Go figure –

Over the past 13 months, the Dow has regained nearly 4500 of the 5000 points it shed in the six month following the collapse of Fannie Mae, Lehman and AIG.

You can debate amongst yourselves whether this is proof that a) Capitalism works; b) Government intervention is more successful then popularly realized; c) the entire thing is a giant, charade, controlled by shadowy players — and GS.

Discuss.

Category: Markets, Really, really bad calls, 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.

98 Responses to “Dow = 11,000. Discuss.”

  1. schmoo says:

    This will end well.

  2. franklin411 says:

    It always struck me as slightly illogical that the same people who rail against the ability of citizens to cooperate in one field (government) are the people who would stake their mother’s lives on the ability of capital to cooperate in another field (corporations) and who utterly hate the idea of citizens cooperating in a third field (unions).

  3. mgnagy says:

    The DOW may (currently) hover around 11K, but, it is still not back to 14K+. Doesn’t look all that great to me. Perhaps I am missing the Big Picture.

    And so…

    Flame On.

    a) Capitalism _might_ work. We have yet to try it out in these United States.

    b) Government intervention has a track record of success. Pseudo-Capitalism backed Government intervention has a track record of… FAIL! (you’re soaking in it).

    c) The entire thing is a giant charade, controlled by non-shadowy players (and GS).

  4. tradeking13 says:

    Next stop, NASDAQ 5000.

  5. clawback says:

    Clearly govt. can manipulate the markets over the short term. This is hardly an argument that “government intervention,” as such, is “successful”.

    (Franklin411, people more intellectually curious than you would point out to you that govt. “cooperation” is not the same as real cooperation. Govt. “cooperation” involves a whole lot of forcing people to do things, whether it’s good for them or not. Moreover, those doing the forcing are not usually held responsible for their actions [cf. GW Bush], and so they have very little incentive to really and truly cooperate. Instead, they’re apt to pad the wallets of their friends — like Halliburton, or Goldman Sachs, or apt to force their bizarre world-views on others [cf. John Ashcroft].)

  6. KidDynamite says:

    i am an uber capitalist, but I”m hard pressed to figure out how anyone could get the conclusion “capitalism works” out of the last 2 years…. it’s been an incredibly ANTI-capitalistic period.

  7. Munish Hingorani says:

    Capitalism works because GS permits the Government to intervene.

  8. emailcraigs says:

    Well, considering that the whole thing was done with no oversight, no real plan for reimbursement, no concern for taxpayer monies, no transparency as to even where the money was going, no effective means of accountability…..ok, I’ll end this run-on sentence; and believe me…in its entirety its quite a run-on.

    The short fact is that we really don’t know if Capitalism works because as soon as the “big boys” got in trouble – Capitalism went out the door amid corporate blackmail of the American tax payer. As for government intervention….well….who knows….the government didn’t intervene…..a bunch of GS alumni did. So, in the absence of empirical data for the first two hypothesis……whatever explanation remains….no matter how illogical…it must contain truth.

  9. HEHEHE says:

    BR I’ll spell out this decade for you: collapse, QE1, “recovery”, End QE1, collapse, QE2, “recovery”, End QE2, collapse, QE3 ….WWIII and/or hyperinflation.

    1)There is no capitalism in the United States except on the small business level. The major corporations own our government and they work for each others benefit. Hence to big to fail.

    2)You take a huge chunk of my bad debts from me and give me treasuries in exchange, allow me to claim that my assets are worth more than they are, allow me access to 0% credit loans that I can then lend out at 5%, plus dump a trillion plus $ into the economy and I’ll show you a good time too:)

    3)End of day, the technicals take us higher while the fundamentals deteriorate. You tell me if you remember a time in the past where that recipe worked out well?

    If we had some real antitrust laws in this country and had broken up the Wall Street/defense industry/pharma cartels, let the big three fend for themselves, and cut government spending and THEN we reached DOW 11,000 I’d concede your point because it would have been natural growth.

    Whomever brought up the Bonds/McGwire steriods analogy the other day was spot on.

  10. Mannwich says:

    I vote “giant charade”, but one that can well go on for a lot longer than many of us think, just like the last two “giant charades”. Party on.

  11. Clem Stone says:

    It all reminds me of the best quote from a good book about traders….”The smarter you are, the dumber you are.”

  12. cognos says:

    BR –

    Check out prices on mortgage credit (ABX for example) all have ACCELERATED there increases over the past month and are headed straight up. ABX.HE.AAA series 07-2, 07-1, 06-2 are each up about 20% in 1 month (mainly back to around 50pts). The 06-1 series is up 10% to about 87 pts.

    There are main reasons similar increases are likely to continue. This stuff is broadly trending and it was priced down due to extreme fear and regulatory MTM selling pressure 1 year ago. Now reason it doesnt continue up through 70 and then earn its way to 100. I dont follow it as closely as I used to but I dont think there is a “realized losses” story. The “short-case” was alway built on a “ytm increase to about 15%”.

    So then – big picture – IF mortgage credit is being marked up. This means ALOT for bank earnings, bank capital strength, and the final turn of the credit cycle.

  13. jac says:

    I personally think it is too far, too fast.

    Due to the fast nature of the rise, it will awaken the sleeping individual investor. Get him invested at Dow 11K and keep adding capital for another 5% or 10% and then his shirt will be taken. The great individual investor will wait for breaking even for another 3 years and the impatient one will take money out in the next sell off for a loss.

    Professionals enjoy the volatility and continue to put fiduciary duties in the closet and take big pay checks.

    It sounds very fair. Everyone is playing to their strength. Isn’t it?

    Who is watching your back? No one or a pro with a knife to stab you?

  14. constantnormal says:

    Dow 14K by December!

    (and Dow 1400 by the following December) :-)

    It’s all good, folks … the wave of new orders will result in a tsunami of hiring, with rising wages enticing those living on the dole and loving it back into our highly efficient and honest free market system.

    @schmoo — mixed up the word order … I’ll fix it for you: Well, this will end.

    I honestly have no clue (nor, I suspect does anyone else) as to how long we can continue to squeeze assets from the lower 98% of the economic ladder into the wallets of the uppermost 2% (or 1%, or 0.1% … pick your own “elite”), but so long as that continues to work, the markets will rally upward, as that is the visible sign of the asset pump in operation. The stock market is sure as hell no longer an indicator of a broad and vibrant middle class.

    The stock market is a zero-sum game, and when the markets are booming and the economy is not (based on real disposable income), there is a money pump chugging away, separating the sheeple from their money. Perhaps they deserve to be shorn, I cannot say, but that is where the market’s rise is coming from.

    As we continue to downsize the economy, with a smaller population of retailers picking up the business from their fallen peers (and thus prospering not from a growing economy, but from scavenging in a shrinking economy) we are seeing a shrinking number of winners who are getting more prosperous, while the overall size of the pie shrinks.

