Its been a while since we had an open thread — so let’s get to it. v
Whats on your mind? What economic/market/stock issues are you thinking about?
What say ye?
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Dollar depreciation leads to higher inflation and ultimately forces foreign creditors to question their rationale and indeed their sanity for continuing purchases of U.S. Treasuries." -Bill Gross
Signs continue that European markets are getting tired. The Spanish and Italian stock markets, big beneficiaries of the sharp decline in their bond yields over the past few months are falling to the lowest since Feb 1. The European bank index is at a 1 1/2 week low after earnings reports from Commerzbank and Credit Ag (RBS bouncing although reporting weaker than expected earnings) were disappointing. This market action is in spite of the German IFO business confidence figure which rose to a 7 month high coming in a touch above expectations and Italian consumer confidence which bounced more than...
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April 21st, 2010 at 9:16 pm
Dear Barry:
I am a regular reader of your good works.
I have what could be considered an important censoring story regarding one of the web’s most popular financial sites and Fox Business News. As part of a three piece interview with Jim Chanos the first clip, the most damning, covering potential Sarbanes-Oxley violations re: Lehman Brothers and GE and, Goldman’s violation of trust is no longer to be found. The original clip was embedded on Zero-Hedge and available at the Fox site. Along with a scathing editorial the Zero-Hedge embedded clip has been removed and the editorial has been totally sanitized. After one day, the first clip can not longer be found on the Fox Business site yet parts 2 and 3 (not as damning) are still up.
Hopefully; as long as it last (new site with little traffic), you can still see the clip at the links below; where Chanos is asked by Gasparino; was Lehman a criminal fraud? And, he replies; I think it was. I think there were a number of criminal frauds that haven’t been prosecuted. Conversationally they go on to implicate GE for Sarbanes-Oxley violations as well.
Please see: Jim Chanos with Charlie Gasparino Discuss Goldman, Lehman Fraud
Blog: Inflection Point
Below, is the original Zero-Hedge Post and the edited (sanitized) version that is still up. The original can be found in their comment section. Below the copied post is a transcript of the first video clip.
I Trusted Zero-Hedge. Now I do not know what to think. Perhaps Fox did not want to fan the fire at CNBC/GE. Anyway, if you think any of this is news worthy and would like to do a piece on it, please do. You will reach a much greater audience than I.
Eric, at Inflection Point
Thank you for your thoughtful consideration!
Here is the First post at Zero hedge:
Gasparino And Chanos Discuss Lehman, Touch On Every Goldman Client’s Lack Of Willingness To Short The Squid
Submitted by Tyler Durden on 04/20/2010 15:36 -0500
Charlie Gasparino led an informative discussion with Jim Chanos earlier, in which in addition to the trademark topic of China, the two speak on Lehman, Goldman, pervasive financial fraud, state and local finances, i.e., the muni implosion (the stuff that keeps Chanos most up at night), on shorting US debt, on the Volcker rule and, lastly, on China. While for the most part the interview is boilerplate, what caught our attention is Chanos’ reluctance to express his feelings toward Goldman in a monetary fashion: he refuses to short anyone he does business with. Indeed, this is the mentality shared by many. However, while Chanos may or may not be sincere in his reasons, most others would refuse to short Goldman primarily as a result of such activity showing up immediately on Goldman’s very own Redi. And the last thing a prime broker account, and client of a monopolist wishes, is to be perceived as a rogue. It also explains why Goldman has been calling up alumni and tell them to be good. This is also one more reason to immediately commence Goldman monopoly proceedings with the ultimate intent of breaking up the organization which is certainly big enough to benefit its employees and shareholders, but far too big to either fail, or to survive in the long run.
Here are the key highlights from the interview, courtesy of Fox Business News:
On whether Lehman was a criminal fraud:
“I think it was. I think there were a number of criminal frauds that haven’t been prosecuted. I’m not going to name names, I just think anyone signing the financial statements who were CEOs and CFOs of these firms ought to be hiring criminal attorneys. Anybody who is lying to the public and their shareholders by saying one thing and doing clearly something else is committing fraud.”
“We have had kid gloves in this cycle and in this crisis in going after people and I’m still puzzled as to why.”
On Goldman Sachs:
“We do business with Goldman and we don’t short anybody we do business with.”
On predicting future financial frauds and scandals:
“There is some big picture stuff that worries us. Congress is like the French General staff in the 20th century. What we need to do is look ahead. They are talking about staffing the same people that didn’t see it the last go round. I worry that we are going to get a false sense of confidence on that.”
“What keeps me up at night clearly is the state of state and local finances. Municipal and state debt is going to be a big problem going forward. The numbers just don’t work. The demographic bulge is hitting that. You’ve got California, New York New Jersey. It’s going to be a tough issue. The fuse has been lit on the demographic time bombs for state and local governments.”
On whether he shorts the United States Treasury bond:
“Compared to what? That’s the problem. The problem is when you go short a government you have to, in effect, to do it another currency. I wouldn’t want to own thirty or ten year paper for my own account or my retirement account or any accounts I advise.”
“Every time we seem to be on the brink of a deflationary event, it’s very clear that the Fed errs on the side of excess money creation.”
On the Volcker rule:
“I think it’s going to make it.”
On China:
“China is in the midst of a world class property boom. It is leading to the economic growth we are seeing. Almost half of their GDP is coming from that.”
Part one of the interview below.
Watch the latest business video at <a href=”http://video.foxbusiness.com/” mce_href=”http://video.foxbusiness.com/”>video.foxbusiness.com</a>
Part two can be found here.
Part three can be found here.
