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The Endless Bear Market?
Via Pension Pulse.
Bob
Prechter was on Yahoo Tech Ticker on Thursday warning that "We
Are On Schedule for a Very, Very Long Bear Market":
The global selloff in
stocks accelerated Thursday, sending the Dow down 3.6% to 10,068 while
the S&P 500 lost 3.9% to 1,071.59 and the Nasdaq shed 4.1% to
2,204.All major U.S. averages are now down for the year and at
least 10% below their 2010 highs, meaning the downturn has officially
entered "correction" territory.
Unfortunately (for bulls),
there's much more selling ahead, according to Robert Prechter,
president of Elliott Wave International and author of Conquer
the Crash.
"We should be in for
[another] week or two of pretty serious selling," Prechter says.
"They'll be bounces along the way...but I think this should last a long
time. We should be on schedule for a very, very long bear market
period."
In the near-term, the veteran market watcher predicts a
"dramatic increase in volatility," beyond what's already occurred. The
CBOE Volatility Index (VIX)
rose another 30% today and is now up about 180% from its late April
lows.
Notably, today's selling
occurred despite a rally in the euro amid reports of central bank
intervention. Joe Brusuelas of Brusuelas Analytics says, "The
capitulation in today's market has more to do with the unwinding of the
easy money [carry] trade on commodities," which fell again today, with
notable weakness in energy and palladium.
Meanwhile, Treasury
prices continued to benefit from the "risk aversion" trade with the
yield on the benchmark 10-year note falling to 3.21%.
Broken
Record or Market Sage?
Other than to say "a long way down,"
Prechter wouldn't say how much further he thinks the market will fall,
suggesting a repeat of the 1930-32 scenario when "extremely sharp
rallies" kept investors interested and "feeling like a bottom [was]
forming."
Anyone familiar with Prechter knows he's been
predicting doom for a long time so it's tempting to dismiss his latest
warning -- a veritable repeat of what
he said here in February. But he's not a perma-bear and did turn
bullish ahead of the bottom in March 2009.
More dramatically, in
1978 he co-authored Elliott
Wave Principle - Key To Market Behavior, which predicted a great
bull market similar to the 1942-1966 rally. By his own admission,
Prechter underestimated the extent of that historic rally, which ran
from 1982-2000 and saw the Dow rise 1,500% from 777 to 11,723.
Prechter
says the market has spent the past 10 years building a "major head and
shoulders" top from those 2000 highs, even though they were exceeded
in 2007. Ultimately, he expects a "corrective mode that's going to
retrace virtually the entire" 1982-2000 bull market.
"The best
place for most people to be is in cash" and equivalents, he says. "You
want maximum liquidity until this thing blows over."
Editor's
note: We did NOT interview Prechter because the market was
tumbling; today's appearance was scheduled earlier this week. Sometimes
it's better to be lucky than good...
I had lunch
with a fixed income manager and we talked markets. "The market wants
more quantitative easing," he said. I told him "sure but Trichet said
the
ECB does not engage in quantitative easing". We both chuckled.
I
told him in a zero interest policy world (ZIRP), the only way to
stimulate your economy is through your exchange rate. "That's why
quantitative easing is bearish for the euro". He agreed with me that the
euro is heading towards parity.
On specific "conviction trades",
he told me he's short Canadian Real Return Bonds, feeling that inflation
expectations will wane and real rates will rise once the Bank of Canada
raises interests rates in June or July. "Fundamentals are strong in
Canada and inflation is not an issue".
Interestingly, the WSJ
carried an article on Brian Weinstein, who manages $3.1 billion
BlackRock Inflation Protected Bond, the company's flagship TIPS fund,
stating that he is short TIPS. Mr. Weinstein said "investors are
mistaking inflation volatility for inflation -- inflation volatility
means we have both inflation and deflation risk."
Right now,
everyone is worried about a protracted deflationary wave. There are
those who fear a major crash is coming in stocks. The fixed income
manager I met today told me "it's all hedge funds right now". I agreed
telling him "the extreme volatility is driven by the top hedge funds who
are loading up again, preparing for the next move up".