    This cannot go on forever, as an expanding economic pie is needed to be able to pay back (or simply service) the exploding debt without ramping up taxation and choking off economic growth in a more forceful manner.

  15. constantnormal says:

    @cognos 10:17 am

    “So then – big picture – IF mortgage credit is being marked up. This means ALOT for bank earnings, bank capital strength, and the final turn of the credit cycle.”

    So we can dispense with the mark-to-make-believe rule and return to mark-to-market?

  16. Mike in Nola says:

    The answer could be either b or c, depending on whether you consider Bernanke’s actions government intervention (it was) or if you consider him a shadowy figure in hiding assets.

    I don’t think there would be a lot of argument, cept maybe from cognos, that the market would be a bit different today if old Ben hadn’t paid high prices for $1.5 trillion of crap so the big financial houses can post record profits.

  17. wallyworld17 says:

    Dow is back.
    a) There is economic growth-whether the bears like it or no.
    b) There is real money buying. It’s not retail accounts in the US but the US’s creditors who are the grinding bid for stocks. They need to put some of their massive dollar portfolio in something besides claims on paper currency in case the central bank/governments of the world succeed in destroying or severely damaging the int’l money system.

  18. peter north says:

    To infinity and beyond!

    I completely underestimated the power of the Fed and our policy-makers with respect to supporting (inflating) asset prices. Wish they could find as much success creating a bubble in good paying jobs.

    Mark me down for choice B. But the success has been much more about perception than what is real.

    Guess it’s time to stop worrying and learn to love The Matrix.

  19. phb says:

    @Kid – Capitalism has not been allowed to function over the last two years, so we’ll never know the full recuperative abilities of capitalism in this situation.

    @Cognos – Any thoughts to the increasing foreclosure rates and 90-delinquency rate and the increase in Financial Services & Consumer Discretionary sectors?

  20. Robespierre says:

    BR:
    Your statement “You can debate amongst yourselves whether this is proof that” implies that the crisis is over. [BR: Your words, not mine!]

    However, think about this: The same “fraud” and “TBTF” that took us into the crisis is still there and probably magnified by government intervention. And yes may be the technical indicators look better but the reasons for the crisis (fraud and government capture) is still working in full force and as long as that is the case, the “crisis” will keep coming back over and over (at shorter and shorter intervals). So do you trust DOW11000 or do you have your finger on the ready to sell in a heartbeat? In other words do you really trust that the crisis is really over or is it a massive “Goebbels” campaign in action?

  21. franklin411 says:

    @Clawback
    The people are the government, the government is the people. When government fails, it is usually because the people have failed–they fail to research candidates, they fail to care about political developments, they fail to vote.

    “The government is us; we are the government, you and I.” — John McCain’s hero, Theodore Roosevelt.

  22. wallyworld17 says:

    Dow is back.
    a) There is economic growth-whether the bears like it or no.
    b) There is real money buying. It’s not retail accounts in the US but the US’s creditors who are the grinding bid for stocks for the same reason they are buying gold. They need to put some of their massive dollar portfolio in something besides claims on paper currency in case the central bank/governments of the world succeed in destroying or severely damaging the int’l money system.

  23. Marcus Aurelius says:

    It’s not Capitalism at work in the markets, it’s Corporatism. Why else would the markets treat this special interest group so well while leaving all other economic classes eating dirt?

    Three options:

    1. Go with the Corporatists and invest in their form of government.

    2. Go against the Corporatists and be further disenfranchised.

    3. Go against the Corporatists by investing in the few remaining investing opportunities not completely controlled by the Corporatists.

  24. constantnormal says:

    Until the bears in TBP comments forum throw in the towel and go long, the markets will continue to rise. Still too much suspicion for the markets to top out now.

    Maybe this summer (or heading into it) we will see a big push by the retail brokerage/mutual fund establishment, encouraging their customers to play “catch-up ball” and recover their losses over the past few years by borrowing and going long. I noticed that one of my brokers is pushing a discount on their margin rates — a portent?

    When we see the mortgage lenders pushing HELOC loans as a vehicle for joining the stock market rally, it will be time to stock the 1960s bomb shelter with canned food and bottled water, and lock the door behind you.

  25. beaufou says:

    Is this a re-inflate period before the shit hits the fan again?
    Where are the regulations and the responsibilities in all this mess?

    Before declaring victory, there’s still a lot of work to do with regulating and taking care of colossal national debts.
    Right now, I feel everybody is sweeping dirt under the carpet, and the millions of unemployed with the “jobless recovery”, where do you put them?

    Capitalism keeps working, for a minority right now and for years to come.

  26. Mike in Nola says:

    f411: you naive idealist.

    Unless a new TR gets pushed into the White House by lady luck or an assassin’s bullet,as happened with TR, big business is the government, just as it was when TR first took over. Just think how close we came to not having a TR in the White House. I think the big businessmen are much more careful who they allow on the tickets as VP. Look at last time: Biden and Palin. Neither is smart enough to be dangerous to them.

  27. constantnormal says:

    @franklin411

    “The people are the government, the government is the people.”

    When 95+% are re-elected in perpetuity, and we have a disturbing percentage of political dynasties in government?

    Get real, man. We have a political class that runs the government, as representatives of the corpocracy.

    But I invite you to prove me wrong — run for any federal office and get nominated — not elected, just nominated.

    I believe you will discover a very steep barrier to entry. Votes count for nothing so long as the system by which candidates are selected is owned and operated by the Republicrat duopoly.

  28. Mike in Nola says:

    As ZH points out, VIX is at lowest since July 2007. Happy days ARE here again.

  29. Mannwich says:

    Small businesses and the “little people” are the only ones who are forced to operate in a ruthless quasi-capitalist-free market environment, which means many are going to continue to get crushed in the Potemkim economy in the coming years.

    Big businesses and the uber-elite get to work with their handmaidens, our so-called political leaders in a distorted quasi-socialist playing field to ensure they never lose and actually gain even more during disasters like the one we just had. It all works really well for them for a while. Key being “for a while”. This will not end well at all.

  30. franklin411 says:

    My point is that the people vote. People criticize the government as if it’s some nameless, faceless institution over which the citizens hold no power.

    Baloney.

    The people put the government in power. If the people get tricked into supporting corporate candidates, that’s their own fault. If the people ignore corruption, that’s their own fault. If the people elect dimwits based on who they’d rather have a beer with, that’s their own fault.

    The people make the government, either by commission (voting for a certain person/policy) or by omission (not voting/not caring about what goes on).

  31. The Curmudgeon says:

    The government and our shepherds are masters of illusion, not the universe. But I do need to buy me some of that subprime smack, before I’m priced out of it forever. Dow 11,000? Big whoop. Ten years after hitting 10,000, it struggles to return to 11,000? Really? What an “investment”.

