>

Okay, so we now have a deal, and the Futures are screaming higher. The decision not to sell into the weakness last week was so obvious it felt as if it was wrong.

The key for whether the market is topping out or starting a new leg upwards could very well be tomorrow’s trading and the few days that follows it. A strong market would gap up and ten keep going. Any failure to follow through, or — horrors! — a reversal spells trouble. A little upside volume would be nice as well.

More tomorrow . . .

Category: Markets

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

60 Responses to “Here Comes the Melt Up !”

  1. MayorQuimby says:

    Our petty little equity profits aren’t really important in light of the fact that these bursts of deficit spending and easy liquidity are destroying the nation.

    All market participants and bulls need to be cognizant of the fact that VERY BAD ie HISTORICALLY BAD things are happening right now. The wealth effect is in full effect if you are already wealthy!

    For everyone else, you mint want to buy some oil protection and currency hedges.

    And I pray this insane bill doesn’t come to pass.

  2. mark says:

    Treasury bonds have so far given back only a very small amount of the gains that came Friday after Treasury officials suggested a reduction or delay in issuance. I would humbly suggest that this is not a good sign and that once again the bond market is getting it right (“it” being the economy) and the stock market is showing again that it is no longer the leading indicator it once was.

  3. MayorQuimby says:

    Well the anti austerity crowd looks to be getting it’s way and the country will be in over $24 TRILLION in debt in 6 or 7 years which of course means at least partial collapse of much of the western world’s economic system.

    Remember moments like this when the relly bad things happen. Remember you all WANTED to take this course of action.

    Remember.

  4. crutcher says:

    Hmmm. 2.3 trillion will handle 2 more years of trillion dollar deficit spending, but that doesn’t leave much for more stimulus.

    On one hand, taking out unrepayable debt ought to induce more deflation down the road… But if you’re right BR that default is next to impossible, QE induced inflation seems to be the only other solution. What all this theater makes clear is that serious spending cuts are not an option.

  5. robert d says:

    2011 is the new 1937.
    The government should be making jobs not destroying them.
    Who will be paying the taxes. Who will be earning money.
    Look for a much deeper recession. I think Paul Krugman gets
    it. The Tea Party and the rest of them do not.
    Sell into the opening Monday morning.

  6. MayorQuimby says:

    Robert I think you and Krugman and certifiably insane. Deficits come at a net loss…ALWAYS. It costs $60k long term to spend $50k today. This is fine if you can come up with the sixty g’s down the road. But you are essentially destroying jobs in the future to create them today IN THE HOPE that you will SOMEHOW figure out a way to keep REAL GDP GROWING larger and larger FOR ETERNITY.

    Now I know you know that isn’t going to happen. I also know you know that every empire collapses eventually so….

    1+1=2

  7. Joe Friday says:

    Okay, so we now have a deal

    I wouldn’t be countin’ your chickens just yet there Jethro.

    Minority Leader Pelosi:

    We all may not be able to support it, and maybe none of us will be able to support it.</b"

    If Boehner can't get a majority of his party to vote for this pile of stinkin' horse manure, then why the hell should the Dems vote for it ?

  8. constantnormal says:

    I see no hint of anything that would reverse the topping out (and likely coming decline) in the GDP over the coming several quarters. While the markets have done well with even a feeble increase in the GDP, it seems unlikely that they will continue higher as the GDP declines.

    Yeah, we’ll get some sort of a rebound rally, but it will be brief, and will not move us into higher ground. Perhaps the holiday spending will save us, but the holidays are a long way ahead. Meanwhile, I expect that — even with the “uncertainty” resolved — corporations will continue to trim headcount, as that is the only way to maintain profits without a significant sales increase.

    http://allthingsd.com/20110731/foxconns-terry-gou-tells-employees-the-robots-are-coming/

  9. Joe Friday says:

    Quimby,

    Robert I think you and Krugman and certifiably insane

    Trouble with that is that Krugman has been correct all along, and he’s correct now.

  10. MayorQuimby says:

    I think not Joe. We’ve been deficit spending and lowering rates for fifteen years straight and have essentially destroyed the economy in so doing.

    I’d say Krugman is today’s equivalent of a scientist proclaiming the world is flat hundreds of years ago. Not only is he wrong. Not only WAS he wrong but obviously so.

  11. MayorQuimby says:

    Here’s Krugman being “correct all along”

    http://www.stevebaker.info/2009/06/ny-times-2002-paul-krugman-calls-for-the-housing-bubble/

    “The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

  12. Joe Friday says:

    Quimby,

    I think not Joe. We’ve been deficit spending and lowering rates for fifteen years straight and have essentially destroyed the economy in so doing.