Where do I
see the best value going forward? The euro's demise has hammered
the solar sector, so I used this as an opportunity to load up more
shares. You can listen to Bob Prechter and wait for the "ultimate
bottom", but my hunch is that the big hedgies are having fun toying with
retail and weak institutional clients. I've had enough of doom &
gloom, and I'm looking forward to the solar boom. It might not happen
next week, but my bet is that solar will be the next big bubble, so I
stay cool and use these sharp selloffs as a buying opportunity. Bring it on big hedgies!!!
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Solar stocks have taken a whooping. I looked at a few and they seem to have given up 1/2 of their gains from the March lows and the MKT hasn't even really been hit yet! I own no solar stocks, or any other stocks and have no agenda other than I've seen Leo posting about solar stocks on ZH for a while now. I finally looked out of curiosity. Leo, you must be one hurtin' dude.
Not at all, I got in at attractive levels, and just keep buying more whenever they get whacked hard. I do not trade solars, I accumulate them.
I've been accumulating TZA DRV. I even loaded up my 401K self managed account w/ 3X bear ETFs. I have never been more short. One of us will be happy. I am moderately happy already!
Be careful with those 3x bear ETFs...they're mostly a scam, and if you're not careful, you can get wiped. I would trade them but never accumulate them.
Yes, I am using it as a swing trade. I realize that sitting on them can screw you long term, but when the MKT goes in your direction, the DO move. They've gotten killed but there are few sound reasons in my mind why the MKT should be standing when I awake on most mondays. I expect this to pay handsomely. I don't think they are going back to the old highs, but if TZA went to 30$ it would be pretty sweet.
The solar stocks are managing to approximate a lot of the 3x ETFs without even getting impacted by the slippage.
I've been accumulating TZA DRV. I even loaded up my 401K self managed account w/ 3X bear ETFs. I have never been more short. One of us will be happy. I am moderately happy already!
Hey Leo,
I don't always agree with you but I appreciate your contribution.
Anyways, keep it up.
Thanks, I am not always going to be right, but I like to think outside the box.
How about those March employment numbers!?!?!?!?...................................
Skynet cares not whether you are bullish or bearish.
Value is a concept outside of this realm and holds no importance.
Liquidity is king.
Leo,
I'm not much of a investor, but I'm a pretty good physicist.
Believing that solar will ever be a major source of power without government subsidies is like believing you can get 400 mpg in your SUV if you just put this special "dodad" in your fuel line.
It violates all manner of physical laws meaning that solar is, and always will be, a very inefficient way to generate large amounts of usable energy.
Solar is a political industry, not a power industry. If the idiot children running this country (and most others) are ever replaced by adults, solar will be dead (except for some special situations where small amounts of expensive energy, off grid makes sense).
What you don't seem to get is: "THERE IS NO MONEY". The subsidies for feel good but stupid technologies to deal with a scientific hoax (called AGW) are going to end, soon, because we are broke and wasting money on silly eco nonsense has to end. And when something can't continue, it, eventually, will stop and all the solar stocks will crash because they are dreams that physics will not allow (like perpetual motion, converting lead to gold, hydrogen cars, etc.).
Solar will reach grid parity by 2020 and in some countries, like Singapore, much sooner. Moreover, according to IEA, solar will be providing nearly a quarter of the world's power by 2050. Solar is the future. Period.
Those guys have a similar view:
http://en.wikipedia.org/wiki/Desertec
From the same article:
"but it needs government lifelines in the next decade until it can compete with conventional power."
It's a big "if". Per the articles, it was also stated that advancements in basic science regarding nanotech would need to be realized in order to achieve that parity (or better). Also, per the Reuters article, the estimate is that it wouldn't reach utility-level power output until 2030.
Really, I think it just depends on your time horizon and where you see future government funding of green tech heading (both the levels of it and where it's going to be distributed), but I would suggest overall that your assumption that "solar power is the future. period." is based on an incomplete analysis of your source information.
