10 Things Making Me Nervous
A few weeks ago, we moved from an aggressive cash position (80+%) to about 50% long. We continue to find intriguing set ups and attractive trades, mostly in the small and mid-cap space.
But that doesn’t mean we are sanguine about the likelihood of this rally going on forever. Indeed, there are many factors that are making me uncomfortable with our becoming even more aggressive.
Consider these 10 factors that are making me nervous:
1. Low volume: Friday’s quad-witch volume notwithstanding, volume has been extremely light for weeks now. Historically, light volume is associated with tops (disinterest) while heavy volume tends to accompany bottoms (capitulation).
2. Consensus on political outcome: If one more person announces coming gridlock is good for the market, I may have to scream. Conventional wisdom is unreliable about future unknowns. The widely held belief (assumptions, really) as to how this plays out is too pat, and creates an opportunity for surprise and disappointment.
3. Absence of Volatility: The VIX keeps sliding, as volatility fades. This may be reflecting complacency — never a net positive for stocks.
4. Housing overhang: One of several major macro economic factors weighing on the market. This is going to be an ongoing headwind, as we make our way down towards fair value.
5. Sentiment: Bullish sentiment (expectations that stock prices will rise over the next six months), rose 7% points to 50.9% in the latest AAII Sentiment Survey (historical average is 39%). Sentiment suddenly becomes bullish after each spasm higher sets off my contrary alarm bells.
6. Recession Porn “confusing“: The flip side of the bullish trader sentiment is the obsession with every negative datapoint. From Roubini to Zero Hedge, people seem to be hunting down anything foreboding. (How funny is this tweet: zerohedge once again pissed that asteroid avoided colliding with earth)
7. Overhead resistance:Market are coming up against levels where lots of supply lives. In the past, this is where resistance lay. Watch SPX 1152, NDX 2370, and Dow 10,800.
8. Job creation soft: The 2nd economic headwind. Until this improves, there can be little better than modest improvement in retail, home sales, and deleveraging.
9. Lack of market leadership: Quick, what are the market leaders in this cycle? Its hard to really say — Banks, Energy, Technology? Not really. How about Ag, Consumer Staples, Utilities? Its tough to see much in the way of leadership.
10. Consensus that gridlock is good: I am becoming increasingly wary of the consensus belief that gridlock is such a wonderful thing. If most of the market and economic gains have been driven by Fed/Treasury action, what does gridlock say about future market action?
None of these individual items are fatal to the market rally — but collectively, they are the factors making me nervous . . .
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September 21st, 2010 at 7:28 am
Great post, Barry. Now what are the ten things giving you confidence, if any?
September 21st, 2010 at 7:31 am
>> Now what are the ten things giving you confidence, if any?
1 – 10: Free money from the Fed.
September 21st, 2010 at 7:33 am
Add 10 more.
1. Continuing Eurozone debt problems.
2. Fast change in the yuan/$ rate.
3. China construction bubble.
4. Weak dollar.
5. U.S. debt.
6. Out of control Fed printing press.
7. Possible bankruptcy of U.S. States, e.g., California.
8. Upcoming U.S. elections.
9. October historical down trend.
10. High energy costs and BP.
September 21st, 2010 at 7:35 am
Oh, on the VIX. Keynes’ statement on the markets also applies to the VIX, “it can remain irrational longer than you can remain solvent.” The VIX can keep going down (think early 2006) until its completely irrational in the single digits. Just like the VIX at 40 in 2008 turned out to be not so high after all. I’m starting to think the VIX is not a useful indicator at all and that “tail risk” is no longer a black swan but an annual event.
I agree on the “recession porn”. I collect “pop finance” books from other decades and its amazing how the “recession porn” reminds me of statements made in investing books from the late 70s.
Here’s Howard Ruff in 1979, for instance:
“Much of the American wealth is an illusion which is being secretly
gnawed away and much of it will be completely wiped out in the near
future. . So what is the rest of your future? A grisly list of
unpleasant events – exploding inflation, price controls, erosion of
your savings (eventually to nothing) , a collapse of private as well
as government pension programs, and eventually an international
monetary holocaust which will sweep all paper currencies down the
drain and turn the world upside down.”
September 21st, 2010 at 7:36 am
Btw, I’ve done various studies on volume and wrote about it in my first book, “Trade LIke a Hedge Fund”. I don’t think its historically/statistically been true that low volume is associated with tops. It certainly wasn’t true in 2000 and 2007.