    The lowering of rates was in response to the declining economy, not causing it, and the deficits are mostly from lack of revenue.

    I’d say Krugman is today’s equivalent of a scientist proclaiming the world is flat hundreds of years ago.

    Nope.

    Krugman has been well documented as being correct again and again.

    Here’s Krugman being ‘correct all along’

    That was a reference to since the depression began, not forever.

  13. MayorQuimby says:

    To continue krugmans insanity…what he is requesting is an EXPNENTIALLY BIGGER STIMULUS. Ie $4 trillion then $8 trillion then $16 trillion then mad max.

    He and his colleagues are insane. You’re better off joining a cult than follow these numb nuts.

  14. MayorQuimby says:

    The lowering of rates is a CAUSE. Oil spikes via chea liquidity take purchasing power from middle class workers and hand it to wealthy investors. Money should NEVER be free and yet it is at 0 pct right now.

    If you can show me ny positives from Geenspans lowering of rates to one pct for a year I’d love to hear it.

    Krugman is an asshat and as I just posted, has been proven incorrect in embarrassingly large and obvious ways. Those who follow him are not to be taken seriously.

    That blog post was written in 2002 just before the housing bubble began.

  15. Joe Friday says:

    Quimby,

    To continue krugmans insanity…what he is requesting is an EXPNENTIALLY BIGGER STIMULUS

    Much more stimulus is exactly what is required.

    The lowering of rates is a CAUSE. Oil spikes via chea liquidity

    Lower interest rates have nothing whatsoever to do with the price of oil.

    Krugman is an asshat and as I just posted, has been proven incorrect in embarrassingly large and obvious ways.

    Not since the depression started he hasn’t.

    That blog post was written in 2002 just before the housing bubble began.

    Who in their wildest dreams could have anticipated that the previous administration and Republican Congressional Majority would possibly be so economically reckless and incompetent to never before seen levels ?

  16. MayorQuimby says:

    Much more stimulus IS required but we can only spend current revenues or future ones. Future ones come at a loss of that exact amount PLUS interest over time. This is very very basic is it not?

    As for oil, you do understand how leveraged market participation works don’t you? If you honestly think that the prices have nothing to do with cheap liquidity I have a bridge for sale.

    Finally, yes. Bush was a catastrophe and obama AND Krugman AND you suggest that we can put out the fire with gasoline but only if we use a ton of it. That we can eat ourselves skinny,

    Good luck with that. I’ll even buy you the first gallon of Turkey Hill cookies and cream, my favorite.

  17. WaltFrench says:

    I won’t predict where the S&P goes from here but note that the S&P gaining by less than 1.3% is hardly “screaming” higher. At a VIX of 24, you expect a typical day to move by that much.

    And of course, you don’t have to be much of a technician to note that the index was trading around 1350 just a few days ago, back when it was inconceivable that Washington could be so dysfunctional as to refuse to raise the cap. Nor do you have to be much of a Washington watcher to note that party discipline has been more of the caucus disciplining the leadership, not the other way around.

  18. MayorQuimby says:

    Oh yeah…Joe

    A for Krugman not being wrong since the depression began he sure as he’ll has been and is most certainy wrong when he calls for ore stimulus and deficit spending.

    Same as he was wring in 2002. But in 2006 he looked like a genius for having suggested a housing bubble in 2002!!!

    And so now he seems to make sense for suggesting more gas on the fire. But in a few yers it will all be a mess and rates can’t go lower and we can’t print any more money and it’s basically game over for the current system.

  19. Joe says:

    Do we have a deal? or do we have a proposal to take before Congress? Anybody out there less than sure this is a slam dunk?

    What are the opportunities for some serious damage to the confidence of the market participants and the credibility of the proposed framework prior to or during Monday’s action?

  20. Joe Friday says:

    Quimby,

    Much more stimulus IS required but we can only spend current revenues or future ones. Future ones come at a loss of that exact amount PLUS interest over time. This is very very basic is it not?

    What is even more basic is that unemployment will be higher and therefore long-term deficits will be even higher if we don’t stimulate the economy.

    As for oil, you do understand how leveraged market participation works don’t you? If you honestly think that the prices have nothing to do with cheap liquidity I have a bridge for sale.

    I posted “interest rates” not “prices”.

    A for Krugman not being wrong since the depression began he sure as he’ll has been and is most certainy wrong when he calls for ore stimulus and deficit spending.

    No, he isn’t wrong. It’s economics 101.

    You can watch what you are advocating failing massively in real-time in Britain. No need for speculation or theory.