Leo,
where are the arguments for your trade?
Prechter might do as a contrary indiacator; for his turning bullish before the bottom 2009 I would like to see a link.
Prechter aside, in a ZIRP world the only stimulus left is currency devaluation.
That goes by definition against other countries and if everybody tries it at the same time will not really help. That glass might well be more empty then full.
I do not see the inflation volatility argument relating to your investment thesis; the indirect link might be what the hedge funds are doing.
The assumed HF strategy is that they are scaring other investors out and buy value on the cheap.
In my opinion that should show in a floor in the price and high spikes. Any long(er) term charts that look this way?
More general, alternative energy is a big field; the right technology choice could be difficult. Ending up with the next Wang-equivalent instead of the next Microsoft will not help the pocketbook.
Most alternative energy is produced away from the users and needs storage and transmission.
For both tasks are solutions available but they will need to be implemented on a huge scale.
Investing there would be the equivalent of selling shovels to the gold miners.
Your plan to buy the dips sounds like adding to a (for now) loosing position what would violate all trading rules I know of.
the WSJ carried an article on Brian Weinstein, who manages $3.1 billion BlackRock Inflation Protected Bond, the company's flagship TIPS fund, stating that he is short TIPS.
really? Open a fund for TIPs and then short the product.
Never mind, I put my 90 year old mom in TIPs because
A) the boilerplate guarantees a return on principle
B) should interest rates continue to fall, and gee they seem to be, the fixed rate return, which at the time was a paltry two percent, is suddenly looking pretty good. Should we hit a deflationary bottom, hyperinflation will resume in short order. This is the Prechter story line, read the whole book.
C) TIPS were auctioning at discounts to par, that is a $1000 worth of bond issue could be had for $950.
C1) the time to buy TIPS directly is over, because the FED puts a bid under the market now. It's all about timing.
D) The TIP bond funds, which tend to track the current price of TIPS are probably a better play now, including the short term funds, which are more sensitive. Make no mistake, the economy can go in the tank, the stock market can follow, and the CPI will do it's own thing.
E) My guess for the future is something I call Destagflation. Interest rates higher than short term returns on Treasury, something the Fed wouldn't mind, if the spread will keep you from saving money, but only nominally so, 5% vs 3% perhaps.
F) I have been watching Prechter for years, and slowly the pieces have all come together including the prediction that the stock market would crash on a rising dollar. Could be the outcome will not be what he imagines. I imagine Goldman Sachs breaking the back of the Fed by using the power of real assets versus shadow assets, bonds without collateral, and driving the political class out of Washington. Goldman is the savior of working class Americans, who became the victims of a policy of "Representation without Taxation". Everyone wanted to spend more than they had. Now we regroup and we move on.
How dare you consider downside risk in your investment decisions!
z
x
Rehab, then that park ranger job you have been eying since high school.
You are so married to those solars its kind of sad. If oil remains below $70 for very long, they are all toast.
As someone who finances solar installations for a living, there a couple of points that should be borne in mind before jumping head first into solars:
1) The solar business would not exist were it not for the tax benefits allocated to solar by both the Federal government and the states. While the Federal 30% cash grant is important, the state renewable energy credits in some ways carry more economic power. That is why there is more solar installed in New Jersey and Massachusetts than there is in Arizona and in New Mexico. As a matter of fact, in New Jersey, you can install solar and sell the power to the local utilities on a "spot" market basis, recognizing that only 10% of your revenues needs to come from actual power generation. The rest is all tax benefits. It seems to me with state budgets coming under increasing pressure, this economic model will not stand for long.
2) Further on the economic point, because of the expansive tax benefits allowed for renewable energy, it is almost impossible to find a utility in the United States that is paying Federal income taxes. These utilities are carrying these tax credits forward and are able to shelter their income taxes through these benefits for the next 20 years. Again, in an environment of very steep Federal deficits, an AMT regime to these tax preferences is not out of the question.
