Ned Davis on Secular vs. Cyclical Bull Markets
Mark Hulbert looks at the question of whether this is a once-in-a-generation stock market low (secular bull market) or a mere “cyclical” low.
To figure out which, he looks to Ned Davis of Ned Davis Research. NDR identified seven factors to determine if any given market low is a secular low, setting up the next lasting Bull Market.
The Seven Factors: There should be:
1. Money, cheap and amply available;
2. Debt structure that’s been deflated;
3. Large pent-up demand for goods and services;
4. Stocks that are clearly cheap;
5. Investors who are deeply pessimistic;
6. Major investor groups with below-average stock holdings;
7. Fully oversold, longer-term market conditions.
Looking at these elements, how does this cycle measure ?
1. Cheap Money? Neutral. You might think that this factor should be rated as “bullish,” given how accommodative the Federal Reserve is currently. But Davis notes that banks are also significantly tightening their lending standards. Given the heavy load of debt under which both consumers as well as corporations suffer (see next criterion), banks are finding it “increasingly hard to find ‘credit-worthy’ borrowers.”
2. Debt structure deflated? Bearish. This is the most negative of any of Davis’ seven dimensions, since by no means is the debt structure deflated. On the contrary, Davis calculates that the total credit-market debt load right now is nearly four times the size of gross domestic product, and that it takes more than $6 of new debt for our country to produce just $1 of GDP growth. That’s almost double the amount of debt required in the 1990s.
3. Pent-up demand? Bearish. Davis acknowledges that there has been improvement along this dimension from where things stood at the beginning of the bear market. But he is particularly worried by the ratio of total Personal Consumption Expenditures to Non-Residential Fixed Investment, which currently stands at a record high. At the secular bear market low in 1982, in contrast, this ratio was at a record low.
4. Cheap Stocks? Neutral. Though the stock market “got undervalued at the March lows,” it never became “dirt cheap.”
5. Sentiment? Bullish. Davis says that past secular market lows were accompanied by an extreme amount of pessimism, and his indicators show a similar extreme existed earlier this year.
6. Stock vs cash reserves? Neutral. While foreign investors have record-low stock holdings, according to Davis, household holdings — while low — are not nearly as low as they were at prior secular bear market lows. And institutional investors’ stock holdings “are only down to an average weighting historically.”
7. Oversold longer-term market condition? Neutral. Davis believes that, though many of the excesses of the real-estate bubble have been worked off, some still exist. That’s particularly a problem, he says, given that the stock market bubble of the late 1990s never completely deflated either. “As we saw in Japan after 1990, a double-bubble in stocks and real estate leaves it difficult to put ‘humpty dumpty’ together again.”
According to Davis, there is but one of the seven foundations of a major secular bull market in place. Three are neutral, three are bearish.
Conclusion: This is a Cyclical Bull market . . .
>
Source:
Secular bear, cyclical bull
Mark Hulbert
MarketWatch Jul 30, 2009, 12:01 a.m. EST
http://www.marketwatch.com/story/is-the-bull-market-cyclical-or-secular-2009-07-30
July 30th, 2009 at 3:30 pm
I haven’t read the whole article but a couple thoughts:
1. The only thing that is bullish is sentiment. I could be mistaken but haven’t extended bears ended with longer lasting pessimism than what we saw at the lows? I believe the AAII showed 6% bulls at the March low, which is clearly extreme, however it was showing 80% by June, just a few months later now roughly neutral. It seems like the same things can be found in other sentiment readings such as the VIX or put/call ratio. I’m curious why he rates sentiment bullish while allocation to stocks neutral b/c there was a big spike to cash at the March low, but like sentiment extreme, that was short lived also.
2. I’m curious when the debt loaded is used above in relation to GDP, what is the GDP figure that is being used?
3. Cheap stocks. I had to wonder about this as well after reading JG’s most recent. Are investors so smart today that they picked up stocks in large blocks at the March/April period because it was the first time in a decade they were actually cheap? I don’t think so.
In any event, good post and something to think about. A quick glance seems to advise equity holders to lighten up here if they haven’t already taken some profits or at least to buy protection if they don’t want to sell.
July 30th, 2009 at 3:41 pm
The article is so refreshing in that it is a well thought out piece…. Right now, the markets are so giddy that most CNBC debates are really divided into two camps: bullish and ultra-bullish. Kind of reminds me of a great quote:
“There is no greater joy than soaring high on the wings of your dreams, except maybe the joy of watching a dreamer who has nowhere to land but in the ocean of reality. ”
http://www.despair.com/delusions.html
HCF
July 30th, 2009 at 3:41 pm
It seems to me the as yet undeflated debt load trumps all the others, as it has the capacity to forestall demand and in so doing to prevent the use of, if not the offer of, cheap money.
July 30th, 2009 at 3:53 pm
geez, lb, you are taxing my brain with that sentence.. sighing (not in pleasure). it is better in the triple reading, i’m sure.
July 30th, 2009 at 3:55 pm
Taxes – no where to go but up to sustain our bloated government. Bearish
Regulation – Tons in the pipeline. Bearish
Interest Rates – no where to go but up. Bearish
Demographics – Retiree Bulge. Bearish
July 30th, 2009 at 3:56 pm
lefty,
I agree, and notice it is the MOST bearish of any of his 7. I think the Ned Davis stuff in general is very good, unfortunatley my firm has a knack for using info from them as a manipulation tool for people that don’t know anything and aren’t willing to look and learn for themself.
July 30th, 2009 at 4:01 pm
Pension Fund Liquidations: Bearish
@Karen: That sentence was Hofferish, in the extreme, I suppose. Just curious… what would make you sigh…?