September 21st, 2010 at 7:38 am
and
11. Many run for gold
12. Meny run for bonds
13 The old formula was wrong, where is a new formula?
September 21st, 2010 at 7:59 am
BR:
What makes me nervous is the huge and persistent disconnects between Wall St. and Main St., between government and the governed, between observable reality and reported reality, and between the haves and have nots.
Add to that the FACTS that nothing has been done to fix the structural problems of our rickety economy (indeed, fraudulent but legitimized GAAPs are bound to culminate in a Black Swan event), as well as government failing to investigate, prosecute, and remove from the system those who are surely responsible for the criminality that led to our fleecing, and a reasonably prudent person could come to no other conclusion than a train wreck is inevitable.
I would go as far as saying that the engine of our economic train has already plunged into the gorge (disenfranchisement of the middle class by economic exclusion/lack of a means of participating in the economy), while the rest of the train follows at full speed — unaware and/or unconcerned that they will suffer a similar fate, if only by momentum and the undeniable force of gravity.
There are many reasons to to be nervous, but nervous is a stage we passed a while back, for those who have already gone over the edge or who can see the edge of the precipice fast approaching for their particular passenger car (these folks are currently soiling their own drawers).
That said, I am making a personal effort to remain optimistic, but reality keeps reminding that neither optimism nor pessimism can influence the outcome of a train wreck.
September 21st, 2010 at 8:04 am
Yes, what is giving you confidence, as others asked?
Oh, I’ll add another to the “recession porn” list: The Boomer Bulge going into the end game with meager savings, if any, underwater on two or more mortgages (a mortgage at age 60? You should have listened to Mom and Dad, kiddies), hanging on to their jobs by their fingernails, if they have one, and out of shape and sliding down the slope into some sort of elder disability.
September 21st, 2010 at 8:05 am
As a firm believer in close correlations between global bourses, my reasoning for the SP500 breakout was due to very strong global markets the past few weeks, particularly in the smaller Asian and South American emerging markets. I started noticing during August that markets like Chile, Peru, Columbia, Thailand, Malaysia, Indonesia, and Singapore were clearing their spring highs. Then, on 9/9 the EWX, the global small cap index broke above it’s spring highs. It’s reasonable to assume leadership can occur in small caps only due to soundness in the global economy.
So, BR, if you’re looking for the leadership then look globally. The US market is a follower in 2010, not a leader. It followed down in the spring with the European crisis, and I think the straw that broke the bear’s back here lately is that the first major global economic power saw it’s bourse finally clear the spring highs, joining the many minor bourses. That was India following a stellar GDP number.
The concerns you elicit as possible reasons for a failure of the rally are real, and may contain the US market in the trading range for quite a bit longer. However, given the correlation in global markets it’s my contention that if those markets continue strong and ratchet up another 25% then the US market will break the spring highs, too. Given too, that the SP500 is still 7% off the highs, and the Russell is 10% off the highs, the US market is still lagging considerably and it’s reasonable to think this rally has a good 2-5% to go in the near term before your aforementioned concerns start making people a bit nervous. As for another reason for an eventual selloff, I suggest the inevitable profit-taking in those other strong foreign markets that are rather overextended would get people a little itchy over here.
And, as for a pretty solid reason to be optimistic longer term,I thought this headline and story yesterday on Bloomberg was a compelling reason I could be more sanguine: Europe Debt Crisis Ebbs as Traders See Spreads Narrow (Update3), with this particular quote being rather eyecatching:
“Yields on government bonds of Greece, Spain, Ireland and Portugal will fall to within 2.2 percentage points of benchmark German bunds on average in the next two years from 4.61 percentage points last week, according to a Bloomberg News survey of 15 banks that trade directly with Germany’s debt agency. HSBC Holdings Plc, Europe’s largest bank by market value, Goldman Sachs Group Inc. and Societe Generale SA advise buying securities sold by Greece. ”
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aPgQB7FK0SyI
September 21st, 2010 at 8:09 am
zerohedge once again pissed that asteroid avoided colliding with earth
Genius, This is the best tweet I have ever read (PS-I do not use twitter)
September 21st, 2010 at 8:23 am
Is 10 just a more specific form of 2? I agree with both, I guess; just not sure they are different. I tend to agree with 5 now but note that your “sense” is just as soft as that with which you disagree. I’m not sure I’d put a lot of short money on it.
September 21st, 2010 at 8:50 am
Quite a wall of worry you have built!
September 21st, 2010 at 8:51 am
BR,
1 through 10 are interesting and appear to be an application of approaching the problem in a fundamental way. Unfortunately, fundamental logic hasn’t worked for a long time.