    “Tis true, that “we are the government” but really, don’tcha think we might have some agency costs associated with this representative government? I mean, when we only get to vote indirectly (for representatives) and even more indirectly (for representatives that approve and appoint our shepherds at the Fed), there is quite a bit of play in the joints for those representatives to represent only those interests that are sufficiently concentrated to make their dollars matter. The idea of America–that rights belong to individuals–not collectives–is all but dead.

  32. Mannwich says:

    Comment eaten. Used the wrong word, I guess. Where’s George Carlin when you need him? Sigh.

    Summary – small businesses operate in a ruthless quasi-free market-capitalist environment, which means millions more will fail in the next 1-3 years.

    Big businesses – not so much. We’ll all be working for Wal Mart soon. Or not.

  33. Mannwich says:

    @f411: Fair point but the system itself is rotten. So much so that it doesn’t matter who the candidates are at this point. It’s a waste of time to vote within this current system.

  34. Marcus Aurelius says:

    constantnormal Says:

    “This cannot go on forever, as an expanding economic pie is needed to be able to pay back (or simply service) the exploding debt without ramping up taxation and choking off economic growth in a more forceful manner.”
    _________________

    The pie has already been expanded beyond all reason. Why are we taxed at all when the Corporatist system can create money on a whim and allocate that money to its membership (for lending to us at usury interest rates)?

    The truth at the core of our current dilemma is that there isn’t enough cash-money to offset existing debt-money. The cash-money that has been created has been distributed to the very top of the economic system, leaving the indebted high, dry, and debt enslaved. This is by design, and will perpetuate the debt slavery for anyone not a member of the Corporatist cabal.

  35. phb says:

    @Franklin411: Dude, check out “Idiocracy” if you really believe people are thoughtful, careful voters. No trickery involved, only an apathetic “does-it-impact-my-wallet” constituency.

  36. Mannwich says:

    And the only national candidates that seem to have a chance are the uber-wealthy ones or the ones supported by the uber-wealthy, corporate and powerful. “The people” don’t really have a real choice to vote for someone who will truly represent THEIR/OUR interests.

  37. I-Man says:

    Capitalism? You call this Capitalism?! (This is some kind of crony capitalistic shit, but I wouldnt call it Capitalism… oligharchic kleptocratic something or other, maybe… but I’ll leave that to someone else.)

    Dow? Who looks at Dow?!

    Just kidding… I’ll take a glance away from my girl, SPX, and see whats crackin on the DJIA… its been awhile.

    I-Man’s DJIA Forecast:

    Nice uptrend on the weekly and daily charts… but man, is that monthly chart a little scary.

    I-Man says DJIA will probably trade up to 11200 or so in the near term, before correcting back to the approx 10150 level later this spring. I doubt the DJIA will close April over 11200, but I’ve been wrong a few times of course. That correction will be interesting of course, and will certainly be tradable from the short side, but we’ll likely get a nice buying opportunity at 10150 into what will most likely be a lower high at 10800 or so by early summer.

    If a lower high does materialize at the 10800 level, then folks would be keen to take a closer look at that monthly chart… could get a little precarious. 8100 is a level that looks like it wants to get tested at some point over the next 12 months or so.

    Always good to take a look at different markets than the ones we normally trade, its good for the eye.

    1L,
    I-Man

  38. Marcus Aurelius says:

    This exchange says it all:

    http://www.youtube.com/watch?v=mXmNpdYpfnk

  39. Greg0658 says:

    responding to Jac at 10:21am – ” keep adding capital for another 5% or 10%” – very probable – the kids doing their stuff at work to busy to understand – but know saving (somehow) for age date 65yo – seems to be 401K 201K – $s (token #s) gots to go somewhere

  40. Mike in Nola says:

    Marcus: Great cross examination. Didn’t know Grayson was a trial lawyer.

  41. jz says:

    In the Producers, Bialystock and Bloom (B & B) sold shares in a musical intended to be a flop, sold an unlimited number of shares, but their musical became a hit. They were caught and sent to prison, but that was back in 1968.

    Today, corporate management has the same scam except instead of getting caught they did one better. They convinced all their investors to reinvest their money and they would get even wealthier. The modern day B & B boys then hired on their buddies to be on the Board of Directors who issue them options galore to dilute the snot out of the little old ladies who invested with them. The B & B boys also paid a compensation company to recommend that they receive ridiculous salaries, and they hired accounting firms to muddy up their balance sheets so much so that no rational person could understand them.

    In 1968, Bialystock and Bloom were put in prison. Today they would be on the cover of Barron’s.

    I used to think the SEC was a toothless organization, but after reading Markopoulos’ book, I now realize that they are brainless and toothless.

    Maybe they are some corporations not using B & B practices, but they could at any minute. Point is that unless you are a majority owner of a corporation the intrinsic value of the stock you own is worthless IMO. That it goes from $7 to $11 is unimportant. Enron and Worldcom stock had their rallies too.

    That is why commodities and bonds have become so popular. I personally am 85% in bonds, and they too have rallied to ridiculous levels. I haven’t bought anything though in six months and have been either spending my interest payments or keeping them in cash. The rally in stocks, commodities, and bonds has been fueled by the fed lowering interest rates to 0%, and this sugar rush rally is going to end soon and end badly.

  42. crunched says:

    The government’s Gold and Silver manipulations are finally being exposed… just waiting for someone to blow the whistle on the stock market operations. Let’s start with the futures market… I say we start a fund to offer a reward for someone to come forward.

  43. Transor Z says:

    DOW 11,000 is a terrific measure of DOW index equities.

    DOW 11,000 is a bit less reliable as an indicator of the state of the “real economy.” For those of you who don’t inhabit the “real economy,” it’s this fabled place in which small businesses are getting jacked by higher health insurance premiums and closed-out LOCs. But I will say this: commercial lease space is plentiful and the cheapest its been in a long time.

    When the individual inhabitants of this magical land go home, those who live in homes they can afford are paying more for less — municipalities are raising property tax rates to stave off bankruptcies — and bedroom communities with formerly “good schools” have found that their kids are losing ground due to extreme budget cuts. But fortunately, the effects are limited to people with families.

    Harvard tuition is now $60,000. But the good news is there are subsidies available for the many incoming students needed to clean the bathrooms for their more fortunate peers. (I suspect the savings on unionized campus cleaning staff makes the “subsidies” a bit less costly to the Endowment than one might expect…) So parents in the “real econ0my” have something for their kids to shoot for to rise out of the grinding poverty of the middle class: an Ivy League education.

    It’s all good, dawg.

  44. Mr.E. says:

    2007 Euphoria (goin’ to the moon, Alice)
    2008 Euphoria turns to fear then to real panic
    2009 With profound government intervention to liquidize credit markets panic abates, moves to skepticism and ends with optimism
    2010 Optimism is building back towards euphoria, but still has room to build more before government supplied liquidity faces withdrawal.