July 30th, 2009 at 4:05 pm
no links, no Hofferish
July 30th, 2009 at 4:07 pm
I’ll second population demographics as a bearish indicator. With a rapidly aging population, ex-immigration that is now slowing dramatically, where is the secular growth to come from? What rarely gets mentioned is the virtual one-to-one correlation between Japan’s demographic decline and the economic malaise of the last two decades.
July 30th, 2009 at 4:08 pm
lftbck @ 3:41-
well said I think
July 30th, 2009 at 4:09 pm
Twins doing a synchronized swimming routine: Bullish
July 30th, 2009 at 4:10 pm
isn’t the Ned Davis Research conclusion obvious – just turn off your CNBC
…this is not the start of a secular bull, it is a cyclical bull rally in a secular bear market that started around 9 years ago
…stocks were never that cheap, perhaps fair valued at best
….people were scared at the 666 bottom, but most did not capitulate
July 30th, 2009 at 4:12 pm
“Disney Profits Top Forecast but Revenues Falls Short”
Hmmm, haven’t we seen this movie before?
HCF
July 30th, 2009 at 4:13 pm
@cv -
where do you see the twins doing synchronized swimming?
July 30th, 2009 at 4:14 pm
so this maybe dumb q time…but whats the difference between market types?
July 30th, 2009 at 4:23 pm
I hope I don’t sound too stupid but what the fuck is the difference between a secular bull/bear market and a cyclical bull/bear market? Is what he said good or bad? To me secular vs cyclical is like thee vs thou.
July 30th, 2009 at 4:24 pm
willid-
http://en.wikipedia.org/wiki/Secular_bull_market
July 30th, 2009 at 4:28 pm
hobo – time frame
July 30th, 2009 at 4:33 pm
@dh
“secular” is over a much longer macroeconomic landscape…The consensus viewpoint is that they can last, on average, 18 years or so…Many think this “secular” bear we are in started in 2000…
“cyclical” is more closely related to the breath of business cycles…
That’s it in 2 sentences…
July 30th, 2009 at 4:35 pm
Weak close. This rally will forever be known as the “nudge-nudge-wink-wink” fake rally based on nothing but the BELIEF the Feds will do everything to prop all assets for as long as it can.
July 30th, 2009 at 4:39 pm
cvienne Says:
July 30th, 2009 at 4:33 pm
@dh
“secular” is over a much longer macroeconomic landscape
“cyclical” is more closely related to the breath of business cycles…
That’s it in 2 sentences…
reply:
—————–
Secular is the big cycle and cyclical is the little cycle / set of cycles within the big deal. OK. Thanks, much.
Now, does the secular bear last 18 years down followed by an 18 years up secular bull, or are we at the midpoint now and ready for a bigsassed rally up?
July 30th, 2009 at 4:41 pm
good opportunity to sell into “strength”…..if you have any long positions that you want to shed
July 30th, 2009 at 4:45 pm
well is this market a business cycle? or is this market the result of business stupidity?
July 30th, 2009 at 4:48 pm
karen:
I thought lb sentence was perfectly clear. But then, I read a lot of British lit
So am I correct in interpreting thee article-in-chief to mean that this rally is just a bump on the way down?
July 30th, 2009 at 4:48 pm
No, it is just a market climbing a wall of worry; I mean wall of crap.
July 30th, 2009 at 4:49 pm
“Secular is the big cycle and cyclical is the little cycle / set of cycles within the big deal.”
Or as the Ptolemies might have said, “secular” is the rotation of the sun and the stars around the earth; “cyclicals” are the epicycles that are necessary to marry theory to observation as they are continually out of whack because the theory has as its fundamental premise a falsehood.
July 30th, 2009 at 4:54 pm
@dh
Pull up a 20 year monthly chart on any equity or equity index you want and you will have your answer.
July 30th, 2009 at 5:12 pm
This rally is making it very hard for me to continue with my core holdings. I sold about 1/3 of my total holdings after the first 20 percent of this leg up (yep, I left a lot on the table). The gains since then have been incredible. I really don’t want to sell… I’ll have to think harder about this.
Anyone else have an opinion?
July 30th, 2009 at 5:14 pm
@matt: I’d like to pull the trigger as well and go all cash and eventually all short but the monkey business is keeping me from doing so. I imagine MANY others feel the same way and are sticking with some of their long equity holdsings for that very reason.
July 30th, 2009 at 5:20 pm
@ Matt:
I think you just set some trailing stops on your positions at whatever “number” is good for you and then just let it ride, and sleep tight. Easy breezy.
That way, its the market telling you to get out, its not “you” telling anything… which I find to be a rather peaceful state of mind.
July 30th, 2009 at 5:21 pm
great article over at the Think Tank by Jack Mchugh-
http://www.ritholtz.com/blog/2009/07/settling-for-less-in-the-new-normal/
excerpt-
PIMCO’s Bill Gross would also like to waggle a finger at those who think global warning better describes the current investment climate. Though many investors may think they’ve found a “love potion” in the frisky stock market action since March, Mr. Gross warns folks not to be led astray by hope. He contends that our leveraged economy was structured to live in a world of 5% nominal GDP growth, a rate he sees as unattainable in the “New Normal”. Returns on risk assets will suffer in this environment, Gross says, and those who hope all the government’s efforts at stimulus will return the U.S. economy to status quo ante are bound to be disappointed.