Every day, a large percentage of the volume comes from a handful of stocks. I haven’t looked lately, but on the NYSE a while ago about 30% of the volume came from fewer than maybe 20 symbols. the 80-20 rule definitely applies, except the proper percentage is perhaps 98-2. Therefore, when you subtract the day trader stocks, the volume is even more dismal.
So, to me, only the real volume … the volume not a part of the normal daily churn … should be analyzed. What moves it and why? How can the entire market be moved by this small sample? Why is it resistant to falling down? Why do world markets move with nearly 1.0 correlation, causing the concept of diversification to be a historical curiosity?
This is why the markets look phony and fundamental logic does not apply at this time. It is why the markets leave a trail that makes it look like one large player is manipulating the values. When you subtract out the daily churn, it does not take a lot to move a market because the market isn’t very big.
If the market is ‘real’, then who is moving it, who are the buyers, where are the sellers, why are the buyers active, where is main street in all of this, and such.
BR, and I don’t mean this disrespectfully although it will sound that way; If you want to be taken seriously then you have to address this anomaly. If you still want to write like we have a real market then you should use your ‘process’ to overcome my process. Please show me the courtesy of not using terms such as ‘conspiracy theory’, because the markets definitely look like a mystery buyer is a major player in maintaining the levels. I don’t have access to the data you see daily, and the answer is there
I am quite sure. I think HFT is both a convenient scapegoat and a tool being used to help with the prop. No real buyers will return until the markets look honest. Right now they look fixed and no number of pixels you spill will change that for most everyone else. If you think otherwise, you are only kidding yourself.
September 21st, 2010 at 9:02 am
mguerreiro:
Besides the obvious, meaning ZH is Libertarian paradise, I only found out last week something interesting. With ZH, it is personal. He wants to exact revenge on Wall Street because he got zinged for insider trading(for a piddling amount no less). Now, I don’t know all the specifics but it is obvious to me that he lets his personal vendetta get in the way.
September 21st, 2010 at 9:03 am
And today this “Housing Starts in U.S. Increase More Than Estimated in Sign of Stability ” will drive the market higher even though there is foreclosure issues and the Housing Crash Continues…
September 21st, 2010 at 9:09 am
Right Now by Chris Gaines aka Garth Brooks
http://www.youtube.com/watch?v=I7fM_jAmpWw
“maybe its the end”
Colosseum in flames
http://www.italymag.co.uk/italy/roma/colosseum-flames
“cost nearly $700,000 to “
September 21st, 2010 at 9:11 am
dead hobo:
You’ve been around here a while. You ask good questions. It’s one of the things ZH, for all his stock market crash porn, has been asking. How is the market going up as it has when more money is going out then coming in.
September 21st, 2010 at 9:12 am
There maybe legislative roadblock as GOPs and Dems battle each other for soundbites. But there is no regulatory roadblock. Dodd-Frank loaded up the financial regulators with hundreds of reports and new rules that may re-shape the investing landscape.
Here’s the SEC’s rule-making agenda for the next three months:
http://www.compliancebuilding.com/2010/09/21/the-secs-busy-rule-making-agenda/
September 21st, 2010 at 9:13 am
dh says:
“BR . . . If you still want to write like we have a real market . . .”
____________
Exactly.
In fact, one could argue that small players who are taking the ONLY avenue available to them — and one that is, temptingly, for the moment, and on the surface, growing at healthy rate — are playing directly into the hands of the movers and shakers in our Wall St./Fed/pseudo government. Not that they will be fleeced (not immediately, anyway), but more importantly, they adding legitimacy, by participation, to what is obviously a very corrupt system.
Business is not driving anything any more. It’s all markets, all the time. Who needs profits to support stock valuations? Who needs manufacturing, when financial services is the key to prosperity? Who needs employment or monetary velocity throughout the cycle, when he market can clearly grow by leaps and bounds without them? Why put a stop to blatant criminality when there is so much money to be made from it? Who needs to correctly value assets and liabilities, when ignoring the mathematics is so much easier and works just as well?
The game has changed. This one is completely rigged.
September 21st, 2010 at 9:15 am
BR:
Can you add an edit or preview function to this bucket of bolts?
September 21st, 2010 at 9:28 am
Gridlock will be great for the shorts if it happens: no bailouts of liberal states like CA, IL and MI that are going down in flames and will produce mini-crises as they default on bonds and pension payments and lay off hundreds of thousands.
