No Financial Villians . . . ?
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“But financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.”
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I don’t really get Megan McArdle when she makes a statement such as the one above. It was in an article critiquing Matt Taibbi and defending Goldman Sachs.
Um, Megan, I am going to have to beg to differ with you. There were many, many identifiable villains who through their own action and inaction, helped create the crisis. There were people who remained slavishly devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable. Some people engaged in utter recklessness when it came to risk management, or such gross irresponsibility that they are not merely morally culpable, but legally also. Then there are those regulators who gave the corporate interests they supervised pretty much everything they asked for. And of course, the people simply trying to grab a free lunch contributed mightily to the collapse.
I have 322 well researched pages that shows as much.
Goldman Sachs was but one of the 5 biggest investment banks that requested from the SEC, and received, an exemption from the net cap rules. This allowed their leverage to balloon from 12-to-1 to as much as 40-to-1.
As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .
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Previously:
Who is to Blame, 1-25 (June 29th, 2009)
http://www.ritholtz.com/blog/2009/06/who-is-to-blame-1-25/
Stop the “Blame Game” ? (June 15th, 2009)
http://www.ritholtz.com/blog/2009/06/stop-the-blame-game/
Source:
Matt Taibbi Gets His Sarah Palin On
Megan McArdle
The Atlantic, Jul 10 2009
http://business.theatlantic.com/2009/07/matt_taibbi_gets_his_sarah_palin_on.php
July 13th, 2009 at 10:11 am
Megan McArdle uses as many facts as Taibbi
NONE
they are both hacks
July 13th, 2009 at 10:11 am
After reading John Mauldin’s Think Tank piece this weekend, another villian has emerged into my top ten…JAPAN. Their shenanigans in the 80s and 90s led to carry trades that distorted global finance. And the bad news gets worse…Japan is in so much trouble, it practically dooms any global recovery hopes.
We actually need a global Fed that knows what they are doing…of course this is an oxmoron on so many levels, I just made myself laugh.
July 13th, 2009 at 10:16 am
Next Goldman Outrage: They may make a fortune issuing even more new debt for municipalities. They can make a fortune helping us dig our own grave.
July 13th, 2009 at 10:17 am
“As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .”
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Beautiful.
July 13th, 2009 at 10:17 am
There are many identifiable “contributors”, yes – but “villians”? This implies evil or criminal intent. Did most of these people individually perform in such that was legally, morally or otherwise different from non-villians, everyday? Normally, if a smaller company fails due to “recklessness when it came to risk management” we call it bad business and a poor investment. We don’t label the management “villians”. Don’t get me wrong, it isn’t too complicated to understand the the causes need to be addressed, but witch hunts and labeling only fulfill an emotional need.
July 13th, 2009 at 10:23 am
“There are many identifiable “contributors”, yes – but “villians”? This implies evil or criminal intent.”
Yes, villains. When committing securities fraud, there is, by definition, criminal intent. Whether we choose to hold them accountable or continue to collectively turn our heads, I think at this point there is no doubt there were crimes committed.
July 13th, 2009 at 10:28 am
McArdle gets her ‘talking points’, fed to her, from Party Central. She is, definitely, one for the List of: “those that should Understand that they can’t be Understood.”
as a +
hack 2 (hk)
n.
1. A horse used for riding or driving; a hackney.
2. A worn-out horse for hire; a jade.
3.
a. One who undertakes unpleasant or distasteful tasks for money or reward; a hireling.
b. A writer hired to produce routine or commercial writing.
4. A carriage or hackney for hire.
http://www.thefreedictionary.com/hack
shill (shl) Slang
n.
One who poses as a satisfied customer or an enthusiastic gambler to dupe bystanders into participating in a swindle.
v. shilled, shill·ing, shills
v.intr.
To act as a shill.
v.tr.
1. To act as a shill for (a deceitful enterprise).
2. To lure (a person) into a swindle.
[Perhaps short for shillaber.]
The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.
http://www.thefreedictionary.com/shill
July 13th, 2009 at 10:31 am
“As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .”
Maybe we’ve given up. Maybe we just don’t have the will or ability any longer.
July 13th, 2009 at 10:34 am
Is she a blonde? That would explain her comments.
July 13th, 2009 at 10:36 am
what a dumb statement, I’m sure most people see Madoff as a villain, just to name one.
July 13th, 2009 at 10:44 am
Hear, hear!!
In other words, everybody’s to blame, so nobody’s to blame. B.S.
There’s nothing the big banks, rating agencies, mortgage lenders, etc. (and some in congress for that matter) want more than for that to become the predominant mindset so that we will just go on our way without holding the most egregiously guilty parties accountable for their irresponsible and reckless actions.
We do indeed need our own Pecora hearings.
July 13th, 2009 at 10:46 am
Isn’t Megan McArdle one of them? Thank goodness she only writes for the Atlantic and doesn’t run the Fed.
July 13th, 2009 at 10:48 am
Barry, this is not a fair thread. If you read the whole article, she is attacking the conspiracy theory (which Taibbi has shamelessly exploited) that Goldman isn’t just *A* villain, it is *THE* villain. IE, if Goldman had never existed, the economic crisis would never have happened. I agree with the notion that Goldman is only a part of the story.
There’s plenty of villains to go around. For one thing, the American people bought into the ideologies you rightly attack. They reelected the embodiment of those values, George W Bush, by a healthy margin in 2004.
Quoting McArdle:
“The more dangerous thing is that Taibbi makes a lot of people feel like they finally understand how they were conned. Taibbi’s facile use of technical terms, his lengthy explanation of little-known secrets that have been endlessly rehashed on every financial page for going on a decade, gives people the illusion that they have acquired valuable information about the financial crisis. They haven’t. They’ve acquired a bunch of disconnected vignettes.
Which is not to say that I disagree with Taibbi’s project. Wall Street is an arrogant beast that more than held up its half of the devil’s bargain which drove us into our current ugly straits. Bankers who thought they were geniuses were deceived by models that assumed away the possibility of a second great depression. They made a terrifying amount of money doing it. And now that the taxpayers have bailed them out at considerable expense, we don’t even get a goddamn fruit basket. Instead they merrily go along paying themselves gigantic bonuses for the singular feat of not driving our economy entirely back to the stone age. I think some populist rage is more than warranted.
But just because Taibbi, or Sarah Palin, has a legitimate grievance, it does not follow that everything they say is thereby legitimate. How you press that grievance matters. And the right way to do it is carefully, honestly, and with a deep respect for the value of knowledge, even if you disagree with those who are purveying it.”
July 13th, 2009 at 10:48 am
In case it’s not clear, I meant to stick Barry’s quote in the front of my post, such as:
“As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .”
Hear! Hear!
I don’t want anybody to misunderstand and think I was agreeing with McCardle.
July 13th, 2009 at 10:49 am
We have plenty of information to start implementing some major policy reforms.
However, we are still waiting on law enforcement to “connect the dots” in an evidence chain that can nab the major players on criminal charges.
Specifically, we know that appraisers fed the bubble by meeting loan amount rather than more “objective” valuations.
We know that there was widespread fraud in filling out loan applications and in representing the actual terms of mortgages to consumers.
We know that the investment banks that securitized MBS paid fees directly to ratings agencies.
We know that the ratings agencies would slap AAA ratings on “transactions structured by cows.”
What we can only surmise is that the investment banks knew that mortgage origination was sketchy and therefore committed fraud in securitizing them. This seems to me a critical step in the chain. Anybody with half a brain already knows what they need to know to form an informed opinion, but due process is more exacting. Email, testimony, memos, banking records.
As sick as I am of hearing about a corrupt system, I’m also getting sick and tired of hearing people say “But nothing will ever come of it, nothing ever does. The rich and powerful always win in the end.”
That’s a garbage mentality. Hold the American system to its principles by participating. Send letters, emails. Make phone calls. Find like-minded friends. Organize or join groups already organizing.
But don’t sit behind your fucking computer bitching about how the world isn’t fair.
July 13th, 2009 at 10:52 am
I suppose this is OT for this thread but as good a place as any:
Social Mood regarding housing:
I have just come across some survey findings in the June 29 Barron’s regarding home ownership so sorry if this is old news for some, I don’t find it crucial to read all of Barron’s as soon as it comes out.
These caught my eye:
1. According to the survey results released by the NFCC, more than half of all American adults, more than 100 million people, no longer believe that home ownership is a realistic way to build wealth.
2. Almost 1/3 of those surveyed, or roughly 72 million people, do not think they will ever be able to afford to by a home.
