipping through the channels one afternoon last week and stopped on cnbc just long enough to hear Cramer going off on how all the banks were a great buy and were “underowned”. BAC specifically. Great call there Jim… thanks for providing the juice for my FAZ to make some coin this week.
What a load of shit… I actually feel a bit sorry for the viewers who actually go out and “invest” based off of what that buffoon says… but then again, I guess they deserve what they get if thats the game they’re playing. Kind of sad really.
May 13th, 2009 at 3:08 pm
I understand what the gaps are, and that TA theory says they “need” to be filled. I’m just wondering what the actual theory behind it is. Or is it just purely observational that that is what the market does? i.e. correlation that works well enough to trade on without knowing what’s behind it.
Any ideas on that?
May 13th, 2009 at 3:50 pm
[...] Greenspan calls the bottom (again) (The Big Picture) [...]
May 13th, 2009 at 4:36 pm
DL, didn’t place any big bets today although i’ve gathered the cash for some. my limit sell on FAZ did finally go at 6.26.. put it on before market open and decided that was the right price for me.. landing in an hour… i am hooked on Virgin America… flying is fun again.. : ) and the attendants are so attentive… the seats are so comfortable. so easy to nap! next week i’ll fly virgin to SF from Orange County…
May 13th, 2009 at 9:30 pm
You forgot the real-estate advice he gave to then girlfriend Barbara Walters in the mid-1970’s.
“Even Barbara Walters poked fun at her old boyfriend, scoffing at Al’s real estate record on “The View” this week. Walters recounted how Greenspan convinced her not to buy a Fifth Avenue apartment in the mid-’70s because it was a ‘bad investment.’”
http://www.nypost.com/seven/09232007/business/listen_to_shiller__not_the_tv_.htm
May 14th, 2009 at 9:33 am
[...] Read more [...]
June 17th, 2009 at 6:46 am
[...] Yet Another Greenspan Housing Bottom Call (May 13th, 2009) http://www.ritholtz.com/blog/2009/05/yet-another-greenspan-housing-bottom-call/ [...]