There are what he calls “quality constraints” (i.e. collateral haircuts and actual down payments!) on most of these federal lending programs, and he sees nominal GDP settling in around a sub par 3%. He wraps up by saying that “a 3% nominal GDP ‘new normal’ means lower profit growth, permanently higher unemployment, capped consumer spending growth rates, and an increasing involvement of the government sector, which substantially changes the character of the American Capitalistic model”. Rather than a love potion, it would seem Doctor Gross is prescribing a dose of the Cod Liver Oil remedy of past generations. Well, just as Yahoo’s shareholders realized today, I guess we’ll all have to settle for less in the “new normal”.
as I have been saying to anyone who may care- just maybe- this is as good as it gets-
for the forseeable future anyway
July 30th, 2009 at 5:21 pm
Sentiment? That’s it???? Something the gov and MSM can manipulate like crazy?
Works for me. Please pass the caviar.
July 30th, 2009 at 5:38 pm
from Bloomberg-
U.S. banks paid $32.6 billion in bonuses in 2008 while receiving $175 billion in taxpayer funds . . .“When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well,” Cuomo’s office said in the 22-page report. “When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.”
man- you have to love America- failure not an option- and excellent compensation- doesn’t even matter if you ran your company into the ground
July 30th, 2009 at 5:41 pm
@ahab: Well, failure IS certainly an option for those unconnected and unimportant (e.g. small business, J6P, etc.). Welcome to BananAmerica, biggest crony faux-capitalist country in the world.
July 30th, 2009 at 5:46 pm
SPX 666 was the low for Obama’s first term. But I think we’ll see it again eventually (or at least the $SPX/$CRB ratio of 3.2 that was achieved on March 9th).
July 30th, 2009 at 5:52 pm
@ahab
forget about just the “bonuses”…Imagine what the same are making frontrunning “swing trades” using leverage guaranteed by taxpayer money…
I wonder what the “ratio” of bonus payments to actual loans initiated during this period was…
July 30th, 2009 at 6:17 pm
This is probably the best 6 mos ever for financial service employees, the stim pack has definitely found its way to NYC and Charlotte. Hamptons rentals will bounce back in 2010!
July 30th, 2009 at 6:19 pm
cvienne, talking about ratios MER lost 500K per employee and yet paid a bonus of 60K per employee, without the various US bailouts there would have been no bonuses
Banks Paid $32.6 Billion in Bonuses Amid U.S. Bailout (Update3)
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By Karen Freifeld
July 30 (Bloomberg) — Citigroup Inc., Merrill Lynch & Co. and seven other U.S. banks paid $32.6 billion in bonuses in 2008 while receiving $175 billion in taxpayer funds, according to a report by New York Attorney General Andrew Cuomo.
Cuomo analyzed 2008 bonuses at nine banks that received Trouble Asset Relilef Program financing from the U.S. government. New York-based Citigroup and Merrill, which has since been taken over by Bank of America Corp., received TARP funding totaling $55 billion, Cuomo said.
“When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well,” Cuomo’s office said in the 22-page report. “When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.”
The study, called “No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture,” comes as Congress and the Securities and Exchange Commission examine whether to limit the compensation paid to top corporate executives.
“One senior bank executive noted recently that individual compensation should not be set without taking into strong consideration the performance of the business unit and the overall firm,” according to the Cuomo report.
Upside, Downside
“As this executive put it, ‘employees should share in the upside when overall performance is strong and they should all share in the downside when overall performance is weak.’’ But despite such claims, one thing is clear from this investigation to date: there is no clear rhyme or reason to the way banks compensate and reward their employees,” the report said.
Wall Street firms’ pay has traditionally been tied closely to performance of the companies, which is why employees receive most of their compensation at the end of the year after final results are known. Depending on seniority and performance, bonuses for traders, bankers and executives can be a multiple of their salaries, which range from about $80,000 to $600,000.
Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. paid out a total of $18 billion in bonuses in 2008 while receiving a combined total of $45 billion in taxpayer dollars through TARP. Together, the three firms earned $9.6 billion last year, Cuomo said.
Top Recipients
The top 200 bonus recipients at JPMorgan Chase & Co. received $1.12 billion last year, while the top 200 at Goldman received $995 million. At Merrill the top 149 received $858 million and at Morgan Stanley, the top 101 received $577 million. Those 650 people received a combined $3.55 billion, or an average of $5.46 million.
JPMorgan Chase had 1,626 employees who received a bonus of least $1 million last year, more than any other Wall Street firm, according to the report. Goldman Sachs had 953 employees who received $1 million or more in bonuses, while Citigroup Inc. had 738, Merrill Lynch & Co., 696, and Morgan Stanley, 428. Bank of America Corp. had 172, while Wells Fargo & Co. had 62.
Kristin Lemkau, a spokeswoman for JPMorgan Chase, Mark Lake, a spokesman at Morgan Stanley, Jeep Bryant, a spokesman for Bank of New York Mellon, and Michael DuVally, a spokesman at Goldman Sachs, all in New York, declined to comment. Carolyn Cichon, a spokeswoman for State Street, and Citigroup spokesman Stephen Cohen didn’t immediately return a call for comment.
Pay for Performance
Melissa Murray, a spokeswoman for Wells Fargo, declined comment on the report itself. She said the company has a “pay- for-performance” culture where staff are compensated on individual and business performance. “We implemented a say on pay policy this year and our shareholders approved the compensation of the Company’s named executives,” she said.
Citigroup and Merrill Lynch suffered losses of more than $27 billion at each firm, the report said. Yet Citigroup paid out $5.33 billion and Merrill $3.6 billion in bonuses.
“We have put forth guidelines to better link pay to long term performance and effective risk management,” said Travis Larson, a spokesman for the Washington-based Securities Industry and Financial Markets Association. “That includes the ability to recover bonuses from employees if those bonuses turn out later to be improper.” The industry association put out its guidelines in June and member firms are working to incorporate them, he said.
