Michael (Jeff Goldblum): I don’t know anyone who could get through the day without two or three juicy rationalizations. They’re more important than sex.

Sam (Tom Berenger): Ah, come on. Nothing’s more important than sex.

Michael: Oh yeah? Ever gone a week without a rationalization?

-The Big Chill


You can never underestimate the absurdity of the after-the-fact rationales people come up with to explain and justify market action.

Why? Us primates seem to prefer narratives over numbers; We like a good story, the preference is for anecdotes over data, for a “feel good” explanations as opposed to cold hard facts. They can pitch a good story over the phone to clients and prospects. With numbers and data, not so much.

Its why Wall Street tends to be a house of mirrors — any good explanation gets adopted and passed down the food chain to explain a position or investment posture, invariably AFTER THE FACT.

It is important to understand the difference between investing from a thesis or broader theme — Gold rallying due to low rates; Alternative Energy as a result of $100+ oil — versus an after-the-fact justification for existing holdings. One is a credible, defendable approach, and the other is just so much sales blather. The amazing thing is why anyone would believe the latter, and why so many ignore the former.

Our case in point is the absurdly foolish Green Shoots compost.  As we have detailed since this nonsense first started spreading earlier this year, the data simply did not support the notion of  a 2nd half recovery.  Not only below the headlines, but the actual releases. It was hope, not facts, that led the way. Second derivative improvements are not the same as expansion.

Of course the market rally off of the lows was telegraphing that the economy was recovering! Never mind what it was saying at the all time highs in October 2007, four months after the Bear Stearns hedge funds collapsed.

I’ve said it before, but it bears repeating: Beware Economists who rely on stock markets to forecast economic activity . . .


Green Shoots Are For Suckers (April 17th,  2009)


Green Shoots Everywhere ? (June 16th,  2009)


Getting Worse More Slowly (April 8th,  2009)


Category: Employment, Mathematics, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

44 Responses to “Deeply Oversold Bounce, Not Green Shoots”

  1. Chief Tomahawk says:

    Well, Dr. Ritholtz, it seems you’ve had Wall St. on you office couch in a tribute to Sigmund Freud! [What did it have to say about it's mother/father???]

    Now no Kudlow show for you, for you’ll rain on the perma bulls’ parade.

    I think Doug Kass’ lumpy 2nd half is about to have a Maalox moment … (or however one spells Maalox; fortunately I think I’m too young to need to worry about fiber.)

  2. constantnormal says:

    Human beings, as you say, ‘We like a good story, the preference is for anecdotes over data, for a “feel good” explanations as opposed to cold hard facts.’ We use these stories to buttress our inner desires and wants, making the stories more powerful and necessary than mere data.

    Such behavior is wired into our genes, and the greatest function of forums of debate (like this one) is to challenge the stories.

    Even good hard data will not dissuade those dedicated to a particular meme, but it can prevent others from going down that same path.

  3. Clem Stone says:

    But the cold hard facts could easily have kept someone short at 666, so how useful is that?


    BR: There was lots of statistical data at those levels that the market was hugely oversold and due for a bounce…

  4. krice2001 says:

    Let’s not forget, the media needs a story to tell. Everybody needs an angle. The facts sometimes just need some “sprucing up”, they’re too boring (or ‘wrong’?). I guess I think of it this way; every time I’ve been at an event or witnessed something that was later written about, the write-up was wrong in significant ways. It used to confuse me (maybe it still does). But I guess I came to realize that there were a few things that seemed to be playing out – - one was a need to create a story (an “angle”) a memorable phrase maybe, another was the writer’s biases squeezing out, and of course there is just plain poor efforts.

    And as you say BR, “we like a good story” so the various media outlets will be there to serve it up.

  5. Andy T says:

    So, had some BBQ and Pool party action with some guys “in the biz.” The consensus is that “no way we’re going back down to 600s–maybe we consolidate, but no way we go back to the lows.”