**************************
Here is the edited post. The first video and links to parts 2 and 3 are gone. The piece has been sanitized and the first video can no longer be found on the Fox Business video list:
Gasparino And Chanos Discuss Lehman, Touch On Every Goldman Client’s Lack Of Willingness To Short The Squid
Submitted by Tyler Durden on 04/20/2010 15:36 -0500
Charlie Gasparino led an informative discussion with Jim Chanos earlier, in which in addition to the trademark topic of China, the two had a rather poignant tete-a-tete on Lehman, Goldman, pervasive financial fraud, state and local finances, i.e., the muni implosion (the stuff that keeps Chanos most up at night), on shorting US debt, on the Volcker rule and, lastly, on China. While for the most part the interview is boilerplate, what caught our attention is Chanos’ reluctance to express his feelings toward Goldman in a monetary fashion: he refuses to short anyone he does business with. Indeed, this is the mentality shared by many. However, while Chanos may or may not be sincere in his reasons, most others would refuse to short Goldman primarily as a result of such activity showing up immediately on Goldman’s very own Redi. And the last thing a prime broker account, and client of a monopolist wishes, is to be perceived as a rogue. It also explains why Goldman has been calling up alumni and tell them to be good. This is also one more reason to immediately commence Goldman monopoly proceedings with the ultimate intent of breaking up the organization which is certainly big enough to benefit its employees and shareholders, but far too big to either fail, or to survive in the long run.
WHY THE EDIT?
****
Below, is the transcript from the first and, now missing, video clip “China on the Brink”; it covers Fraud on Wall Street:
CG: What do you think, was Lehman a criminal fraud?
Chanos: I think it was. I think there were a number of criminal frauds that haven’t been prosecuted. And, I’m scratching my head as to why not. It may take time. it did in Enron but remember we passed Sarbanes-Oxley in 2002 to handle this sort of criminality. If you recall… one of the things that every one agreed about (the law) was that CEO’s and CFO’s who sign financial statements cannot hide behind the ‘I did not know what my underlings were doing defense’ and Sarbanes-Oxley eliminated that.
GS: Or you can’t say everything is hunky dory when clearly their not. Well lets go down the list; Dick Fuld?
Chanos: I’m not going to name names but lets just say anyone signing financial statements that were CEO’s and CFO’s of these firms I think a, probably ought to be hiring criminal defense attorneys.
GS: Disclosure, I worked for GE’s Immelt who during the financial collapse said to the public that every this was hunky dory but at the same time Hank Paulson wrote in his book about conversations with Immelt said he was really worried. Do you think that Jeff Immelt should be further questioned on that, I mean does that constitute fraud?
Chanos: All I’ll say is that anybody that is lying to one thing to the public and their shareholders by saying one thing and clearly when the situation is something else um is committing fraud and we have had kid gloves in this cycle and in this crisis in going after people and I’m still really puzzled as to why. Um, we’ve spent tons on the possibility of financial reform that’s going on right now in Washington a where we draw the line on consumer financial product so, so; and, really there was rank criminality going on the street and nobody is looking at it carefully.
CG: Re: Goldman’s actions Do you think that rates as rank criminality.
Chanos: Well first of all, that is a civil case….and while the details don’t look good if you’re a client I guess, it is a civil case. Um, what I’m talking about is the fact that the hole at Lehman Brothers, for example, was probably $150 billion and at the end of the day the hole at Enron was 65 billion. Lehman was twice Enron. And, think of the resources we spent prosecuting the guys at Enron. Because we should have and we see that at other places, at Countrywide and at other places where the hole in the balance sheet was huge!
CG: Well Goldman did’nt have that whole but they do have a whole in terms of trust. They were essentially screwing their clients; is that accurate?
Chanos: chuckles, well you know my history with ‘that firm and i’ll leave it with the fact that i have been on record and years ago and I’ll leave it at that.
CG: would you short Goldman?
Chanos: NO.
GG: Do you think Blankfein will be fired?
Chanos: You’ll have to leave that to the board.
April 21st, 2010 at 9:20 pm
Personally, I’m wondering what it takes to get indicted for criminal white collar offense these days. Eric Holder? Hello?
April 21st, 2010 at 9:25 pm
Barry,
I wonder. After reading the comments in your blog, do you ever find yourself doubting your semi-libertarianism? In my understanding, libertarianism is based on the idea that the average person is intelligent enough and capable enough to make his own life-decisions. However, the comment sections seem to prove just the opposite–a good 2/3 of the readers who comment aren’t even capable of remembering how to zip up their pants before walking out of the house in the morning!
A politician I study remarked to one of his friends that a good 1/3 of the population consists of “morons” whose brains are capable enough, but whose personalities make them idiots. I think many of the comments provided by your readers may prove that to be a gross underestimation!
April 21st, 2010 at 9:26 pm
There is a bell curve of intelligence. Its something we all deal with.
What I detest is the willful distortion of truth for personal/political/financial reasons — and so that is what I push back against . . .
My readership tends to skew high education, high income, and so if I can communicate effectively with them, I am satisfied.
April 21st, 2010 at 9:27 pm
As a bear since John Hussman called the top in July 2007 (a “who’s who of awful times to invest”) been wondering how long this market can continue to “grow into its earnings” via primarily cost cutting and whether the “pig farm traders” will eventually care. Rosenberg points out today in his short piece that the S&P500 is now overvalued by some 30+ % on a historical Shiller cyclically adjusted P/E basis. Are we putting client money to work at these levels in a fiction or non-fiction world, or does that not matter anymore with private debt continually being transferred to the public balance sheet?