    Everything I see in markets broadly strongly suggests to me that the panic was a result of the sudden disappearance of liquidity in credit markets broadly (brought about by the come-to-Jesus wake up call and realization of risk acceptance that arose from a credit bubble), and that spilled over into both the economy and equity. What we learned – throw enough money into the sea of finance and it spill over into the capital markets without necessarily influencing the broad economy. Charade ? No! Over-reaction at both extremes? Absolutely! We are now in the next bubble – a liquidity bubble. So much for the Fed’s watch. At some point well-intended government policy (maybe taxes intended to deal with the absurd fiscal problem) will set the stage for markets to normalize, but it will be one of those unintended consequences.

  45. b_thunder says:

    GWB, even with Bernanke’s and Paulson’s best efforts, couldn’t “hold down the fort” until the next election… Well, there’s an election in 7 months, but more importantly there’s another one in 2 years and 7 months.

    Does anyone want to bet that if the answer is (b) Government intervention, or (c) the entire thing is a giant charade, B.O., Ben and Timmy will accomplish something that’s many time more difficult than what the previous crew failed to accomplish?

  46. cognos says:

    This was really helpful. Good chat.

    Evidence seems to show bear case and pessimism are brainless, data-less, and on an angry witchhunt. (“Damn! This must not be capitalism because I havent been right. Another beer please?”).

    Lets do it again at 1300 on SPX sometime soon.

  47. Transor Z says:

    http://www.nber.org/cycles/april2010.html

    NBER:

    NBER COMMITTEE CONFERS: NO TROUGH ANNOUNCED

    CAMBRIDGE, April 8 — The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date.

  48. bsneath says:

    Bernanke has successfully re-inflated the capital markets, global economic growth is strong and the government has succeeded with fiscal stimulus through sheer quantity (cash outlays), but not quality (investments in a more productive economy).

    a) Hard to tell at the moment.

    b) All that has been proven is that government intervention can be successful by shear volume when one’s currency is also happens to be used for global commerce and central bank reserve holdings. (How else could we run deficits similar to Greece and yet have a strong currency and low interest rates on our Treasuries?)

    c) Yes, it probably is a giant charade. One that even the key players may not be fully aware of. One that may culminate with another black swan event if/when global investors lose confidence in the dollar as a reserve/commercial currency.

    Perhaps they will succeed in bringing deficits down while maintaining economic growth and avoiding global inflation in which case capitalism will be shown to work in spite of questionable government actions and the influence of the assorted groups of “shadow players”.

  49. Robespierre says:

    cognos Says:
    April 12th, 2010 at 11:27 am

    This was really helpful. Good chat.

    Evidence seems to show bear case and pessimism are brainless, data-less,

    So here some of that data-less analysis:
    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aYyC7r7E8N3M

    Bank Profits Dimmed by Prospect of Home-Equity Losses (Update1)

    By Dakin Campbell and David Henry

    April 12 (Bloomberg) — Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. may have to set aside an additional $30 billion to cover possible losses on home-equity loans, an amount almost equal to analysts’ estimates of profit at the three banks this year.

  50. cognos says:

    Hey Robspierre —

    What makes you think that “credit losses” are not ALREADY figured into “analysts’ estimates of profit”?
    What makes you think WFC, BAC, JPM did not already reserve for these losses?
    Do you know what revenue (or net interest income is across those 3 banks) is? Its about $50B/yr per bank. Why do you think they mis-priced the home equity loan product?

    In the big macro-economic scheme of things, 2nd-lien home equity loans are TINY.

  51. Robespierre says:

    Hey Cognos

    Mortgage Defaults May Be Driving Consumer Spending
    Lender Processing Services just put out its “Mortgage Monitor Report,” and we have a new record:

    The nation’s foreclosure inventories reached record highs. February’s foreclosure rate of 3.31 percent represented a 51.1 percent year-over-year increase. The percentage of new problem loans also remains at a five-year high. The total number of non-current first-lien mortgages and REO properties is now more than 7.9 million loans. Furthermore, the percentage of new problem loans is also at its highest level in five years. More than 1.1 million loans that were current at the beginning of January 2010 were already at least 30 days delinquent or in foreclosure by February 2010 month-end…

    … First he describes a case study of someone who applied for the government’s Home Affordable Modification Program.

    The person had an $1,880.00 monthly mortgage payment on which they’d defaulted, but said person’s monthly bank statement showed payments to a tanning salon, nail spa, liquor stores, DirecTV bill with premium charges, and $1,700.00 in retail purchases from The Gap, Old Navy, Home Depot, Sears, etc.

    http://www.cnbc.com/id/36422316

    As have been saying, no recovery is possible as long as fraud at all levels (individuals, banks, government) is the MO for American society.

  52. clawback says:

    franklin411,

    we can vote? ROFL!!!

    typical male — always blame the victim. tisk, tisk. ;-)

  53. tagyoureit says:

    You are the government
    You are the volition
    You are jurisprudence
    You are jurisdiction
    And I make a difference too! – Bad Religion, Suffer, 1988

    I think (a) and (b), but (c) makes for the best narratives. I like a good story and (a + b) needs a little ÷ (c) for good measure, because (a) is the idea, (b) is the action on the idea, (c) is the equal and opposite reaction to (b).

    Therefore (a+b)/(c) = 0.

    Energy WILL be conserved! ;)

  54. Mike C says:

    Check out prices on mortgage credit (ABX for example) all have ACCELERATED there increases over the past month and are headed straight up. ABX.HE.AAA series 07-2, 07-1, 06-2 are each up about 20% in 1 month (mainly back to around 50pts). The 06-1 series is up 10% to about 87 pts.

    There are main reasons similar increases are likely to continue. This stuff is broadly trending and it was priced down due to extreme fear and regulatory MTM selling pressure 1 year ago. Now reason it doesnt continue up through 70 and then earn its way to 100. I dont follow it as closely as I used to but I dont think there is a “realized losses” story. The “short-case” was alway built on a “ytm increase to about 15%”.

    So then – big picture – IF mortgage credit is being marked up. This means ALOT for bank earnings, bank capital strength, and the final turn of the credit cycle.

    Cognos,

    You’ve made some good points in numerous posts about the rebound in corporate profits, and reasonable valuations at the individual company level for a number of companies, but I think you are way off the mark here with respect to your comments on mortgage credit. I’d respectfully suggest you really need to closely read Hussman just posted weekly commentary “Extend and Pretend”

    http://www.hussman.net/wmc/wmc100412.htm

    “With regard to credit conditions, the U.S. financial system continues to pursue a strategy of “extend and pretend.” A year ago, the Financial Accounting Standards Board (FASB) suspended rule 157, which had previously required banks to mark their assets to market value when preparing balance sheet reports. The basic argument was that fair values were not appropriate because there was “no market” for troubled assets. Certainly, the FASB could have implemented something at least modestly reasonable, such as 2-year or 3-year averaging, but instead, they changed the rules to allow “substantial discretion” in the valuation of bank assets in their financial reports.