3. 42% of those who once purchased a home (but no longer own it) do not think they’ll ever be able to afford to buy another one
4. of those who still own a home, 31% do not think they’ll ever be able to buy another home (upgrade existing home, buy a vacation home, etc. )
Now, I have heard many pundits/economists remark over the last several weeks that “home affordability is better than ever”. On one hand, you might look at these survey results and use them as a contrary indicator (right at the bottom for housing, lots of people are negative on home ownership) OTOH, perhaps this reveals a longer term shift in social mood. I think it is more the latter. At the end of the day, many of those that are talking up affordability missed the entire crisis.
I wonder if we will see this in the stock market before the bear market is over: The idea that people would rather not own stocks and they are no longer viewed as a long term wealth builder or a great way to save for retirement or other financial goals.
It is obvious since the March lows that people are still part of a stock ownership society mindset trying to catch the next Citi at .97, etc. I think this is mainly due to the fact that people have been brainwashed with the stocks for the long term and think it’s the only way to build wealth, Russell may explain that they are trying to “cheat time” in many cases. The attitudes disaplayed in the market right now are what you see during Primary Wave 2 rallies.
I’d think when all is said and done with this bear market, if a survey were done on stocks, it would reflect the negative attitude you see in the housing survey above. This shift in social mood should also cause more and more articles to be published like several here recently showing how bonds have outperformed stocks for such a long time, showing how compounding can work from a young age, and showing how buy and hold investing can ruin you, etc. This can also help fuel the demand for treasuries that everyone is so worried about as people sell equity and move to a “safer” alternative.
Thoughts?
July 13th, 2009 at 10:55 am
conspiracy theories become more popular and are more widely believed during extended bear markets. The RS articles popularity should be proof of that, many of the comments on the econ blogs show it too.
Look how many hits zeitgeist has generated on YouTube.
July 13th, 2009 at 10:58 am
OK. I don’t get it.
Are we going to spend the next decade wasting huge amounts of energy to put as many criminals as possible behind bars and argue what action was relatively more ethical/moral than the other or are we going to try to figure out the most efficient way to fix our system and protect ourselves from ourselves in the future.
Because really, I don’t see thousands of Martha Stewart trials as a good use of our resources.
July 13th, 2009 at 11:01 am
@ben22 (10:52)
I kind of commented on this yesterday (actually I was reflecting Schiller & Roubini comments from their interview)…
Schiller refers to much the same as you refer to (my reference was the last bullet point, but his comments come about 45 minutes into the interview)…
http://www.ritholtz.com/blog/2009/07/shiller-roubini-discuss-anemic-economic-recovery/#comment-192589
July 13th, 2009 at 11:10 am
Whitney’s call from today: The economy sucks so bad, and we are in such a hole, that Goldman can blood-suck a fortune from states desperate to issue debt.
The result? Dow surges off its lows. Thanks goodness CNBC is there to get the word out. I also have to hat tip local station NBC for running a half hour infomercial Sunday for a pink sheet stock, complete with “analysts” telling us how a ten cent tsock was going to the moon. Yeah, we must be bottoming…investors seem to have wisened up.
July 13th, 2009 at 11:12 am
@ben22:
Yes. I think that we will see complete and utter revulsion towards real estate and stocks before this bear market is over, and we are nowhere near that point yet. Unemployment hasn’t really started to grind down real estate here in the Northeast yet although it is clearly doing so in the West. A second stock market crash seems to be completely inevitable as a variety of institutions and individuals are forced to liquidate to pay down debt.
BR: I completely agree with the statement:
“As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .”
This is all part of the Tyranny of the Incompetent. Anything that isn’t simple is rejected, like science and engineering. The country is still being run by the popular kids that used to pay you to solve their differential equations, Barry. Until the nation and corporate America learns to think harder about what is going on and unload all the empty suits and marketing guys from positions of influence, we will continue to struggle.
July 13th, 2009 at 11:15 am
Outside of Franklin I don’t think anyone read her piece.
July 13th, 2009 at 11:16 am
conspiracy theories become more popular and are more widely believed during extended bear markets.
——————
It’s been shown time and time again that depressed people are pretty good at recognizing their limitations. Optimists are deluded about their level of control and abilities. So to be a balanced, well funtioning individual means you must be deluded.
So maybe many conspiracies really are true and during downturns people are simply more realistic and aware.
July 13th, 2009 at 11:17 am
Villians? Sir Allen Stanford (pending) Chris Cox? Subprime fraudsters?
http://www.guardian.co.uk/business/2009/jul/09/us-homes-loans-corruption-afg-morganthau
I’m thinking bring back the Fairness Doctrine and have somebody there to burn their straw men, cut down their cherry-picking, full out their half truths etc… Right at the source. Whoosh.
July 13th, 2009 at 11:22 am
@Patrick Neid
“Outside of Franklin I don’t think anyone read her piece.”
That goes DOUBLE for any bill being crafted in the House…
July 13th, 2009 at 11:36 am
Something interesting from the Almanac that made me think about some recent calls on here for a bounce late in the week:
Since 1989 Monday, Tuesday and Wednesday have been the most consistently bullish days of the week for the Dow. Thursday and Friday the most bearish, as traders have become reluctant to stay long going into the weekend. Since 1989 M, T, and W gained 13737.33 Dow points, while Th and F combined for a total loss of 3432.33 points. During uncertain market times traders often sell before the weekend and are reluctant to jump in on Monday.
So, if you want to try to stick to short term calls for a bounce, after these types of sell-offs, I’d stick to the first three trading days of the week, much more likely you will be right.
July 13th, 2009 at 11:36 am
Here’s the comment to read from the unreadable Megan McArdle article:
CAMP July 11, 2009 6:26 PM
Taibbi overreached and he weakened his case. He could have just laid out J. Aron’s place at the center of the commodity pit, the special dispensation of CFTC rules that enabled J. Aron to engineer perceived shortages in scarce commodities and hence $147 oil in a downturn. That might have been enough to ignite the public outrage he so clearly wanted to inspire. Blankfein started at J. Aron and the profits from manipulating commodity prices are key to his ability to hang onto his primo position at G-S. The top spot had always gone to an investment banker in the past. No one ever asks how a guy with no looks and less personality ascended to be Chairman and Chief Executive of the world’s premier employer of talent and ambition. What is fascinating about Taibbi’s piece is that he misses the biggest scandal of the past year. Blankfein was in the room when the FED decided to take over AIG. As reported by the FT there were only four guys in the room, Paulson, Geithner, Bernanke and Blankfein. He was not there out of public interest. The bill for the taxpayer is now $ 180 bln and counting, while G-S racks up massive profits. Socialized losses and privatized gains. When the NYTimes published Geithner’s entire calendar for 2008 as President of the NY FED (a first) that meeting and its attendees had mysteriously fallen off the record. G-S wasn’t party to the AIG deals, they were the arranger of the “regulatory capital” product used by Europe’s largest banks. Had AIG failed France would have lost its major banks. The largest AIG CDS payouts were to foreign financial institutions. During “AIG Week” when every news organization was ranting about AIG bonuses G-S quietly held a “presser” to explain that they had “no exposure to AIG at all.” If fact, they got paid on their “extra insurance” that they bought in case AIG failed. Who wrote that policy? Buffett? It might explain the sweetheart option that G-S granted to him at $ 105. G-S never held long-dated trades on its own balance sheet. They kept the fees and parked the risk at institutions with bigger balance sheets or access to the FDIC. It is not hard to spot who got paid to take on risks they were less well equipped to manage. Meanwhile, the rules that would sort out the financial services industry and prevent another shakedown of taxpayers are not even on the table at the moment.
July 13th, 2009 at 11:37 am
I agree . . . with Franlin. Did I just say that?
July 13th, 2009 at 11:39 am
@ben22
“Since 1989 Monday, Tuesday and Wednesday have been the most consistently bullish days of the week for the Dow.”
—
That’s when there are the most SUNSPOTS
– jk
July 13th, 2009 at 11:42 am
“Now, I have heard many pundits/economists remark over the last several weeks that “home affordability is better than ever”.”
I don’t think that it is more affordable than ever. There are two sides to the affordability equation, and I think ability to pay – or perceived ability, at least – has dropped faster than house prices have dropped. So even in a market of rapidly dropping prices, affordability is seen as decreasing.
July 13th, 2009 at 11:47 am
Why should we care about Megan McArdle ?
July 13th, 2009 at 11:47 am
Megan McArdle ends up embellishing Matt Taibbi’s case for him… even if there were only J Aron and AIG to be considered, there is still a pattern of behavior that would be criminal if the laws were only slightly different.
So, the quasi-governmental liquidity provider based at 85 Broad reports after the close tomorrow and the market already smells a rally. Might I remind the shorts that GS can stand for many things, including GIANT SQUEEZE.
July 13th, 2009 at 11:51 am
Megan knows of straw men.
Comparing Taibbi to Palin. That straw figure commits Hara Kiri without another word.
