Doug Kass made a top call this week (mentioned yesterday here).

While I disagree with the timing of his market conclusion — historically, bear markets can run much further than we’ve seen so far — I am in agreement with his economic assessment. I will dig up a few historical analyses of what Secular Bear markets look like; As I have mentioned ad infinitum, 1973/74 is my favored comparison.

I suspect we will see a healthy correction of the market eventually, I remain unconvinced that we have seen the high print yet of this up-leg. Strong Momentum from a deeply oversold condition and popular underinvestment are a powerful and dangerous combination. (We are 60% long/40% cash at the moment).

Here are Doug’s 10 reasons why the rally has run out of steam and has “likely topped:”

1. Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life.

2. Cost cuts (exacerbated by wage deflation) pose an enduring threat to the consumer, which is still the most significant contributor to domestic growth.

3. The consumer entered the current downcycle exposed and levered to the hilt, and net worths have been damaged and will need to be repaired through higher savings and lower consumption.

4. The credit aftershock will continue to haunt the economy.

5. The effect of the Fed’s monetarist experiment and its impact on investing and spending still remain uncertain.

6. While the housing market has stabilized, its recovery will be muted, and there are few growth drivers to replace the important role taken by the real estate markets in the prior upturn.

7. Commercial real estate has only begun to enter a cyclical downturn.

8. While the public works component of public policy is a stimulant, the impact might be more muted than is generally recognized. There may be less than meets the eye as most of the current fiscal policy initiatives represent transfer payments that have a negative multiplier and create work disincentives.

9. Municipalities have historically provided economic stability — no more.

10. Federal, state and local taxes will be rising as the deficit must eventually be funded, and high-tax health and energy bills also loom.

Good stuff, Doug.

>

Source:
Kass: Market Has Likely Topped
Doug Kass
TheStreet.com, 08/26/09

http://www.thestreet.com/story/10590765/1/kass-market-has-likely-topped.html

Category: Markets, Trading

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

120 Responses to “Kass Calls The Top”

  1. hopeImwrong says:

    I don’t watch Kass closely enough to know if he makes these types of calls until he is right. But, he is being give credit for calling the bottom. So I would say, odds are not good that he has also called the top because correct calls are long shots, and having two in a row is also impossible.

    But, I do hope he is right, as I am slightly short this market. But his call, and the media reporting of it give me lots of concern about my short position.

  2. hopeImwrong says:

    correction: having two in a row is ALMOST impossible.

  3. jc says:

    This is like horseshoes (or handgrenades), he only needs to be close to win.He got a ringer calling the bottom. Maybe 2 ringers in a row is almost impossible but this looks like a good toss

  4. wally says:

    I don’t know… does the insider money get out before the public money has been sucked in?

  5. super_trooper says:

    Reasons?? How about sticking to less than 10 reasons
    “5. The effect of the Fed’s monetarist experiment and its impact on investing and spending still remain uncertain.”
    This is only a valid argument if it were proven to fail. At this point some ppl think it may work others don’t. This falls into the Rumsfeltian “known unknown”.

  6. super_trooper says:

    Agree with #10, how about taking bets on when the next tax hike comes.

  7. veblens ghost says:

    Kass has been uncannily good for about 3 years. I’m currently short and hope he is right but I have a strange feeling we are actually on the crowded side of the trade.

    By the way:

    “wally Says:
    August 27th, 2009 at 8:30 am

    I don’t know… does the insider money get out before the public money has been sucked in?”

    The insider money gets out AS the public money gets sucked in…thats how it works, otherwise they’d pass like ships in the night and the smart money would have no one to sell to as they are getting out.

  8. ben22 says:

    Barry,

    Where is the Kass’ market call you disagree with? Maybe I read it too quickly but it only seems he mentions a double dip scenario in 2010 but I don’t see him translate that into a market call, seems more general economic view that could cause problems for the markets but he’s not predicting some doomsday scenario for stocks as far as I can tell and I don’t see a number given. Maybe he gave a market target somewhere else. On the surface in your own interviews you seem to be “hedged” from what I can tell but looking deeper at other things you say/write I get the sense you still think this rally has legs and that you want to be bullish and think the recession is over (I know, welcome to a regular recession). That would make sense since you use momentum, but I would admit to being confused about what seems to be a lot confidence from you that the worst of the worst is behind us. While I hope you are correct, I don’t fee so certain about that and I’m curious why you are/or seem to be.

    Also, regarding Kass, today I’m recalling all the people that made fun of his call earlier this year and the chart he had used to map out what he thought would happen. I recall many describing him as an idiot drawing pretty lines on a chart, damn those technicals when they work! Instead more people missed the rally, or stayed too short, and they have waited for a more significant pullback to get in. Sorry Charlie. I also recall lots of people making sure to bring up the fact that Kass had some bad calls about the banks last year so I’d guess in the coming days/weeks that there will be a lot of comments about how many calls he’s been wrong about prior to the generational bottom call especially if the market continues up for a few weeks from here.