Gridlock is not a sure thing as the Tea partiers seem to have a knack for picking real doozies as candidates and smart Dems might sweep all of those seats. However, as Stewart points out in the second half of this report:
http://www.thedailyshow.com/watch/wed-september-15-2010/tea-party-primaries—beyond-the-palin
September 21st, 2010 at 9:31 am
On the other hand, gridlock my be better than doing things the Republican way as in 2000 – 2006.
September 21st, 2010 at 9:46 am
Just not what should make you really nervous: the high probability of another recession this year, which is already visible in data, and the increasing disconnect of the rising market from this, since the investor herd is listening to opinion noise, Warren Buffet, and people who already haven’t seen coming the previous recession. And if I was an investor using your service, this would make me nervous. :)
September 21st, 2010 at 9:46 am
I would add the constant chatter of the Fed standing by to do whatever is necessary.
How much longer for the ostrich in the sand on underwater housing?
September 21st, 2010 at 9:48 am
Argh…not the “low volume” straw man. Not again…Index volume is nearly meaningless compared to individual stock volume.
► Price Before Volume – Don’t Get It Twisted
► http://www.thereformedbroker.com/2010/09/18/price-before-volume-dont-get-it-twisted/
September 21st, 2010 at 10:12 am
With yesterday’s rally, the DJI, S&P 500, NASDAQ Comp., NY Comp. and S&P Mid Cap Index all managed to close above the much-discussed resistance at their June/August recovery highs. The breakout was accomplished on strong Demand, as the rally qualified as a 90% Up Day on the NYSE, where Up Volume was 91% of total Up/Down Volume. (NASDAQ fell just short with 83% Up Volume.) A 12 point gain in Buying Power (to 330) and 5 point rise in the Short Term Index, both to new rally highs, offered additional evidence of strong Demand behind the advance. NYSE volume was the sole laggard, as the 3.9 billion shares traded matched the 30-day average, suggesting a failure to qualify as heavy. As mentioned in Friday’s weekly commentary, a sustainable breakout would likely “show a substantial rise in Demand, as in one or more 90% Up Days, a significant increase in volume and a strong gain in Buying Power to well above its recent peak at 318”. To quote Jack Nicholson from “Mars Attacks” (or Meatloaf, for the musically oriented), “two out of three ain’t bad!” The question now, of course, is where does the market go from here?
Fortunately, there are really only two possible answers to this question: either the breakout is legitimate and the market rallies back to, and possibly above, the April highs, or the apparent breakout is a bull trap with prices falling back into the May-Sept. trading range. So, what are some of the identifying signs indicating a sustainable breakout? First, the market could continue to rally without pause to test the distribution area formed at the market top in mid April This is probably the less likely scenario and the one carrying the most risk, as it would entail a virtually straight up move in the face of continued overbought readings. In a way, a further rally, despite these overbought readings, would provide an echo of the March-April rally. But, like that earlier rally, the further the market advances without pause in an overbought environment, the greater the correction will likely be when it finally arrives. This was clearly the case, in spades, with the 16% drop in the market indexes to the July low. That is, by the way, not a forecast for the current rally, which, at a gain of 9.1% thus far (in the S&P 500) is much less extensive than the 15.2% rise from the Feb. market low to the April high.
An alternative to the uninterrupted rally, likely carrying significantly less risk, would be for a pullback to test the breakout levels at the June/August highs. A successful test would probably be characterized by light volume, modest daily selling and a small rise in Supply (as measured by Selling Pressure). A light volume pullback should serve to confirm the breakout and also work off much, if not all, of the current short-term overbought reading, leaving the market less vulnerable to a nasty pullback as might occur in an overextended and uncorrected advance.
Rather than offering a couple of alternatives like the sustainable breakout, identifying a bull trap is straightforward. The declines from the June and August rally highs were accompanied by multiple 90% Down Days—three during the drop from the June high and two in the pullback from the August high. One or more 90% Down Days in response to yesterday’s move above resistance, either immediately (like today) or sometime over the next 3-4 days, would suggest much more intense selling than would be expected in a sustainable rally. The key though, would be for this sell-off to carry back below those June/August highs (which are now support levels) on continued strong selling. Volume, however, may not be especially heavy and is not a prerequisite for a move to the downside back into the trading range. Important support on a drop below the breakout level would probably be around the mid points of the trading ranges for the major indexes, with a drop below these levels likely to carry all the way down to test the early July lows.