“Everyone knew a lot of the mortgages might go bad, either by defaulting or prepaying. (This is a risk for bankers, who don’t like the idea that if interest rates drop, their 7% mortgage might suddenly turn into a pile of non-interest-bearing cash which can only be invested at 5%.) But if you pool the risk, only some of the bonds will go bad, while others pay off. The result is a less risky, less volatile investment than any individual junk mortgage bond. And it would have worked, too, if it hadn’t been for … a collapse in the housing market of a scale not seen since the Great Depression.”
EVERYONE knew a lot of mortgages could fail, apparently no one could have imagined housing prices might have fallen, or known we were in the midst of a bubble.
While one can agree that Goldman is not the only villian, they certainly seem to be a villian, and should at least be investigated for their part.
July 13th, 2009 at 11:53 am
@wally
It irks me when people use only HOME PRICES as the determining factor…
1. Why not factor in a “job loss risk premium”
2. Assume that in the PRICIER areas (like DC & NYC) property taxes are very elevated, eventually that hurts the higher prices homes which will be more of factor on an overall index.
3. Property & casualty insurance
4. Reduced FICO scores = harder to qualify for cheapest loans
Also, the decision nowadays basically has to be to either but a NEW HOME (whith shoddy construction likely), or an OLDER HOME (likely requiring costs for upgrade & repairs…
…and FORGET about all the crap they’re trying to stuff into the CAP & TRADE bill to require homes to be “greener” (like an auto emissions test) before selling…
July 13th, 2009 at 11:53 am
And this is the kind of crap they use to excuse themselves. It wasn’t my fault, I’m just one person, I deserve my big bonus, I can’t fight this system… etc, etc…
July 13th, 2009 at 11:53 am
I can’t believe you are discussing this. Nothing is more ridiculous than a journalist discussing another journalists’ piece of work. As a journalist, go write your own piece about GS or the financial crisis. Do some “journalistic” works. This is just a pissing game at this point.
Or am I just missing the point, is she a blogger?
July 13th, 2009 at 11:54 am
@lefty
it can also stand for Giant SuckerRally
July 13th, 2009 at 11:56 am
CV-
TYP
http://www.ritholtz.com/blog/2009/07/bye-bye-geocities/comment-page-1/#comment-192826
July 13th, 2009 at 11:58 am
“Bankers who thought they were geniuses were deceived by models that assumed away the possibility of a second great depression.”
even this trope, from McCardle, via F411, is complete BS.
those equations didn’t break b/c they ‘assumed away the possibility of a second great depression.’, they broke b/c they, relevant to that agitprop, above, ‘assumed away any possible declines in RE values’
Franklin411, it surprises, little, that you’re a McCardle aficianado. Do you two get Team Discounts for your pom-poms? if not, you may care to check out http://getpoms.com/
http://encyclopedia.thefreedictionary.com/Aficianado
July 13th, 2009 at 11:58 am
So Whitney upgrades GS based on, well, you know, and the whole banking sector goes on a 3% rally! Ah yes, the wonderfully discerning investment world that buys everything related, no matter the actual fundamentals of any other company. It’s downright humorous. And the rest of the market is along for the ride today, I guess.
Glory, glory, hallelujah!
And they finally stopped the idiots from trading GM’s stock. LOL I guess the fools who ended up holding the hot potato are going to feel pretty stupid.
July 13th, 2009 at 11:59 am
Of course it was somebody’s fault. The problem is that by the time you’ve built all your jails, you’ll be Easter Island II.
July 13th, 2009 at 12:01 pm
what Megan doesn’t seem to understand is that the housing market was poised for collapse- rampant speculation- with the only thought to resell at a large profit-
you can package all the shit up any way you like- but once the speculation fever ends the whole market collapses- and it won’t matter how pretty the wrapper is at that point and how the risk is pooled, etc, etc,etc, BS, BS
July 13th, 2009 at 12:12 pm
@Karen:
Speaking as a financial layperson, pseudo-knowledge is a big temptation for me. I try not to overreach the true extent of my limited understanding of markets and the economy and repeatedly have to remind myself that the financial blog thing is like a seminar for me. I try to do the assigned reading and try to contribute “homework projects” for class participation. Failing that, I throw out smart-ass remarks.
I was wowed by the ZH end-of-the-day pump charts and knowing talk about SLP-as-PPT etc. When Kid Dynamite and a few others helped set the record straight (IMO anyway) about program trading I realized my ignorance and put down my pitchfork. I still think there’s something sketchy about it, but I’m less inclined to jump to conspiratorial manipulation. More precisely, I don’t believe I understand it well enough to level that kind of accusation at anyone right now.
I thought the Taibbi article was funny and witty but lacking in substance when it came right down to it. Possibly pandering. On the other hand, journalists hardly ever get it right on technical subjects. It is very hard to get to the truth of things and you have to hack your way through the underbrush with a machete every damned day, more work than a lot of people are willing to do to understand things.
July 13th, 2009 at 12:13 pm
Will they be villians if they help lead to a collapse of local governments, retirements, pensions and health care?
I think it’s sad to chalk this up to capitalism when we clearly aren’t. Well for the banks anyways.
July 13th, 2009 at 12:19 pm
@cvienne said: “it can also stand for Giant SuckerRally”
True, my friend, but for today, it matters not – for we are long, and not wrong. We set out to trade technically this week but with an eye to earnings reports. A modest or weak open to the trading week, then we would be long into GS earnings (that’s where are now). An übersqueeze resulting in a huge rip through 900 would see us looking to get short into overhead resistance on Wednesday or Thursday. Let’s see which scenario plays out.
July 13th, 2009 at 12:23 pm
danm @10:58am .. I’m sorta with you there … take the cemetary plot scandal going on in Chicago right now .. $300K for the perps and probably $30M by the time the whole thing plays out in courts – after investigation and incarceration .. add to that the judgements for wrong doing to the litigants paid by who? us and insurance companies (again us)
sorta = gotta do something or else it stays “all messed up”
Martha Stewart episode what a crock
in my tinfoil hat I say .. Enron and Ken Lay in the voice of Dana as the Churchlady “how convenient”
July 13th, 2009 at 12:39 pm
@cvienne,
That’s when there are the most SUNSPOTS – jk
I see people joke about this a lot, and I often wonder if they have seen long term charts and the corresponding spot cycle. As if we really completely understand it, as if we really understand millions of things about space. I for one will not fully dismiss that it has some impact. James Simons thought it was worth millions of dollars to look into it.
July 13th, 2009 at 12:46 pm
No Financial Villains? Hah!
http://forum.thedailyshow.com/tds/board/message?board.id=economy&thread.id=3931
Obviously the whole thing was the French’s fault
July 13th, 2009 at 12:52 pm
Tranzor, I, too, try to keep a level head on when those around me are losing theirs.. i’m also not a fan of hyperbole.. the woman’s article was annoying.. especially the quote in question. I bet she wishes she could rephrase that. This financial crisis has more than one villain, and it only takes a few for a perfect storm.*
*The phrase was awarded the top prize by Lake Superior State University in their 2007 list of words that deserve to be banned for overuse.
July 13th, 2009 at 12:57 pm
Her quote was:
“But financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.”
BR, I think you actually made her point for her. She’s simply saying there is no ONE person or even ONE group powerful enough to take down a whole system. And I agree. It was group think, greed and societal herding that led to most of it. I don’t she said there weren’t any villains….
July 13th, 2009 at 12:59 pm
I must say – I greatly admire both Ben and Karen for their stock savvy posts, but I admire you both even more today for swimming against the “GS is The Antichrist” tide. Good, level heads!
July 13th, 2009 at 1:07 pm
Anyone see Hussman’s piece today, titled High Loan-to-Value + Trigger Event (Unemployment) = Default?
Kind of reminds me of my comment last week:
Steve Barry Says:
July 5th, 2009 at 2:25 pm
No Savings + Layoff also = FORECLOSURE
July 13th, 2009 at 1:08 pm
@Karen: “Green shoots” will be banned for overuse at the end of 2009.
Anyone want to predict the next bailout? CIT is maybe like Lehman, not TBTF, perhaps, but big enough to screw up the credit markets, precipitate small biz BK and f*** up a lot of portfolios? Then there is Arnie’s Army in CA…?
July 13th, 2009 at 1:11 pm
@ben22
“As if we really completely understand it, as if we really understand millions of things about space. I for one will not fully dismiss that it has some impact.”
I don’t dismiss it…I just don’t understand it…On that note, explain to me how someone could hold out a notion of sunspots, yet dismiss Martin Armstrong?
July 13th, 2009 at 1:18 pm
So, Meredith upgrades and talks bullish….
I remember once hearing Guy Adami say, when I used to watch Fast Money, “Even analysts can get squeezed.”
For instance, when a stock or market starts to get away from them, they sometimes “chase” and feel the need to upgrade and vice versa….