April 21st, 2010 at 9:35 pm
I’m wondering where the concern is about high speed trading. Or as it’s known in English: front running.
Just a thought.
April 21st, 2010 at 9:43 pm
Goldman’s Tourre Said to Agree to Testify in Senate
Fabrice Tourre, the Goldman Sachs Group Inc. banker at the center of fraud allegations against the firm, has agreed to testify and may defend his actions at a Senate hearing next week, said two people briefed on the plan.
Tourre, who was accused by the U.S. Securities and Exchange Commission of misleading investors in a collateralized debt obligation, will appear before the Senate Permanent Subcommittee on Investigations on April 27 along with Goldman Sachs Chief Executive Officer Lloyd Blankfein, said the people, who declined to be identified because the plan isn’t public. Tourre, 31, will tell the panel he did nothing wrong, one of the people said.
“The whole building is about to collapse anytime now,” Tourre wrote to a friend in a January 2007 e-mail, according to the complaint. “Only potential survivor, the fabulous Fab… standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!”
April 21st, 2010 at 9:47 pm
I’m wondering what the implications are for the following.
1.) local government / school district layoffs
All the school districts in my state are preparing massive layoffs. Fire and police are on the chopping block. I wonder what havoc that’s going to play in the economy.
2.) working class / middle class separation
All my friends with degrees have jobs, or find jobs if they apply themselves. All of those who are working class do not.
April 21st, 2010 at 9:55 pm
What’s keeping a Company like EXXON – XOM, from making a profit on Wind, Solar, GeoThermal or Battery Tech. They certainly have the money to invest and DOMINATE any industry they enter.
Does this reveal some kind of insight about the CEO’s at the top, that they really are too incompetent to Innovate into a new business model? Or is it a Sociopathology?
Antisocial personality disorder (APD) is a mental disorder defined by the American Psychiatric Association’s Diagnostic and Statistical Manual: “The essential feature for the diagnosis is a pervasive pattern of disregard for, and violation of, the rights of others that begins in childhood or early adolescence and continues into adulthood.”
http://www.experienceproject.com/stories/Understand-How-Eating-Meat-Can-Breed-Sociopathology/264062
How do we understand such stupidity in the Oil and Coal Ranks?
April 21st, 2010 at 9:57 pm
For jonpublic’s question.
What is the “real” negative multiplier effect today? Especially, when much of our purchasing power benefit’s China.
April 21st, 2010 at 10:01 pm
Can someone delete or edit that first post?
Its non-sense. AND its long. Bad combo.
April 21st, 2010 at 10:01 pm
jonpublic, I see unemployment running into the upper class.
Esp. software development. We are getting clobbered with H1B visa programs and offshoring.
I hear accounting is getting hit as well.
I don’t think it’s limited to the working classes anymore.
April 21st, 2010 at 10:10 pm
What I am thinking about is this…
The market has a pretty steady recovery pattern — +10-15%, 5-10% correction. On that basis we should’ve topped around 1220 close to April 15th, and should be headed to 1150 on April 30. “buy the dips” market is perfect response to 2008, and 1999-2009 cycles.
The quarterly pattern is pretty well intact, with stocks running up into EPS in Oct . . Jan . . Apr. Thing is… I would’ve rather faded it more around April 15th… but it never went up too high. AND the numbers are coming in SO good on both the economy and earnings.
However, the fact is the pattern looks set to repeat itself… with a slight modification. We topped a little short of where we might have been 1220-1250… and so the pullback will be muted (in contrast with Jan).
But playing HARD out of 1190, 1180 on April 30th looks strong. EPS looks like it will come in at $20/shr on SPX in Q1… and continue to blow it out in Q2. Recovery is self-reinforcing. Jobs are next to turn. Rates are hugely stimulative. World markets are driving growth.
At more than $20/shr in Q earnings on SPX for both of the last 2 Qs… its hard not to call it more than $80/yr. Its probably headed to $100/shr. At 16.4x multiple at $80… its 1,312.
(So… I dont know whether most of you buy that or not. But look at the market bottoms on Oct 29 and Jan 29. Doesnt it make sense to play out of a April 30th bottom with the same basic pattern in mind? Its almost a “flows” driven phenomenon.)
April 21st, 2010 at 10:21 pm
I wonder if the same sense of complacency prevailed in the early 1930s as now… thinking you had survived the big hit so thing MUST be going back up. We survived Lehman, et al, so what’s a few sovereign defaults, right?
April 21st, 2010 at 10:25 pm
“A politician I study remarked to one of his friends that a good 1/3 of the population consists of “morons” whose brains are capable enough, but whose personalities make them idiots.”
I’m pretty sure he was talking about you F411-
and that BR responded cracks me up-
but maybe you two can huddle together w/ your incredible intellects combining to make the world a better place-
lol
April 21st, 2010 at 10:33 pm
First post but long time reader/follower/viewer of Mr. Ritholtz. I also follow Richard Russell and I believe him when he says that all bear markets end in low P/E and high dividends. ZIRP has completely (for now) blown that up. I’m wondering what the final bottom will look like and how it may arrive. Seems to me much higher rates will be required. Who out there is arguing that the secular bear ended in March 2009?
April 21st, 2010 at 10:38 pm
There is a bell curve of intelligence. Its something we all deal with.
What detest is the willful distortion of truth for personal/political/financial reasons — and so that is what I push back against . . .
My readership tends to skew high education, high income, and so if I can communicate effectively with them, I am satisfied.