    Steve Barry (glad to see you posting again, figured you’d be busy teaching this time of year) asked the other day if anyone still thought that the March lows would be taken out or tested and you can count me in that camp. It’s a small camp, mainly deserted. I’m a big bear at this point, and I think the dollar is going way up. Not easy to be contrarian, especially right now. Not going to try to call the top, we should still go higher from here imo but if I was trying to do that, September seems a good time for it to occur. You’ve got what is typically the worst month of the year and there is the ninth year topping pattern (again, silly technical trend crap) 1929 anyone? How about 1999-2000 if you need something a little more recent.

    And is it any surprise they need more time….

    http://www.bloomberg.com/apps/news?pid=20601110&sid=a5bjqcBdkB48

  9. VennData says:

    “Market timing recommendations have an impressive track record of being harmful to an investor’s financial health.”

    — Peter Bernstein

  10. oneslip says:

    I have been thinking there could be a “reality check” in the fall but it is hard to be a contrarian when it is a common view. I agree with some of the reasons listed but the main thing I keep coming back to is that this runup seems falsly propped up, when all this runs out where are we? A few more trillion in debt and no real growth??

  11. hopeImwrong says:

    Ben22 – the last phrase in the article from Kass “U.S. stock market has likely peaked for the year. “

  12. beaufou says:

    @ben22

    I enjoyed the Bloomberg link, especially:
    “There are numerous examples of financially sound institutions collapsing or suffering further financial deterioration from the loss of public confidence”
    huu…say what?
    That’s a fine way to redefine “financially sound”.
    Broke is the new rich, good news, green shoot.

  13. ben22 says:

    @hope,

    o.k. thanks, just ignore all my rambling above then but that’s the type of call, by inserting “likely peaked” that could easily later be used to say you didn’t say it was THE top, or that you did. Not exactly a bold statement like the one’s he made earlier this year.

  14. Cohen says:

    Yesterday on realmoney, Helene Meisler posted that after Kass’ column came out, the put/call ratio shot to 250%. Don’t look for immediate downside.

  15. harold hecuba says:

    short side crowded? are you freakin kidding? no one i know that works at big funds is short. shorts and bears are in huge minority. hedge funds are long out the ying yang and sentiment is above the oct 2007 levels. i’d say the bull camp is completely filled or near to it. look at what is going on with respect to market volumes. the bankrupt garbage and gov sponsored crap accoutn for 25% of activity. this is a market running on fumes. pullback of substantial making is in the cards. 2010 will take out the march 2009 lows.

  16. call me ahab says:

    let’s see if Kass will be correct on his top call w/ this better than expected number

    also thought this was interesting- Fed looking for a stay of the court order requiring disclosure of banks that are on the fed’s lifeline through its various lending facilities- from NC-

    “Quelle Surprise! Fed Uses Scare Tactics to Try to Forestall Loan Disclosures”

    “In a show of how much our government thinks that serving the financial oligarchy, rather than the citizenry, is its prime duty, the Fed is fighting to stop the court-ordered disclosure of who borrowed money under the Fed’s various lending facilities. . .

    [reasons given]

    “The institutions whose names and information would be disclosed will also suffer irreparable harm. . .

    [the]“ability to effectively manage the current, and any future, financial crisis” would be impaired. . .

    . . . significant harms” could befall the U.S. economy….

    . . . disclosure might set off a run by depositors and unsettle shareholders….”

    there we have it- secrecy at all costs- even more reason why the light of day needs to shine on the Fed and it’s high risk strategies to save the TBTF banks

  17. Bruce in Tn says:

    I think we must be close to the top…

    Redbook, Tuesday continued…bad for retailers…

    Released on 8/25/2009 8:55:00 AM For wk8/22, 2009
    Prior Actual
    Store Sales Y/Y change -4.5 % -4.4 %

    Highlights
    Cash-for-clunkers pulled sales from the back-to-school season, according to Redbook whose same-store year-on-year tally continues to show significant weakness at minus 4.4 percent. The report said apparel retailers are reporting special back-to-school trouble. Redbook sees a 0.7 percent full month decline compared to July.

    and today’s unemployment was still, compared with the past, SPECTACULARLY bad…don’t let the monotony of the bad numbers lull you into thinking otherwise….

    http://briefing.com/Investor/Public/Calendars/EconomicReleases/claims.htm

    Key Factors
    •Only three states reported increases in claims of more than 1,000 compared to 10 states last week. On the plus side, 13 states reported declines in claims of more than 1,000.
    •As stated in previous reports, the downward trend of continuing claims should not be confused with a strengthening of the labor market. Jobs are not plentiful and the drop-off is due to workers losing their unemployment benefits. We expect continuing claims to drift further down over the next few months unless unemployment benefits are extended once again.

    Big Picture
    •New claims continue to fall within the 550,000-600,000 range, well above the peak of 400,000 during the last recession. As major companies finish their labor restructuring, many of the newly unemployed are coming from smaller businesses. This tends to cause more hardship on Main Street as many of these workers are unprepared for their job loss.