Wonder if this is what’s going on here…..
It all feels like a nice setup for “sell the news” tomorrow when GS reports….
July 13th, 2009 at 1:21 pm
Leverage! Now that’s the devil’s name this time. The farm collapse of the ’80’s. Mortgage REIT’s of the 1970’s. In the 30’s. And going back! See the “The Exchange” about the Depression of 1807. It was bank leverage, and Jackson’s fool hardiness, that toppled that time too. And back some more ….. before that–tulips, Mississippi Land.
I find trying to name names is a popular exercise. But the names are endless … big names; big corporations; all the way down to John and Jane Doe buying the bungalow on the come with nothing down, or even less, with a mortgage designed to blow up soon. They, in a couple years, they got a second, a home equity loan. Go to any court house…the registry of deeds and liens. That’s the names you want to head the list. Then follow the paper trail all the way to the double, triple and quadruple leveraged derivatives…banks, mortgage brokers, investment bankers, pension and mutual funds, pensioners and other investors.
I wrote a book too, “Public Utility Economics and Finance,” that shows also how the public utility holding companies of the 1920’s and ’30’s blew up by over leveraging. Leverage piled on leverage that’s the devil’s doing then and now.
Nobody made John and Jane Doe over lever; their bank wrote the paper; pocketed fees and passed the paper on to investment bankers and again by a couple of side doors on to Grandpa and Grandma Doe’s local broker, pension fund and mutual fund. They all are the culprits; they all played the devil’s hand, leverage, and lost.
My specific question is: If Goldman was the hand that brought the system down, if they ‘re too big to fail, why are the still the one standing? Somebody is missing something here to try to target Goldman. If authorities start taking names miss the forest, leverage, for the tree, Goldman’s, the problem will never be fixed. From John and Jane to Goldman, leverage has to be controlled–self control or formal regulation.
This is a serious point I’m making, not a quibble. Most of problem is there’s little or no equity in the deal–from the house at 123 Main all the way up Wall Street and back down to 546 Main, where I M Investor lives. The blow up has been obvious for years. Everyone just kept playing the devil’s hand, now they want the villains names. Sorry lots of people need to look in the mirror. That’s step one. Step two, step back from leverage at every turn. If it’s not affordable without leverage, whether on Main Street or Wall Street, it’s not affordable with leverage.
July 13th, 2009 at 1:23 pm
@Andy T
All the cash that was unwound in oil the past week (and after the Treasury rally last week) is finding a “home for a day” in financials…
July 13th, 2009 at 1:26 pm
Hard to fade Meredith… Especially when she says things like:
“you dont want to be short these names…” She’s talking: GS, JPM, MS, BAC…
Well guess what Meredith?
Watch I.
Long FAZ and SKF.
Short Meredith Whitney.
July 13th, 2009 at 1:31 pm
efrltd
Excellent point re: leverage. It is indeed at the root of it, isn’t it? Without extreme leverage all these other factors wouldn’t lead to a complete implosion, just a dust up.
July 13th, 2009 at 1:33 pm
Wow, they’re having a veritable orgy in bank land today, eh? And the REITs are along for the ride as well.
I certainly wouldn’t short GS, but the others…
July 13th, 2009 at 1:39 pm
Here is our first important technical area of the day, SPX 893-897, don’t be surprised if we blow through this.
July 13th, 2009 at 1:44 pm
It just occurred to me. The government is pretending it won’t rescue CIT today. I bet just so Goldman or Pimpco can buy some of their bonds real cheap today to cover their CDS exposures, so tomorrow when the government rides to the rescue, it’ll be another AIG, but w/out the naked exploitation people are catching on to.
See, now before this faux financial crisis where Goldman was rescued from itself and from 3 of its competitors, and Pimpco started setting monetary policy, I’d have never been so suspicious. But who am I to believe, Goldman and Pimpco, or my own lying eyes?
July 13th, 2009 at 1:47 pm
@lefty
Cardiff…A DRAW?
July 13th, 2009 at 1:48 pm
@LB
As Andy pointed out earlier smells a bit like a pump n dump, tomorrow the retail sales report comes out and I intend to fade the move either direction. 895 appears to have resistance, plus it will make a lot of people whole from last weeks move down.
For now, I’m content to take a small hit on SSO from a BIG loss on SSO last week, and my FAS calls are up very nicely.
July 13th, 2009 at 1:48 pm
S&P reached my 895 target. It might have a few more points to go. I expect markets to sell off after GS results tomorrow. My $FAS is doing great. But $UCO not so much.
July 13th, 2009 at 1:50 pm
my guess is buy the rumor sell the news- if GS comes anywhere close to expectation- expect a sell off tomorrow
also- I find it interesting that here we are talking about the failure of C offset by upgrades from Whitney for a couple names- one is almost a certainty- the other- who knows-
but in the end the real economy will be the arbiter of which way stock prices go
July 13th, 2009 at 1:51 pm
@cvienne: Cardiff…A DRAW? Indeed. A glorious draw, snatched from the jaws of defeat, despite being outplayed by Australia for four of five days. Englishmen everywhere rejoiced.
July 13th, 2009 at 1:53 pm
@lefty
5 days of test…16 tea breaks later…A DRAW…
You gotta love cricket!
July 13th, 2009 at 1:56 pm
I hate test matches. As if one day match is torture enough to watch
July 13th, 2009 at 2:00 pm
@I-man, ditto, long SKF
…except for a papering over by the Fed, nothing fundamental has changed. They’re all (the TBTF) insolvent because they can’t borrow against their assets, except from the Fed. It will all blow up again, just a matter of when.
Whitney’s cute, but this smacks more of a desire for attention than a serious analytical stance.
July 13th, 2009 at 2:00 pm
I-man/AT,
I think MW was just saying for a trade right now, I thought she was fantastic this morning. If you didn’t see the whole segment she wasn’t as bullish as it seems everyone is saying. For example, she called for unemployment to go much higher from here, I think she said 12%, however, it is worth noting she said if she weren’t so chicken (career risk) she’d say 14% and she talked about long term structural issues that could cause a weak economy for years. She also made a point to say that she’s not including ALL banks in this, C, she said was not in her group of trades. This is part of being an analyst, in a place where markets have trended up for a very long time, especialy after you just opened your own shop and were named one of the most influential women on wall st.
These “earnings” should be “stellar” from the banks. How could they not be, they just were handed a perfect environment to make money in. That said, anyone trying to buy and hold a bank here because they see “value” is crazy imo.
@cvienne,
Good question re Martin Armstrong, I don’t fully dismiss anyone, I just tend to agree with some people far more than others. As for being confused about sunspots, or not understanding them, I’m firmly in that camp too.
@Thor,
Karen is a waaaay better trader than me so I’m happy you put us in the same class up there of being contrarian.
July 13th, 2009 at 2:00 pm
opex week=5 day test match
July 13th, 2009 at 2:03 pm
A bit like bear markets really, up and down for five days = sideways, I guess you have to be there to enjoy it.
Now, back to business. Bears beware! So many of you know what the market is going to do and are getting short, and that is usually the recipe for a debilitating squeeze. We will all know when the right moment arrives, but remember that if you bet against GS or even against C and BAC you are betting against banksters. Be careful.
The real action is CIT, IMO, as a bailout would initiate selling of Treasuries and a big equity squeeze. At the moment it looks like we are aiming for an “orderly liquidation”, but we have all been screwed before, right?
July 13th, 2009 at 2:03 pm
cvienne,
I’m getting out of my long hedges before the close today. Have a feeling we’ll push to 899 today on the GS rumors. Don’t want to be there for “sell the news” part, given retail sales numbers come out tomorrow as well.
July 13th, 2009 at 2:04 pm
@Curmudgeon
…if she were a President she’d be Babe-raham Lincoln
July 13th, 2009 at 2:07 pm
@ B22:
Not disputing the earnings… disputing the reaction to them… and her reco that you can own these things going into earnings… which I think is a helluva risky strategy.
You could own these things about 25% ago. Now the risk is way too skewed to the downside… unless you’re DTing it and know what you’re doing.
Most of the folks bidding this shit up today dont.
Thats all. MW should stick to analyzing the books… not making short term trading calls… thats the “career risk” IMO.
July 13th, 2009 at 2:08 pm
@lefty
I’d be happy to see Treasuries sell off a little so I could add…
Let’s stir the pot a little!
July 13th, 2009 at 2:09 pm
@lefty,
I agree with almost everything you say and your 2:03 is no exception. You guys are brave trying to short banks right here with 3x leverage. I could see doing that on an individual name but on a basket of stocks during earnings reporting, well, not for me. That doesn’t seem like a time when the probability is way on your side to make money.
Whats is obvious is obviously wrong.