  21. philipat says:

    Look, if Japan can run up a deficit over 200% of GDP, we can do it too, we’re the US. Worse comes to worse, we just screw the Asians and devalue to almost nothing via the printing presses.

    Sheeesh……………………………..

  22. GrafSchweik says:

    MayorQuimby, don’t you have something else to do—like catching up on your meds? Although my comment might appear to be ad hominem, such assiduously cultivated cognitive dissonance is, in the long run, wearing for all concerned, including yourself… ;-)

    ps Joe Friday, you’ve given it the old school try, but isn’t it time to stop negotiating and get a warrant? [Cue music: Dumb-de-dumb-dumb-dummmmmmbbbbbbb!]

  23. b_thunder says:

    without the distraction of deficit talks, last friday the market would have fallen more on the GDP alone! even if those “bots” who do 80% of trading (aka “churn”) do “celebrate” the debt deal for a few hours, the realization of how bad the economic stats are will soon take over. i expect to be selling into the strength (or whatever is left of it by the time the markets open)

  24. philipat says:

    Please excuse my math, but if the economy is growing at 2% and Government spending continues to increase at 7%, aren’t we just palying games still? A reduction in the INCREASE of USD 1 Trillion over 1o years menas that the debt will STILL reach USD 24 Trillion by the end of the decade. That will represent over 200% of GDP at present growth rates compunded forward.There is a need to CUT SPENDING and REDUCE THE DEBT. Hello…………………………….

  25. jd351 says:

    At Quimby

    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.

    I think this was written for you!!!! Where is your Nobel Peace Prize

  26. kenny powers says:

    Mayor Q and JOE F:

    You are both right in a way. Krugman is entirely correct that it will take a stimulus of 4-6 trillion to get out from under the deleveraging we are currently experiencing. If we want to keep the giant ponzi going, this is exactly what the good “doctor” K should prescribe. Until next time the ever expanding house of cards collapses and we must do it again, on an even larger scale. It is completely unsustainable in the longer term. But you must remember that to Krugman and his ilk, the long term is irrelevant (insert famous quote from Keynes here if you like). Inflate, extend and pretend.

    As to the fact that lower interest rates encourage speculative bubbles, I think history speaks for itself.
    The correlation between QE1 and 2 and oil prices is hard to ignore, though the exact causality is more unclear. In my opinion, Krugman is extremely dangerous.

  27. HEHEHE says:

    I’ll take just the opposite tact. The next few days are the selling opportunity of the year. If we aren’t in a recession already we are heading into one and if you think stock prices reflect that you are on crack. No matter how much the markets are manipulated reality is going to set in soon.

  28. dead hobo says:

    BR offered:

    Okay, so we now have a deal, and the Futures are screaming higher. The decision not to sell into the weakness last week was so obvious it felt as if it was wrong.

    reply:
    ———-
    Maybe for you. I made out great by clearing out my bond fund. It had received a massive flight to safety Friday and I got the closing price. I expect rates to rise and prices to fall in the coming days and I plan to re-enter at a much better price than before. Stocks are dead money in a range and that’s all they will be for a long time. Day traders are the only ones who would consider this to be good. Bonds, I believe, are in for a huge amount of volatility and I expect to see a fair number of range trade opportunities during the coming months.

    To repeat, I closed at the high and did great.

  29. macrotrader603 says:

    You guys are amazing…talk about pollyanna’s..all of you need to learn a better way to trade markets than your seat of the pants, opinionated analysis..to trade properly you need to objecively look at the market action, most of you are so hung up in your need to “be right” that you are going to get blown out, if you haven’t alreay…write this down somewhere

    the markets don’t care what you think…

    shouldn’t you guys be watching The View or something?

  30. macrotrader603 says:

    wow, someone give dead hobo a hug, he booked a winner…

  31. macrotrader603 says:

    way too many emotions and opinions on this thread

    don’t get emotional about markets …clouds your judgement, when you trade your biases toward the markets you will be wrong… trade what the market is doing, not what you think it should do

  32. rootless says:

    @MayorQuimby:

    Why are you so furious, if the debt ceiling is raised? You won’t get the collapse of the US economy, because you thought such a collapse would bring you closer to the fulfillment of your wishes how society should be reshaped? Or are you just absolutely clueless how macro-economics work, what consequences it would have, if the US-government suddenly spent $100+ billion less a month? Since you have labeled various people as “insane”. I would say anyone who thinks it would be a good thing, if spending was cut by such an amount starting immediately, enforced by not raising the debt ceiling (or by any other way) is totally insane.

    However, you insane ones still have a chance. House and Senate haven’t approved the deal yet.