Frankly… To me BR…
You don’t do much much “pushing back” against anything these days…
Overly simplistic (I’ll admit), to express it in the following terms… But I’ll go ahead anyway…
It’s nothing that a good 15% – 20% “equity correction” wouldn’t cure right away…
IOW – (true to thread) - Whats on your mind? What economic/market/stock issues are you thinking about?
I’m thinking about just about the SAME anomalies in the ECONOMY/MARKET/STOCKS that I have been thinking about since S&P 956…
Why aren’t you?
Are you just a good TRADER? Or are you a “party aligned shill” (like the rest), that will stay true to the MEME until the winds blow in the other direction?
We’ll see… I suppose…
April 21st, 2010 at 10:40 pm
I fully expect the above comment to be “moderated” (in due time)…
April 21st, 2010 at 10:42 pm
Excellent article along the lines of Chanos’ comments in the EricC post above.
William Black Warns That Financial Reform Bill Won’t Stop The Wall Street Crime Wave
http://www.huffingtonpost.com/2010/04/21/william-black-warns-that_n_546806.html
April 21st, 2010 at 10:45 pm
@cognos
Do you REALIZE how many people around the blogosphere regard you as a “TOOL”?
(I apologize for that one Barry… My intention, in my infrequent “visitation” here tonight is NOT to incite your “high education” & “high income” commentators… Instead, simply ask a question)…
April 21st, 2010 at 10:46 pm
Great reading (4 Parts), how do the economic numbers stack up for the president’s since Nixon, especially the two democratic ones, and how will Obama stack up?
“GLOBAL POST-CRISIS ECONOMIC OUTLOOK”
http://www.henryckliu.com/page220.html
Taxation is always a fun subject, especially to “Promote the General Welfare,” (read the beginning of the U.S. Constitution to determine if our country is going astray):
“Taxpayers do not fund anything”
http://bilbo.economicoutlook.net/blog/?p=9281#more-9281
and
“The Ethics of Taxation”
http://www.nysec.org/2010/04/04/newman-ethics-of-taxation/
What this country needs is a bunch of billionaires and hedge funders to take over the school systems:
“This may be the first and last time that you ever have anyone from the Bush administration addressing you.”
http://nycpublicschoolparents.blogspot.com/2010/04/diane-ravitch-on-privatization-of.html
April 21st, 2010 at 10:50 pm
PBS’s Nova poses this question: Can markets be rational when humans aren’t?
Mind Over Money
Tuesday, April 27 at 8 pm on PBS (full online video up on April 28th)
http://www.pbs.org/wgbh/nova/money/
Preview: http://video.pbs.org/video/1441598728/
April 21st, 2010 at 10:53 pm
What has been bothering me is the disconnect between this administration and their political goals. I think this administration is totally in the bag w/ the financial institutions. There was no reason IMO to let them out of the TARP requirements. The law was clear enough the Secretary of the Treasury under the guiance of the President could do what they wanted. Thus they could order the firms to lever down-they are still at 30 to 1; they could raise the margin on all future products for speculators holding overnight, i.e. they could raise the cost of holding an oil future from 7% of its value to say 35%-why should you have to put up 50% for stock and report any holding over 5% of let’s say IBM, a company of considerable concern to the economy but be allowed to control over 5%of the world wide oil market for only 7%-because crude oil is of far greater concern to the entire US economy than IBM is. Why instead of going through the sanctimonious dance of HAMP didn’t they insist they would veto the bankruptcy bill in Mar of 2009 if it didn;t allow for primary mortgages to be subject to write/cram downs under the code the way the second and vacation homes are.
Lastly I finished to big to fail. I’ve never seen a book more perfect for an out house. it seems to me to have been written to give everyone a pass. How can Paulson consider merging the merchant banks w/ various commercial banks yet never give any insight into what FDIC Chr Bair thinks. It was like every morning she wakes up w/ a fait accompli and keeps on marching as though nothing happens. Worse there was no timeline and a lack of dates which makes the laymen believe these were all seperate events.
April 21st, 2010 at 10:57 pm
BR
I keep waiting for some ‘chart porn’ that shows where the size and probable present location of the cdo’s and cds’s that were spawned say 2004+. If the originating investment banks got stuck with 10-20% of a CDO, who typically got the rest? If the purpose of the structuring ‘industry’ became the generation of sythetics, it would seem reasonable that there is a multiplier of (5-10 …?) for the number of CDS’s for every CDO. AIG couldn’t have written all of these –who did, and where are these today? Have they somehow been settled or are they in some corporate treasury, pension fund, insurance asset, municipal treasury…? The absence of an ‘open interest #’ and an abundance Bernanke/Geithner ‘trust us’ crap make me think that some major piles of this crap are still sitting somewhere waiting for the unsuspecting footstep.
April 21st, 2010 at 11:01 pm
Wally, We’ve been ‘Running from Unthinkables’ since 2008, Noone really knows where we’ve gotten to at this point.
I’ve decided to work on my scales. This month my note is Tax the rich: Fa.
I plan to work on that note in particular. Do Re Mi…
April 21st, 2010 at 11:13 pm
Top stock market issue on my mind is what template is this rally going to follow? Is it
1. That post secular crash graph you often post with the 60% drop followed by 18 month rally up 70 to 80% with 5 year trading range
or
2. Is this a replay of 2003-2007 with right now being 2004 and another run to 1500ish in the cards.
I’ve participated to a great degree in the rally the last 14 months. Question is where to start raising alot more cash and/or hedging with SDS and index puts.
http://www.zealllc.com/2010/spxlevi2.htm
April 21st, 2010 at 11:13 pm
@Crabbybill
AIG couldn’t have written all of these –who did, and where are these today? Have they somehow been settled or are they in some corporate treasury, pension fund, insurance asset, municipal treasury…? The absence of an ‘open interest #’ and an abundance Bernanke/Geithner ‘trust us’ crap make me think that some major piles of this crap are still sitting somewhere waiting for the unsuspecting footstep.