    I asked: Why? The response was, “Cuz’ this recession has lasted 18 months and so it’s already been going a long time. Every economist believes we see the end of this recession by the end of the year. Even the really negative economists are saying this.”

    I said: Well, could this be a different type of animal in the sense that it’s a credit driven recession as opposed to the run-of-the-mill inventory driven recession?

    They said: “Everyone says it’s ‘different’ this time…it’s never different. This recession is over this year.”

    I said: OK. Cool. Good Luck with all that.

  6. Andy T says:


    You’re asset selection/mix is obviously your own business and you have no obligation to share it with the world. In fact, if I were your legal counsel I would advise against it, because it could be construed as giving investment advice. However, it seems like you’ve been rightly skeptical about our economic conditions, and you’ve posted in a way consistent with that belief. How can you be 80/20 stocks/cash with such a viewpoint? I think you have a lot of audience that was astounded to hear such a high equity allocation several days ago…..

  7. Wes Schott says:

    Economic Cycles Research Institute says -

    End of Recession in Sight

    “Still, most will be skeptical about our forecast of a business cycle upturn.”

    “how the error of optimism at the heart of every boom “grows in scope and magnitude…. But since the prosperity has been built largely upon error, a day of reckoning must come”

    “The error of optimism dies in the crisis but in dying it ‘gives birth to an error of pessimism. This new error is born, not an infant, but a giant”

    “The “giant error of pessimism” is now rampant. This is why many will be blind to the light at the end of the tunnel that marks the exit from this recession. But to ECRI’s array of objective leading indexes, designed specifically to spot recessions and recoveries, the end of the recession is now in clear sight.”


    …still the markets could get ugly during the interim…

  8. Bruce N Tennessee says:

    @Andy T:

    As luck would have it, due to an unusual genetic make-up, Barry’s toes regrew…now he is once again offering them up to the Great Bear Market….

  9. hopeImwrong says:

    BR: “Us primates seem to prefer narratives over numbers”

    There is also another even bigger primate drive which clouds analysis, the search for cause and effect. This is especially true when the effect is emotionally negative, but it is also true for random banal events in daily life. We always seek, “why did that happen?”

    It’s unfortunate that the drive to find causes for everything is so high, that we link up unconnected events as causes for effects in an attempt to reduce the uncertainty and randomness of life. If we didn’t do this we would probably go crazy, but we are usually wrong in our analysis. It’s not a finely honed skill, it’s an innate uncontrollable reaction to life.

    It is linked to mass psychology and sentiment analysis.

  10. matt says:

    80/20 is not offering toes; it’s swimming with the sharks.

    I think the better explanation is that momentum explains a lot of BR’s moves. Although I don’t do it, I think that it’s a legitimate strategy if you have tight stops.

  11. Marie Antoinette says:

    Of course the stock market doesn’t predict economic activity. It tells us how popular the president is!!

    How’s Barry doin these days? Ooops.

  12. call me ahab says:

    Andy Says-

    “The response was, “Cuz’ this recession has lasted 18 months and so it’s already been going a long time.”

    that’s like the dust bowl okie saying- gee it hasn’t rained in a while- so the drought should be over soon

  13. Bruce N Tennessee says:


    Read your post from the ECRI..it appears that was dated in March. Have they changed their minds since? They appear to be saying the recession ends with the end of summer…

    ….have they updated or by September it is ok to buy Alcoa again?