Wall Street Pay
The report shows the more bonus-laden compensation styles of the four major Wall Street banks compared with retail banks such as Wells Fargo & Co. and Bank of America that employ far more people whose main compensation is typically salaries.
Bonuses averaged $160,420 for Goldman Sachs’s 30,067 employees, compared with $13,580 at Bank of America, employer of 243,000 people, the report said. Bonuses averaged $95,286 per employee at Morgan Stanley, $61,017 at Merrill Lynch and $38,642 at JPMorgan Chase & Co., which operates large retail and investment banking units.
At Wells Fargo, the fourth largest bank holding company after acquiring Wachovia Corp. last year, bonuses averaged $3,479 for the company’s 281,000 workers, according to the report.
Goldman produced the most in earnings per employee — $77,228. In contrast, Merrill had the worst revenue performance, losing $467,797 per employee in 2008 while handing out an average bonus of $61,017, the third highest payout, the report said.
“The data that the attorney general has extracted is far more granular and detailed than anything that we might get from financial filings from these firms, so it’s extremely interesting in that respect,” said Paul Hodgson, a senior research associate for executive compensation at The Corporate Library in Portland, Maine. “The SEC may have a stronger platform to argue for disclosure of compensation for employees that earn in excess of a certain amount.”
TARP Pay-Back
Goldman and Morgan Stanley, credit-card lender American Express and custody banks State Street Corp., Bank of New York Mellon Corp. and Northern Trust Corp. paid back a combined $30 billion in TARP funds on June 17, in a step toward eliminating government restrictions on lending and compensation. JPMorgan Chase paid back $25 billion.
The U.S. House Financial Services Committee, led by Massachusetts Democrat Barney Frank, approved legislation two days ago that would let regulators ban incentive pay at banks and give shareholders a vote on bonuses in response to public outrage over Wall Street pay.
The bill, which needs approval from the House and Senate, would allow banking agencies and the Securities and Exchange Commission to bar compensation practices that push financial companies to take “inappropriate risks.”
Egregious Behavior
“Attorney General Cuomo’s report on executive pay at companies receiving taxpayer bailouts is shocking and appalling,” said House Committee on Oversight and Government Reform Chairman Edolphus Towns, a Democrat from New York. “Companies that only months ago were facing bankruptcy and sought the help of the Federal government are now paying out billions in compensation — and in some cases without reimbursing taxpayers. This egregious behavior proves that Wall Street still doesn’t get that times have changed and the old way of paying executives is long gone.”
Towns said in a letter to Cuomo that he would hold a hearing after the August recess to examine the Obama administration’s reforms in pay practices at companies that received TARP funds.
In October, industry veterans including John Gutfreund, president of New York-based Gutfreund & Co. and the former chief executive officer of Salomon Brothers Inc., said Wall Street would insist on paying bonuses in the face of the worst financial crisis since the Great Depression, a taxpayer bailout and mounting political outcry.
Odds that Wall Street will forgo the payouts are “slim to none,” Gutfreund said in October. “They’re going to have to be a little bit sensitive because politicians, whether they like it or not, are part of their lives now.”
To contact the reporter on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net.
Last Updated: July 30, 2009 16:09 EDT
July 30th, 2009 at 6:29 pm
mannwich-
a quote from the link you posted-
“We did not foresee, nor did anyone else foresee, the collapse of the real estate business and the concurrent collapse of the lending industry,” McCoy said. “They’re caught and we’re caught.”
wow, really- I knew it was coming- anybody else???- the world is inhabited by buffoons
July 30th, 2009 at 6:30 pm
We really have a rotten economic system, the same bankers who brought us to the verge of collapse continue to harvest unimaginable pay – coming from our government thru secret Sunday night deals while millions of people have lost their jobs and their homes. Yet the workers are villified as “overpaid UAW yaddayadda and the evicted homeowners are called reckless but the conniving wheeler-dealers are kept whole.
Ron Paul would have given us the change we really need, instead we kick the can down the road while the problems fester.
July 30th, 2009 at 6:35 pm
Funny, I never even considered the secular bear might be over until I read this piece.
July 30th, 2009 at 6:46 pm
This article explains very well about profits made by Goldman by EX Goldman. Basically regulators, Fed, Govt and Media everyone wants stock market to go up. They are ready to anything to achieve that without showing any spirit and honesty.
http://www.motherjones.com/politics/2009/07/how-you-finance-goldman-sachs%E2%80%99-profits
July 30th, 2009 at 6:50 pm
surreal-
I am thinking- that this is the worst mess this country has been in- possibly even including the great depression- it will not be a V shaped recovery- we don’t have laid off factory workers waiting for the assembly lines to start running again- a la 1980’s-
it’s ugly- and I don’t see where prosperity will come from-
the stock market has become nothing more than a frenzy of speculation- people are more than ready to bail at any moment-
that’s why I think that when this ship goes down- it goes down fast- everyone running for the exits at the same time-
because the believers are all gone- for good reason
July 30th, 2009 at 6:50 pm
I wonder if quantitative high frequency computer trading will affect/alter these historical secular bull/bear cycles in the long term. I had always suspected we’d see more volatility but it looks like the computers have created even more volatility. How that changes going forward, I don’t know. By the way, I’ve always felt the VIX was a poor measure of volatility because it only measures downside volatility (or fear). There can be fear to the upside as well by those that fear they are missing the rally and pile in late.
