Is the stock market going to tank?

NYT

Floyd Norris

August 21, 2009, 12:52 PM
As Home Sales Rise, Has the Economy Reached Its Ebb?
George W. Bush was less than a year into his second term in the White House. Shares in Beazer Homes fetched more than $70 each, while those in Hovnanian were valued at more than $50 each. Alan Greenspan, the chairman of the Federal Reserve Board, had been giving speeches crediting “the flexibility of our market-driven economy” for creating “a far more stable economy.”

It was November 2005, and sales of both existing single-family homes and condos had risen on a year-over-year basis, a development that was worthy of little comment.

Today the National Association of Realtors reported that sales of both existing single-family homes and condos rose in July — the first time that had happened since November 2005. And Ben Bernanke, now the Fed chairman, gave a speech at the Kansas City Fed’s annual conference in Jackson Hole, Wyo. “Since we last met here,” he said, “the world has been through the most severe financial crisis since the Great Depression. The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge.”

The good news on home sales helped to push up home builder stocks, including Beazer and Hovnanian. Each of them, however, remains below $5.

Which of the following would have seemed most unreasonable to most people as a forecast in November 2005?

1. The next president would be a black man.
2. The next time home sales rose on a year-over-year basis, sales would still be off by a quarter from the rate in November 2005.
3. By the time home sales rose again, the median prices of both single-family homes and condos would be down by more than 20 percent across the country.
Few would have thought any of them could occur. All, of course, did.

Now, the prevailing wisdom is that the economy has bottomed, but, as Mr. Bernanke said today, “The economic recovery is likely to be relatively slow at first.”

I tend to think he is right. But I wonder whether one part or the other of that forecast — whether the economy has bottomed, or the recovery will be slow — will seem similarly foolish a few years from now.

This can be more bullish news as Hedge funds are forced to chase returns:

As the market continues on its steady path to the stratosphere, first it became apparent that pension funds did not participate in the run up due to their significant reduction in equity exposure around the March max pain. What might come as more of a surprise is that according to the HFRX Global Hedge Fund Index (HFRXGL), even hedge funds are broadly underperforming the rally. Which is why aside from various Reuters articles claiming the contrary, hedge funds are mostly on their toes regarding their staffing decisions, as many funds are dealing with disgruntled investors who are confused why they are paying 2 and 20 for levered positions in equities when they could have generated better returns outright.

A comparison of the S&P500 with the HFRXEGL indicates that not only have hedge funds (up 8.7% YTD) failed to beat the broader market (13.5%), but the inverse gap currently is at the year's wides.

The reason for this is well known: prevalent skepticism over the actual economy, together with a disbelief in a computer and HFT driven rally (hedge funds tend to see beyond the volume of 5 financial stocks accounting for 40% of the NYSE volume), resulted in a negative turn in the February-April time frame, with either significant exposure reductions or outright deployment of new shorts.

Hedge Funds are thus faced with the triple whammy of deplorable returns in 2008, an insurmountable high water mark, and a failure to participate in the most orchestrated rally since the great depression. Furthermore, performance statistics indicate that fewer than 10% of hedge funds have recovered their losses from 2008/early 2009. So when you see Reuters articles about hedge funds hiring, take them with a big grain of salt.

http://www.zerohedge.com/article/hed...e-equity-rally

Seems like you're contradicting yourself. The smart people at the hedge funds are saying, in their actions, that this is a nothing bear market rally. I wouldn't call that bullish. If you haven't made your money since March, why jump in now?

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Originally Posted by Benny Profane

Seems like you're contradicting yourself. The smart people at the hedge funds are saying, in their actions, that this is a nothing bear market rally. I wouldn't call that bullish. If you haven't made your money since March, why jump in now?

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But you're a perma-bear. A doomer..

Didn't say jump in now. People don't pay 2 and 20 to underperform the market so Hedge Funds will chase performance out of necessity and be, perhaps, the last leg of this rally to 1200 SP00. Although, a retest of the lows in any scenario is off the table.