- Joe Granville
July 13th, 2009 at 2:14 pm
@ben22
Truer words could not have been spoken, if there is any sector that could really rally this earnings season it’s financial. The fact that energy/materials are still rolling over is worrisome and I would not be long ahead of retail sales report tomorrow…
July 13th, 2009 at 2:16 pm
ben, i do not deserve your compliments : ) let’s wait till year end…
July 13th, 2009 at 2:17 pm
I-man,
No doubt about this:
Most of the folks bidding this shit up today dont.
But, her main focus today was on GS, and that stock could have been snagged below 139 on 7/8. That’s a nice gain after such a huge rally, that stock was below $60 in Jan. You are right though, the smart money did this trade a week or two ago and are sellers now. I just don’t know about going short, I’m sure you’ll figure it out though.
I’m also curious to see if the reaction is more to the earnings or towards the guidance. I think the latter is more important right now. People want a confirmation of that second half recovery to justify the rally.
As for MW only analyzing books, sadly that is probably never an option for her again given all of the fame she has now. This is why people like Roubini get grilled for stock picks every time they go on tv.
July 13th, 2009 at 2:19 pm
I don’t know all the exact timing of her calls…but if Whitney just put a buy on GS, she has already missed a big move.
At the very beginning of the crisis, Dick Bove was seen as the analyst who was bearish and right…for those who don’t remember, he put out several misguided calls for “generational buys” since then.
July 13th, 2009 at 2:20 pm
I could see shorting a bank or two here and there – but not the XLF, not here. The banks have had a profitable trading quarter (again), and remember that they have all been borrowing from the Fed at exceptionally low rates for a long time now, and they are also able to Mark t0 Magic again. Therefore one might consider the danger of even C and BAC having earnings upsides along with the obvious potential for write-downs.
Continue to play the technicals, but don’t over-commit, and remember that earnings are always interpreted against the technical backdrop. That’s really why “buy the rumor sell the news” works, although we are in a bear market, so watch out for “sell the rumor, buy the news”. The good news is you can fade the move after a massive squeeze. Unless you’ve been crushed that is. Stay nimble here and then you can load on SRS and FAZ after fools rush in.
July 13th, 2009 at 2:20 pm
I wasn’t around much this weekend and maybe you guys already talked about it but what do you all think of this Ron Insana BS?
I recall him as being very bullish all the way down last year.
Can we add him to the list of villains?
July 13th, 2009 at 2:23 pm
@ben22
“I’m also curious to see if the reaction is more to the earnings or towards the guidance. I think the latter is more important right now. People want a confirmation of that second half recovery to justify the rally.”
If I see GS trade above $163 and stick, I’ll take notice…Up until that point, I think it’s mostly technical…
That said, there is still more than 11% to scare the crap out of any newly minted shorts…
For my $$, I’ve been a million miles away from the financials for…FOREVER…
July 13th, 2009 at 2:23 pm
looks like silver is finally taking a little breather from the sharp drop it’s had. I think six straight weeks down.
July 13th, 2009 at 2:24 pm
I’m showing that the neckline of that H&S is being vigorously tested on the candlesticks and will soon be vigorously tested on the closing basis (60-120 min charts). Why do I get the feeling that everyone who sold that neckline is about to get stopped out….?
July 13th, 2009 at 2:24 pm
Ronaldo es el hombre Insana.
July 13th, 2009 at 2:25 pm
@cvienne,
You and me both, I haven’t touched a bank in almost three years. I was tempted during this rally to try and trade some but I’d rather just enjoy people talk about the wins and losses on them here. I really almost pulled the trigger on WFC after T3 comments on it but I realized I just wanted to do it b/c he said so, not because I really believed in it.
July 13th, 2009 at 2:25 pm
Yeah let me be clear: I’m not adding to any shorts here… just not bailing on them on account of today. Thought about it, yes.
But as per technicals… the trend is down in XLF, thus I have no reason to sell FAZ. Its really that simple. I do try to make it more complicated tho… only human… all too human.
Ask me again at XLF > 12.25 and I might tell you different.
July 13th, 2009 at 2:26 pm
AT,
Well, you predicted that didn’t you? Everyone and their mother is talking about that H&S.
July 13th, 2009 at 2:27 pm
How many times do you have to see this action and feel the cold steel on your balls to know that this is a squeeze?
July 13th, 2009 at 2:28 pm
Andy…
You’re already on top of it with your “X Wave”.
July 13th, 2009 at 2:29 pm
ben22. Yes, and then after they (newly minted technicians) get stopped and then the SP500 craters, we’ll have to explain to them that it was “in the spirit of head and shoulders pattern afterall.”
July 13th, 2009 at 2:32 pm
@left. Well stated….that’s a nice phrase “cold steel on your balls”….you must have been a previous resident of a trading floor…there are all sorts of colorful ways of describing a squeeze….I couldn’t even share them here amongst mixed company….
July 13th, 2009 at 2:32 pm
It’s all just your everyday garden variety opex week “clownin’ around” to me…
So I’m with lefty @ AT…”watch your technicals”
July 13th, 2009 at 2:34 pm
LOL, is anyone really surprised the H&S pattern didn’t play out as text-book? Yahoo was reporting on this 2-3 weeks ago…I think this is a short squeeze and it eventually play out to the downside. Besides the banks, I really don’t see anyone reporting a very strong quarter although I will not put it past them to spin it…
July 13th, 2009 at 2:34 pm
I see signs of a stock bubble…insane P/E…interest in penny stocks (seen in infomercials)…analysts moving markets…people trading worthless shares of GM
July 13th, 2009 at 2:35 pm
Steve, you wouldn’t consider the “stock bubble” inflation, now, would you? lol.
July 13th, 2009 at 2:38 pm
and wait til Cit’s white knight arrives.. cuz it will happen. look at $vix candles, hindsight is 20/20.
July 13th, 2009 at 2:39 pm
@SB
And while America has it’s pea sized brains so narrowly focused on Goldman Sachs & MW…
Meanwhile, outside the borders…
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7qU7lfSEq7I
Emerging Markets Priciest Since 2007 When Shares Fell (Update2) … Emerging Markets Priciest Since 2007 When Shares Fell (Update2) July 13 (Bloomberg) –
The last time stocks in developing countries got this expensive was in …
- 2009-07-13
July 13th, 2009 at 2:40 pm
Fractal analysis said “buy” right at the bottom this a.m.
The ‘reason’ always seems to appear not long thereafter. Like Taleb says, the rational mind is always and after-the-fact brilliant about the obvious.
July 13th, 2009 at 2:41 pm
It’s just a complex H&S carving out the second right shoulder… like some people thought it would. I personally didnt think we’d get the second shoulder… but we will.
Just because alot of people recognize a pattern doesnt mean H&S patterns are bunk or that it has no validity.
Sure, I buy a little of that “over seen” argument, but these things have been playing out for way longer than any of us have been alive… not because of the patterns but because of whats underneath… they are manifestations of basic human psychology, ie greed and fear, which just doesnt change that much.
July 13th, 2009 at 2:43 pm
Seems like CL stopped going down….at least for now. Continuation held up at the 38.2% retracement of entire move and out month contracts stopped at 50% retraces of individual contract moves….if you’re short energy still, may not be a bad idea to trim or get out….or if you’re a daredevil “go git yu sum…” The move down was so sharp and swift I don’t think this is the “the” low, but this isn’t a bad place for oil to stage some kind of rebound….. Would not want to see $59 taken out the Sep contract if you’re a short term bull.
July 13th, 2009 at 2:43 pm
Steve,
I totally agree. I really thought a 62% decline from the peak would have scared more people out of stocks for longer but I underestimated what kind of emotions these primary countertrend rallies can bring about, even in a bear market. Regarding penny stocks, I get calls from clients now more than ever before about a penny stock that is about to go up, always a tip from a buddy that “knows about this stuff”. I got one from a client this morning: SPNG.
On another note, you are brave for hanging on to QID, even though I think we will go a lot lower eventually than the March lows, I would never do that. I’m sure you’ll do fine in the end.
You don’t have to answer if you don’t want to. I’m curious, what do you do for a living? If you are still working that is, I take it from your posts you are not retired yet.
July 13th, 2009 at 2:45 pm
@uno,
what analysis is that you are using with the fractals? Just curious.
@cvienne,
I mentioned a frontier markets etf here a few weeks back, when we resume the decline I’d like to short them instead of the emerging markets. Lately I have heard more and more people pushing the frontier markets on shows like Bloomberg Asia. I think they will eventually be a great short again.
July 13th, 2009 at 2:47 pm
I-Man. Agreed in re: H&S. I think that H&S patterns that are “overexposed” will probably just become a bit mutated. The neckline will be fuzzier and probably violated a little…that’s why I referenced the “spirit of head and shoulders pattern.” There’s definitely a reason they exist….the right shoulder is typically a b-wave and the drop down is a powerful c-wave (in EW parlance)….