The bottom line is, while yesterday’s rally was impressive, fulfilling most of the likely requirements for a sustainable breakout, it must still be proved. Consequently, prospective buyers should exercise patience for now and allow the market to provide guidance as to the timing and extent of any further rally. After all, yesterday’s big day could have been boosted by nothing more sustainable than short-covering, as buy stops were hit when the market indexes crossed above their June/August highs. The best buying opportunity should occur on a light volume pullback to, or just below, the breakout levels. A further spike higher would raise the potential for an exhaustion move (at least on a short-term basis) and possibly equally sharp pullback. And, a bull trap could be a singularly unpleasant experience for overanxious buyers. But, even in the case of a bull trap, the eventual outcome would likely serve only to further delay a resumption of the market’s primary uptrend and would not be evidence of a significant turn lower for the market.
September 21st, 2010 at 10:23 am
Notwithstanding that on an estimated 2011 S&P Earnings of USD 72, we are at a P/E of 16X already. Not cheap. Good luck.
September 21st, 2010 at 10:24 am
i am still little long but specialty stuff
walmart and chlorox leaps, Ag stuff like DBA, Fannie, China
and really solid cyclicals with 10 P/E s Daimler lubrizol,
short TBT and JNJ. would love to short AIG on news
of your list
the gridlock– no action– staring at a 2.5% of GDP AUTOMATIC fiscal contraction is what scares me as laid out earlier.
i might get longer after election if the lame duck congress looks like fixin at least two out of three of the contractions? otherwise we be double dippin.
September 21st, 2010 at 10:26 am
Richard Dickson Says:
September 21st, 2010 at 10:12 am
With yesterday’s rally, the DJI, S&P 500, NASDAQ Comp., NY Comp. and S&P Mid Cap Index all managed to close above the much-discussed resistance at their June/August recovery highs. The breakout was accomplished on strong Demand, as the rally qualified as a 90% Up Day on the NYSE, where Up Volume was 91% of total Up/Down Volume.
reply:
————–
That sort of trader mythology is interesting but unpersuasive. Too many maybees, possiblies, coulds, mights, etc. Trader gibberish except on days where full participation is evident. Then the law of large numbers works and your thinking helps make a market.
To prove this is a real market them show me the money and not including day trader churn unless some influential index trading is a part of it. You can keep that in.
Really, who is buying and who is selling, from where, what are the flows, why is there little diversification evident,and show this on a daily basis, weekly average, monthly average, etc so a clear cash flow is apparent. The flows will show trends and the patterns will provide circumstantial evidence of manipulation or proof of an honest but unusual market.
Trader gibberish is not a valid substitute for documented cash flows.
September 21st, 2010 at 10:26 am
Buttonholed holtz eakin on tues
and he could not even reassure Rs wont block AMT patch?
September 21st, 2010 at 10:26 am
One thing that worries me is that — as David Rosenberg put it in today’s Breakfast with Dave — “global equity markets continue to rally in this September to remember; all we can say is that we have a complacent marketplace on our hands.”
Nothing in investments or life scares me more than complacency.
September 21st, 2010 at 10:30 am
Trader gibberish reminds me of authentic coot talk from Blazing Saddles. Only trader gibberish is mostly BS.
September 21st, 2010 at 10:43 am
good list otherwise
i would only object to the volatility point. like the fast money crowd that knows anything, says S&P vol below 23 may be a good sign now.
not a bad sign,
complacency notwithstanding
September 21st, 2010 at 10:51 am
Another thing that should make the list:
Historical negative return of the current timeframe (i.e. months of Sept/Oct )
September 21st, 2010 at 10:53 am
I use an technical indicator – Percentage of stocks trading 1 channel below their 40-day moving average -on a 3day chart that right now reads at well below 10% – i.e., the vast majority of stocks are trading at bullish levels. Generally this indicator is a gauge of whether the market is overbought or oversold – it rarely spends much time at the extreme (below 10% / above 90%) and when it does hit the extreme, is generally a reversal signal.
My interpertation is that the market is currently overbought and cannot sustain any further rally without at least a major market pullback. I too am looking at S&P 1150.
September 21st, 2010 at 11:10 am
How about oil having a hard time gaining traction (unlike stocks)? Also, China stock market (where there is actual growth, BTW) doing poorly?
September 21st, 2010 at 11:22 am
This should make everyone “long” nervous:
“Apple now accounts for 20% of the NASDAQ-100 index. In fact, Apple’s weight in the index is equal to the combined weights of Google (GOOG), Qualcomm (QCOM), Oracle (ORCL), Cisco (CSCO) and Intel (INTC).”
Forget the other shit, you better just pray they don’t release an iCrap product with compressed margins.