    Debt is the lubricant of capitalism, but please could you tell me, when you said at July 31st, 2011 at 11:36 pm,
    http://www.ritholtz.com/blog/2011/07/here-comes-the-melt-up/#comment-574426:

    Well the anti austerity crowd looks to be getting it’s way and the country will be in over $24 TRILLION in debt in 6 or 7 years

    where did you get this number from? Have you just made it up? How does this follow from raising the debt ceiling by about $2 trillion today?

    I think the debt ceiling should be eliminated altogether, since it is about covering liabilities from the current budget that is already existing law. If you want austerity (or not) you have to put it in the future budgets.

  33. ilsm says:

    How can the market price up on inflation, when the extortionists in congression want deflation?

  34. rktbrkr says:

    If any of the pols starts talking “bipartisan” I’ll puke. The Rs backmailed the whole country to achieve their self centered objectives just like they blackmailed the unemployed to continue the unaffordable Bush tax breaks for the wealthy.

    The Rs aren’t fit to govern and almost every significant element of the current economic crisis can be tracked back to their misfeasance; the Bush tax cuts for the wealthy, two unfunded wars, an unregulated financial industry that blew up and so much of the recent deficits are tied to damage control on these items.

    They’ll use every arrow in their quiver to exact the last pound of flesh from the US, I expect one final as the drama plays out.

    Stepping back from the drama the 2Q GDP (and 1Q revision) shows we have very serious problems with this economy and if the Rs are able to hit the austerity switch then we’ll shoot past a double dip to Hooverville.

  35. derekce says:

    This debt deal could be bad for the economy but not because it’ll make the debt harder to reduce. There was a story on here a few weeks back on here showing the Congressional Budget Office projections that letting the tax cuts expire and paying doctors formula reimbursements for Medicare eliminate it in 5 years. Not that hard, the story points out neither require action just Congressional inaction.

  36. Petey Wheatstraw says:

    So, this time it’s sell the rumor, buy the news?

    As with most recent legislation, I don’t think anyone knows exactly what has happened, here. Not even the markets. Yet.

    That said, anything short of resolving some of the massive financial/political crimes that have been allowed to flourish in the past decade, or so, is a sideshow, at best. We celebrate only that the 600 lb. gorilla has been given another sedative and allowed to sleep. It’s amazing how easily distracted we can be when the gorilla is sleeping.

    Especially notable in this “bargain” of spending “cuts” is the apparent shielding of the “defense” budget from any meaningful cuts. (sorry for all of the goddamned quotation marks, but these words are completely divorced from their original meanings).

    The big picture is not encouraging.

    Broadly, I’m sure that those who want austerity for the middle class will be pleased, as will the already untaxed. OTOH, I think quite a few people (most of whom didn’t give a damn, yesterday), are about to learn exactly what “austerity” means.

  37. JerseyCynic says:

    we need a little Freddie Mercury, David Bowie & queen to lighten things up here and say it like it is…

    UNDER PRESSURE

    http://www.youtube.com/watch?feature=player_embedded&v=3fpupBCL6TE

    sing along here folks
    http://www.ultimatequeen.co.uk/songs/underremixes.htm

    GO MAYORQUIMBY!
    http://krugman-in-wonderland.blogspot.com/

  38. rktbrkr says:

    With no additional taxes and no defense cuts and tax cuts for the wealthy already in place due to the extension of Bush tax cuts all hardship is focused on the middle and lower income Americans. I think a lot of Rs are going to be surprised to find they will be on the receiving end of entitlement cuts.

  39. rktbrkr says:

    Jerseycynic
    only for those with strong stomachs! LOL

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

  40. JerseyCynic says:

    oh rktbrkr – total disrespect!! “Yo VIP – Let’s Kick it” — yeah — down the road – eh?
    I’m getting slaphappy here…sorry
    I need a cold shower — the heat is on!

  41. rootless says:

    @davossherman@gmail.com:

    So you have found two variables that have correlated from the year 2000 to present. And? What is this supposed to tell us?

  42. Greg0658 says:

    ok MQ lets admit Osama bin Laden and crew destroyed the world as we knew it .. chase’g him down (we had to) … (how much help did he have from fiends with secret decoder rings)

  43. DeDude says:

    1937

  44. number2son says:

    I don’t know what’s worse, the charade that is our current political system or having to endure the sophistry of morons like Quimby. Well, it’s the useless politicians, of course. But geez, why do people with so little to say feel compelled to say it so often?

  45. Irwin Fletcher says:

    The topic is “Here comes the Melt up” and is about the market and how its going to play out. It’s a very interesting topic, timely and exactly why I read this blog. However, these comments are pitiful and off topic.