  18. WaveCatcher says:

    Reasons #1 – #10 were all true in March when the SPX traded at 666.

    Doug is a technician using fundamentals to justify his call. Not that he is wrong, but this is about marketing Doug Kass.

  19. jc says:

    Unemployment last week was 570K, prior week revised up to from 570K to 580K

    Many analysts have predicted that the nation’s unemployment rate will continue to rise into 2010 and possibly 2011, even if it did fall by a fraction last month.

    How can we have a recovery if we’re still losing jobs going into 2011? These massive stimuli may have jacked the S&P but if there’s no flow thru to new jobs and healthy consumption then it’s a blip

  20. [...] Kass Calls The Top [...]

  21. Steve Barry says:

    This rally feels different…it is helped by a weaker dollar and rises WITH oil. The worst speculative crap is rocketing…some of those are virtually toilet paper. Therefore, number 5 is most pertinent, though I would re-phrase it:

    What will break sometime in the future due to the Fed’s monetarist experiment and how bad will it be.

  22. Charles Maley says:

    Another guru, the noted commodities pundit and CNBC regular Dennis Gartman has decided to join the 2 and 20 crowd with the launch of his own hedge fund: River Crescent.

    If indeed the current consensus that the “solutions” to our problems are laying the groundwork for a massive bout of inflation in the out years (2011 forward), Dennis should be able to throw a dart anywhere in the general direction of commodities and book big time gains. It will be interesting to see how he does, as running a hedge fund will be far different than writing a newsletter.

    http://viewpointsofacommoditytrader.com/419/why-are-we-such-suckers-for-prediction/

  23. Steve Barry says:

    I see he didn’t mention valuation…Nas trades at 42 times earnings, which are falling still.

    http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=topnav_2_3000

  24. Steve Barry says:

    In a down tape, check out AIG…up 9%. Can’t make this up.

  25. Steve Barry says:

    AIG has gone parabolic on a daily chart…today may be the top…no news

  26. emmanuel117 says:

    Peeps are dumping the flu bump.

  27. ben22 says:

    “Yesterday on realmoney, Helene Meisler posted that after Kass’ column came out, the put/call ratio shot to 250%. Don’t look for immediate downside.”

    Hmm, as a certain someone here can tell you the put/call ratio has read decidedly bullish for many months now. It’s concerning to see a spike like this off any whiff of trouble. It means people will sell quickly at the first sign of trouble. Gee, I wonder if the HFT programs will sell then too, just as fast as they have been buying.

    Has anyone besides me spent time figuring out how much debt consumers just added to personal balance sheets as a result of the CFC program?

  28. ben22 says:

    Steve,

    You must not have heard about it. AIG is going to pay back the money they were given.

    snark.

  29. Cohen says:

    @ben22

    Well looks like I was wrong with that observation. Anyways, accorindg to Meisler, the index put/call closed at 209% yesterday so it came down off the highs.

  30. dave says:

    Kass had a great call in March, and with company cost cutting/job cuts and inventory restocking coming to an end, it is hard to see how earnings estimates go a lot higher after Q3 if revenue growth remains subdued, which I think it will. My biggest quibble with Kass is his belief that 666 is a “genarational low”. A generation (20 years) is a long time. I still think consumer is too broke/scared/laid-off to spend and if the stimulus fails to create a self-sustaining recovery (my hunch) then I think we will revisit S&P 500 666 sometime in the next 1-5 years (which is way less than a generation). Where I could be wrong is if inflation takes off, which many pundits believe could happen. Hedge your bets and stay nimble.

  31. hopeImwrong says:

    On the put call ratio – although all bottoms coincided with an exceptionally high reading, not all high readings coincide with a bottom.

    Sentiment is a strange beast. Sometimes everyone is right (until they are wrong).

  32. ben22 says:

    @Cohen,

    Too early to say you were wrong, 3 pm is far away. I think watching the put/call now is more important than it was several months ago. It’s a worry for me to see how high that thing can spike so quickly given how low it has tended to be during the entire rally.

  33. mcHAPPY says:

    @Ben22

    Regarding the Bloomberg article and FED seeking more time. Cynically speaking more time is needed to transfer the equities and equities to Joe Blow from the banks. It is not a stretch to conclude from their actions they have been setting up a crash for late fall or early winter. Showing their hand now would only accelerate the inevitable and unfortunately (for them) they would still be in the game at that point.

  34. hopeImwrong says:

    @ben22 – Put/call – It’s not clear to me what you are watching for with the put/call ratio. Are you watching for levels to indicate bullishness or bearishness, as a contrary indicator? Or are you watching it as a barometer for (as you implied above) some sort of read on market volatility potential?

    I’m not sure if this rally’s “lack of believers” is a pertinent sentiment point. Whether you are long the market or not, you may not trust the rally. But it seems to me sentiment only has value to the extent it really indicates what people are committing their money to.

