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Submitted by John Bougearel of Structural Logic
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Fundamentals don't matter, buy stocks lest you be left out!
"It may take time for our view to play out, but remember that equities can often be divorced from economic realities and that valuation also has to come into play. Remember what happened in October 1987. Not that we are predicting a market crash, but recall that the massive setback in the stock market back then took place in a quarter when real GDP was ripping along at a 7% annual rate and corporate profits were accelerating at a — get this — 55% year-over-year pace; and that was the quarter that erased a year’s worth of capital appreciation in what was the steepest decline since 1929."
-D. Rosenberg
D Rosenberg
Yes, it will take time for your view to play out. The fact that equities can be divorced from economic realitiies is hugely underscored by Alcoa's earnings after the close today. They have laid off 19,000 workers and raised prices nearly 20% to beat analyst expectations.
These kind of shenanigans are great soundbites, and great for AA investors over the very short term, but really. any investors who stick around much longer than today's bullish soundbite for AA may have a thing or two coming to them.The 2010 forward PE is still north of 27, and this is not a growth company. Yes, short term, AA can go higher in the greater fool universe, but that is neither here nor there.
To address your iteration that GDP was ripping in 1987 and corp earnings were accelerating at 55% when the 1987 crash occured, well the crash did not occur because the fundamentals were out of whack, the primary reason for the crash of that scope was the flawed portfolio insurance programs that could not keep up with their need to sell futures short on a closing basis to hedge their portfolios (and the creators of port insurance did some front-running. Since the creators knew the insurance progam was based on a closing basis, they sold heavily into the futures market befor the close knowing port managers would have to sell on the open the next day.
I will not look for the secular bear market in equities to re-emerge until the fiscal stimulus to run dry, and by that I mean phrases like "Is That All There Is" by Peggy Lee, or is that the peak growth rate achievable by public (govt) stimulus. Equities are after all trading nothing by the second derivative. When the rate of change shifts from less bad to less good, the next secular bear market will begin, and that is when the market wil no longer be diverced from economic realities. The dovetail will resurface then.
In my estimation, the fiscal and monetary stimuli of 2009 is comparable to 1975, when teh Fed deficit quadrupled. The stock market appreciated 80% not 62% off the lows before headwinds resurfaced. Even when headwinds became apparent, it still took another year before the stock market began to correct in earnest in Jan 1977. The stimulus then took roughly two years to run its course before serious trouble resurfaced in the stock market. On a timeline basis, that suggests the broad market might skate into Q1 2011 before getting seriously hurt again. That is when I suspect we see the secular bear re-emerge in earnest. The cyclical bull will stall out or "flatten out" in 2010 to borrow a phrase from G-span, but the bear may not be seen until 2011.
So today's computer systems are without structural flaw? I wouldn't be so sure. But outright manipulation like in September/October last year by interested parties will mitigate efforts again.
"When the rate of change shifts from less bad to less good, the next secular bear market will begin"
For Christ's sake, what don't people understand about excess liquidity? Why beat yourselves over the head day after day trying to understand the fundamentals, looking at the technicals, when Bernanke is printing $25B a week to buy MBS?
Where the fuck do you think that money is going to go?
amen.....between money aggregates, qe, and the
dollar carry trade you know all you need to know
about inflated asset prices...
someone is going to suffer a hernia from whining
so hard about fundamentals and price...
Look out below once the Fed decides to suck liquidity out of the system.
Oh, it will be a disaster. There is nothing but liquidity supporting current valuations on the stock market. If by some miracle the Fed announced tomorrow they are stopping all liquidity programs immediately, the S&P would soon be cut in half.
EDIT: I should mention, what I find frustrating about this site is, for all it's quality, it has endless articles like this about TA and fundamental analysis, but nothing on what is really supporting the asset markets - the MBS market.
Big deal, Bernanke bought $2B of USTs today. he spent 10X that last week on MBS. 10 fucking times.
I am so tired of people talking about liquidity and market efficiency I am going to puke on my computer screen, blaaaaaaagghh, sorry, didn't mean to do it.
It's all BS. All lack of liquidity means is that you can't buy or sell something as quickly and easily as you would like to. Will there be market volatility? Yes, maybe, no? Worse thing that could happen is that things get real cheap. Perfect buying opportunity.
I am tired of being held hostage by the banksters over liquidity and market efficiency. Kiss thy bottom.
No disrespect to you HG, you just got me thinking.
I don't think he was talking about the liquidity you are talking about. You seem to be talking about trading liquidity. He is talking about the flood of money the Fed has printed.
I think we may be missing something here and that is foriegn inflows
The mutual fund inflow data shows the public buying bonds but foreign inflows show money going into equities
Lot of foriegn money sloshing around out there.
http://www.ft.com/cms/s/0/08ca4832-b36a-11de-ae8d-00144feab49a.html
Discounts, the dollar that is, always brings in the shoppers.