September 21st, 2010 at 11:24 am
From the good folks at Pew: a link that covers concern #2
http://pewresearch.org/pubs/1735/political-compromise-unpopular-neither-party-favored-on-economy-four-in-ten-say-cutting-tax-cuts-for-wealthy-hurts-economy
September 21st, 2010 at 11:27 am
I agree the major indices technically are about to hit a major headwind (SPX 1150). Fundamentally, I share the same list of concerns with BR.
Just playing devil’s advocate. What about asset managers who entirely missed the rally and desperately don’t want to miss the cho cho train? I’m sure there are still some out there who are waiting for a pullback to get in. Their bids may support the next market pullback to be brief.
Has anyone also factored in Q3 earnings season? It’s about to kick off in 2 weeks from now. Didn’t the past 3-4 earning seasons catalyze the market to move higher?
It’s quite possible the pullback that everyone has waiting for may not happen until the second half of Q3 earnings season when the weaker companies report their earnings.
This doesn’t mean I’m bullish. I share BR’s nervousness that the rug may be pulled from under me at anytime now, especially considering how fast and furious this rally has been without any meaningful dip.
Good luck everyone
September 21st, 2010 at 11:42 am
[...] Mr. Big, aka Barry Ritholtz, is right to support NBER’s call on a statistical recovery and right to have lingering doubts. I especially like reason #6 (of 10) that makes him nervous: “Recession Porn” at ZH [...]
September 21st, 2010 at 11:55 am
BR:
“10. Consensus that gridlock is good: I am becoming increasingly wary of the consensus belief that gridlock is such a wonderful thing.”
‘Gridlock is good’ is what the RightWing says when they’re out of power.
Not to mention that the likes of Barron’s, Business Week, and others have previously documented that both the economy and the stock market do better with Dems in power.
September 21st, 2010 at 12:04 pm
WWRS (What Would Rosie Say)
UM Sentiment down and falling further. Bank failures continue at record pace. Foreclosures at record highs (and would be higher if banks wouldn’t fail by taking them off the book). Unemployment.
Oh yeah, the wonks in DC say the recession ended 15 months ago.
Nervous, you bet.
September 21st, 2010 at 12:14 pm
@ sp 1050 investors were ready to jump out of windows Three weeks later w/ sp 1150…sentiment rebounds people are looking for a rally. Both will be wrong.
September 21st, 2010 at 12:46 pm
Petey,
“BR: Can you add an edit or preview function to this bucket of bolts?”
Hear Hear.
September 21st, 2010 at 12:49 pm
There does seem to be a consensus that the Republicans take control of the House, and that the expectation for gridlock will be a positive for the stock market. If the market continues to rally until November 2, then it would seem that there wouldn’t be a lot of upside left (upside, that is, from the perspective of an investor with a 1-2 month time frame).
However, I’m hoping for a pullback before the election; if that happens, odds are that going long for a month or two after the election will pay off.
There’s also the question of the Bush tax cuts, from the perspective of market expectations.
September 21st, 2010 at 1:02 pm
[...] Ten things that make Barry nervous. (Big Picture) [...]
September 21st, 2010 at 1:21 pm
Gridlock government most likely means a shrinking of the workforce in my home area of Northern Virginia (and the rest of the D.C. area). I don’t think that is a bad thing. Northern Virginia counties Fairfax and Loudoun have two of the highest median incomes in the country. All government workers. If the private sector can get lean, why not the government sector?
It is not 1994 with the Internet taking off. People can look back fondly and say, “Democrat President and Republican Congress… those were the ‘gridlock’ days in the nineties!” Nonsense. They were lucky to have the dot com bubble to make it all look sunny.
September 21st, 2010 at 1:46 pm
@BR
A bit off-topic — but you did open the door with your restatement of your cash position — just for my own edification and curiosity, do you have any data on your mean holding period of your trades? (a volume-weighted mean would be ideal, complete with the size of one standard deviation from the mean, but I don’t want to get ridiculous)
Or do you even track such things? If not, a gut-instnct of your typical holding periods would be interesting. Do you ever hold positions for long enough to achieve long-term capital gains?
I get the feel that you folks are not, in general, day traders, but have no clue as to what it means for you to take a “position”. Do you generally establish price targets and rigorously adhere to them, or do you follow trends?
Just curious. Anybody else with any credibility (pretty much none of y’all, sorry, no offense meant) is welcome to chime in on this as well. I used to hold positions for several years, but no longer. It’s pretty rare these days when I manage to pay long term capital gains tax rates on a trade.
September 21st, 2010 at 1:49 pm
@Harry Wanger 11:22 am
“just pray they don’t release an iCrap product with compressed margins”
Or a product with the same margins but a lower unit price, that cannibalizes a higher-priced product line (like the iPad).