  35. thetanman says:

    I like Doug Kass, at least what I make of him from his writings, but he has almost 0% chance of being right. He tried shorting a month or so ago and was predictably run over. And a lot of people don’t seem to realize his “generational bottom” wasn’t that easy. For several weeks leading up to the nadir, he was going long and getting crushed. I actually bought some of his recommendations and it was bloody. Still, he’s kind of a cuddly bear. Sold some longs and put on a few shorts, but I fully expect to be scrambling out of the way soon.

  36. hopeImwrong says:

    Tape is indicating bulls are losing control of this market, at least for now.

  37. Cursive says:

    Better than expected revision to 2Q09 GDP (although still soundly negative) and the market tanks? Over the last six months, the market manipulators would have used news like this to squeeze the indexes higher. Now? Not so much. I don’t think this is much left in this historic bear market rally.

  38. Bokolis says:

    1 and 2 counteract and 2 also can’t last forever. We’ve already had two years of wage freezes. Firms must know that they will pay for this- either through significant salary bumps/equity compensation or talent flight- on the back end.

    In 1993- back then, I was much smarter (peaked at age 9), much more ignorant and much less savvy- I figured 3 was going to take 6-12 years to happen. If Dubya/Greenspan didn’t decide that everyone should own a house, I would have stumbled onto brilliance. I’m now convinced that the Boomers and their Millenial offspring (proud to say that I’m neither) are incapable of long-term committment to this. Moreover, they delayed 3 by flooding the world with cash. Effectively, 5 is reacting to being called on a bluff (3) with a bigger bluff.

    8 – Given that we are in sore need of infrastructure improvemets, this is a prime opportunity for massive public works. It’ll be like sending the guys out to build the railroads all over. But, the direct benefit is small picture. The greater and far-reaching benefit is that those workers are kept active until the private sector can again put them to use. And, Michigan can finally detox from its 60-year addiction.

    9 – Oh, boy, is this true! The effect of funding and service cuts are starting to flow through. Have you noticed that Manhattan is starting to stink like the good ol’ days? Williamsburg, a bubble town if there ever was one, is destined to become a heroin/crack den. I guess no one figured that, among other things, gentrification (I won’t get into how Bloomberg whored out Manahattan, tax free) is only a stage before urban flight redux.

    10 – Higher taxes is part of the blowback. The MO is to tax labor and usage instead of wealth, but even that method surely must have its limits. Bloomberg is going to push the theory of the price elasticity of addictive goods to it’s limit. I doubt that they’ll ever committ to a wealth tax. But, if they did, it figures that they’d do it when those guys have lost half their net worth.

    Obligatory rusty trombone: You provide the best mix of smarts, street smarts and Street smarts I’ve seen. If I ever grow up -I say “if” because it ain’t gonna happen- I want to be like you.

  39. Cohen says:

    @Ben22

    re: CFC consumer debt, back of the envelope

    690,000 cars x 22,000 avg price (read that somewhere) x 90% of buyers financing (generously low imo) = $13.7 billion.

  40. Cohen says:

    @cursive

    there’s been a few days now where what should be good news isn’t able to push the market higher. Like they say, its the reaction to the news not the news itself, this bears watching.

  41. call me ahab says:

    “In the Tank Forever”: U.S. Consumers, Retailers in a “Death Spiral,” Davidowitz Says

    http://finance.yahoo.com/tech-ticker/article/312114/%E2%80%9CIn-the-Tank-Forever

    duh

    also- b22- was out the door this morning and posted my comment from another thread re Fed request for stay- did not have a chance to see you had linked to the story earlier- I was quoting from NC

  42. VennData says:

    “There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know.”

    — William Bernstein

  43. bdg123 says:

    The only problem with 73/74 is that inflation was coursing through the American economy. Much different fundamentals than today. Markets reflect fundamentals……………….The closest is either 29 or 37. And if one understand the fundamentals, one might assume that the 2000 market was 1937 and post 2008 is 1929. ie, Reversed.

  44. ben22 says:

    @hope,

    more the latter, a read on market volatility potential in the coming months. I have been mentioning sentiment more lately because the phsychology of the market is at an extreme now, we even eclipsed some sentiment readings from 10/07 recently! While we might not have met the absolute top of this thing, all the social mood aspects are there for it to be the top. If BR’s post regarding mm’s the other day was any indication, sentiment is merely reflecting the fact that big money managers have already put money into risk assets. Now who do you think is piling in way up here, retail of course, buying up all those “cheap” stocks. Sort of like making sure you “got in” on CFC.

    @mcHappy,

    I may be the only person left in the world that doesn’t think the Fed can control markets. I think the delay is because they are trying to mask how f-ed up things really are. The Fed follows, they don’t lead, and I think before all of this is over the credibility will be gone and perhpas so will the Fed, replaced by an international central bank full of all the “right” people.

    BB did not in fact save the world, for those arguing that Greenspan was more to blame, that isn’t the point and why does it matter who is more to blame at this point. What matters is that BB did not at all understand the crisis when it began and offered awful solutions early on. Then somehow in a very short period he not only all the sudden understood, but was able to fix all the problems created over the better part of the last two and half decades. Sorry, I’m selling that.