I found EM… They’re HERE…
http://www.ibelieveinadv.com/commons/legambiente_park.jpg
April 21st, 2010 at 11:13 pm
@Mannwich 9:20 pm
I think that, similar to how ZIRP distorts traditional financial metrics over time, a persistent high level of societal corruption, wherein peeps of all stripes come to perceive corruption and ethical lapses as a “normal” thing, the level of actual crime necessary for a person to be charged and prosecuted for a “criminal white collar offense” must be up there somewhere around High Treason.
For people who grew up in a society where crimes were generally treated as such, the current moral climate can be rather disturbing. But when one considers how the very legal fabric has been deconstructed, muddying or eliminating the social regulatory structures that constrain “illegal” behavior, it’s not at all surprising.
Thus we have a government that is completely driven by lobbyists, a financial industry wherein anything goes, and a corpocracy wherein the primary aim of a CEO is the extract as much money from the company as possible, with actual performance of the company being a distant and unrelated goal.
Have a nice day.
April 21st, 2010 at 11:18 pm
@Mike C
what template is this rally going to follow?
How about this as a template?…
http://traders-anonymous.blogspot.com/2010/04/morning-audibles-41610.html
April 21st, 2010 at 11:36 pm
you said it! call me ahab…
yet to meet those who self identify with the wrong side of that bell curve (other than myself).
April 21st, 2010 at 11:41 pm
Sheesh, is everyone in a bad mood tonight?
April 21st, 2010 at 11:43 pm
@jimrino
really? i don’t see any of that yet. if you are talented in development you’ve got a job afaik, but i’m not in the corporate world.
April 21st, 2010 at 11:48 pm
Barry, are you aware of any quantitative studies that have been done to provide an indication of how much a persistent low-interest-rate (i.e., with central bank rates less than 1% for an extended period) climate can distort traditional metrics of valuation?
There is undeniably an increased leverage effect for businesses that leverage debt to support their business operations, such that those businesses can take on increased amounts of debt, leveraging their performance (for good or ill, leverage being a 2-edged sword).
I’m wondering if there is any substantiation of my gut feel that PEs ride higher when in a persistent low-rate economic environment, and if so, is there any quantitative relationship that one can use to translate a “normal” PE of … let’s say 15 … during a period when central bank rates are running in the 5% area, to what (other things being equal, if that is even possible) would be an equivalent PE during a period when central bank rates are only one-fifth as much?
A linear relationship seems unlikely, but there ought to be some correlation that someone has investigated …
THAT’s what I’m wondering, these days.
(of course, I recognize that with low rates and the potential for easy increased debt leverage comes a commensurate increase in risk — that much is obvious)
April 21st, 2010 at 11:52 pm
Well put, constantnormal. I think you’re spot on. And yes, it’s very disturbing to me.
April 21st, 2010 at 11:54 pm
You know what I love about the world? That there’s nothing new under the sun.
Not even AAA mezzanine hybrid triggerless superior senior tranche CDO squared investment vehicles..
Every pump and dump, fleece your neighbor back door pick-off snake oil ponzi double dealing three card monte type hustle – well, its already been done.
Every time I think the world has lost its friggin mind I read a few snippets of history and say wow – same as it ever was.
bankers, politicians, sheeps and wolves, haves and have nots…. slaves and slave masters…
Kings and servants..
Kind of makes you optimistic
April 21st, 2010 at 11:55 pm
@Mannwhich
Yeah, where the hell is Eric Holder? Could you imagine United States Attorney General Eliot Spitzer right now?
We’d have Wall Street 2 and The Untouchables 2: Spitzer Strikes, competing in the box office this fall.
April 21st, 2010 at 11:56 pm
I looked at the VXX and can’t see anything overtly bad about the security. It is a VIX proxy. I see it as a buy below 20 and a sell above 30 for sure and possibly a sell above 25 (maybe sell in two pieces). Look at it as a put option on the market that never expires. Do your DD and never buy more than you can afford to lose
April 22nd, 2010 at 12:06 am
@jonpublic — like real estate, employment in the software industry is highly dependent on location. You wouldn’t think this would be true, what with everything being connected over the internet these days, but it is. Most companies are not comfortable with having a faceless entity on the other end of a network, and not under the watchful (albeit unknowing) eyes of local management.
And places where a lot of the IT work is concentrated in government (where most IT work is performed by contractors, and budgets for hiring contractors are nonexistent) are suffering, along with IT work in manufacturing, construction, etc.
The best places to be (where employment is a concern) are independent IT contractors who specialize in work related to industries that are awash in cash — health care, insurance, financial companies. Other places … well, as most IT work is involved in growing or changing the business, when the business shrinks in place, the IT contractors are the first to go, followed by the IT employees.
And the contractors are the first to be re-hired when business begins to expand beyond the ability of the skeleton crew to deal with. Canaries in the coal mine, that’s what contractors are (temps by any other name).
Luckily, in the IT world, technological change is a big enough factor that some level of employment is driven simply by the need to replace 20-year-old systems that nobody understands any longer with newer stuff that will be similarly forgotten in a decade or two. So long as one can keep learning, and is willing to go anywhere and do anything for a buck, you’ll have a job. But sometimes “anything for a buck” becomes a show-stopper.