    To a large degree, the idea that there was “no market” for troubled assets was false even at the time. Last year, Dean Baker of the well-regarded Center for Economic Policy Research (CEPR) testified before Congress, observing “There has been considerable confusion about the nature of the troubled assets held by the banks. While banks do hold some amount of mortgage-backed securities, these securities are in fact a relatively small portion of their troubled assets. The troubled assets on the banks’ books are overwhelmingly mortgages, both first and second or other junior liens, not mortgage-backed securities. The FDIC has acquired large quantities of mortgages from its takeover of several dozen failed banks over the last year. It auctions these assets off on an ongoing basis. The results of these auctions are available on the FDIC website. Non-performing mortgages typically sell in these auctions at prices in the vicinity of 30 cents on the dollar.”

  55. jaytrader says:

    Capitalism along with Democracy has badly failed. Why even have stop losses anymore? The exchange shouldn’t even except them. Those mental stop losses? Throw them out the window as the government will also eat that as well.

    Everyday the shenanigans just increase. Short Sale restrictions. Forced buy ins of crappy stocks like AIG, FRE, and FNM. The mkt is 70% High Frequency Trading, along with POMO is running equity prices higher and higher. Why in the world is every single piece of news regarded as Bullish? If Manhattan was engulfed by a 2012 like tidal wave, I am sure CNBC will say BULLISH!!! Wall Street will just securitize all of that excess water into S-CDO’s and have AIG insure them again. The prevailing trade has been buy garbage all day long. Why Not take Uncle Ben’s money at ZIRP and hand it over to the Tax Cheat and take 4%?
    Sounds good to me.

  56. flipspiceland says:

    Some people need a grounding in what Capitalism means, including BR. Good grief, man, WHERE have you seen capitalism working here in the unUnited States in the last 100 years?

    There are so many distortions in the system we have been working under that a fun house mirror would looke straight by comparison. Government choosing who succeeds and who fails is NOT, repite Usted, NOT capitalism in any economics course I ever took.

    What the fuck?

  57. rootless_cosmopolitan says:

    cognos,

    “Evidence seems to show bear case and pessimism are brainless, data-less, and on an angry witchhunt. ”

    What evidence? Who are the witches being hunted? Once more posing and ad hominem from you, although you never really prove any of your assertions with hard data, but you rationalize away any data that are provided to you, but are in contradiction to your claims and predictions.

    “(“Damn! This must not be capitalism because I havent been right. Another beer please?”).”

    This is capitalism. The really existing one, how it has developed historically. It’s just not libertarian fantasy land.

    rc

  58. Bala says:

    ‘meh…..

    Candidly, (and not to be a smart ass) but at this point, does it really matter?

    My personal school of though goes something like this: As long as I’m making (and putting away enough) money, I don’t care.

    If and when it comes crashing down, I’ll reassess then. Until that time, its “Game On”!

  59. cognos says:

    The Hussman post is wrong on a variety of levels. It shows little basic understanding of banking.

    1. Do you know when FASB 157 was put in place? (answer 2006 or 07)
    2. So why, after 70 years of banking without FASB 157, is it SO KEY to capitalism now?
    3. FASB 157 was a huge part of the problem. It let speculators front run banks who are by construction — highly levered institutions. Its a tragedy of bad regulation. Banks should and MUST use accrual accounting. “M-T-M” for illiquid assets is a fantasy. In any crisis, their IS NO market.

    4. Banks and really all credit (bonds, loans, structured products) operate on a simple principle – They earn interest. Riskier credits (subprime?) pay higher spreads. These loans tend to have, lets say, 10-yr life. Over 10-yrs they pay say 7% interest annually (or roughly 200% of loaned principle to term). At the end, if there are ZERO losses, the investor earns 200% capital. If there are 30% defaults, recovered at 50%… and lets say they occur evenly through time… the investor earns 5.5% interest annually.
    5. Of course, things dont happen in an even / uniform way. So the interest pays for 5, 6, 7, years… and then the losses all hit at once. Thus in a single year, the loans can lose 10% or even 20% in a real crisis.
    6. That said, there is still this significant interest spread… over time this very reliably out earns the credit losses. So the world sees the 10% loss in a single year, and writes the product down to 50 pts (despite the 200% total potential) and then things turn better and the product pays 150% total… for a 3x return to risk taking at the bottom of the crisis.

    So what Hussman calls, “extend and pretend”… I call “the basic function of banking throughout time”.

  60. cognos says:

    Rootless -

    Last time I pointed out 12 data points on the economic recovery (ISM, profit growth, job growth, etc, etc). You pointed out 1 you didnt like (was it housing bottom? or bank credit cycle turn?).

    Not very robust.

    All you guys saying — “housing” or anything mortgage / banking related — as the reason you’re pessimistic… dont you realize that was the 2006-2009 trade? Expectations were awful for housing/banking/mbs… the reality is turning out to be MUCH BETTER than expected. Its over.

    The key to markets is to look forward 6 months, 1 year, 2 years… what will things look like?

  61. Mannwich says:

    @constant: I think he’s come to New Orleans to learn what NOT to do, which is half the battle, no?

  62. The Curmudgeon says:

    “Its over.”

    For how long? Is this economy/financial system resting on solid foundations? Or have the cracks been simply papered over by the Fed?

    This thing they called the “financial crisis” is really only beginning, as governments have assumed, wholesale, risks that were once considered private. Aside from the historically-proven truth that governments are not efficient at capital allocation, all of the western/developed economies are facing a long-term fiscal and demographic disaster. How that equates to a good foundation for a sustainable economic growth is beyond me.

  63. Micah Elder says:

    Cognos:

    You seem to be the one here at odds with many (and with my view of things, which I will admit right up front.) My question to you is this – If the banks are in such great shape, why don’t they pay back all the money they got from the government (not just TARP, but all the other alphabet soup programs dreamed up to give them money), and buy back all the assets from the Fed dollar for dollar? If they can do this and then turn a profit, then God bless them and their bonuses.

    I would also add that it is my belief the banks reserved large amounts early on against losses, and their reserves seem to be sufficient (if not excessive) for the moment, but I believe their reserves will be nowhere near sufficient when they finally foreclose on everyone who quit paying their mortgage many months (if not years) ago (and who the banks ignore due to the impact on their balance sheet.) We obviously disagree in our views but that is what makes a market.

  64. MRegan says:

    Piñera went to New Orleans to eat some decent food. If you hate your palate, anda pa’ Chile. Jajaja, Rotos! A comerte una cazuela de Chillán!

    As for the topic du jour:

    “You can debate amongst yourselves whether this is proof that a) Capitalism works; b) Government intervention is more successful then popularly realized; c) the entire thing is a giant, charade, controlled by shadowy players — and GS.”

    The only element out of place is “controlled”. Capitalism works; this is obvious. Corporatism works as well, just not necessarily in accord with your interests (unless you are a spats-wearing sumabeh-ch). Reflation…swimmingly (if you’re in a yacht, wearing drip-dry spats). And finally, having watched in real-time attempts to influence outcomes, these projects happen, but ‘control’ is a slippery thing.