My TV told me the other day that I could double and maybe triple my money if I put it in Citibank, BofA, and CIT, even after the runup since March. That is insanity, and a signal to stay away. I'm guesing a lot of those hedge managers agree. Today I heard home builders. Home builders!

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Originally Posted by Benny Profane

My TV told me the other day that I could double and maybe triple my money if I put it in Citibank, BofA, and CIT, even after the runup since March. That is insanity, and a signal to stay away. I'm guesing a lot of those hedge managers agree. Today I heard home builders. Home builders!

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stay out then. I'm just pointing out a structural component that can easily fuel a sharp leg higher. And fwiw, C looks like it has a chance to run like AIG did.

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Originally Posted by 4matic

But you're a perma-bear. A doomer..

Didn't say jump in now. People don't pay 2 and 20 to underperform the market so Hedge Funds will chase performance out of necessity and be, perhaps, the last leg of this rally to 1200 SP00. Although, a retest of the lows in any scenario is off the table.

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But also, couldn't an argument be made that these hedge funds, having already missed the run-up are just waiting for some kind of tipping point before they make up their money shorting the market? I mean if you were a hedge fund manager and thought that the current market run was completely synthetic and fabricated by the actions of the government why would you chase it?

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Originally Posted by mcsquared

But also, couldn't an argument be made that these hedge funds, having already missed the run-up are just waiting for some kind of tipping point before they make up their money shorting the market? I mean if you were a hedge fund manager and thought that the current market run was completely synthetic and fabricated by the actions of the government why would you chase it?

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If they turn out right, yes, but at the end of the day, if a 2 and 20 hedge fund doesn't beat a no load index fund over a two year period what investor is going to stick with that hedge fund? It's all about performance and the hedge funds are underperforming by 5 basis points.

That said. I moved 5% to income at SP00 1000 and another 5% at 1050 if we hit that. I plan on being 60% (or more) cash at SP00 1200. Mostly because of age rebalalancing.

I'm betting that 2&20 is a memory for a while for a lot of these managers, if they're smart. A lot of clients have probably gotten much better deals, including liquidity provisions.

one thing missing from the numbers is RWA (risk weighted asset) equivalent measures. put most basically, the beta, or equity risk measure of a certain portfolio acts as a gearing or leverage factor for that portfolio performance. the average may be at 13% returns but the beta weighting may well be north of 2. hedge funds may be running on average 8% with a beta that is higher or lower. monetary leverage plays a part as well, which isn't captured in returns only data. my .02.

Seems like the summer rally is over. No longer on the long side on a few trades.

I wish this fucking run-up of bullshit "greenshoots, no jobs, no confidence, fake money pumped in" rally would end sooner than later. I'd like to buy back in but I don't know how to short the market and I have every confidence that handing my cash over to some fund manager is going to piss about 28% or more of it away in the next six months on losses and fees. I'm trying to buy at the fucking bottom here - can we hurry up and get there so the real economy can come out of hiding already?

If Citi, AIG, GE, and the other financials stay strong there is another leg up. I'm surprised by the strength in the financials for sure..

Pete: You can short by being long the inverse etf's. Very easy strategy:

http://tradermike.net/2007/03/list_o...hort_bear_etfs

And, no one picks the top and no one picks the bottom. "You know what happens to top and bottom pickers? They end up picking cotton.."

Another one the Rick Santelli said:

"Lots of boats on the bottom of the ocean and they all had chart rooms."

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Originally Posted by 4matic

And fwiw, C looks like it has a chance to run like AIG did.

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You wanna go to Vegas with me?

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Originally Posted by khakis

You wanna go to Vegas with me?