    I’d also like to say, and OT for this post, I completely agree with the regulation Volcker is calling for on MM funds. Anyone have any exposure to the Primary Reserve last year?

  45. Steve Barry says:

    AIG up 21% now…guy on CNBC saying he likes AIG because people are buying it.

    We are re-living Nas bubble of 2000.

  46. ben22 says:

    @Cohen,

    I came up with a little lower number and thought the same thing when I did it, maybe I’m being waaay too generous here. I heard a quick snip last night that many are indicating they already have buyers remorse from participating, as I’ve said, if they are successfull and re-inflate, those people will save absolutely nothing and will only be left with debt and gasoline well over $4 per gallon (though I’m betting on deflation, which still just leaves them with debt and a depreciating asset). In any event, it’s a huge amount of new debt, but what else is new, lets hope that this cash for appliances program and the almost too predictible extension on home buying tax credits ((this is coming right?) sucker in more people for me to eventually take things from.

  47. hopeImwrong says:

    @ben22 – re:hiding how bad things really are….

    It was clear to me as soon as Obama took office there was a “hiding how bad things really are” strategy, but Obama didn’t get the memo. He was trying to be honest to the public, and relay the “information” he was getting from the Fed and treasury. People thought he was talking down the market, but he was trying to prepare us.

    Of course, the FED and treasury were trying to scare him into letting them continue to do whatever they wanted. But, they were also describing what truthfully was (and is) a very unstable situation.

    Finally, Obama got the memo “happy face please.” But, this only resulted in (or coinsided with) sort of a wave of “positive spin” throughout the MSM. It’s been very weird.

    But now, I think as real information starts to filter through again, the markets will correct.

  48. ben22 says:

    @hope,

    I’m betting on more than just a correction at this point, but I’m a small minority it seems. If I’m wrong, well, I’m wrong. Maintain the same three favorite positons right now; short china, silver and long the dollar via options on UUP.

  49. Cohen says:

    @Ben22

    Not only do i think homebuyer tax credit will be extended, i think they’ll increase it

  50. Onlooker from Troy says:

    “guy on CNBC saying he likes AIG because people are buying it. ”

    That’s just too funny. Bizarro world, and some people “buy” it. Those that get their head handed to them playing with the fire that is FNM, FRE, AIG, C, etc. deserve every bit of pain they may get. And those that actually score some winnings (other than the big boys) will only be emboldened to do it again, and will eventually blow up before they realize the errors of their ways or run out of money. It’s just like gambling at the casino.

  51. Greg0658 says:

    veblens ghost at 8:44 am “thats how it works, otherwise they’d pass like ships in the night”

    good point .. but wasn’t that what the 700B* was for .. an absent push .. till the herd came back to cash out? .. slowly would be best .. right?

    *coda .. plus 10:1 30:1 40:1 derrivatives or the fractional-reserve multiplier

  52. hopeImwrong says:

    @Ben – I’m not using “correction” to define the size of the move. I’m just anticipating the market will get to a more “correct” reflection of the economy by going down. It wouldn’t surprise me to see the market take out the lows from earlier this year. But, I hope I’m wrong about that.

  53. Steve Barry says:

    AIG now a black hole…sucking in all available capital…fun to watch…could it be up 50% on one day?

  54. Onlooker from Troy says:

    Cohen

    Yes, they just won’t be able to resist extending and maybe increasing the HTC and maybe even CFC. How could they not, when it’s been “such a success”? /snark/ Nobody looks past their nose when making these decisions. There’s such a desperation to make thing “better” as soon as possible; damn the long term consequences or moral hazard.

    I’m so disgusted by it I can’t watch or listen (much) to main stream news these days (though I do every once in a while; strange attraction, and feel obligated to see what’s going on there). I just want to reach right in a throttle the talking heads who are just clueless and prattle on with this crap.

    Some people will make prudent decisions and maybe even bargain down the price while utilizing the subsidy; paying cash. But so many others are just emboldened to reach beyond their means again, and no doubt over pay as the subsidy goes right into the pocket of the seller. Uncle Sam is just continuing to be the enabler to the irresponsible and childish behavior of the over-indebted consumer.

  55. Onlooker from Troy says:

    “guy on CNBC saying he likes AIG because people are buying it. ”

    That’s just too funny. Bizarro world, and some people “buy” it. Those that get their head handed to them playing with the fire that is FNM, FRE, AIG, C, etc. deserve every bit of pain they may get. And those that actually score some winnings (other than the big boys) will only be emboldened to do it again, and will eventually blow up before they realize the errors of their ways or run out of money. It’s just like gambling at the casin0.

    (I had to resubmit this because it got eaten before due to the word, casin0, which I modified)

  56. Onlooker from Troy says:

    Yep, that was it (casin0)

  57. mcHAPPY says:

    @Ben

    I hope you have not assumed I am a believer in BB saving the world – couldn’t be farther from the truth. I believe the FED acts in the best interests of the elite. In saying this I agree they may not control the markets but they certainly help manipulate. FED policy follows in disaster but leads in recovery hence the boom and bust cycle. I’m waiting for the latest bust and am conviced the desired delay is to ensure the elite are not caught with the Old Maid.