July 30th, 2009 at 7:08 pm
Meanwhile, from ex-GS Managing Director……
http://www.zerohedge.com/article/former-goldman-managing-director-how-you-finance-goldman-sachs%E2%80%99-profits
July 30th, 2009 at 7:17 pm
@dead hobo (and others) -
re secular and cyclical markets
just stumbled across this discussion from Danielle Park
http://www.financialsense.com/Market/wrapup.htm
July 30th, 2009 at 7:21 pm
@matt, mannwich (and others) -
Danielle articulates some guidelines as well
http://www.jugglingdynamite.com/blog/_archives/2009/7/24/4266012.html
July 30th, 2009 at 7:25 pm
“@Karen: That sentence was Hofferish, in the extreme, I suppose.”
I think, Hoffer would rather, his style, be referred to as, Hoffer-esque and not Hoffer-ish.
And, I like Hoffer’s style….
July 30th, 2009 at 7:31 pm
Great piece and I agree with Ned’s analysis. In March, it appeared that the markets began to rally due to oversold conditions. Since, its mainly rallied on corporations beating their low-balled estimates by cost cutting. This can’t continue and the market is no longer oversold.
July 30th, 2009 at 7:34 pm
Mannwich,
It sounds like GS and JPM bets are going well but are more concentrated since they’re the last 2 left at the table, concentrated with US capital.
And if the bets go bad the US has to re-fund them because of – ahem “systemic risk”!
July 30th, 2009 at 7:35 pm
@AT -
…no links, no Hoffer
July 30th, 2009 at 7:37 pm
from mannwich’s link from ZH article from a former GS employee-
“Sure, the crisis may appear to be over because the major banks of Wall Street are speculating well with government subsidies. But that’s a dangerous conclusion. It doesn’t mean that finance firms could thrive without the artificial, public-funded assistance. And it certainly doesn’t mean that consumers are any better off than they were before the crisis emerged. It’s just that they didn’t get the same generous subsidies.”
sure makes me feel confident about America’s future-
who ever engineered this and allowed the variances to GS’s capital requirements should be brought up to testify before congress-
scam of scams
July 30th, 2009 at 7:40 pm
@jc-
i think that the “US has to refund them” because they were asked/allowed to this dirty work by the US government and overseen by Bubbles himself
….act as the shadow banking system
create all of the credit “money” out of thin air – doin’ the feds dirty work in spades@congress.gov
July 30th, 2009 at 7:53 pm
I agree with Tom K. The idea that the secular bear market could possibly be over is just so absurd it’s not funny. Really. It doesn’t take much analysis to see how that’s ridiculous.
That anybody is trying to make that argument is amazing and immediately discredits them IMO. We could call this a cyclical bull. It’s hard not to after a 50% rally that’s based on an inventory bounce (i.e. cyclical factors). And it’s one that’s probably unlike any other since the big rally after the ‘29 crash. It was (is) low volume, without large sponsorship, and manic in character.
You simply can’t look at all the economic headwinds we have (debt, structural job market problems, demographics, did I mention debt?) and think that we’ve got anything more than a muddle through period ahead at best that will have some cyclical bounces and drops. If we’re lucky they don’t head downhill ala the Nikkei of the last 2 decades.
I guess this argument has to be hashed out over and over again to dispel the B.S. that’s coming from the perma bull camp, to keep some innocents from being mauled.
July 30th, 2009 at 8:09 pm
Wes,
Let me rest on this grassy knoll and contemplate that.
July 30th, 2009 at 8:15 pm
Pretty good stuff there from Ms. Park. Even handed, level headed. Really good. I’ll have to bookmark her blog and check it out.
July 30th, 2009 at 8:18 pm
@jc-
enjoy….
the grassy knoll is a fun place to hang out sometimes
visualize an inverted pyramid of credit and credit = money = liquidity
July 30th, 2009 at 8:19 pm
Danielle is a smart cookie
rational and objective
hmmm, who else do we know like that?
July 30th, 2009 at 9:13 pm
Wes-
Ok. You’re correct, obviously, I should have included a link, to connote the style relating to the Hoff. Therefore, I found, admittedly, this very weak link with a discussion of the relative strengths of the suffix -esque vs. -ish. As in, Hofferesqe v. Hofferish.
The suffix “-esque” means “in the manner or style of” while the suffix “-ish” means “characteristic of.”
http://answers.yahoo.com/question/index?qid=20070131130016AAQ1OHM
BTW, I like MEH a lot, so this is all in good fun, and I hope he appreciates our adoration of his style.
July 30th, 2009 at 9:19 pm
So, I’m reading some “news” and I understand there’s some GDP numbers coming out tomorrow? This is how much I’ve distanced myself from CNBC and other news outlets…
After this kind of run, I’m expecting a HUGE upside suprise tomorrow. Anything less than a massive upside surprise will send this market lower.
July 30th, 2009 at 9:25 pm
at@9:13-
now, that is Hoffer-esque
sweet………
July 30th, 2009 at 9:28 pm
…oh and imitation is sheer flattery
gotta love the man
MEH, that is
July 30th, 2009 at 9:33 pm
Just popped into this thread and am laughing uproariously, between Wes’s “..no links, no Hoffer” and Andy’s “Hoffer-esque ” !!!
July 30th, 2009 at 9:34 pm
can we pretend it’s friday? i need to post music..
July 30th, 2009 at 9:35 pm
I, did not, realize, that, MEH, had his own style, please, enlighten me-
http://clusty.com/search?input-form=clusty-simple&v:sources=webplus&query=style
July 30th, 2009 at 9:37 pm
perfect ahab, perfect
July 30th, 2009 at 9:39 pm
i’m choking!