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Heh.. I don't gamble.:tongue:


$6.50 on C seems reasonable short term on this move. It won't take as much volume to move the stock in subsequent days.

http://www.pimco.com/LeftNav/Feature...New+Normal.htm

".....to us at PIMCO, means that if you are a child of the bull market, it’s time to grow up and become a chastened adult; it’s time to recognize that things have changed and that they will continue to change for the next – yes, the next 10 years and maybe even the next 20 years. We are heading into what we call the New Normal, which is a period of time in which economies grow very slowly as opposed to growing like weeds, the way children do; in which profits are relatively static; in which the government plays a significant role in terms of deficits and reregulation and control of the economy; in which the consumer stops shopping until he drops and begins, as they do in Japan (to be a little ghoulish), starts saving to the grave."

Why are OTC stock quotes delayed ?

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Originally Posted by Benny Profane

http://www.pimco.com/LeftNav/Feature...New+Normal.htm

".....to us at PIMCO, means that if you are a child of the bull market, it’s time to grow up and become a chastened adult; it’s time to recognize that things have changed and that they will continue to change for the next – yes, the next 10 years and maybe even the next 20 years. We are heading into what we call the New Normal, which is a period of time in which economies grow very slowly as opposed to growing like weeds, the way children do; in which profits are relatively static; in which the government plays a significant role in terms of deficits and reregulation and control of the economy; in which the consumer stops shopping until he drops and begins, as they do in Japan (to be a little ghoulish), starts saving to the grave."

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http://articles.moneycentral.msn.com...t-is-1991.aspx

An excerpt was already posted in this PoliAsshat thread (http://www.tetongravity.com/forums/s...=168039&page=2) by Toadman. Seems appropriate as a counterpoint to what's posted by Benny above. From the article ...

"The parallels between 18 years ago and the present are significant, and the fuel that powered a charging stock market out of that anxious era is vastly more abundant today."

Edit to add Benny's response?

Our economy is 70% consumer spending and, low interest rates or no, debt is not going to be available to consumers for them to spend like they have in the past.

Look, the only hope is housing going back up. That's where it started, and that's where it's going to end. There is hardly any private money out there to lend in the mortgage market - believe it or not, the government, or, you, with your tax dollars, are the primary backer of home loans today. http://online.wsj.com/article/SB125322329116020929.html
So, even though the cheerleaders are out there telling us that housing has turned the corner, I can't buy it. The market attained it's '06 peak with stupid easy money, and I hope we don't see that again, although I'm cynical enough to not be surprised before the '12 elections that we suddenly see it in time for Obama II. Anyway, with so many underwater (I think it's around 25%, going to 45% in some predictions), the market will be dead for years, and all the trillions that were extracted from real estate equity over the last 20 years just won't be there to buy stuff. Just yesterday I heard that September car sales are going to be awful without C for C, because nobody can refi for the new BMW/Suburban combo.
I wish I had the balls to make money in this market, but, it's a very risky game right now. You tell me how it's smart that Citigroup and Aig and CIT and some home builders (fucking home builders!) have doubled and tripled in price this year. These are healthy companies one should invest in? I don't think so.

BTW, as for home builders: http://blogs.wsj.com/developments/20...trouble-ahead/ This little rally just made that guy's grandkids rich, during the greatest real estate crash in history. Go figure.

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Originally Posted by bmg97

Why are OTC stock quotes delayed ?

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What do you mean? What source? I know all about realtime vs delayed so hit me up..

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Originally Posted by 4matic

What do you mean? What source? I know all about realtime vs delayed so hit me up..

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I bought some shares of a penny stock and all the quotes are delayed 15 minutes. Was curious why that is. My regular stocks stream real-time but "OTC" stocks are delayed. I’m pretty much a stock JONG but happen to take the leap this year and do some purchasing.

P.S. I watch my stocks with Google finance ticker.

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Originally Posted by bmg97

I bought some shares of a penny stock and all the quotes are delayed 15 minutes. Was curious why that is. My regular stocks stream real-time but "OTC" stocks are delayed. I’m pretty much a stock JONG but happen to take the leap this year and do some purchasing.

P.S. I watch my stocks with Google finance ticker.