  14. Bruce N Tennessee says:

    By the way, Dr. Hussman has joined the team that feels that the unemployment numbers this time are acting more like a coincident indicator than a lagging indicator:


    “Given current household leverage from mortgage and consumer debt, coupled with the inability to access mortgage equity withdrawals (that largely fed spending increases during the most recent economic expansion), my concern continues to be that unemployment will behave as a leading indicator rather than a lagging one. During typical economic downturns, there is always some feedback from employment losses to credit losses, but that effect has been more contained because debt burdens have not been nearly as high, and homeowners have not been saddled with negative home equity. The dynamic of this downturn is different, so investors should be slow to accept the “employment is a lagging indicator” argument under present conditions. “

  15. Wes Schott says:

    Bruce@9:11 –

    ..oh sheet, you’re right, i missed the date..

    i’m not a subscriber to ECRI, but i did look at their data series, which is up to date as of 6/26

    http://www.businesscycle.com/resources/ see…WLI, gr – “data” Weekly Leading Indicator

    Date WLI Growth
    27-Mar-09 106.4 -22.3
    3-Apr-09 107.5 -20.8
    10-Apr-09 107.4 -19.5
    17-Apr-09 107.5 -18.4
    24-Apr-09 108.2 -17.1
    1-May-09 109.9 -15.5
    8-May-09 111.3 -13.3
    15-May-09 111.5 -11.1
    22-May-09 112.6 -8.7
    29-May-09 114.4 -6.2
    5-Jun-09 116.2 -3.5
    12-Jun-09 117.0 -0.6
    19-Jun-09 117.6 2.1
    26-Jun-09 117.6 4.0

  16. Onlooker from Troy says:

    Yeah Barry. I second AT’s post. You teased with that 80/20. That just wasn’t right! :)

    Come clean! I looks like we’re headed for another sizable gap down.

    What momentum matt? To these admittedly amateur eyes the “bull” lost the momentum before late last week. But Barry’s the pro, not me.

  17. Onlooker from Troy says:

    Bruce, you can’t wait ’til Sept to buy Alcoa. Buy now! You’re late. Along with all those other cyclical names that lead on the V recovery. Don’t you have the play book? ;)

  18. Onlooker from Troy says:

    As to ECRI and their recession forecasting. They may be right about a “recovery”, assuming you define that as a quarter of GDP growth or two. But what does that mean? It surely doesn’t mean that the market has definitely bottomed and a new bull is born. Look at ’01-’02 for just the latest example of that.

    And if I recall correctly, one big failure of their model was in the GD; the last debt bubble, balance sheet driven downturn. So is it meaningful now? I don’t know. Only time will tell but the data and facts don’t look good to me.

  19. Bruce N Tennessee says:

    As long as Putin lets Obama return with the shirt on his back, we’ll muddle along…

    Perhaps he could offer them California?

  20. Wes Schott says:

    ….too funny, too ironic….

    July 5th, 2009
    A Goldman trading scandal?

    Did someone try to steal Goldman Sachs’ secret sauce?

    While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs……


  21. Transor Z says:

    By-and-by, when they was asleep and snoring, Jim says: “Don’t it ‘sprise you, de way dem kings carries on, Huck?” “No,” I says, “it don’t.” “Why don’t it, Huck?” “Well, it don’t, because it’s in the breed. I reckon they’re all alike.” “But, Huck, dese kings o’ ourn is regular rapscallions; dat’s jist what dey is; dey’s reglar rapscallions.” “Well, that’s what I’m a-saying; all kings is mostly rapscallions, as fur as I can make out.”

    -Mark Twain, Huckleberry Finn

  22. catman says:

    Well its been a nice run and now after a word from our sponsor we will return to the next episode of that long running hit show Beat the Number! Meanwhile this rally has given you an easy exit if that’s your thinking.

  23. I-Man says:

    On BR’s allocation…

    Just taking a guess with this one…

    I’d say that the fact alone that he was comfortable mentioning it on here says that that allocation may be on its way out, with tight trailers.

    Hey, the tape was up… why not get a piece of it? Especially if you are paid to take on risk.

    I’m short, have been since late May, and I still understand that strategy. Why not own strength while its still going up? Obviously, what most of us are doing is different… different strategy.

    If this little dance takes another turn lower, I doubt BR will still be long LC Tech. Just postulating. Would like to see a response from Barry though, FWIW.

  24. leftback says:

    Bounce coming here on data?