July 13th, 2009 at 2:50 pm
Just heard this on Bloomberg…..
Ken Heebner’s CGM Focus Fund Lags 99% of its PEERS this year. That’s worse than last year when he lagged 97% of its peers. Is that guys’ commercials still on CNBC? WTF. How the mighty have fallen….oh my! I’m guessing he hasn’t made too many appearances on CNBC since last year when he was telling us all how great everything was going to be…..
July 13th, 2009 at 2:51 pm
@benn22
I voluntarily retired from my first career in telecom and started teaching math last year…so you will see me posting more often during the summer!
July 13th, 2009 at 2:52 pm
Steve Barry Says:
July 13th, 2009 at 2:34 pm
I see signs of a stock bubble…insane P/E…interest in penny stocks (seen in infomercials)…analysts moving markets…people trading worthless shares of GM
reply:
————-
Me too. So do lots of other people. This time is different. Computers and ignorant foreigners in the far east are running the markets. Computers are using the market as a means to try to outfox each other. Valuations don’t mean anything to them. It only looks like the stock market. It’s really something entirely different that permits side bets by others. It’s not investing in any traditional or commonly accepted sense. Regarding the far east, bubbles are their middle name. Except for Japan … it’s just inscrutable.
This time is different. The pretense is gone although a lot of people haven’t noticed yet. It will continue as a zombie market for a long time without regard to fundamentals. I don’t think the market you and I and others remember is ever coming back.
July 13th, 2009 at 2:53 pm
ben22 Says:
July 13th, 2009 at 2:43 pm
“Regarding penny stocks, I get calls from clients now more than ever before about a penny stock that is about to go up, always a tip from a buddy that “knows about this stuff”. I got one from a client this morning: SPNG.”
There’s a powerful tendency for people to want to “catch up” and recoup all their losses quickly…so they chase a bunch of speculative crap….like doubling down in a casino.
July 13th, 2009 at 2:53 pm
Re: TECHNICALS
…from last Wednesday (July
http://www.ritholtz.com/blog/2009/07/art-cashin-on-secular-cycles/#comment-191098
July 13th, 2009 at 2:54 pm
@Andy:
Heebner is a piker compared to Bill Miller…Miller lags 99% of large blend funds for a 3 and 5 year basis, and 95% on a 10 year basis.
July 13th, 2009 at 2:55 pm
@ben
“I mentioned a frontier markets etf here a few weeks back”
I remember that…I couldn’t find a dedicated ETF though…
July 13th, 2009 at 2:56 pm
@ben22: Something I’ve come up with over (too much) time. It’s quite difficult for a human — including this one — as the conscious mind often gets in the way, but it’s still d0-able. Fully algo is best. Am getting into discussions with a high-freq shop about it, or would air it out a bit here.
Per Mauldin’s comments this weekend, the high-freq model would seem to be at regulatory risk. Regs such as a 1-sec minimum bid-hold are likely a good thing for most folks…but if it’s not good for GS, I’m not sure how that plays out. Would expect most high-freq shops to be looking at alternative methods though, as risk may become reality.
Would point parties interested in fractals toward Mandelbrot’s “The (Mis)Behavior of Markets.” Those seeking spoonfeeding should save the sawbuck & change, but at the same time the answer is in the obvious and the notion that if it doesn’t scale over time, it ain’t fractal. Other major inspiration: Paul Tudor Jones.
July 13th, 2009 at 3:00 pm
My pessimistic brain has concluded that with high-speed computers doing most of the trading, a non-linear event becomes much more possible…didn’t quant algos breakdown suddenly last fall?
July 13th, 2009 at 3:00 pm
@Steve,
I would have guessed accountant or something with numbers, math teacher seems about right.
as far as posting more in the summer, great, always enjoy your posts.
Re: Heebner
Many of the “master stock pickers” have been shown not be masters at all during this bear market, they just always picked stocks that fluctuated up and down more than the indexes. They aren’t any smarter than anyone else, they just pretend to be on tv.
@hobo,
I don’t think the market you and I and others remember is ever coming back.
Don’t go getting all sentimental now. lol.
July 13th, 2009 at 3:01 pm
hobo: “It will continue as a zombie market for a long time without regard to fundamentals. ”
Flat line + prop trading desks + HF computer trading + day traders = Our market.
Enjoy.
July 13th, 2009 at 3:02 pm
It’s all non-linear, SB…only our strap-on prefrontal cortex thinks otherwise.
July 13th, 2009 at 3:04 pm
Bill Miller and Rich Pzena take the cake.
Pzena didn’t just double down on C, BAC and FRE and FNM last year, he quadrupled down. I was on a conference call with them last summer just to see what the hell he was doing and I could not believe the stuff they were saying.
@uno,
thanks, and interesting.
@cvienne,
I could not find one either, was hoping if I brought it up again someone might know of one.
July 13th, 2009 at 3:05 pm
@efrltd: Nice post.
The real question is below the leveraging to human behavior. A few million people engaging in folly is too extensive to chalk up to laziness/stupidity. The politics haven’t yet caught up to the science which is pretty relentlessly debunking myths about the extent of free will …
July 13th, 2009 at 3:06 pm
Steve Barry Says:
July 13th, 2009 at 3:00 pm
My pessimistic brain has concluded that with high-speed computers doing most of the trading, a non-linear event becomes much more possible…didn’t quant algos breakdown suddenly last fall?
reply:
————
That’s the big question. My pessimistic brain assumes the market is irrelevant to the computerized trading. It’s only the playing field. Fundamentals are irrelevant. They’re really just off in their own world that you and I don’t see. It has more to do with trying to trick computers to act in Pavlovian ways and outfox them than anything else. The most manipulative one wins and the dumbest one (literally) loses.
July 13th, 2009 at 3:08 pm
CIT bonds trading very heavily today….huge losses…..but guess who’s the biggest bondholder?
Not surprisingly it’s Pim(p)co. My guess is that Tim Geithner comes up with some kind of plan to save CIT…..It’s strictly forboden that Pim(p)co can lose money….
July 13th, 2009 at 3:11 pm
Everyone today should understand why they did a 1-10 split on FAZ…
So they could take it down to 4 again!
@ben22
Re: frontier
Actually I think I did find something but it is traded on a foreign exchange or something…Maybe my mind was just foggy…
July 13th, 2009 at 3:13 pm
@DH: Ed Seykota, he of Market Wizards fame, calls fundamentals “funny mentals.”
July 13th, 2009 at 3:17 pm
fundamentals relevance is vastly overstated, even in what some consider “normal” markets.
Markets are driven by social mood.
July 13th, 2009 at 3:19 pm
Closer to the right answer, Ben. But, ask yourself: what drives social mood…?
July 13th, 2009 at 3:19 pm
Andy T @ 2:32
“…there are all sorts of colorful ways of describing a squeeze….I couldn’t even share them here amongst mixed company….
Oh, go ahead.
Karen can handle it.
July 13th, 2009 at 3:19 pm
“So they could take it down to 4 again! ”
Exactly, just think how much the prop trading desks made on that pup…. in bear markets you could probably short all doubles and triple ETFs, long or short and then just count the money as the volatility kills the little guys.
Not us at Schadenfreude Asset Mgmt™, though – we are MASSIVE.
July 13th, 2009 at 3:19 pm
With respect to computerized trading as it is practiced today …. The stock market is the equivalent of a Monopoly board. The quants are just programmers who have automated the game. Investment is not relevant except in the same context as buying a hotel on Boardwalk. According to the WSJ, these people are about 70% or market volume at this time.
July 13th, 2009 at 3:26 pm
I’ll 2nd DH’s comment @ 2:52
reality- small investors studying candlesticks- trying to divine the future- competing against proprietary trading platforms of large players- and the large players ARE the market- you can only draft on their moves- and-
the USA- a big casino- no new investing- no new industry- just people trying to get a piece of what’s left- selling the furniture- before the house is left empty
July 13th, 2009 at 3:26 pm
@lefty
Parsing some comments:
“How many times do you have to…feel the cold steel on your balls to know that this is a squeeze?”
“we are MASSIVE”
THAT would explain how you get twins!
July 13th, 2009 at 3:26 pm
@Ben:
Markets are driven by social mood in the short term. Longer term, to make rational decisions, you must turn to fundamentals. Since in the last 85 years, the as reported P/E of the S&P has never been above 46 (and that was a bubble) and it is currently 130 and in 2 months will be about 1800, that is relevant. if not, we are back to “this time it’s different.” 85 years of data is hard to throw out…it runs the gamut from depressions, to bubbles and everything in between.
July 13th, 2009 at 3:28 pm
DL, I will handle it by shutting my eyes
July 13th, 2009 at 3:29 pm
Uno,
Prechter discusses the answer to that in detail in his books on Socionomics.