  65. rootless_cosmopolitan says:

    cognos,

    I don’t know to what specific thread you refer here, however, what I have been saying is that data are mixed, currently, whereas you paints everything as rosy.

    For instance I laid it out here:

    http://www.ritholtz.com/blog/2010/02/banking-system-remains-in-perilous-health/

    which is still all true, except that unemployment is up or down, we don’t know. Even if unemployment is going down, which would support a recovery, you claim it’s a lagging indicator. It’s lagging, indeed, compared to leading indicators. You say the key is to look forward. I agree. So what are the key indicators that say the most about the future trend of the economy? I am saying that those indicators, which are early indicators of the economic trend are rather pointing downward, currently. Housing and early consumer demand metrics. And credit is still contracting. You haven’t shown any data that prove otherwise. Nevertheless, there isn’t any reason for doubt for you about the V-shaped economic, earnings, and stock market recovery? Then, explain why those early indicators are not relevant for the future trend, please.

    And hat data do you have to prove your claim that the real estate problems are basically over, that the banking problems are basically over, and that deleveraging has finished?

    rc

  66. MRegan says:

    As for the FAS 157 spat, I recall its adjustment last year and in fact it seems to me that I posted a link here to a March 09 FASB pdf in which they outline its modification back in March 09. I did a quick gurgle and found this link that gives a little bit of history- not the full story of course, but worth a quick perusal.

    http://www.executivecaliber.ws/sys-tmpl/fasb157/

    Also, the wiki page has some info. Feel free to heap scorn upon me for my wiki apostasy, it will work, I will shrivel into a ball and cry like a baby. What I won’t do is spend hours upon hours of my time watching other men play sports. I’ll leave that to all you he-men.

    http://en.wikipedia.org/wiki/Mark-to-market_accounting

  67. comet52 says:

    a) Capitalism works; b) Government intervention is more successful then popularly realized; c) the entire thing is a giant, charade, controlled by shadowy players — and GS.”

    b) with some a) mixed in. The only charade is the way Wall St. games the system to profit from causing harm to so many Americans, and walks away scot-free.

    However, Americans and reality in general are more resilient than the econo-blog commentariat, whose main talent now appears to be coming out from the under the covers briefly to yell, “NYET!” Hence we continue to recover.

  68. BrianHolder says:

    I’d have to pick none of the above.

    A) A free market exists only in an abstractionists mind. How can you even come close to such a thing without full cost accounting? And once you get that, the next question is how to determine the true costs of externalities, and then you’re back in an un-free market.

    B) Our government intervention amounts to nothing more than trying to bail water as quick as they can while still heading out to sea, instead of turning around to board a new ship.

    C) I’m skeptical of any such idea of shadowy controllers behind the curtains. Just look at any human social group you can think of, do they really appear to be able to act rationally and unilaterally? The truth is no one is in control.

    In the game of creating a metaphor for our economic future using a letter, I lean toward the ‘X’. That seems to be how large changes work historically.

  69. rootless_cosmopolitan says:

    cognos,

    “The Hussman post is wrong on a variety of levels. It shows little basic understanding of banking.

    1. Do you know when FASB 157 was put in place? (answer 2006 or 07)”

    No surprise. It was of advantage for the bank back then, as you say yourself. The other side of mark-to-market, at the high of the speculative credit bubble.

    “So what Hussman calls, “extend and pretend”… I call “the basic function of banking throughout time”.”

    So what are you saying? That the fair value of any loan was at least 100% of the dollar, even if the cash flow from the investment is only a fraction of the promised cash flow, at least in those cases where the sum of the amount paid back to the lender plus cash flow from interest exceeds the original loan amount? Where does the valuation of risk comes in the price of the loan then? Otherwise, I don’t see where you have refuted what Hussman wrote. If you don’t say this you would have to agree that defaulting on a loan and partial recovery is lowering the price of the loan below par. Hussman didn’t say that loans should be valued according to FASB 157. He said that banks have been allowed to hide the real value of their loan portfolios, and that there is the suspicion they are hiding big losses. You claim banks have already accounted for their credit losses, everything is priced in their earnings, and there isn’t any harm coming from this anymore. How would you know? You are just assuming, aren’t you?

    rc

  70. nickthap says:

    Barry,

    Do you do these kinds of postings to show how smart people who comment on blogs sites THINK they are? I mean, really, the answers should be 1) don’t know, 2) don’t know, and 3) don’t know.

    Why is it that people that read blogs (and many that write them, not including Barry) have this character trait? Aren’t people who claim to know stuff they can’t possibly know (like the answers to these questions) just doing what Barry pokes fun at CNBC for doing?

  71. tenaciousd says:

    I have no idea. But, I can guarantee you this: I am not about to trust the same group of people who crashed my car into a wall to tell me that it is now fixed good as new. We live in a nefarious age, and (as far as investing is concerned) I will continue to watch my back and expect the worst at any moment. I hate for it to be that way, but such is life.

  72. HEHEHE says:

    How much confidence can you have in a banking system when the switch of one accounting rule makes several thousand banks that were insolvent suddenly solvent overnight?

  73. Europe says:

    What is the overall problem with the economy: produducion capacity > real demand. Whenever there is some sort of setback, for example bubbles popping they guys in charge freak out. The economy is loosing jobs and insted of adressing the problem we aim at boosting demand short term in a way that has accumulated enormous debt over the last 10 years. This way of adressing the problem has been very, very expensive. Once again the problem is that consumers are spending to little….. this started as early as 1990, but became a real problem as a consequence of the crises in Asia. Saving = future consumption. If we consume today, borrowing from the future (no savings, accumulating debt) consuming today on the expense of the future = not a good thing and not a nice way to treat the next generation. Overconsumption for + 30 years and the only way to fix the debt problem is more debt?

  74. EAR says:

    Go to a bar. Talk to Joe Everyday about the state of things. You and he, due to different levels of knowledge on the subject, have a different perspective of what is happening… a) it works or doesn’t according to what it is to whom on any given day. Your plumber and your friend on Wall St and your Senator see it differently. Like everything concieved and defined by humans, it becomes something else when we apply it.

    If Joe rails about the bailouts, talk to him about b) public sector efforts to sustain and lift the falling “value” of eveything the private sector thought was valuable until it wasn’t. If you’re a bear use a metaphor of pouring sand or water (fallling asset values, incomes, the middle class) into a palm of a hand (gov’t intervention). Bull? A hand extended to help up someone who has fallen. Bear? … and when that had pulls the fallen up, it pulls so hard it flings him high into the air and down into a pool of quicksand. Bull… where the hand throws him a rope just as he’s about to go under and pulls him out slowly and carefully, and so on…

    As someone with knowledge, as a service to your fellow man in difficult times, talk about the unresolved… CRE, Muni bonds, ARMs, etc. As you speak, as always, you’ll know that c) is a means to deflect, mitigate, and/or distract from these menacing rain clouds while they break apart the lifeboats to patch the gaping whole in the Titanic. As his eyes glaze over and move to the game on the TV behind you, you’ll remember why c) is so damn effective. We’re diggin’ out, the sun is out, and it’s time to play ball whether the unthinkable is behind us, right around the corner or a decade away.