3) Finally, a great deal of the technology being used is thin-film technology, which contains a heavy dose of cadmium, which in turn has been identified as a significant environmental risk as well as a potential source of cadmium poisoning in humans.
All is not necessarily sunny in solar and investors should enter the field with eyes wide open.
mitchman--thanks for sparkling views from someone who knows something.
Thanks for the insight.
In addition to the AMT concerns: Similar to the credit for a hybrid car purchase, once they got popular, the credits were were phased out. You can expect the same with solar. So you then remove that amount from your ROI & Payback calcs.
The phase out of the credit will take alot of middle income people out of the market unless the financing remains attractive.
I totally believe Prechter is correct in his analysis, unfortunately the market can remain drunk longer than I can remain sober.
That's because you're an Ozzi. We always have a hard time remaining sober!!
One final comment on my solar bashing: Solyndra had/has a billion dollar plus backlog of new business....huge....it filed for IPO last December, yet after audits this has been tabled. The comments are "huge debts" and concerns over "profitability". You, the taxpayer, have already ponyed up almost $600 million in loan guarantees for this financially profit vapid operation AND still they can't get to Wall St. If they can't make it......who can? The reality (it bites hard) is that solar is a very tough economic proposition based on the difficulty of converting photons to electrons. It is highly inefficient. Only politicians and hippies love this technology because politicians don't give a shit about money and hippies think there is no price high enough to save the earth.
Yes, worries about "a protracted deflationary wave" drove the market up nearly 80% over the past 15 months.
Seems to me that the major worry over the past 15 months has been missing the train. Well, shit, man, as of today's low, there hasn't been any NET gain on the S&P since the middle of September. Train's pretty friggin' slow getting out of the station, eh?
Livermore, as always, is right. There is no bull side of the market or bear side of the market, there's the right side of the market and the wrong side of the market. The last 8 months, the bull side has been no better than the bear side. Unless you traded both ways, you got nothin', at least on the S&P.
In the end you may prove to be right on solars, but it does not look good. Your unending hope in the face of a harsh reality reminds me of folks who were just as certain that Japan really was going to rule the world and the drop from 38,915.87 was a buying opportunity and a great chance to double, triple, quadruple...dodecadruple down.
Actually, the Japanese government did that, too, via Yucho and Kampo. That hasn't worked out well, and both of these entities (the nation's major Postal Savings and Postal Insurance entities) have their average Nikkei cost somewhere north of 25,000. It does not help that the population---the folks who own these funds---is aging rather quickly.
Certainly it takes two views to make a market. I wish you better luck than the Japanese have had.
Leo,
I would suggest you go ahead and sign up for your government food stamp program because you are going to need it.
Be all that as it may - - -
On the ground where I live the situation is screaming:
PRECHTER IS RIGHT!!!
where's that, One-Trick-Pony-Land?
Wow. Leo says, "Bring it on." "Load up on..." well... you know, "solar shares." For the first time this week I am considering going into cash.
Oh Hi Leo!
Good one. You're a fast learner...
lol @ Prechters great calls. hes also been calling for sub 800 gold again
http://www.businessinsider.com/prechter-gold-to-fall-40-from-here-2010-1
lol, in NWO dollars maybe. hes a numpty IMO, I just pass straight over anything I find attributed to him on my screen.
bring um on .
famous quote george custer
lets wait for solars , fred flintstone
we expect our pension funds to grow 10% calpers
gold is going to 100 prechter
^ This.
I mean, if the stock market is going down, it couldn't POSSIBLY be because the risk assets Leo's been plugging non-stop are overvalued pieces of shit in a depression. It couldn't be because investors the world over are waking up to the fact that they've been hugely overvalued for 20 years or more, ever since the mania of the 80s blew up into the super-mania of the 90s.
Nah, gotta be those evil hedge funds, who I'm SURE have been in accumulation mode the past couple of weeks!