July 13th, 2009 at 3:29 pm
@ DH: Not all market-modelling programmers are ‘quants’ in the sense of being quantitative statistic modelers. Some actually get it.
Investment is relevant. However, group-think MBA-ish ideas on “valuation” are completely dorked. Mandelbrot proved the non-Gaussian/Bell Curve nature of price variation over 40 years ago, yet EMH and MPT and Gaussian-quant methods still rule the financial landscape.
It would not surprise me in the slightest if it took another 60 years for Mandelbrot’s concepts to be widely adopted. I’ve often said that the right answer could be shouted by a naked person on top of the Empire State Building…and no one would listen. It’s just where we’re at in the grand scheme of things, which is to say a bit arrogant/entitlement-oriented, and projecting rather than observing.
We’ll get over it.
July 13th, 2009 at 3:29 pm
@SB
One thing I’m CERTAIN of…When the S&P finally trades back to proper fundamentals…
…the social mood will change!
July 13th, 2009 at 3:31 pm
Annoying smiley face defaulted my : capital P…
July 13th, 2009 at 3:33 pm
I’ll 2nd DH’s comment @ 2:52
reality- small investors studying candlesticks- trying to divine the future- competing against proprietary trading platforms of large players- and the large players ARE the market- you can only draft their moves
July 13th, 2009 at 3:33 pm
uno: “group-think MBA-ish ideas on “valuation” are completely dorked”
Exactly. That’s actually very elegantly stated. Dorked, indeed.
cvienne: “…the social mood will change!”
I think the mood will be quite anti-social after the second crash, the Hunt for Red October™ Redux.
“THAT would explain how you get twins!”
The mind is a powerful thing, indeed.
Fascinating close upcoming, here, chaps and Karen. This isn’t really a squeeze until a 3% day.
Tomorrow is…. Turnaround Tuesday.
July 13th, 2009 at 3:35 pm
karen Says:
July 13th, 2009 at 3:31 pm
Annoying smiley face defaulted my : capital P…
question:
—————
Is it wearing lipstick? Very trashy!
July 13th, 2009 at 3:39 pm
“:- with a capital P ”
were you trying to give some tongue, Karen?
July 13th, 2009 at 3:42 pm
Sold 1/2 of $FAS into a nice rally. I wouldn’t short Financials until after GS reports. $UCO is not doing that bad either. Oil might recover a few points before trending lower.
July 13th, 2009 at 3:43 pm
massive- tiring isn’t it- I hear it all the time- and gargantuan- man that one really gets old- I think I’ll start packin’ a thesaurus
July 13th, 2009 at 3:44 pm
@manhattanguy
I also sold my FAS calls today, I’ll try and fade the move tomorrow after retail sales…
July 13th, 2009 at 3:45 pm
If XLF can get up to $12.1 this week, it would probably be worth shorting it, especially if the VIX drops below 25.
July 13th, 2009 at 3:50 pm
@DL: That’s the sort of model I have in my head for this week, the rally that is a bit stronger than bears expect. This is why you often see rounded tops instead of sharp H&S like the breakdown of oil last year.
There ya go, late day pump action, it’s getting more like a squeeze now….
July 13th, 2009 at 4:00 pm
Long cold hard steel on my balls.
Short noise.
July 13th, 2009 at 4:03 pm
I-man,
Not sure if you saw me post this yesterday in another thread:
ben22 Says:
July 12th, 2009 at 8:16 pm
@I-man,
I’ll go out on a limb and say all the big banks are going to have some great “earnings” this quarter. Hard to say though what that leads to in the market. Lots of pressure right now to the downside. I wouldn’t be surprised to see a bounce early this week to the 900-905 area.
I didn’t think it would all be today!
July 13th, 2009 at 4:04 pm
Ouch. I-and-I can relate based on past experiences….
July 13th, 2009 at 4:05 pm
yup short squeeze. Mr. market had to discipline jr. thinking the H&S pattern was easy money. I really don’t feel confident in retail sales tomorrow. Oil/Gas peaked in June taking a bite out of disposable income, savings up and employment worsened. We got a peak at retail sales figures last week and it was disappointing over-all.
July 13th, 2009 at 4:06 pm
what a fucking show- people are wetting themselves re bank earnings- GS better deliver tomorrow or you’ll see a mass exit for the doors
July 13th, 2009 at 4:11 pm
gasoline counts in the retail sales figures, so yeah, it was higher in June however this can be spun as a positive if the retail sales go up, doesn’t matter how we go up, just that we go up, that’s why I’m expecting anyway from the MSM.
July 13th, 2009 at 4:12 pm
Gotta love this:
After a bleak 2008, equities are looking up. But whatever the market, our trademark long-term portfolio can help you build a nest egg for a secure future. NEW YORK (CNNMoney.com) — Stocks surged Monday, with financial and consumer shares leading the advance, as investors welcomed an analysts …
July 13th, 2009 at 4:12 pm
I have been bullish on the $ – and bearish on the Euro – of late but the € has a little room overhead here, and the yen can certainly give up some of last week’s gains. Since €/yen is a proxy for equities, I’d say more room to rally.
Play the technicals and try to beat the rush for the doors. It’s always better to be sitting outside in the sunshine when the guy inside the theater yells “FIRE”.
July 13th, 2009 at 4:13 pm
It is what it is.
Just like its hard to not get all giddy when you’re having a huge up day, its hard to not get all pissy when you’re having a huge down day.
Luckily, I had to go out for a lunch meeting so I didnt even see the final leg. Good thing, I might have been inclined to do something emotional… but that’s soooo 2008.
Yall have a good one-
I
July 13th, 2009 at 4:17 pm
Ben22
That’s plausible but I have noticed a generally negative tone in the media the last couple weeks. It seems they keep bringing out the bears and more calling a retrace to 850-820. Recent example is the ISM data is relatively good yet the media didn’t put their usual spin on it. Of -course I found it troubling since I was counting on the market to rise and all it did was go lower and lower…never anticipated that 900, 888, 880 would all get taken out last week, and here we go with the bounce…geez talk about hard to time a trade!
July 13th, 2009 at 4:19 pm
Lloyd Blankfein is going to need to shit out gold bars on the conference call in order to “surprise on the upside” at this point….
If we don’t sell off into those numbers or just after those numbers I’ll be surprised…
July 13th, 2009 at 4:20 pm
@I-Man
Funny that way sometimes it works in your favor. I had a conference call today at 10AM and the market was down. I checked back at 11AM after the call and had to do a double-take lol
July 13th, 2009 at 4:21 pm
Oh come on AT… cyborgs dont shit.
July 13th, 2009 at 4:24 pm
“Lloyd Blankfein is going to need to shit out gold bars”
Excellent. That’s got to be the second best phrase of the day, there, AT.
Chill with a Red Stripe, I-Man. Tomorrow is another day.
July 13th, 2009 at 4:25 pm
Actually, I take that back….even if Blankfein proved he could crap 16 oz. gold logs every day, that’s only about 5mm/year….so he’ll need to introduce some sort of breakthrough in nanotechnology in order to surprise on the upside….
July 13th, 2009 at 4:27 pm
Capitalist,
Yeah, I guess that’s why I’m expecting that trend to reverse, the trend has been down for five straight weeks on the index with louder calls for a pullback, even from bulls, especially since the H&S that the whole world saw.
The market during that time stopped going up big on bad news and the bears saying stocks are ahead of themselves are just stating the obvious for anyone paying attention so I guess it would not surprise me to just see the market do an about face right here and start ignoring bad news again for a time, especially if somehow a few companies give decent guidance. This would be a better set up for a big drop in the Sept/October time frame, we can’t have most bears AND bulls skeptical and expect a big drop can we?
It has been interesting these last few weeks but often lost in the noise have been lots of big CEO’s stating that they are seeing signs of a bottom (lol) so if they can push this message in the next few weeks we could see the market jump again. Who knows, there is a ton of resistance just overhead at this point, but I still wouldn’t want to be big time short just yet. Fwiw, I think your best shorts are on select financials and retailers in the next few weeks. The energy and materials stocks have probably already sold off too much for any easy money to be made there on the short side in the next few weeks. Healthcare spots might also be worth a look, that sector has not really come down since June 11 like the others.
July 13th, 2009 at 4:35 pm
I think ben is right, and here is why:
The early earnings are dominated by big financials, and I think they are likely to surprise on the upside, the key here being Mark to Magic and Prop Trading. Later earnings releases will feature more retailers, regional banks and industrials, which should be fairly disappointing. As far as energy stocks are concerned, the disappointments in earnings may already be priced in, as this group had sold off even before crude started to head south.