July 30th, 2009 at 9:39 pm
Karen – me too…laughing hilariously
July 30th, 2009 at 9:48 pm
from gladiator-
“are you not entertained”
July 30th, 2009 at 9:49 pm
I hope DL will engage me in dialogue at some point.. seeing 666 again with our monetary policy?! have nothing i’ve posted ever reverberated?!
July 30th, 2009 at 9:52 pm
better spoken, have all my posts reverberated no meaning?! laughing.
July 30th, 2009 at 9:53 pm
@Andy T 9:19 pm
“After this kind of run, I’m expecting a HUGE upside suprise tomorrow. Anything less than a massive upside surprise will send this market lower.”
I would have thought that the absence of any sort of attempt to “cushion the blow” by the Powers-That-Be would have been confirmation that the GDP numbers will be at a minimum “above expectations”, and probably show a (real or otherwise) gain that can be trumpeted as the Second Coming of the Great Bull Market Rally by the combined forces of the clueless MSM and the assembled dissembling forces of the Federal gummint.
I find it interesting, in a morbid kind of curiosity, to speculate about how we will eventually deleverage … Uncle Sam defaults, bankster over-leveraged explosion/implosion, or whether Bernanke and Geithner will truly be able to dance the Japanese waltz, sliding us lower over decades (I really don’t think they can dance that well, and in any event, there will need to be a change of dance partners somewhere along the way).
July 30th, 2009 at 9:57 pm
karen: Are you having a little drink? You grammar doesn’t seem quite as polished as usual.
July 30th, 2009 at 10:01 pm
contant-
I voiced the same question on another thread- as follows-
___________________________________________-
constant/cvienne-
cvienne- good point- noise possibly- however-
if the number comes in better than expected- and the market does nothing- that would indicate to me that we have hit a possible top-
no?
and if the number is worse than expected-
then a sell off could follow if market players were figuring in a BTE number-
no?
July 30th, 2009 at 10:04 pm
Oh, Mike, did you see my correction? i attempt a stalwart pose, no matter how wavering in real life : )
July 30th, 2009 at 10:14 pm
here’s a good take on today’s action- Jesse’s Cafe Americain-
http://jessescrossroadscafe.blogspot.com/2009/07/sp-futures-hourly-chart-updated-at-3-pm.html
and a good chart of today’s action
http://3.bp.blogspot.com/_H2DePAZe2gA/SnH0H88UvqI/AAAAAAAAJdw/y4ZQIrvyum4/s1600/sphourly2.PNG
any observations??
July 30th, 2009 at 10:15 pm
Karen @ 9:49
O.K., but look at my alternative scenario, which is that we will again see the $SPX/$CRB ratio of 3.2 that was achieved on March 9th. Presumably you’d agree that, a few years from now, the SPX/gold ratio will be lower than it is now. I think the same will be true of the $SPX/$CRB ratio.
July 30th, 2009 at 10:16 pm
ahab-
I’m with AT, it’s gonna take a good number to move it higher and get it to stick.
Today had the markings of a Distribution Day. The pop and drop, above average volume and little net movement to show for it. And the stick watchers will point out that spinning top.
But, WTF, the algo computers are the ones that are really gonna decide what happens.
(BTW, I’m trying to use more commas, so I fit in here. Is it working?)
July 30th, 2009 at 10:24 pm
DL, you know i am a sucker for ratio charts.. prefer $crb:$spx on a monthly… hello august. : )
July 30th, 2009 at 10:29 pm
stillaway-
no doubt- I agree-
that the algorithms make the decision on market direction is unsettling – I wonder- if that human emotion is involved in chart following and understanding direction- whether it still applies any more- now that computers are doing the trading-
also- BTW- comma’s are cool but I prefer dashes myself
July 30th, 2009 at 10:29 pm
The $SPX/$CRB ratio was 7.7 in July of ’99; it was 6.2 in December of ’01, 5 in January of ’07 and is 4 now. It’s no coincidence that the Fed has been easy over the last 10 years. It’s only a matter of time before the ratio drops below the level (3.2) that was hit on March 9th.
July 30th, 2009 at 10:34 pm
andy, come on, pipe in, it’s not even close to your bedtime… tell me how wrong i was to reengage my oil short for a day or two : )
July 30th, 2009 at 10:40 pm
marc faber on China’s GDP. He don’t buy it.
http://marcfaberchannel.blogspot.com/2009/07/marc-faber-china-had-over-investment.html
July 30th, 2009 at 10:43 pm
@Andy
I’ve been looking more closely at your last (very detailed) chart…
FWIW – I think slide #9 is relevant…It fits the pattern most that I’m seeing right now (opening triangle)…
I like the pattern of the May 6th high through the June 1-11 plateau (same line extended was reached today before the pullback)…
If the June 1-11 pattern holds, we have 8 more days to joust around bumping it up to 1008 (which might be reached on 8/11 or so…I wouldn’t be surprised to see a couple of headfakes (but nothing major) in the process because some are clearly nervous here…
What’s interesting about 1008 (as you know is it’s an important FIBO number – and – it would bump into a resistance line trending down from the closing high last May…It’s hard to see that unless you draw a parallel line down from the all time high through where we recently zoomed past 960…
July 30th, 2009 at 10:50 pm
Japan’s Jobless Rate Rises to Six-Year High, Prices Decline
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHVXW7wPdI34
….and yet the NIKKEI flying upward again today. It seems our la-la land “markets” closely resembles theirs in many ways.