It's the same story in every bubble collapse, there are a few die-hard true believers who have some story about why sky-high stocks really do have value ("there's gold in Louisiana!" "the underlying fundamentals of the economy are sound!" "ZIRP and money printing will support risky assets!"). These are the stories investors tell themselves to help deal with the emotional trauma of riding a collapse in financial values all the way to the bottom.
The market should've never been this high to begin - so why is this correction a shock.. or a buying opportunity? You wouldn't pay $3 for a Snickers bar now even though it was priced at $6 a couple weeks ago.
As a Chocolatarian, I would. I am paying twice as much for my Hershey's Kisses as I did two years ago. And don't regret it one bit.
Can solar panels actually generate more energy over their useful life than it takes to produce them and if so how much?
In the long run that's really all that matters yet it tends to get lost in all the subsidy/green/carbon/legal mandate noise.
Dust to dust (all-in manufaturing cost--->end of life) I don't think a Prius has a better energy cost/miles driven ratio than a regular Ford pick-up truck and you never hear about that either.
"Can solar panels actually generate more energy over their useful life than it takes to produce them and if so how much?"
I was quoted the figure of 15% by the local head of Southern Co. Of course he might be biased.
As far as Prechtor goes, I am still smarting from him mumbling something uninteligible in the Summer of 87 about the possibility of a crash about 3 nanoseconds before the markets closed. Unable to move before it reopened... In the aftermath, he did us the favor of telling us we were going to Dow 400. I am still short Bob! I missed an additional 10 thousand points on the upside...
I like elliott wave theory. It is cyclically "neat". Its mathematical based, logarithmic analysis seems appropriate enough...however, as Prechtor has shown doesn't work. I mean come on. Being wrong on the gigantic picture (1987-2010) is not much of a way to go through life. Prechtor missed the stock rallies, the gold rally....just chanting his Wallmartesque mantra "prices go lower" incessantly.
Actually, I am short, but not because of the big brain on Bob. I come not to praise him, but to bury him....sheeesh.
Same Wave Theory...but 20 people will tell you 20 stories about how it might or might not unfold. Its a dream for writing and selling letters because there's something for everyone. If you just look hard enough you see that tiny sub wave of the other sub wave c, of the bigger wave 2 down and everyone knows what comes after 2........a big Wave 3 to somewhere!
"I am not emotional but these big hedge funds are pissing me off. I know they're all colluding"
You ever think it was the hedge fund colluding that brought the market upto these stupid levels?
Humm seems like we gotta at least revisit 666 or this Crisis has a little "c" - (feels like a big-C time now, doesn't it? - it is all emotion).
But in addition structurally the loosey goosey market boosters are now getting turned into foie gras by the Gummint Real Soon Now, having force-fed the market all this time.
I realised after reading this I might have been a bit hard on Leo this last couple of weeks, I have come to believe he might actually be one of these semi-autistic types, although I dont think his secret talent lies with figures and card-counting etc
Regardless of whether we have a deflationary hell, or a hyperinflationary nightmare, solar is going to be pressed hard to deliver. There's this recent event that you may have heard of. It is called "Sovereign Debt". In a nutshell this "theory" states that governments (yeah the ones that have been subsidizing the 19 cent kwhr solar purchases competing agains 4 cent nukes) are broke. Theoretically, this means that they won't be ponying up to prop up solar no mo. Solar on its own, will have a difficult time walking. Didn't you see what happened last year in the solar crash? Who do you think quit buying, leading to the glut of panels? Europe. Why? Huh. Nice theory. Sovereign debt. right.
Solar will be a good investment when it becomes the cheapest power solution without funny money. It is not a very safe investment, IMHO, given that their benefactor is dying and has left no substitute.
Glad someone said it. Remember Spain a few months back? Someone looked into the data and found out their solar stations produce loads of power at night. They looked further and found that the smart Spanish guys were buying cheap night power for lightbulbs above the panels...
Like my budy says, nothing makes money like a wind station. You just have to plug it into electricity on one side, spin the turbine and sell the electricity for 3x more on the other side.
Okay, it may be an investment, sucking a little off the goverment subsidies where they leak. But it's nothing more than that.