  46. DeDude says:

    Hmm, there appear to be a lot of people ready to sell into the melt up. Maybe the big boyz do understand what austerity does to a slow economy. Maybe they realize they have created a monster they cannot control. They hoped they could use all the populist BS just to gain power (it worked before).

  47. rktbrkr says:

    Melt up chilled out

  48. robert d says:

    As I wrote above, sell into this very sad day in American history. 1937 Redux.
    Or as Yogi might put it, “deja vu all over again.”
    There is no doubt that we are in a recession again and going much much
    deeper. We are digging our own graves by cutting government spending
    and firing even more of our citizens. Then we are cutting extended
    unemployment payments to give them a good swift kick in the butt.
    I did short amazon on the opening, suffered for about 5 minutes and
    now the stock is down a lot. The individual will be cutting back once again,
    Barry.

  49. gordo365 says:

    My prediction – spending cuts right now (read job cuts) will drive us into recession or depression.

    Timing is everything. The rational approach is to deficit spend during recession to goose economy. Cut back when things are going well. I understand need to restrain gov spending. But spending like mad during the good years, and cutting now in the face of a weak recovery, without a focus on job growth/stimulus, is dumb politics.

    On making money – RUT2000 looks like a topping/ head-and-shoulders pattern to me. A couple lower lows and lower highs. Feels like it’s rolling over.

    I’ve used TWM to short RUT2000 a couple times this month for quick combined 10% gain. I”m waiting for RUT to go back above 50 moving average – then take an “all in” short position.

  50. Joe Friday says:

    philipat,

    There is a need to CUT SPENDING and REDUCE THE DEBT.

    Once again, Britain tried that, just LOOK at the disastrous results.

  51. Joe Friday says:

    kenny,

    You are both right in a way.

    That’s silly.

    Krugman is entirely correct that it will take a stimulus of 4-6 trillion to get out from under the deleveraging we are currently experiencing. If we want to keep the giant ponzi going

    No, if we want to lower unemployment and grow the economy instead.

    It is completely unsustainable in the longer term.

    FDR showed us you’re wrong.

    But you must remember that to Krugman and his ilk, the long term is irrelevant

    Nonsense.

    The correlation between QE1 and 2 and oil prices is hard to ignore

    Only by conspiracy theorists.

  52. caveman says:

    Nice call!

  53. billjohnson says:

    “The decision not to sell into the weakness last week was so obvious it felt as if it was wrong.”

    And it was. Mr Market wins again.

  54. SOP says:

    Thanks Bill and caveman.

    Barry, I know you have been on top of the world the past two years or so, but seriously it is time to get sober. You focus so much on the bread and circuses (actually, you have become a part of the bread and circuses -what channel will you serve as a distraction on today???), and so much on the economic and market trivia that you have lost sight of “the Big Picture.”

    Wonderful folks like you and MISH, etc, are looking more and more like idiot savants counting toothpicks on the floor as the roof and walls cave in around you.

    How about making a call on when we start our international “Fall of Saigon” – and maybe even a guess at how many of our troops end up stranded overseas as our evacuations collapse into chaos?

  55. [...] I noted last night, with a deal in place, the stock futures were strongly [...]

  56. DeDude says:

    MayorQuimby @ 12:05AM

    The boneheaded claims of 50K used now costing 60K of debt long term is false. Look at the yield on TIPS. 5Y: -0.87%, 10Y: 0.16%. Even if you calculate as if all money at any and all times have the same velocity of 1 (which is moronic, but lets go with it); the 50K spend today will become 47.8K to pay back in 5 years and 50.8K in 10 years. So provided that the stimulus debt is paid back within 10 years the only question is whether money put into the economy now can do enough good to counter the damage of taking the same amount back out sometime within the next 10 years. In a situation with unemployment at 9%, way above any norm, that question is a no brainer.

  57. rktbrkr says:

    gordo365 Says:
    August 1st, 2011 at 11:29 am
    My prediction – spending cuts right now (read job cuts) will drive us into recession or depression.

    States & locals are well into it,IF something crazy happens tonight and the US ratchets back on payments to states for various things we never even think of thats when it gets crazy with impromptu furloughs

    Everybody will hunker down and preserve cash and the velocity of money will drop and we’ll shoot thru the double dip and great recession into the second great depression. The Hooverites in the House can replay history

  58. Greg0658 says:

    has anyone done a white paper on how long and how much pain a world G20 rebalance would feel like?

  59. [...] absence of outright recession. Indeed, Wall Street is ready to ignore weak data, instead expected to rally hard this morning on the news that a debt-ceiling solution is at hand. Meanwhile, the Federal Reserve is effectively [...]