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Each exchange has rules regarding data dissemination. Google made a deal with the NYSE/NASDAQ exchanges after ECN BATS allowed anyone to disseminate their r/t quotes free. OTC stocks are not part of that deal with Google probobly because the way OTC data is compiled and traded (it's a quoted market). Up until last year you could not get r/t data for free from any exchange but the ECN's changed all that. ECN's are off exchange trading platforms like Archipelago, ARCA etc. Typically, to get r/t data as an individual you have to pay exchange fees and that would be the case if you had a private streaming provider like Reuters or Bloomberg.

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Originally Posted by 4matic

Each exchange has rules regarding data dissemination. Google made a deal with the NYSE/NASDAQ exchanges after ECN BATS allowed anyone to disseminate their r/t quotes free. OTC stocks are not part of that deal with Google probobly because the way OTC data is compiled and traded (it's a quoted market). Up until last year you could not get r/t data for free from any exchange but the ECN's changed all that. ECN's are off exchange trading platforms like Archipelago, ARCA etc. Typically, to get r/t data as an individual you have to pay exchange fees and that would be the case if you had a private streaming provider like Reuters or Bloomberg.

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I had no idea there was so much behind this. So your saying I have to pay to watch the OTC stocks with streaming data ? I really have no clue about this.

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Originally Posted by bmg97

I had no idea there was so much behind this. So your saying I have to pay to watch the OTC stocks with streaming data ? I really have no clue about this.

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Basically. yes.. A fully loaded Bloomberg terminal with exchange fees for most international and domestic exchanges is almost $4k a month. Realtime OTC subscriber fees are cheap by comparison standards.

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Originally Posted by 4matic

Basically. yes.. A fully loaded Bloomberg terminal with exchange fees for most international and domestic exchanges is almost $4k a month. Realtime OTC subscriber fees are cheap by comparison standards.

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Holy Shit !!!!! Thats crazy !

Talk this week about the "Double Dip". I sure feel like that's inevitable, but that's mostly based on my casual observations.
This guy thinks the Dow will end the year around 6300: http://www.cnbc.com/id/33179408
He goes on to say that we'll scrape 4200 in 2011. He's probably hyping his own bullshit, trying to sell something, and it's not like I trust CNBC, but I thought it was interesting. Ichan is also warning of a "blood bath" from a double dip - not that his portfolio is full of winners, but the guy put himself on the Forbes 400 list without a huge inheritance so he knows something.
What is going to tip the market into this Double Dip? Q3 results defying the hype and hoopla of the market run up? Horrifying retail numbers over the holidays? Murderous unemployment numbers? What?

Just as many people are saying V shaped recovery that are saying U shaped recovery that are saying W shaped. The hype and hoopla recently isnt as much a run up as it is a recovery...in the economy we see the recovery in a year. In the stock market people get in early and it goes up now. The businesses are still quality businesses that need to certainly adapt but 4200? Are people going to stop buying things? Am I going to grow my own food?

Even if you're born and bred Chicago, you have to learn that the markets don't reflect the economy, especially today. What we have out there is a way too large financial industry that, yeah, lost some jobs the past few years, but is still far too big for it's and the country's good. All those Type A's are in a massive struggle for survival right now and this years bonus, which is their Holy Grail, or, ......... waitaminute, their Golden Calf is more appropriate. They are trading like mad, moving money around, and spewing at the media to buy buy or sell sell, whichever hype works for their profits. And our tax dollars are supporting all this by making too big to fail even much bigger than yesterday to fail.

Anyway, to answer the question, when car sales never rise and Christmas is another disaster and unemployment and foreclosures go up and up and commercial real estate starts to crumble, all by, oh, March, we slide back down the double dip. The only hope is if consumers find 3 credit card offers in their mailbox and they can refi 50 thou out of the homestead for stuff and fun times within the next year. I don't think so.

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Originally Posted by Brock Landers

Just as many people are saying V shaped recovery that are saying U shaped recovery that are saying W shaped. The hype and hoopla recently isnt as much a run up as it is a recovery...in the economy we see the recovery in a year. In the stock market people get in early and it goes up now. The businesses are still quality businesses that need to certainly adapt but 4200? Are people going to stop buying things? Am I going to grow my own food?