  25. Bruce N Tennessee says:


    Wait until we see consumer credit Wednesday…that pundits say down by 7 when last month was down by 16 billion…I doubt we’ll see a 60 % improvement and would bet that Wednesday will be another sober up day…

  26. I-Man says:

    @ Left:

    The touch of 888 this morning wasnt good enough… looks like it wants to probe that again. We’ll see.

    May be no second right shoulder here… looking pretty grim breadth wise.

  27. leftback says:

    There is support at 883 and at 887. I would be surprised to see both give way all at once. Not that I’m bullish.
    Not holding much at all here, except piles of cash. Have been steadily accumulating SRS these past few weeks.
    May take a stab at some energy trades later on from the long side, but I am basically looking to sell into strength.

  28. Transor Z says:

    David Rosenberg’s morning newsletter is worth a look today. Some highlights:

    1) Wave of property tax reassessments (no surprise) starting to slam local/municipal govts.

    2) Minimum wage is going up from $6.55 this week, putting more labor cost pressures on employers.

    3) Fed reports further credit shrinkage in both household and commercial lending.

  29. Andy T says:

    Left. Agreed. I sort of see 878 as possible support from a classic chart reading way. 888 was the 23.6% retrace of the entire upmove, the first important fibbo #. A close below 888 would be very bad from my point of view, but I can also see 878 ish as line that may hold. We’re on a precipice here….

  30. call me ahab says:

    does anyone have ideas on how the proposal to reinstate the uptick rule will effect inverse ETF’s and does anyone think that the leveraged inverse ETF’s may be in danger and on the hit list as well?

  31. DeDude says:

    I think you have nailed it; second derivative improvements are not the same thing as a turn-around. With the tremendous falls experienced in the last 4 months of 2008 there is no doubt that we will see “better than a year ago” second derivative numbers most of the coming fall and winter. But it is not likely that the real numbers will improve.

    Less bad is the new “good” – if you are a tool or a fool.

  32. leftback says:

    Johnny Retail now underwater on his Memorial Day BBQ Stock Bargain Buys….

    Oil seems to be off its lows. The $ didn’t rally as much as I expected today, I think there is already some concern in the FX markets about a second stimulus. Treasuries were weak first thing, perhaps anticipating weak demand in this week’s auctions, but gaining again now. Andy, this seems like a great day to just sit back and watch! Bulls will definitely try to stage a rally at some point. I would definitely short a move back up to SPX 910.

  33. cvienne says:

    @lefty @I-man

    USO did a .618 fibo retrace of the low on April 21st…

    Gold down/dollar up…

    I wouldn’t be surprised to see crude supported for a few days here (trend up)…

    The 2 & 5 year are stronger (IMO acknowledging dollar strength, but hanging is short dated maturities)…That’s the parking lot for now while the market digests the oil move…When oil is ready to leg down again, the S&P will take out that 880 to the downside, and the TLT will have completed support and move higher…

    It may even take 2 weeks…IMO

  34. CapitalistCanuck says:

    Feeling a bit of buyers remorse going long SSO friday afternoon. Market seems to be playing out on technicals with a bounce off 887. I wonder if this sell off is to divert capital from equities to the large bond auctions this week? I have stops set at just under 880. The H&S pattern is so obvious and I’ve read some articles in the media mentioning this which makes me skeptical that it will play out. My eyes are on Alcoa reporting wednesday…

  35. cvienne says:

    @leftback, I-Man, Andy T

    On the “high side” now I see the 910 area on the S&P…

    Look back to 12/18/08, 12/31/08, 1/9/09, 1/12/09, 5/4/09, 5/26-28/09, 7/2/09…

    The chart CLEARLY has been avoiding filling in those areas…I say they need to be filled before we break down and move lower (eventually take out 880)…The S&P will have a week or so to do this with crude bouncing off a technical low, and $$ accumulates in the short end of the YC…

    There is also YEN buying (vs. dollar & Euro)…Repaid carry trades?