  75. cognos says:

    Micah Elder-

    So 90% of all bank TARP is already paid back, with interest + profit on warrants. You dont seem to know this.

    Further, bank “loan loss reserves” are a rough 1.5x multiple of ALL NON-PERFORMING ASSETs. So, if all currently deliquent mortgages were to default and recover zero. Banks would still be solvent. You dont seem to know this.

    Now the real question IS and IS ALWAYS… how will the future deliquencies evolve. But the basic system (like most financial systems) is LAGGED. That is, projections are made based on recent evidence and things are completely missed AT THE TURN.

    So my point on banks, is that valuation are pricing continued growth in NPA and loan-losses, when we start to get solid evidence of the turn, banks are an easy double on the EPS math (basically, they get to stop added to “loan loss reserves, right?”). This is the Paulson, Soros, Tepper, etc bank play in C, BAC, WFC, and smaller regionals.

  76. cognos says:

    You guys seem to miss those basic facts about TARP, bank earnings, loan-loss reserves, etc.

    I used to work at a major $500B in assets investment bank and prepared the balance-sheet and profit overview sheets for board-level executive meetings. (I was involved in a medium size $B+ subprime short trade in 2006/07). While I do not focus solely on financials, I know one of the best HF guys who does… and I do check out the main Quarterly reports and conference calls of names I am involved in (BAC, WFC, GS, C, OZM, RF, ZION — at different points in the past year).

    Things like — “loan loss reserves are 1.5x non-performing” are easy to find (with a little effort) on each banks quarterly statements.

    Things like — “credit cycle looks like its turning” — in addition to this being a strong possibility in the data, I believe I quoted WFC CFO saying this in early 2010.

    It was this level of detail that allowed smart analyst to be “short” starting in 2006. It was not the pundintry and wider journalism. Those people were all Ben Steins! So now they are all Hussmans, Fabers, and Rosenbergs. Other side of the same coin. Broken clock syndrome. Etc.

  77. rootless_cosmopolitan says:

    cognos,

    “Further, bank “loan loss reserves” are a rough 1.5x multiple of ALL NON-PERFORMING ASSETs.”

    How do you know how much the total is of non-performing assets held by the banks, if the disclosure of those assets is largely at their own judgment? Do you have a source for your numbers?

    rc

  78. Its_Science says:

    You can count me among those who think that the rally has reached its current height largely because of the repeal of FASB 157. I think rootless_cosmopolitan did a good job rebutting cognos’s FASB 157 questions here. We’ve choosen to hide our heads in the sand with regard to our banks like Japan did. This may have prevented a sharper “pop” in the real economy, but will drag on the deleveraging and recovery process for years to come. Recall that the Nikkei had short lived rallies as well. I’m not suggesting that we’ll follow that path exactly, but that the recent upswing – based on relatively low trading volume – is no evidence of a vigorous recovery or sustained rally.

  79. JDG123 says:

    This ends very badly. We’re nearing the end of a debt based monetary system experiment. Debt based money will always fail – eventually – and we’re there. Get ready for an historic stock market crash.

  80. rootless_cosmopolitan says:

    cognos,

    Equalizing Hussman with Stein is ridiculous. Hussman manages two funds, which have outperformed S&P 500 by a large degree over the long term. Why do you think this is? His statistical analyses and approach are solid, you haven’t disproven any of them yet, although they contradict almost everything you say here. If I was an investor with long-term horizon I definitely would take his funds under consideration. If I was into market timing I wouldn’t, though.

    rc

  81. Thor says:

    nickthap= Hear Hear! I’ll second that!

  82. cognos says:

    Hussman Strategic Growth fund appears to be behind SPX and Russell over the past 5 yrs.

    3/31/05 to 3/31/10
    Hussman SG = 1.23% Annual
    SPX = 1.92%
    RTY = 3.38%

    Hmm…?

  83. cognos says:

    Rootless –

    How do I know Citibank will have my money tomorrow?
    How do I know that my employer will pay me (time for cash, up front!)?
    How do I know that what I order from the Internet is not a fraud?
    How do I know that PIMCO is not a $2T ponzi scheme?

    Maybe it’s all just the matrix. At some point, you have to generally trust basic financial disclosures from major firms. Sometime this is a mistake (Leh, AIG, Bear) but generally a diverse portfolio of naive financial public markets trust outperforms gold by a 5-10x multiple over the long-term.

    I play in those public markets and try to outperform the naive by 15-30% annually.

  84. Mike in Nola says:

    Hussman is behind because he got bullish too early. Look at the performance chart.

  85. rootless_cosmopolitan says:

    cognos,

    “Hussman Strategic Growth fund appears to be behind SPX and Russell over the past 5 yrs.”

    Let’s talk in 5 years again. The last 5 years don’t even cover a whole business cycle. Hussman’s obvious investment strategy is do outperform the S&P 500 over the whole business cycle, even during a secular bear market, but not over segments of a cyclical bull market. Latter would be market timing. As I said, if I was into market timing I wouldn’t take his funds into consideration.

    rc

  86. Carse says:

    Why does everything economic have to be so complicated? We are talking markets here — the trend is your friend, until it is not. People, I presume this includes traders, have to eat!

  87. rootless_cosmopolitan says:

    cognos,

    “Maybe it’s all just the matrix. At some point, you have to generally trust basic financial disclosures from major firms.”

    This is irrational. Why should I trust what they disclose and believe they provide a complete picture, if they are not forced to disclose everything in their books, but allowed to hide bad loans? It’s just rational to expect that they do what they are allowed to do, if it is to their advantage. It’s the consequence of absence of proper regulation.

    “but generally a diverse portfolio of naive financial public markets trust outperforms gold by a 5-10x multiple over the long-term.”

    Why are you referring to gold? What do I care about gold? Are you fishing for my game? ;-)

    “I play in those public markets and try to outperform the naive by 15-30% annually.”

    Everyone can try. You are a real winner, aren’t you. I have a bigger one since early 2007, though. (But probably only in relative terms, not in absolute ones, since my game has only a small volume with my salary as an academic.)

    rc

  88. cognos says:

    RC –

    Hussmans basic strategic seems to be that of a (bearish) broken clock. He massively outperforms in down years (02, 08) and MASSIVELY underperforms in up years (03, 04, 06, 09). Nice co-incidence… his fund has been around since 2001.