July 30th, 2009 at 10:52 pm
…and as for “clunkers”
U.S. ‘Clunkers’ Auto Program Suspended, Senator Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=au8ruz5HPu70
July 30th, 2009 at 10:55 pm
@cvienne: You, beat, me, to the punch. I laughed, out loud, when I read this, headline……
http://www.huffingtonpost.com/2009/07/30/cash-for-clunkers-to-be-s_n_248304.html
July 30th, 2009 at 11:00 pm
…dammit Joe…I thought we appointed a czar to make sure things ran smoothly!
Convene all my CZARS in the backlawn next week for a beer (&Buckler) so we can discuss…
July 30th, 2009 at 11:02 pm
community organizing apparently ain’t so easy a caveman can do it…
July 30th, 2009 at 11:03 pm
@ I-Man –
>>I think you just set some trailing stops on your positions at whatever “number” is good for you and then just let it ride, and sleep tight. Easy breezy.
>>That way, its the market telling you to get out, its not “you” telling anything… which I find to be a rather peaceful state of mind.
sorry for the late response, I just got here. That’s the best advice I’ve gotten from this group. It has seriously improved my frame of mind. I just got stopped out on one of my positions, after a big and sudden drop. I’m relieved.
Thanks.
July 30th, 2009 at 11:06 pm
@cvienne: As usual, slick-sounding plans, but no substance or thought (those pesky details) behind it. Move along. Nothing to see here. And how can they “run out of money” to fund the program when they can just print at will? That’s what they’re doing with everything else. Maybe the Chinese are finally digging in here?
July 30th, 2009 at 11:06 pm
pretty good article re GS- pretty evenhanded- not an apologist- explains the culture pretty well though-
http://epicureandealmaker.blogspot.com/2009/07/fish-stinks-from-head.html
July 30th, 2009 at 11:09 pm
hat tip Karen by the way- for recommending the site a few weeks back- doesn’t post every day- but the stuff is pretty good
July 30th, 2009 at 11:13 pm
More on the now-defunct “cash for clunkers” program. Looks like a clunker of a program. Hardy, har, har….
http://www.zerohedge.com/article/cash-clunkers-part-ii-it%E2%80%99s-all-clunked
July 30th, 2009 at 11:43 pm
Oh good God. Can we just have a regular friggen market for crying out loud! The meddling and endlessly complicated web of incentives, disincentive, tax credits, tax breaks, etc., etc. have made everything just SO F#CKED UP! When will we EVER wean ourselves from this B.S.? The more we do, the more we do. It’s as bad as the damned tax code. Before you buy something you’ve got to run out and research what Uncle Sam wants you to do and who he’s throwing money at, and for what. AHHHHHH!
July 30th, 2009 at 11:44 pm
OK, I feel better now.
A little, anyway.
July 30th, 2009 at 11:46 pm
Ha. Karen. You know how to “engage” me….
I don’t mind the oil short at all right now, but must admit the whipsaw action the last several days is very strange…
To quote John Lennon:
“Nobody told me there’d be days like these
Strange days indeed, strange days indeed.”
I borrowed that to title my last report BTW.
These are truly strange days…..
I see Sep CL trading 67.50 after hours and I must admit to being wildly bearish, but if this thing takes out 69 bucks, then I’m really lost with it….FWIW.
July 30th, 2009 at 11:48 pm
Night owls
July 30th, 2009 at 11:54 pm
@cvienne. Yeah, the market had a “completed” wave feel to it this morning, therefore I became short term very bearish (i.e. next 5-7 days). Similar to the CL note above, though, if takes out today’s highs then I’ll start blowing rasberry bubbles like a baby in my chair…..totally lost.
Wouldn’t be the first time.
July 30th, 2009 at 11:57 pm
Looks like CARS is not officially suspended but is being reviewed.
My take is it was expected that so many transactions would be to the point the funds were used up in a week, as is potentially the case, and now the gov’t/auto industry is already having fears of headlines like “Car sales plummet again, no demand without gov’t subsidies”
July 30th, 2009 at 11:58 pm
I smell a big ramp higher at the open tomorrow on “better than expected” GDP numbers. This rally ain’t done yet.
July 30th, 2009 at 11:59 pm
@Cohen: The minute the gov’t dips a toe outside of our markets the whole thing will fall apart, so they’ll never get out until they’re forced out by some extraneous, “unforeseen” force.
July 31st, 2009 at 12:03 am
@cvienne & Manwich
So how much of GDP does the auto industry represent? Is it enough for a higher reading?
@cvienne
7/28 on the S&P was not a hanging man. The shadow was 5.9x the size of the candle body. Now 7/29 was a hanging man because the shadow was 2.4x the size of the candle body. 7/30 opened in the body of the previous day and closed higher which probably puts the reversal on hold for a few more days.
July 31st, 2009 at 12:06 am
in re: CARS….the Congress would be BAFOONS to NOT expand that program….I mean holy shit….it’s probably the ONLY program they’ve come up with in two years that has had any meaningful impact on the real economy….and they only tossed 1BN at it????
They need to introduce A LOT more programs like this….something to get real people to start spending the real dollars they’re currently hoarding.
July 31st, 2009 at 12:06 am
When auto sales fall off a cliff again after this B.S. program is done with, what we the spin be then? It’s just such crap.
July 31st, 2009 at 12:08 am
@AmenRa: Not sure sure, but I think the cash for clunkers program could vastly help the GDP numbers in the 3rd and 4th quarters. I would argue that the GDP number is largely irrelevant given everything else that’s happening, but what do I know? I’m simply not buying this “smoke & mirrors” campaign. They haven’t really done anything to fix the problems that we face as a nation. I imagine they feel these problems are too intractable for them to solve AND get re-elected, so we get what we get – can-kicking and new drapes on the broken windows.