  58. cvienne says:

    @BR

    Thank you very much for letting us know where you stand in relation to the Kass call.

    The anecdotal information demonstrates your courage & is much appreciated by myself (and, I think, seconded by many TBP’ers)…

  59. ben22 says:

    @mcHappy,

    lol, no I didn’t think that about you, or anybody else really that posts here.

  60. Greg0658 says:

    Bokolis makin me do a double window … way to go for BRs hits … who’s rusty trombone?

    ps … yellin at the cash tv station .. OPsM pushers messin with the whole balance .. get your fingers really dirty .. oohh paper cut .. ouchy … anti cashers unite with an alternate universe plan (-: |-: )-:

  61. call me ahab says:

    love this headline from ZH-

    “Racketeering 101: Bailed Out Banks Threaten Systemic Collapse If Fed Discloses Information”

    the Fed is desperate and will cover its tracks at all costs- they will look for a sympathetic judge to overturn the court order-

    it’s funny that availability of information is being used as a reason of a systemic collapse- something just not right there- must be some pretty scary stuff under wraps-

    could be a black swan event

  62. Greg0658 says:

    Troy onlooker “deserve every bit of pain they may get” .. and mcHap – heard this one before too .. “private profits & public losses” … the juice for some huh .. maybe all in a not so bizarro world

  63. VennData says:

    Where are these important short-sellers that are so important to the market? Why aren’t they shorting AIG and FNM … SPY even? etc… etc… I thought they were the equity price vigilantes? I thought they were critical to the market. I thought we needed them.

    Looks like it’s only the prime brokers who who need them. To paraphrase Warren Buffett, “When the tide comes back in is when you see the unimportance of naked shorts.”

  64. call me ahab says:

    from the same ZH artilce-

    The Clearing House Association consists of ABN Amro, Bank Of America, The Bank Of New York, Deutsche Bank, HSBC, JP Morgan Chase, US Bank and Wells Fargo.

    part of their response to the court requesting a stay-

    “If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank’s customers, counterparties and other market participants will draw a negative inference is great. Public speculation that a financial institution is experiencing liquidity shortfalls – which would be a natural inference from having tapped emergency funds – has caused bank customers to withdraw deposits, counterparties to make collateral calls and lenders to accelerate loan repayment or refuse to make new loans. When an institution’s customers flee and its credit dries up the institution may suffer severe capital and liquidity strains leaving it in a weakened competitive position. ”

    no kidding- but maybe the customer’s should flee- no? The banks are most likely insolvent. I find this whole event fascinating-

    I hope the stay is rejected

  65. Steve Barry says:

    AIG holder on CNBC laughing and calling for 200-300…and admits he doesn’t know what ison their books.

  66. call me ahab says:

    sb-

    surreal- what a bunch of fucking idiots

  67. jacobsk says:

    Kass call gone wrong last year:
    Nick and Toni’s conversation from Minyanville sept 2,2008. Reads what Toni says (kass).

    Kass was moderately bullish and was expecting a rally into the election of nov 2008. we know what happened after that.

    http://www.minyanville.com/articles//9/2/2008/index/a/18747

  68. NiceCriticalThinker says:

    Long time lurker; First time poster.

    I just saw the news that John Paulson is buying C. I would assume this guy is a smart one.
    http://www.reuters.com/article/businessNews/idUSTRE57Q1C820090827

    What he knows is unknown to many others or most of us? Does that mean the huge volume last couple of days concentrated on C, BAC, and 2F have something to do with him?

    Please enlighten me.

  69. mcHAPPY says:

    If the stay is rejected, what occurs first: money withdrawal or market wirthdrawal?

    While I agree with the FED’s argument – it very well may indeed cause mass panic – the point they are missing is depositors have a right to know about the strength or integrity of their chosen financial institution and do with this information as they desire. The same holds true for investors.

  70. Steve Barry says:

    The true measure of a central banker is what P/E he can induce…Greenspan got as high as 46 on the S&P in the tech bubble…Bernanke is now 68 on the S&P and 42 on Nasdaq.

  71. call me ahab says:

    mchappy-

    my reasoning for having the stay rejected- is-

    as John Lennon said- “just give me some truth”

  72. Cohen says:

    @ahab

    what a joke “You can’t release the information, it will let people know the truth and the truth is bad (for our bonuses)”

  73. call me ahab says:

    cohen-

    i say – bring on the truth and let the cards fall where they may- I am so sick of this financial fuckery by the Fed and the deception of the American people on the health of the TBTF banks-

    let’s get this shit over with

  74. ben22 says:

    “What he knows is unknown to many others or most of us? Does that mean the huge volume last couple of days concentrated on C, BAC, and 2F have something to do with him?”

    He was buying lots of BAC but that was in Q2, to my knowledge he is the fourth largest shareholder in BAC stock. All curious, perhaps that $3b long dollar position he is rumored to have taken was a hedge?