    His under-performance is fairly persistence to other average chosen points…

    12/31/02 to 03/31/10
    Hussman SG : 4.5% ann
    SPX : 6.09% ann
    Russell 2k : 9.64% ann

    For the year in 2009:
    Hussman SG: 4.63% / SPX: 26.47% / Russel 2k: 27.16%
    For the YTD 2010:
    Hussman SG: -0.31% / SPX: 5.39% / Russel 2k: 8.85%

    But, thanks for playing.

  89. rootless_cosmopolitan says:

    cognos,

    your comparison is dishonest after I emphasized that the Hussman-funds are for long-term investors over a whole business cycle, but not for market timers on a shorter time frame. Yet, you are comparing single years with cyclical up-runs (2009, 2010 so far), or you deliberately pick a low point in the stock market after a downturn as starting point and a high point after a large up-run as end point. This is like trying to prove that an aggressive growth fund outperforms a conservative fund over the long run by comparing the performance of the funds from a cyclical stock market minimum to the next cyclical stock market maximum, although the correct comparison would be to pick either two cyclical lows or two cyclical highs for the start and the end point of the comparison. What about comparing the performance of Hussman’s SG Fund’s since its inception in summer 2000 (not 2001), which is near a stock market high, to the stock market high in 2007 or the one today as end points? Or alternatively, comparing the performance between the stock market low in early 2003 and the following low in March 2009? Or the next one that is going to eventually be upon us in the current secular bear market? These would be methodically honest comparisons.

    Nice try, your trickery, though.

    rc

  90. Mike C says:

    Cognos,

    You are revealing yourself to be a spinner of data. Your choice of 12/31/02 and 2009 for a performance comparison is highly dubious. You are obviously a smart guy, but I’m no dope either so it is quite clear you cherry-picked the time frame to match up with your initial thesis. Who the heck would choose 12/31/02 as the starting point? Standard time frames are 3 years, 5 years, and 10 years. An honest comparison would use both a bull and bear market over compare performance between respective peaks like 2000 and 2007 or respective troughs like 2002 and March 2009 but a trough to peak comparison is clearly bogus.

    I own Hussman’s fund and except for the last 13 months performance has been stellar IMO. He completely dodged the 00-02 bear, captured a good chunk of the 03-07 bull and mostly missed the 07-09 bear. The other poster got it completely wrong. The problem wasn’t that he got too bullish early (the current market level is way north of the October 08 crash levels) but that he stayed bearish too long and missed one of the biggest 13 month moves in market history like many of the commenters here.

  91. rootless_cosmopolitan says:

    Mike C,

    “The problem wasn’t that he got too bullish early (the current market level is way north of the October 08 crash levels) but that he stayed bearish too long and missed one of the biggest 13 month moves in market history like many of the commenters here.”

    I guess none of the criteria in his decision matrix of valuations and market action indicated a high probability of such a market move in March 2009. No real undervaluation of the market back then, based on the metrics he uses, and market action has been on relatively low volume for the entire rally. Perhaps, there is a third dimension missing, like massive pumping by the government, which gives market moves that are statistical outliers a higher probability.

    rc

  92. napster says:

    Cognos junior here.
    The BPP is plus in the positive. Anyone who says no is ignorant moran. I know what is going on. You don’t. Go grab a diet soda and pretend your skinny. Assets are greater than liabilities because that means heaven will arrive real soon. Here’s some more garbled numbers and a skewed perspective to irritate you. What? Me irrational? No sir, no way. Live to spew nonsense another day. Cognate on that my pretties.

    Seriously Cognos. You sound like a mindless piledriver with an adolescent need to always be correct. Do you really think any comment you make is helpful to anyone’s understanding of anything.

    You are like those old 1970′s Television actors who show up on health insurance supplement commercials because you can’t get any other type of work. Look in the mirror.

    That map of the percentage of debt to GDP is the yoke around the economic scene for the next decade. Good god man the minimum is 30% debt to GDP. What happens when the inevitable interest rate spikes occur? And this is in the face of increasing costs of resources and resource extraction methods and the pressures of population growth.

    Right now the markets are just reacting to the crisis of minimal alternatives for the investing classes who are desperately seeking a return greater than 2%. The volume is low because 99% of the population (anyone with an income less than $100,000) is flat broke. The upper 1% does not alone an economy make — unless you are a cognoti slivering around the scrotums of the aristocracy so long you confuse your clients with real people.

    I think Europe says it best when he said produducion capacity > real demand.

    Get a clue Cognos and stop wasting my time with your non-edification.

    ~ napster

  93. [...] Hello 11,000. Well, we hit 11,000 yesterday.  I wonder if it’ll [...]

  94. cognos says:

    I have no bent against Hussman. Dont care. You guys refered a bunch of links (never read them). I saw one post quoted where he didnt seem to understand banking well on FASB 157. Then I was told:

    RC 4/12 @4:17pm – “Hussman manages two funds, which have outperformed S&P 500 by a large degree over the long term”

    Turns out thats – NOT AT ALL TRUE!

    He has not “outperformed” AT ALL… much less, “by a large degree”. And he really hasnt run his fund for the “long term. He’s a bear, whose performance has only “existed” since 2001-ish. This is how the public gets fleeced by mutual funds.

    I first measured to the 5-yr point. From the chart, it was obvious he was just bearish (excess cash) the whole time. He’s just delevered to the ups and downs. In a 3-yr bull run, this guy would be out of business in 1.5 years which is why he “started” his fund in 2001.

    Then a series of further un-truths were said… like “Hussman went bullish too early” (NOT TRUE). And like that I was picking points to fit my conclusions… so then I picked a bunch of other (not just 5-yr) points… YE02, 2009, YTD. I also named the years he outperformed (I think I said, “massively outperformed”). These were 2002 and 2008… the down years.

    I thought I was fair. The analysis that he style is “broken clock” bearish seems to fit a preponderance of evidence.

    Man, can anyone have a reasonable dialogue!?

  95. cognos says:

    Napster –

    Same basic sentiment. First you mock my posts as containing no information. Saying I “spew” “irrational” “nonsense”.

    Then you disagree with my clear and consistent message. You say – “debt to GDP is the yoke around the economic scene for the next decade”

    Hmm… I remember guys like you saying the same thing in 1985. Public debt is fine. Growing GDP is the key. Looks like it will grow, ALOT.

  96. Greg0658 says:

    Fan you Napster in your Deacon Blues moment .. that JrCog )-:
    foreign trade imbalance isn’t going to change until a major living wage scale reduction & land/property debasement .. I see your worry signed: Reverend Joykill

  97. Greg0658 says:

    ps – China rebalance & float currency – that 1985 pickup point – what do we do in the goodoleUSA – sell the factory to low wage 3rd world states (compaired to our picture) for the performance structure – “fierce urgency of now” – during the foreign factory upstarts we have great years tooling them into existance – trucking it over there gets the transportation infra built – then comes the info age and computer networks – then comes a 50States centered building Buildings age to replace the last 2 booms – NEXT