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Originally Posted by Brock Landers

Am I going to grow my own food?

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I grew a big garden this year and will grow even more next year, the excess is donated to my local food bank and they are super grateful because they have overwhelming demand.

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Originally Posted by Brock Landers

Are people going to stop buying things?

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What are people buying without unsustainable government incentive? I know every shop has some customers, but the expensive stuff we make margin on is on hold for most folks. and fewer jobs means fewer buyers.

More pessimistically, we're also in this hole where folks are still pausing or liquidating their investment accounts to prepare or pay for unemployment or other financial crisis. Then you have the baby boomers pulling money out as part of the retirement plan - that money isn't ever coming back. Then, once people go back to work, they'll have to play catch up on other debts before stocking up on their 401k plans - so that money won't make it into the stock market for a long time.

Where is the money going to come from to drive up the market? I hear about money on the sidelines - but how is that measured? How much is on the sidelines and how do we know it's enough to re-inflate the market?

I think the unemployment rate will stay high, and consumer spending will stay low. However, almost every company in the country right now is doing everything possible to shore up their balance sheets and cut costs. Most are running a real tight ship after the past year. Just cant see a complete collapse like last October in the cards. Might go down, but no way it touches 4300.

At this point there's still money to be shaken out of the shorts and wrongsided funds. November could be a pretty good month for the averages. If the Nikkei can start rallying that would be a confirming indicator. Interest rates are very low and the SPY yields almost 3%. Volatility is down. Risk is still for another upside move.

Rally time doomers!

unfortunately for america, both sides are probably right. corporate america is pulling away from the deadbeat america that benny is referring to by cutting all the dead weight and leaving them to obama's social welfare programs. winners are being chosen, and they are being chosen internationally, not nationally. international money sees the US markets as cheap and is bidding them up, putting pressure on the US$ and hedge funds and institutions are stretching and mimicing the original yen carry trade writ large with the dollar until central banks flinch and plowing that back into commodities
and equities (perhaps why mkts are fundamentally "rich" from a valuation perspective and you get people talking a new paradigm - multiple expansion- phhhwww) - which the chinese and US won't for quite some time as far as i can tell. europe is certainly pissed though. /end drunk blog

It's all about the dollar. The other factors don't' matter right now as "less bad" is seen as good news and even bad news is brushed off. As long as the govt keeps pouring dollars into the system commodities and equities will continue to climb. The govt can only destroy the dollar for so long and will eventually have to raise rates, tightening liquidity and sending the market down again. However I think it will be a long grind down and not the freefall we saw with the Lehman collapse. Look at Japans market the last 10 years and that could be in store for the US with the ridiculous debt the govt is issuing.

When a country's debt expands greater than it's GDP it is a recipe for disaster.

Rally time doomers! :tongue:

http://images5.cafepress.com/product...x350_Front.jpg

Looking more like SP 1200. After that It will be sketchy on the long term charts. I expect a significant sell-off in January which has been the pattern for several years.

Yeah, all these hedge funds have to get their numbers for the year. Lots of nail biting going on for the next two months.

Best description I heard of the present situation: The eye of the hurricane.

Calvin Trillin is the epitome of dry wit.


http://www.nytimes.com/2009/10/14/op...=1&ref=opinion

October 14, 2009
OP-ED CONTRIBUTOR
Wall Street Smarts

By CALVIN TRILLIN
“IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.”

The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar, where I was waiting for a friend. “But I have to buy you a drink to hear it?” I asked.

“Absolutely not,” he said. “I can buy my own drinks. My 401(k) is intact. I got out of the market 8 or 10 years ago, when I saw what was happening.”

He did indeed look capable of buying his own drinks — one of which, a dry martini, straight up, was on the bar in front of him. He was a well-preserved, gray-haired man of about retirement age, dressed in the same sort of clothes he must have worn on some Ivy League campus in the late ’50s or early ’60s — a tweed jacket, gray pants, a blue button-down shirt and a club tie that, seen from a distance, seemed adorned with tiny brussels sprouts.