July 31st, 2009 at 12:08 am
@Mannwich: In general i’d agree with you but with a finite amount of qualifying cars im sure they’re acutely aware of what pulling forward too much demand would look like in the future
July 31st, 2009 at 12:10 am
@AT: Agreed, but only assuming the execution of said plans are competently carried out without abuse and fraud. As we’ve seen recently, this is expecting A LOT. I do agree, however, that more needs to be done to get the actual economy going on Main Street, as opposed to throwing Monopoly money at Wall Street so they can gamble it in the markets and “earn there way” to solvency.
July 31st, 2009 at 12:13 am
@AT: And by the way, I’m one of those people who is “hoarding” cash, but with good reason. We don’t feel the economy is on sound footing at all. Others have to feel the same way and will continue to hoard cash no matter what the feds do. One of our cars (‘01 Toyota Corolla) is paid for and the other one (‘05 Subaru Outback) will be paid off in 6 months. Both cars run like champs and we have NO plans to replace them no matter what the feds do. We could get 5-7 more years or more out of them, I’m thinking.
If the feds really wanted us to spend our money, they’d work at truly solving the problems that we face as a nation instead of this haphazard window-dressing.
July 31st, 2009 at 12:15 am
that’s “earn THEIR way”……getting tired. Hitting the hay. Good night all.
July 31st, 2009 at 12:17 am
Manny – while at my partners parents in Vegas with no computer a couple of weeks ago I read an article in AARP that can tell you how to get a million miles out of your cars
July 31st, 2009 at 12:18 am
Amen Mannwich. All we’re doing is pulling yet more future demand forward. We’ve been doing that to a HUGE degree over the last decade and there’s only so much you can do of that before it’s just not effective. But that’s really all we seem to know how to do since we discovered this magic money machine.
July 31st, 2009 at 12:22 am
As “bailouts” and “stimulus” programs go (and I’m against most of them), the “cash for clunkers” program isn’t so bad. At least it gives (or gave) the average J6P a chance to get in on the gov’t money, assuming his car gets less than 18 mi to the gallon.
July 31st, 2009 at 12:22 am
China to Cut Loans as Stocks ‘Bubble’ Grows, Xie Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=a7cRlynoONbc
July 31st, 2009 at 12:29 am
Manny – good article – what stood out for me was this:
““I think the property and stock markets will come under pressure probably around October time.”
Ties in nicely with the predictions a lot of the folks here have made for the fall.
July 31st, 2009 at 12:31 am
i’m not sure what to make of the cars issue.
Does this mean americans are again making big-dollar purchases (despite other savings rates going up)? Or is this just more fools taking 60 month loans they can’t afford?
Are people this desperate to get rid of their gas guzzlers? We ‘good Amuricans’ can’t quit loving our suvs overnite can we?
July 31st, 2009 at 12:36 am
@gregh: Me-thinks it might be largely the latter. I mean, it’s basically been J6P who has gotten hammered the most in this mess. Even with the gov’t subsidy, can most of these folks credibly afford a new car and car payment right now? Count me as one who is very dubious. The feds can’t make people borrow if most people feel highly financially insecure based on their own less than stellar mortgage, credit card debt and employment situations.
July 31st, 2009 at 12:37 am
gregh.
I interpret it to mean that in that in the last 12 months car buying fell off a cliff. There were actually people hanging around willing and needing to buy a vehicle but held off. Chrysler, and maybe others, have been offering “double cash for clunkers” programs (i.e. steep discounts) to people to trade in some old shit and buy some new shit. Bottom Line: When things get cheap enough (deflation) and people really would like to buy something, then the forces of supply and demand actually begin to work….
July 31st, 2009 at 6:45 am
Nearly everyone on here is smarter, deeper, and likely nicer looking than any of the current Goldman Sucks employees, future hires and alumni that lurk in all the dens in all the G20 halls of finance.
IF ONLY they worked in our treasury department how much better off this country would be
July 31st, 2009 at 8:10 am
gregh Says:
July 31st, 2009 at 12:31 am
i’m not sure what to make of the cars issue.
Reply:
———–
http://www.autoobserver.com/2009/04/goldman-ups-its-2009-car-sales-forecast.html
Excerpt
———-
Goldman Ups Its 2009 Car Sales Forecast
April 23, 2009
Goldman Sachs has increased its forecast for 2009 new vehicle sales from 10 million to 11 million.
******************************
Now, do the math:
250,000 sales * 52 weeks = 13,000,000 annualized rate.
10,500,000 / 52 = 202,000
Implication: a $3500 – $4500 guaranteed trade in on top on massive discounting brought about 50,000 additional sales to the dealers.
-OR-
$1,000,000,000 /50,000 = $20,000 => Uncle Stupid paid about $20,000 per car for the marginal increase in business this week. News reports state he wants to overpay for even more cars.
July 31st, 2009 at 8:22 am
Economically speaking, Uncle Stupid would have created a better economic effect if he bought the cars outright and gave them away.
Assume a cost of $15,000 per car
$1,000,000 / $15,000 = 66,666 cars.
Add 66,666 to the estimated 202,000 sales that would have occurred anyway and the total for the week exceed the actual total by about 18,666 cars. This alternate approach would have reduced inventories even further, added more to the manufacturer contribution margin, potentially put people back to work sooner or given those working something to do, and maybe spurred additional sales.
July 31st, 2009 at 8:26 am
Above, I wrote:
$1,000,000 / $15,000 = 66,666 cars.
I meant:
$1,000,000,000 / $15,000 = 66,666 cars
July 31st, 2009 at 12:46 pm
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