April 22nd, 2010 at 12:23 am
I am curious about the Libor rate. It was high during “the troubles” then gradually declined to 0.25 but has gradually risen back to o.313 today. Does that mean that banks are no longer as trusting of other banks as they were a few months ago or something else I’m missing??
April 22nd, 2010 at 12:27 am
@constantnormal
Barry, are you aware of any quantitative studies that have been done to provide an indication of how much a persistent low-interest-rate (i.e., with central bank rates less than 1% for an extended period) climate can distort traditional metrics of valuation?
x2
OF COURSE your question is “rhetorical” in nature… (which is why I admire it so…)…
And which FURTHER “indulges” me to ask (or ANSWER) the following…
@Thor (11:41) While I can’t speak for EVERYONE… YES, I AM in a bad mood (this evening)… It affects me in a CATEGORICALLY NEGATIVE WAY when I (speaking from an “anonymous” pool of dregs to whom, I suppose, the thread was addressed) feel like I’m being “pandered” to (or, Barry, are your ALGOS “sparking” and you’re “crabbing” for FREE ADVICE here? – I can’t tell)…
April 22nd, 2010 at 12:35 am
Unless… Thor…
You have anything TRADEABLE to offer here tonight…
Otherwise I suppose you’re just prowling for HAPPY-TALK (like most others)…
Per the other thread, you should be able to content yourself with the Texas vs. California argument (although that, in of itself, may NOT be that happy, AS THE CASE MAY BE)…
Must be nice to live in a “non-committal” world… Enjoy your stay! :-) (or however that WINKY thing goes)…
April 22nd, 2010 at 12:37 am
Is the relatively high unemployment rate in U.S. solely due to the recession or is it also a structural problem, so many jobs have been eliminated from productivity gains, and other transferred to China and other countries.
There’s also a greater global competition for specialized/highly qualified/ professional workers now.
U.S. unemployment rate now exceeds those of the BRIC and many other countries (to my surprise as I don’t follow these matters closely)
http://www.tradingeconomics.com/World-Economy/Unemployment-Rates.aspx
This russian blogger, Stanislav Mishin, thinks ”American recovery is lots of puff but no substance”, he’s clearly not impressed by America, however incorrect or brawling he may be, his comments reflects popular views about America’s not so solid economy, also funny in his excessive harshness.
http://english.pravda.ru/opinion/columnists/112992-0/
April 22nd, 2010 at 12:42 am
@BR
Barry – I APOLOGIZE WHOLEHEARTEDLY for the “acerbic” tone of my various posts (on this thread) this evening…
It was an OPEN THREAD (after all)… Not that THAT gives me right to come and “pollute”… IT’S NOT MY NATURE to POLLUTE…
I simply couldn’t resist the opportunity to express some feelings in an OPEN FORUM… That shouldn’t be TOO TOUGH for a “fair & balanced” guy like you to bear… Right?
April 22nd, 2010 at 12:55 am
@Garth
The fed announced it’s change of direction out of crisis mode recently. Some of the CBs are starting to raise rates and most others won’t go lower so the environment is shifting. I think the low rates have bottomed for the cycle. Whether the economy can hold up under that remains to been seen
April 22nd, 2010 at 1:45 am
Hello Barry!
This is David in Atlanta GA. friends with Albert Ed. [Soc. Gen.] and others.
Anyone that reads here is intelligent, JMHO.
<<>>
But, most posters ask in another way, when should I get out, when should I short. That is their message to you.
<<>>
I am only thinking about one issue with the market, that issue is, that you can not make valued decisions in a stock anymore based on the info the company presents based on global outcomes. Yet, I realize, the market will rise higher. Scary stuff based on nothing.
The reflation trade to continue if it can, time will tell. I have no idea, nor does anyone else.
Take care, I love your blog and enjoy it. We both sit in the same camp!
DL
April 22nd, 2010 at 3:45 am
Cognos, i liked your reply at 10:10pm.
I wish i understood this stuff better. My take is that, from the Econ 101 view:
Fiscal Policy: Screaming, with a $1 Billion difference between expenditures and taxes.
Monetary policy: Screaming, with a near zero short term rate, and 4+ percent long term rate.
Given the basic MV = PQ (monetary supply * velocity of money supposedly equaling Price(s) * Quantity of Product and services produced ). Or MV/Q = P in another view:
Money supply has to be growing with the incredibly fiscal and monetary policy going on. People are spending again so V has to be increasing. And the quantity of product and services produced are increasing, but no where near what the increases in M * V are. But P is not significantly increasing either, like the equation says it should. Why?
And, where is all the excess in M going?
Our measured P, i.e., inflation stats, are based mainly on products subject to intense international competition. So, our Fed will, and has, kept rates far lower than they should, because they don’t see inflation in P.
So, where does all this excess monetary supply go: ASSETS. Such as stocks and housing, resulting in inflation in those assets. Just as it did when the Fed made the same mistake in the late 90′s when the excess money liquidity went to tech stocks. Just as it did when the Fed panicked and loosened the monetary reins for the Y2K “problem” resulting in the final, bozo, tech stock run until the reigning in of liquidity resulted in the necessary crash in early 2000. Just as it did in the last decade when the excess money went into house prices, and to a lesser extent, stocks.
If the Fed saw this rise in asset prices properly as inflation, or at least saw it without an incredibly long time lag, they would substantially slow the growth in the money supply by making monetary policy far more restrictive. But, they won’t see this due to the flawed inflation measurement stats, thus they will leave interest rates far lower than they would do otherwise.
imho, use the Fed’s mistake to your advantage. Stocks will have much more of an upward bias, resulting in higher P/E multiples, than they should due to all this excess monetary liquidity.