    …IMO, about 2 weeks of dicking around between 883 & 910, then we make the big break down…

  36. CapitalistCanuck says:


    Agreed, crude is down $9 from $73 peak 2 weeks ago, we should find support here…lot’s of energy bulls left. I also don’t believe the bulls are ready to roll over yet, S&P should breakout if even for one last ditch effort.

  37. matt says:

    @call me ahab:

    I think that most of the inverse ETFs are using futures, equity swaps, and other derivatives for their positions. Someone correct me if I’m wrong, but that implies (to me) that reinstatement of the uptick rule will have no direct effect.

  38. Andy T says:

    Left. You’r reading my mind. I’m short, and it looks bad, but I have to wait for the 909-914 to add on….maybe we don’t get there, but it’s been such a sharp move lower with no correction, it seem “due” to get some sort of small bounce….If all we get is some sort of pathetic bounce, because we’ve got a real wallop coming, it may not be able to get above 904.

  39. aitrader says:

    The green shoots folks have always been irrationally exuberant in my book. We need at least a Q of mediocre to good figures before anyone can start discussing fresh veggies. That said the markets the last 6 months have become remarkably predictable.Nice stuff for quant shops like BR’s.

    Oh, and personally I prefer sex. Rationalized or not.

  40. constantnormal says:

    OK, F411 — let’s look at the numbers … (sorry for the formatting, or lack thereof)

    June May April March Feb Jan Dec
    NMI/PMI 47.0 44.0 43.7 40.8 41.6 42.9 40.1
    Bus Activity 49.8 42.4 45.2 44.1 40.2 44.2 38.9
    New Orders 48.6 44.4 47.0 38.8 40.7 41.6 38.9
    Backlog Orders 46.0 40.0 44.0 41.0 36.5 37.5 42.5
    New Export Ords 54.5 47.0 48.5 39.0 40.0 39.0 39.5
    Inventory Sent 67.0 62.5 62.5 60.0 66.5 62.5 65.5
    Imports 47.0 46.0 48.5 37.0 39.0 40.5 32.5
    Prices Index 53.7 46.9 40.0 39.1 48.1 42.5 36.1
    Employment 43.4 39.0 37.0 32.3 37.3 34.4 34.5
    Supplier Delivs 46.0 50.0 45.5 48.0 48.0 51.5 48.0

    Remember that numbers below 50 represent contraction, not expansion.

    Contracting more slowly does not equal expanding.

    We could just as easily see everything turning lower in coming months as higher — in fact, it’s more likely, due to the deepening problems with defaults and unemployment. These things do not stimulate demand or confidence. The best series of numbers in the above set seems to be “Inventory sent”, and an increasing amount of inventory depletion might be bullish for future prospects, but only if demand does not slacken further. The most bullish item that I see is the Export numbers, which is weakly bullish at best, but in contrast with our past export performance, are rather good. But given the difficulties that our foreign customers are in, the one-month above-50 performance in Exports is likely to be an aberration rather than the beginnings of a trend.

    But pretty much everything else really sucks. No green shoots apparent.

    There. I looked at, and commented on, the data. Happy?

  41. constantnormal says:

    crap. I posted this in the wrong item. Apologies to all.

  42. call me ahab says:


    thanks for the feedback- you may be right- not sure myself- but I guess my bigger question is if the banning of leveraged ETF’s is the next proposal- especially the short variety- as postulated by Jim Cramer

  43. farmera1 says:

    “You can never underestimate the absurdity of the after-the-fact rationales people come up with to explain and justify market action.”

    I especially like the idiots that get on TV and try to explain why the market is up 100 points or down 100 points for the day. And the answer is in reality: RANDOM NOISE
    By definition there is no explanation (or assignable cause in the lingo of statistics) .

    But day after day after day, the fools get up and say the markets went up today because of this or that or what ever.

  44. Simon says:

    I’ve been thinking about BR’s 80% long call. Could “cash like” assets be considered long. Is it possible BR has piled into precious metals and miners? It seems unlikely to me at first glance.