July 13th, 2009 at 4:39 pm
from djn: Dell Inc. (DELL) said it expects to report a slight sequential revenue increase in its fiscal second quarter, saying year-over-year demand for its information-technology products appears to be stabilizing.
Still, the world’s second-largest personal-computer maker said it anticipates a “modest decline” in gross margins as a result of higher component costs*, a competitive pricing environment and an unfavorable mix of product and business-segment demand.
*emphasis on higher component costs
July 13th, 2009 at 4:41 pm
csx beat… up 5.5+% in afterhours…
thinking gap up open across the board tomorrow would be very fun…
July 13th, 2009 at 4:48 pm
@lefty,
if only I could make most posts shorter to get the same point across. It’s all about the schedule of what companies report when, and yeah, I think the damage short term is priced into the energy space, some of the declines in the last several weeks have been brutal in that space.
Who gets credit for the Mark to Magic? That is nice.
@Karen,
Re: Dell, that’s what I was talking about in my last para @ 4:27, especially the spin on the higher component costs being the main issue with the margin pressure.
Everyone needs to remember how easy it is to beat “earnings”, especially when the expectations are so low, and especially after sentiment has been drawn out of the depths, but is not at the extremes on the bullish side right now.
July 13th, 2009 at 4:54 pm
Re my 4:48/sentiment:
AAII Results as of
July 9, 2009
Bullish 27.91%
Neutral 17.44%
Bearish 54.65%
This week’s survey results saw bullish sentiment fall to 27.91%, below its long-term average of 38.9%. Neutral sentiment fell slightly to 17.44%, below the long-term average of 31.1%. And bearish sentiment rose to 54.65%, above the long-term average of 30.0%.
July 13th, 2009 at 4:59 pm
Ben – do these sentiments have much relevance in terms of accurately predicting near term market moves? I see them from time to time but haven’t noticed if there’s any correlation . . .
July 13th, 2009 at 5:11 pm
“Who gets credit for the Mark to Magic? That is nice.”
Not sure. It isn’t mine. Jack McHugh has commented on this many times at TBP.
We are getting to the point where beating the comparable earnings m/m and y/y is becoming easier and easier.
The next steep leg down will be initiated not by earnings, but by a shock. Plenty of catalysts will be available.
July 13th, 2009 at 5:13 pm
The other expression i remember is Mark to Make Believe… been around since at least 2007…
July 13th, 2009 at 5:13 pm
Thor,
Not one’s like I listed above, mostly when they are very extreme to one side or the other it can signal a trend change in the near future. You look for the herd groupings in sentiment as a red flag.
Two recent exemples:
Record levels of bulls on AAII in October 2007 at the market peak and extreme levels of bears at the 3/6 LeftBack Bottom.
Huge bearish levels on the dollar last July 15
Unfortunately for the full AAII service it’s a pay site and not cheap so I’d suggest signing up for the free stuff if you are interested in tracking it.
July 13th, 2009 at 5:16 pm
uno,
way to be on the Target, with Fractals. it is Amazing that, as you say “~40 years after Mandelbrot…”, but that EMH, etc., BS was ginned-up to sell “Buy & Die” to MutFunders/401(k), et al., di-vestors..ya know, someone needed to prime the ‘Font of the Eternal Bid’..
past that, if you’d ever like any type of assistance, send a ping..
July 13th, 2009 at 5:36 pm
@ uno…
Stick around. I hope you are here when I’m done letting Mandelbrot marinate in my dome piece…
I find it all, well, fascinating. There was a fantastic program on PBS not too long ago about him that mentioned Technical Analysis… got me thinking. But where does Paul Jones fit in?
July 13th, 2009 at 5:37 pm
fwiw, Jonathan Weil of Bloomberg, seemed to use the mark to make believe quite a bit… here’s a great 2007 article.. but he was one of the early (2000) skeptics of Enron, apparently.
http://www.bloomberg.com/apps/news?pid=20601039&sid=awZJNZCT7waY
July 13th, 2009 at 5:47 pm
ben22
I traded on this notion but suppose you lose some conviction watching SSO tank on the intra-day last week and do lots of technical damage.
A pure-play in the sectors you mentioned is probably a better bet considering the backdrop of this economy. The bar is set low, but I believe investors are more keen on guidance then actually beating the number. I did see the AAII report and that could be indicative of a counter move, but the MSM is not giving anyone the warm and fuzzy feeling and inflows in equity mutual funds were negative last month, with a sharp rise in money flow to bond funds. I’m looking for treasuries to move lower and oil/materials to move back up as a sign this market can make another leg up.
July 13th, 2009 at 6:26 pm
@CC,
All the scenarios could happen, should be an interesting second half of the month, July tends to be the best month of the third quarter according to the almanac. In any event, while I traded most of this rally on the long side I’m still very bearish in the big picture.
It’s been pretty easy to fall out of love with a strategy that seems so good since March. I didn’t do it with SSO but got burned twice in SRS. Thankfully there is a such thing as a stop.
July 13th, 2009 at 6:55 pm
I-Man,
I hate to do this to you, though, see– http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Paul+Tudor+Jones
4 starters..
w/that, it gets, pretty, self-explanatory..
July 13th, 2009 at 8:04 pm
@MEH: Muito obrigado. We should talk.
@I-Man: Just listen to Jones (or his alter ego) via Amazon’s CD offering of Market Wizards. As a former welterweight champ, he’s an indomitable buy-low-sell-high guy. Take that to the extreme, like this morning’s bottom confirmation, and look around — you’ll start to see what he’s after.
A few key things for all of us to register & remember:
(1) A great deal of what everyone ‘thinks’ — including you and me — is pretty much group-think bullshit. If you refuse to swallow the red pill, i.e., refuse to realize the Big Idea message behind the concept of ‘fractal,’ then IMHO eventually you’re flushed and done in the real world of fractal-semiotic trading. Also Matrix-like, once you truly perceive what’s really going on (BTW, you undoubtedly already see it — your ego is just shutting out the reality), you might just throw up…but y’gotta keep on going.
(2) Per Ed S.: “Everyone gets what they want from the markets.” If someone is regularly losing money, then that’s pretty much what they’re after. Philosophically, Ed’s cutting his own path to a large degree, but he gets dharma, and essentially tells losers that they’re not listening or looking for their right path, and losing is just the universe’s way of turning up the volume til they get it. If they refuse to get it, well…not to be harsh, just slapping to consciousness, but it’s questionable as to whether or not they’re actually alive if they’re not reactive to stimuli.
(3) Reinforcing #1 & #2: Results = intentions. There is no “them,” just “your” results that “you’ve” chosen. Period. If you’re busy blaming the PPT and others for your choices, then that’s just one big honkin’ blue pill. Don’t choke on it.
Thus A Major Caveat: I strongly encourage a full-fledged and permanent trading halt for anyone who isn’t regularly making money in the markets. You have no idea of the risks you’re facing — to yourself and your family — or how bad this can get. Find something else to do with your life… something you actually enjoy… something that contributes to society and the human world at-large. What to do with your money? Watch more Seinfeld:
JERRY: I’m not an investor. People always tell me, you should have your money working for you. I’ve decided I’ll do the work. I’m gonna let the money relax. You know what I mean? ‘Cause you send your money out there – working for you – a lot of times, it gets fired. You go back there, “What happened? I had my money. It was here, it was working for me.” “Yeah, I remember your money. Showing up late. Taking time off. We had to let him go.”
END OF SHOW.
July 13th, 2009 at 8:16 pm
uno,
nice post, loved this:
(3) Reinforcing #1 & #2: Results = intentions. There is no “them,” just “your” results that “you’ve” chosen. Period. If you’re busy blaming the PPT and others for your choices, then that’s just one big honkin’ blue pill. Don’t choke on it.
I see a lot of people bitching about this stuff all the time, especially lately, the market right now, it is what it is, deal with it.
As for your advice, I basically gave that same advice here several months ago, if you aren’t going to trade you shouldn’t be anywhere near this market.
July 13th, 2009 at 8:19 pm
[...] Barry Ritholtz on McArdle’s assertion that there aren’t any villains: Um, Megan, I am going to have to beg to differ with you. There were many, many identifiable villains who through their own action and inaction, helped create the crisis. There were people who remained slavishly devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable. Some people engaged in utter recklessness when it came to risk management, or such gross irresponsibility that they are not merely morally culpable, but legally also. Then there are those regulators who gave the corporate interests they supervised pretty much everything they asked for. And of course, the people simply trying to grab a free lunch contributed mightily to the collapse. [...]
July 13th, 2009 at 9:59 pm
@uno -
man you are layin’ down some good stuff here
Brazilian, Portuguese?
whatev, nice stuff…words to the wise…
July 19th, 2009 at 7:31 am
[...] yet some people continue to think there were no villains in all of this. Some folks have suggested its simply a [...]