September 21st, 2010 at 2:25 pm
Let’s take a moment to address the conspiracy theorists out there (you know who you are) who posit that some unseen huge market player is manipulating the market because they observe world markets behaving as a single entity. This reminds me of the human proclivity to invoke a deity whenever we are unable to understand how something really functions. First I would encourage you to consider Occam’s Razor from the 14th-century English logician, theologian and Franciscan friar William of Ockham who wrote “entities must not be multiplied beyond necessity” (entia non sunt multiplicanda praeter necessitatem). This may be alternatively phrased as “plurality should not be posited without necessity” (pluralitas non est ponenda sine necessitate). If we consider for a moment all the possibilities for the observed behavior we can create a long list of much simpler explanations than ghosts in the machine. When we hear hoof beats we should first think of horses rather than zebras.
Consider a bee hive. Tens of thousands of individuals function as a single organism. One can observe each of the individuals behaving according to its own programming and its own individual microenvironment while overlaid upon that are the chemical pheromones from the queen and all of the individuals, which unify group behavior creating the appearance of a greater consciousness. Yet this apparent intelligence of the hive is only the result of the mass of individuals doing what is best for each individual while following the lead of the pheromones. Perhaps this is what we are observing in a world market that behaves as a single entity; that global communication has finally reached a point where all of the individuals behave as one unit.
I encourage reading the book “Vehicles: Experiments in Synthetic Psychology” written by Valentino Braitenberg. The book is out of print, but you can find it on Amazon. In it he describes a series of thought experiments where he creates simple wheeled vehicles and iterates the addition of brakes, accelerators, sensors, and feedback mechanisms until the vehicles start to behave as if they were conscious. The naïve observer might posit that some omniscient being is controlling them through some unseen force, but the reader knows they are just a collection of parts…
September 21st, 2010 at 2:28 pm
What’s this doing to your life expectancy?
~~~
BR: Let me get Zen on you: I only stress about what is in my control. Things that our out of my control, I don’t stress about.
And the phrase “10 Things Making Me Nervous” is mere literary license . . .
September 21st, 2010 at 2:35 pm
Seems like here in Bear country there is a lot more support for “we are all doomed” than for “recession is over”.
Is is right that technical barriers (up or down) only hold when the sentiment is turning in their direction?
September 21st, 2010 at 2:50 pm
Dead hobo@ 8:51
The market in individual stocks is small enough that hedge funds can manipulate and win. That is why the trading is in a small number of stocks. Hedge funds are not big enough to manipulate the whole market, only one stock at a time.
September 21st, 2010 at 2:56 pm
Index funds are forced to by or sell in very predictable ways, others can be probed and figured out. Probe the bots, then milk them – another week another victim. Why do you think that HFT has not been fixed. Big guys milking all the small guys and paying “fees” to make sure the racket is not investigated and stopped.
September 21st, 2010 at 4:00 pm
Joe Friday Says:
Not to mention that the likes of Barron’s, Business Week, and others have previously documented that both the economy and the stock market do better with Dems in power.
— Reply
Probably where the phrase – “If you want to live like a republican you need to vote democrat” came from.
September 21st, 2010 at 4:37 pm
“I only stress about what is in my control.”–BR, above
Wise. ~!
September 21st, 2010 at 4:58 pm
Gridlock isn’t good for stocks when Wall Street is addicted to stimulus.
The calculus in Washington favors an aggressively obstructionist Republican strategy, with the Dems getting blame as the party in power if things get worse. This reduces the odds that new or meaningful stimulus will pass.
Also, as a general rule the market hates uncertainty. One could argue that, in the past, political gridlock created a sort of benign certainty as it raised the likelihood that Washington wouldn’t do anything excessive.
But now, in an environment where double dip risks remain heightened (particularly in housing) and renewed government intervention is a ‘hope’ rather than a threat, a gridlocked Washington could actually be seen as a wild card, i.e. “Will they step in and stimulate again if things get bad, or will the austerians win the day and say ‘let it burn’?”
September 21st, 2010 at 7:58 pm
Here’s one that scared me – Albeit single data point. Aunt’s exec asst. hasn’t made a mortgage payment in nearly two years. The bank hasn’t foreclosed, presumably because the neighborhood already has a bunch of foreclosed properties. The Exec Asst and hubby fully expect to file for bankruptcy once the bank makes a move. IN THE MEANTIME, they are running up as much credit card debt as possible, because they know they’ll file BK and they know that the trips, the massages, beyond-their-means lifestyles can be had at an 80% discount. Sure it’s unsustainable, sure it’s irresponsible. But their perceived wealth is gone, they’re pissed, and they’re making hay while the sun shines.