“O.K.,” I said. “Let’s hear it.”

“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” He took a sip of his martini, and stared straight at the row of bottles behind the bar, as if the conversation was now over.

“But weren’t there smart guys on Wall Street in the first place?” I asked.

He looked at me the way a mathematics teacher might look at a child who, despite heroic efforts by the teacher, seemed incapable of learning the most rudimentary principles of long division. “You are either a lot younger than you look or you don’t have much of a memory,” he said. “One of the speakers at my 25th reunion said that, according to a survey he had done of those attending, income was now precisely in inverse proportion to academic standing in the class, and that was partly because everyone in the lower third of the class had become a Wall Street millionaire.”

I reflected on my own college class, of roughly the same era. The top student had been appointed a federal appeals court judge — earning, by Wall Street standards, tip money. A lot of the people with similarly impressive academic records became professors. I could picture the future titans of Wall Street dozing in the back rows of some gut course like Geology 101, popularly known as Rocks for Jocks.

“That actually sounds more or less accurate,” I said.

“Of course it’s accurate,” he said. “Don’t get me wrong: the guys from the lower third of the class who went to Wall Street had a lot of nice qualities. Most of them were pleasant enough. They made a good impression. And now we realize that by the standards that came later, they weren’t really greedy. They just wanted a nice house in Greenwich and maybe a sailboat. A lot of them were from families that had always been on Wall Street, so they were accustomed to nice houses in Greenwich. They didn’t feel the need to leverage the entire business so they could make the sort of money that easily supports the second oceangoing yacht.”

“So what happened?”

“I told you what happened. Smart guys started going to Wall Street.”

“Why?”

“I thought you’d never ask,” he said, making a practiced gesture with his eyebrows that caused the bartender to get started mixing another martini.

“Two things happened. One is that the amount of money that could be made on Wall Street with hedge fund and private equity operations became just mind-blowing. At the same time, college was getting so expensive that people from reasonably prosperous families were graduating with huge debts. So even the smart guys went to Wall Street, maybe telling themselves that in a few years they’d have so much money they could then become professors or legal-services lawyers or whatever they’d wanted to be in the first place. That’s when you started reading stories about the percentage of the graduating class of Harvard College who planned to go into the financial industry or go to business school so they could then go into the financial industry. That’s when you started reading about these geniuses from M.I.T. and Caltech who instead of going to graduate school in physics went to Wall Street to calculate arbitrage odds.”

“But you still haven’t told me how that brought on the financial crisis.”

“Did you ever hear the word ‘derivatives’?” he said. “Do you think our guys could have invented, say, credit default swaps? Give me a break! They couldn’t have done the math.”

“Why do I get the feeling that there’s one more step in this scenario?” I said.

“Because there is,” he said. “When the smart guys started this business of securitizing things that didn’t even exist in the first place, who was running the firms they worked for? Our guys! The lower third of the class! Guys who didn’t have the foggiest notion of what a credit default swap was. All our guys knew was that they were getting disgustingly rich, and they had gotten to like that. All of that easy money had eaten away at their sense of enoughness.”

“So having smart guys there almost caused Wall Street to collapse.”

“You got it,” he said. “It took you awhile, but you got it.”

The theory sounded too simple to be true, but right offhand I couldn’t find any flaws in it. I found myself contemplating the sort of havoc a horde of smart guys could wreak in other industries. I saw those industries falling one by one, done in by superior intelligence. “I think I need a drink,” I said.

He nodded at my glass and made another one of those eyebrow gestures to the bartender. “Please,” he said. “Allow me.”

Calvin Trillin is the author, most recently, of “Deciding the Next Decider: The 2008 Presidential Race in Rhyme.”

Calvin Trillin is at his best writing about food.

There were a few olives in those martinis, I'll bet.

I'd bet there were no martinis, and no bar and no guy laying out his theory.

We can dream, can't we? Don't steal that from us.