  75. Onlooker from Troy says:

    That article is really just rumor that Paulson has been buying C in the last couple of weeks. Maybe it’s true, and maybe it’s just a convenient rumor floated to let someone offload their shares into the speculative frenzy. After we saw the reaction to the report that he had bought BAC much earlier and lower, somebody might have figured this would be a might fine way of spiking C up. Time will tell. But be wary of buying on that kind of info.

    Bottom line is that buying the banks is pure speculation as nobody (outside of them) really knows what their balance sheets look like and what the longer term damage will end up with RE continuing to fall. How can you have any kind of conviction about investing in them with that backdrop?

  76. ben22 says:

    We might add re: Paulson that the initial buys of BAC weren’t common stock to my knowledge, I doubt if he’s actually dealing with C he’s just jumping in and buying the common.

    That’s like all the people that still think WB just bought common shares of GS and GE.

  77. NiceCriticalThinker says:

    Onlooker,
    You are right. The news could be a rumor. Secondly, he is a hedge fund manager, rather a Buffett type value investors, which usually hold stocks much longer. So, he is more speculative.

    Ben22,
    BAC was bought Q2. But C was, according to the news/rumor, bought last a few weeks.
    Would you please elaborate a little bit on this?
    “All curious, perhaps that $3b long dollar position he is rumored to have taken was a hedge?”

  78. call me ahab says:

    NCT-

    hedging a long $ position with a long BAC or C position- with the $ and stocks in general moving in opposite directions- so when BAC/C up- the $ is down- and when BAC/C down- the dollar is up-

    thus- a hedge

  79. manhattanguy says:

    sooner or later we will see a disconnect between dollar and equities hedge.

    While you guys are arguing if Paulson bought the common or not, he is probably in the process of dumping his shares right now. Remember sheeple are always behind the news.

  80. call me ahab says:

    “While you guys are arguing if Paulson bought the common or not, he is probably in the process of dumping his shares right now. Remember sheeple are always behind the news.”

    true

  81. NiceCriticalThinker says:

    call me ahab,
    I never understood how hedging actually works. If anyone more experienced could educate me on this? Here is an simplified example of “hedging”: buy 100 A and at the same time short 50 A. One position moves exactly opposite to the other. So, that is a “hedge” by all the common “hedge” set-up idea. Why not just reduce the size of the long position to 50 A? Again, please someone educate me on this.

    Thanks!

  82. ben22 says:

    @NCT,

    there are lots of different ways to hedge long and short, with options, currencies, etc so that question doesn’t have a simple answer. For someone without much experience I’d take the advice I heard somewhere once.

    If you need to hedge it, you shouldn’t own it.

  83. NiceCriticalThinker says:

    Re: If you need to hedge it, you shouldn’t own it.

    I am inclined to this approach.

    My understanding for hedging, in all kinds of different form, is that it reduces the valotity of the entire portfolio. It cuts both way: it reduced the intermediat/temporary non-realized gain and loss. From this stand of point of view, why not just reduce the “main” position size which would have the similar effect on the entire portofilo.

    I must have missed something if hedgies has something else intended consequence/effect.

  84. manhattanguy says:

    Wow AIG. Could be one hell of a short at some point. Disaster waiting to happen to all these momentum driven stocks.

  85. Cohen says:

    anyone have anything on why the dollar just tanked?

  86. manhattanguy says:

    Perhaps central banks around the world are waking up and selling the dollar. Eventually dollar will lose its status as dominant currency.

    The action in AIG just proves how much stock market is out of touch with Economic reality. This is all going to blow up pretty bad.

  87. Whammer says:

    @ben22, as someone who should have hedged something that I should not have owned, I wholeheartedly agree with your statement!

  88. call me ahab says:

    this has to be the last hurrah-

    this is going to blow up like a mofo- it’s surreal- my guess is the market will tank soon

  89. rustum says:

    Is it good time to move from stocks to dome debt funds in 401k. Is there any good international debt funds which gives decent returns.

  90. leftback says:

    Did the dollar tank or did the Euro rally? The yen was strong all morning. Same effect, in any case. Look, it’s still August so this could be JPM’s computer trading with GS computer for all we know.

    What is definitely happening as a side-effect of the $ tanking is that oil is becoming disconnected from reality (which might be represented by natural gas, for example).

    @NCT: Re: hedging, a much-maligned term for a variety of idiocy. As we learned last Fall at many hedge funds, “hedging” meant, f***ing long one instrument, with massive leverage – even if it means blowing up the firm.

    There are many sane hedging strategies that are often employed, you might have a large illiquid position in X and buy a hedging instrument Y (typically puts) after X has had a particularly large run-up into resistance. LB does this often by hedging Treasuries with TBT, and many investors do this for gold from time to time.

    Another common hedging strategy is to be long a superior debt-free stock and short a sector, in a falling market, or short a weaker debt-laden company and long a sector, in a bull market. Note that in a squeeze like the current one, the strategy of favoring stronger companies with less debt would actually have ripped your face off.