———————————————————————————————–
Cognos: Thanks for your views. Short term, given how upset normal people are at these financial shenanigans and getting lied to by wall street financial advice (“Buy and hold, it’ll be alright”) twice in the last decade, they do not want to put money in the market, to put it mildly. Especially right now, given the SEC Goldman suit.
imho, I see your slight pullback. Maybe even the price stats in the morning may show a touch of increase. I don’t see your reliance on averages though, there is a mental block at the NASDAQ going through 2500, DOW through 11K-something, and S&P through 1200.
But, there are many stocks still very cheap in this market, i think one needs to look at stocks cheap on traditional metrics now, rather than just buying into market averages. imho, reasonably cheap stocks:
- Intel is crushing AMD, who’s failing in getting 45nm generation chips into production, whereas Intel is successfully implementing the next generation 32nm chips. Intel’s forward P/E ex-cash, or just annualizing the current quarter if you like, is 11. It should be 15 to 17.
- Cisco is similar, like a forward P/E of 13, where it should be at 16 to 18, and it’s yet to report the current quarter, where supposedly they are doing great and have a major new product cycle in big routers.
- Even annualizing Apple’s quarter, ex-cash, they are running at a 15 P/E. It should be like 20, given they finally have screaming growth internationally, and that the iPad wasn’t even in their previous quarter.
- Many regional banks, given that loan losses have peaked, are way undervalued on what their traditional metrics will look like in a half year. Some of the bigger banks are way cheap also, given that their lobbyists have captured the Democrats, along with their traditional Republican ball holders, so the financial regulation bill won’t hurt their profits as much as a proper financial regulation/breakup bill should. I guess housing stocks are even going up now, based on their balance sheet improvments and expected recovery over the next couple of years, i need to study this area more though.
imho, i wish i understood this stuff better.
April 22nd, 2010 at 6:08 am
What I am thinking about is the picture that is emerging from my view of the stock markets. I have, until recently, been in the cyclical bull within a secular bear market camp. But, market patterns of price movement and market behavior are leading me to seriously question that assessment. It now appears to me that it is more likely that the secular bear market ended with last years capitulation move in March and began a new secular bull market. That doesn’t mean we’re going to the moon, in fact my expectation is we are due for a very sizable pullback of 50% or more of that gain.
When markets turn in their large secular character the first move is consistent with the new direction. The next move, however, can take away as much as all of those early gains. More typical would be 50-62 percent retracement, but it can go all the way and still be consistent with a new secular market. While I am not a fan of cyclical market theories, they do provide a reasonable framework useful for dissecting and discussing market history. In Elliot wave terms a new direction would begin with a wave 1 and the first correction would be wave 2. The “rules” for wave 2 is that it can retrace all but not more than wave 1.
So what I am thinking is that I am seeing multiple indications within the markets price-time patterns and behaviors that we have entered a new bull era, but that we have nearly run out the first “wave” and are about to get that first big correction. The end of that movement should be the really big longer-term investment opportunity.
April 22nd, 2010 at 6:27 am
Did Washington save the economy? David Stockman, Reagan’s former budget director, takes a very in depth look at unemployment stats, very long series but worth a read. http://bit.ly/c15igt Interesting view on tech.
“In recent months, big tech companies have experienced a powerful inventory-restocking cycle which is currently ballooning off-shore production and reported profits. But the bullish enthusiasm transmitted to Wall Street by perennial tech circus barkers like Cisco CEO, John Chambers, has no real bearing on the prospects for domestic job growth. The fact is, the big technology companies are primarily exporters of capital and technical know-how, not finished products containing high domestic-labor content. Indeed, these companies aren’t domestic-job-growth machines at all — notwithstanding the tech sector’s association with expansion on a global basis. ”
.
April 22nd, 2010 at 6:37 am
Enjoyed above. BR do it again, and wade in yourself.
In the xSiliconValleyEE post perhaps the answer lies in the V. Banks are building liquidity, charge-offs don’t contribute to V, corporate cash levels mount, less M&A. It’s partly lack of belief in the recovery and partly a lack of opportunity. The consumer? less profligate, less V. I nearly flunked Econ 101 so…take this for what it’s worth. Gosh, wish I was as smart as Franklin411.
I wonder just how many of the readers have had their finger tightened on the sell trigger all through this stock market rise, and still do. My fear is that if it breaks it could break fast.
April 22nd, 2010 at 6:53 am
I am wondering why the government is involved in the mortgage market. Not just involved, dominating it. Without Fannie and Freddie, the mess we are in would not exist, in my view. We are talking a lot about reforming Wall Street, which is fine since I think excess is clear in some areas (leverage!), but what about the underlying problem? Why does it make sense for the government to have anything to do with buying a home?
April 22nd, 2010 at 7:17 am
It would be very refreshing if people actually used facts and logic to refute statements they regard as wrong instead of simply hurling demeaning insults at those who make them.
April 22nd, 2010 at 10:54 am
How about this as a template?…
http://traders-anonymous.blogspot.com/2010/04/morning-audibles-41610.html
cvienne,
Anything is possible, but I highly doubt it. The 1930 rally was 6 months which I would consider well within the confines of a countertrend rally to the primary trend. This move is going on 14 months now. There are numerous other technical differences between the move the past 14 months and the 1930 rally leading up to the 1930-32 decline. I just listened to Louise Yamada the other day give her technical opinions on the market, the dollar, bonds, gold, and she strongly suggested the 666 low was it. It was the climax low within the confines of this ongoing secular bear market. I think we see sub 1000 S&P again, but not below 666. Question is how high do we go in the intermediate-term. There have been a lot of top pickers these last 14 months. Just curious, how many times since this rally has begun did you think it was topping out and getting ready to roll over?