Is this type of behavior skewing consumer spending data?
September 21st, 2010 at 9:01 pm
I am normally able to balance my partisanship from my analysis, but I confess am very scared about the elections. The Republicans appear to have decided to abandon advocating bad policy positions in favor of catastrophic ones.
An election that gives Republicans enough power in Congress to stop any action (which is pretty close to what they do anyway) and gridlock in Washington is commonly thought to be good for the economy, particularly by the Kudlow crowd. But the problem is that our recession has structural problems, and structural problems resolve themselves in only one of two ways – if at all.
Way 1 is government involvement in intelligently designed industrial policy. There are many ways government can go wrong in pursuing industrial policy, but that doesn’t mean that industrial policy is bad in and of itself. The biggest error in industrial policy is not attaching performance standards or expected results to government subsidies or intervention (this was a problem with the bailouts too!).
Way 2 is a very long and drawn out period of adjustment which is painful and often concentrates income among the winners (which creates its own problems). In effect, it sacrifices a generation or more as they and their skill sets die out and a new generation of workers comes in with whatever is needed.
Stalemate in Washington almost guarantees that Way 2 is the way that we are going to go. Krugman’s monday editorial really phrased what I was already thinking. The top 2% of the country just don’t want to do their part to get us out of the mess that in many ways put them there at the top. Obviously not all… but the idea that you pay taxes for the privilege of living in a civilized society seems to be gone. It’s just “let me keep the money I extracted from others, I stole it fair and square.”
September 22nd, 2010 at 12:47 am
The rub with Krugman and hardcore stimulus advocates, though, is that giving money to congress is akin to throwing it down a rathole. It’s not clear that Washington is even logistically capable of spending stimulus money effectively, in such a way as to actually create jobs and have positive net effects. This urgent reality seems more important than playing up socioeconomic divides as to who is selfish and who is not.
What is really needed, as more than a few have thoughtfully pointed out, is ‘intelligent’ stimulus, and even more so than that an intelligent overhaul of policy — a thoughtful, rational, logical approach to dismantling barriers, getting funding to the necessary places for maximum impact, and getting government the hell out of the way where its intrusive presence is a burden. Without this ‘intelligent’ overlay, though, ‘dumb’ stimulus measures — of the sort Krugman is so hungry for — just become another outrageous exercise in wasting taxpayer funds.
The truly scary possibility, in my view, is that Washington may be broken in ways that are simply not fixable — fundamentally incapable of fixing the nation’s problems, or even addressing them in a coherent and rational manner.
Joseph Tainter’s “Collapse of Complex Societies” comes to mind. Sometimes the blind process of evolution will guide a specialized species, or a civilization, into the metaphorical equivalent of a box canyon — no solutions, no turning back, and no way out.
Our best hope as a society and a country may simply be in hunkering down and surviving, making it through the inevitable shitstorm well enough intact to participate in the next wave of demographic and technology-led economic growth.
September 22nd, 2010 at 8:24 am
There are many things to worry about concerning our present economic situation, unfortunately.
One item that is receiving practically no attention, yet is of the greatest importance, is the vulnerability of the US Dollar to a substantial decline. Should such a decline occur, which IMHO is highly likely, it will add a new set of difficult problems to our economic situation.
For those interested, here is my post on the subject discussing the fundamental and technical aspects of US Dollar vulnerability:
http://www.economicgreenfield.com/2010/07/30/u-s-dollar-target/
September 22nd, 2010 at 8:50 am
Complaining about the negativity of Zerohedge?? It is too easy for them to point to the negatives when they OVERWHELMINGLY out number the positives. This is something everyone seems to forget. I know that you need CONFIDENCE in the economy, CONFIDENCE in the markets and CONFIDENCE in general to see things improve. BUT….lying about to get an affect is all this government and administration is about. If you too feel the need to placate the populous you have that right, this is your blog. BUT, to go out and find disgust in ZEROHEDGE reporting the things that the MAINSTREAM media, like CNBS refuses to report on, or only gives their slanted ivew on or the SLANTED VIEW of their guests….thats another thing.
September 22nd, 2010 at 9:18 am
[...] a look at your thesis. Thankfully, Barry Ritholtz at The Big Picture has already done most of the heavy lifting on that front, so I’ll just highlight a few things from his list: 1. Low volume: Friday’s [...]
September 24th, 2010 at 9:21 pm
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