  91. ben22 says:

    @manhattanguy,

    Are you still bearish oil? Thought you were but might be wrong b/c you also seem a dollar bear. If you are a dollar bear don’t you have to believe we continue to lever up from here or am I missing something. When the deflation took hold the dollar took off… to the upside. The actual banknotes propping up all the debt is tiny, it’s bullish for the dollar then during deflation.

    @rustum,

    I don’t often see a global bond fund option in 401k’s but if by some chance you do have em, any of these might be worth a look (I hate mutual funds though)

    Templeton Global Bond TPINX
    Oppeheimer Intl Bond OIBAX
    AllBern Global Bond ANAGX

  92. ben22 says:

    ben22 Says:

    August 27th, 2009 at 10:42 am
    @Cohen,

    Too early to say you were wrong, 3 pm is far away.

    In all seriousness, if I had the time, I would love to go back and see since 3/9 what a strategy of going long with leverage on the S&P from 3-3:59 each day would have gotten you in terms of ror through today. I wonder if anyone actually tries to trade it this way it happens almost every day.

  93. NiceCriticalThinker says:

    Re: Re: hedging, a much-maligned term for a variety of idiocy. As we learned last Fall at many hedge funds, “hedging” meant, f***ing long one instrument, with massive leverage – even if it means blowing up the firm.
    Agree. Hedge fund has little to do “hedging” itself. As far as I understand, , merely, hedge funds are allowed to “short” rather mutual funds are, by law, only allowed to long.

    Re: There are many sane hedging strategies that are often employed, you might have a large illiquid position in X and buy a hedging instrument Y (typically puts) after X has had a particularly large run-up into resistance. LB does this often by hedging Treasuries with TBT, and many investors do this for gold from time to time.
    So, (il)liquid is one consideration.

    Re: Another common hedging strategy is to be long a superior debt-free stock and short a sector, in a falling market, or short a weaker debt-laden company and long a sector, in a bull market. Note that in a squeeze like the current one, the strategy of favoring stronger companies with less debt would actually have ripped your face off.
    This one makes sense for the expected trading profit comes not from overall market direction rather than the risk premium spread between low-debt/high-debt company. There was a post on ZH that shows one of James Harris Simons’ funds get badly wounded for this reason.

    Thanks, leftback, for enlightening. Still learning…

  94. Thor says:

    @Cohen – anyone have anything on why the dollar just tanked?

    So a drop of less than 1% qualifies as “tanking”? Just curious

  95. Steve Hamlin says:

    @NCT,

    “reduces the valotity (sic) of the entire portfolio” Hedging can do that, but it can also simply reduce *undesired* volatility, but leave the rest. Think multiple assets, each with slightly different correlations to each other asset. There are many spectrums of gross and relative risk, not just a single line to move around on. So you hedge to eliminate one type of risk between certain assets, collar a separate risk on another axis, and accentuate a third type of risk that is orthogonal to the first two.

    Perhaps Paulson wants to remove the USD$ risk from his bet on some other aspect of Citi.

    For example, in a pair trade among similar assets, you long one and short the other so as to remove the overall market risk, but keep the risk that they move relative to each other.

    A Gold-to-GoldMiners (GLD/GDX) pair trade thinks that Gold Miners are trading at a historic discounted compared with actual gold, and that this will normalize over time. But you don’t want exposure to movements in the actual price of gold. So you go long GDX, then short GLD to remove any effect of moves in the gold price, and are left with a bet that the Gold Miners become more valuable relative to the price of Gold. You don’t care if gold increase or decreases in price, just that the GDX discount-to-GLD narrows.

    It gets wickedly complex, with deep math and a steep learning curve.

    I like Ben22′s “If you need to hedge it, you shouldn’t own it.”

  96. manhattanguy says:

    @ben22

    Just to be clear, I am bearish on Oil and bullish on dollar in the short term. I think dollar carry trade will be over soon and we will see a spike in dollar. But having said that, dollar is still on a multi year downtrend in my opinion. Central banks around the world are cutting their Dollar share in the currency basket (increasing Euro and Yuan instead). In fact our own govt has told them to reduce their reliance on dollar as the major currency. I still believe that we will see a reversal soon (dollar up, equities down). But we will see a rally going into Christmas.

    Cheers

  97. ben22 says:

    thanks man, I kept telling myself you must be a dollar bear longer term based on those other trades I saw you say you’ve been putting on recently.

  98. leftback says:

    Strictly speaking it was a spike in the Euro, there has been ECB tightening chatter – which LB believes to be total bollocks. Outside of a few EMs, nobody is going to be tightening any time soon.

    The Euro ran smack into resistance and has formed a double top here v USD. Should the Euro make fresh highs this dreary phase of trading will continue further, as peep buy AIG and FNM and sell it to other peep. Once the $ turns upwards we will see a completely different market.

    BTW, if you’d like to see what the market thinks of energy demand (sans leveraged $ carry trade) look at nat gas.

  99. Cohen says:

    thanks for the xplanation LB.