April 22nd, 2010 at 11:30 am
Rino:
“I hear accounting is getting hit as well.”
My college alum newsletter reports strong demand for accounting grads w/ forensic acctg. exposure.
April 22nd, 2010 at 11:40 am
Exhaustion rate (Regular State UI Final Payments as a Percent of First Payments) appears to be peaking at 54%. For chart select the series name in parenthesis for 1973 – 2010 at:
http://www.doleta.gov/unemploy/chartbook.cfm?CFID=47257914&CFTOKEN=56483440
That’s a good thing. However, look at the troughs. The trend line is clearly up for a “baseline” exhaustion rate at or just below 40% going forward. Has anyone read any sources on why there is this upward secular trend for baseline final UI payments as a % of first UI payments? It is as if there is a kind of “unemployment inflation” at work. Dunno why that is.
April 22nd, 2010 at 1:23 pm
xSiliconValleyEE –
So, what the Fed or a good macro economist would say is this:
“there IS NO inflation without WAGE inflation”
Therefore the Fed focused more on slack in the economy. IF there is slack (massive) and wages are not increasing. Then any small headline price level devitation are just short-term supply/demand lags. This seems to be very true (and valuable) over time.
What you call “asset inflation”, I would say is monetary creation being put into productive uses (and thus paying back the interest rate)… and money is created through credit… this puts people to work, but those people work to create “supply” and the price level does not move up.
This is only unhealthy was we have no slack (not currently relevant) or when the money/credit is massively mis-allocated to a single narrow area. This is what happens in the housing bubble. As long as the growth is broad and has a mixed set of successes and failures. This is the basic modern macro and capitalist process. This looks nothing like the narrow bubbles in housing finance or the internet.
Its broad. Its productive. It have another 1-3 easy years to run… maybe more.
April 22nd, 2010 at 10:24 pm
@mcelus
you wrote “As a bear since John Hussman called the top in July 2007 (a “who’s who of awful times to invest”) been wondering how long this market can continue to “grow into its earnings” via primarily cost cutting and whether the “pig farm traders” will eventually care. Rosenberg points out today in his short piece that the S&P500 is now overvalued by some 30+ % on a historical Shiller cyclically adjusted P/E basis.”
At what point do most people start thinking Rosenberg has lost credibility. It certainly is a wonderful thing getting your clients out ahead of a major market crash, but if you never get them back in you’ve only done half the job and badly failed in making the critical decision to get back in in a timely fashion.
I have been saying infrequently on this blog for quite a few months that the US stock market is not a good proxy for the US economy. Fact of the matter is US corporations have proven to be very well managed, with terrific operating leverage. Eventually, at some point, this recovery will gain some traction and we will actually get job creation again. With that operating leverage, I expect corporations can see pretty robust earnings growth should that occur. Will Rosenberg wait until SP500 earnings are at $120 with the market at all time highs to finally issue his mea culpa?
April 23rd, 2010 at 3:40 am
Cognos, thank you for the explanation above. You didn’t have to respond to my post, but thank you for doing so. I like your simple, classical economics, explanation of why all the excess money supply isn’t creating inflation right now, which is due to the massive slack in the economy. I totally agree with you that this is a fundamental recovery that will last a significant amount of time. I see that this Keynesian response was necessary to prevent this horrendous economic problem from becoming a depression, and it resulted in the economy fundamentally recovering.
However, imho, I still hold to the belief that while many stocks are currently going up on a fundamental basis, they also have a substantial wind at their back by all the excess liquidity in the money supply. And that this substantial wind will continue far longer than it should due to the Fed not properly seeing inflation in their stats.
To someone far from Wall Street, it seems that a big chunk of the money that the Fed is creating via sub 1% interest rates is being borrowed by the banks and being invested in longer term treasury bills or in other assets, such as illustrated in the huge “trading profits” that the big banks are reporting for the previous quarter. The big banks seem to be loaning large amounts of money they get at sub 1% out to hedge funds, who ply this money into stocks and other assets. While the loan growth by the banks to the real economy is very low or non-existent, as being reported by the banks in the recent quarter. Which is different from the way the economic theory says it should work, that the increase in the money supply gets loaned for economically productive purposes. The money is getting to the real economy, but not in a efficient manner, a good chuck of it seems to be going towards inflating asset prices.
And the Fed won’t see much wage growth, or inflation in wages, irrespective of how much they increase the money supply, within limits of course. Wage growth in many industries is being constrained by intense international competition. Anything that can be done on a computer, such as engineering, accounting, programmings, clerical, … is being shipped overseas, seriously limiting wage growth in our country. God bless constantnormal for fighting the good fight to stay in the IT industry, as it sounds like in his post above. But, if supply and demand were anywhere near in balance, he would not have to do “So long as one can keep learning, and is willing to go anywhere and do anything for a buck, you’ll have a job. ” And you also have massive immigration, legal and illegal, constraining wage growth in many industries.
Then there is “The Fed Is All Wrong About Inflation, Jim Bianco Says” article that Barry mentions on his Thursday afternoon reads, saying that housing price increases won’t be included, or only included with a very long time lag, in the Fed’s inflation stats.
So between inflation in goods and in many wages being constrained by intense international competition, and the Fed not officially seeing asset price inflation in future housing price increases or in stocks, I continue to believe that they are going to leave rates far lower for far longer than they should, and this money is and will be finding it’s way into assets like stocks. Which will continue to provide inflation in stock prices beyond what the fundamental improvement in the economy dictates.
imho only, of course.