Is the stock market going to tank?

[Benny Profane]

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.

[4matic]

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

[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?

[4matic]

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?

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.

[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!

[4matic]

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!

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.

[mcsquared]

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.

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?

[4matic]

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?

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.

[Benny Profane]

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.

[retirwntm]

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.

[powderwhore]

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

[Platinum Pete]

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?

[4matic]

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."

[khakis]

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

You wanna go to Vegas with me?

[4matic]

You wanna go to Vegas with me?

Heh.. I don't gamble.


$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.

[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."

[bmg97]

Why are OTC stock quotes delayed ?

[woodstocksez]

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."

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.

[Benny Profane]

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.

[4matic]

Why are OTC stock quotes delayed ?

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

[bmg97]

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

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.

[4matic]

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.

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.

[bmg97]

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.

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.

[4matic]

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.

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.

[bmg97]

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.

Holy Shit !!!!! Thats crazy !