Am I a Man Am I..
Eventually it will be flushed down the toilet...
Yes and don't forget about the foreign central banks that are also printing like crazy. Too risky to short the market right now.
gfi,
you are spot on that the money must go somewhere. But, you are wrong to think it must go to equities. Equities are a dwarf compared to credit markets. I believe the credit and securitized markets are about 9x as big as the equity market. Point being is there are plenty of places for loose money to go besides equities.
as previously requested by several readers, how about a 3 peaks and a dome update John?
Thank you for sharing your work with us.
I think the equity rally is being fueled by politics. If equities rally and Treasury yields stay low, the Dems can argue everything is fine and pass their massive social agenda. Once in place, no one will give a damn about equities. The game is rigged.
4th comment now to say same thing: stocks want to go higher, no news short of major catastrophe will stop them.
This emini trade will blow through last months highs, maybe pause in the lower 1090s and up through 1100.
The economy is not the stock market and the stock market is not the economy.
I love to mentally masturbate too about how fucked up things are all over the country (world?) but there are forces and money at work here that want every news outlet in the world spouting to the masses that all is getting better so get out there and buy some shit (even if you don't have a job)!
Well said, Big D.
"MARK IT ZERO, DUDE"
Yes, well said, shorting into this would be suicide.
You short when the liquidity pump stops. It is not even close to stopping.
DOW / SP500:
Daily trend - bullish / neutral ( the daily trend is still up but overextended )
Weekly trend - neutral / bullish
Monthly trend - bearish (since early 2008)
www.zerohedge.com/forum/market-outlook-0
1 min, 3 min, 5 min, 10 min, 15 min, 30 min, 60 min,- bullish nuff said
This is not going to end well for the U.S.:
http://www.youtube.com/watch?v=0R2FYggYGeQ
Is anyone else concerned about this? I'm so tired of bubbles.
I watched that earlier. The guy is off base on the reason for the bidding wars - it is supply/demand driven. The foreclosure moratoriums are keeping houses off the market, still.
Fannie alone has over 750K houses that are seriously delinquent. Sooner or later those hit the market, and there will be plenty of houses for each eligible buyer.
JimtheRealtor is a double douche. He is the Larry Kudlow of S. California real estate. But his technique is more chillax, and deceiving. He is a total pump monkey and wants the bubble to return so he can flip more real estate.
The banks that service the California market have totally constricted supply. They let foreclosures trickle out so the Realtor pump monkeys can blow up the price with this constant chatter of "we have multiple offers", "better get your offer in quick".
These types of Realtors should be executed using a slow death method like burning 80% of the skin on their bodies to a 3rd degree level. Throw them under a US-101 underpass and tag them with an RFID chip so doctors and hospitals won't offer treatment.
Scumbags!
Jim says that there are 37 bids on the house. What he doesn't say is that there are only 5 bidders trampling over each other.
Furthermore Jim also knows that 2 out of 5 of the bidders work for Allara. Allara is a company that assists banks by sending shill bidders into the market to bid up prices in the SoCal real estate market.
Shame on him.
For a long time I did not understand, that way more than half of this rally is the Dollar To Toilet trade, partly happened already, partly future expectations...
When will SPY overtake the Dollar as the US currency, or has it already?
"there are no triple tops"
Call me crazy, but there's been one S&P close above the Sept 16th close. To me, it looks just as likely that a normal distribution, after a very strong momentum move up off of an even stronger sell off low, is being formed....
And the economic data, the bulls were only two weeks ago consistently asserting how it points to the recession ending. Yet no new highs were made.
Two things are very clear. First, there is almost zero fundamental valuation driving the market. Second, two "decent" down days and the technical picture will completely change.
Fundamentally, the dollar is getting weaker, commodities are becoming more expensive and TheStreet doesn’t seem to be talking about the DJT....
If one remembers President Obama, whom I'm no fan of, came out and made in essence a "buy the market" call within a day or two of the March low.
Well, now that even SNL has awoken to President Obama's list of "accomplishments". I cant help but wonder when the herd will realize they are all looking at each other and not the economic “accomplishments” of the world’s central banks.
AMDG
HCSKnight, with your AMDG signature did you happen to attend a jesuit high school or college.
In my prior life I was jesuit educated.
Cheers,
Pigpen
College. Though as I have grown older my perspectives have become decidedly more conservative. Im not so happy with SJ's. They do have a few good schools though - NOT Georgetown.
Cordially,
Knight
Why has California been getting all the gas to fuel their housing market, and Florida been getting none of it?
Jim TV You Decide
http://www.youtube.com/watch?v=0R2FYggYGeQ
We will have one more bubble because that is the only solution these pinheads know to any problem. Just throw (somebody else's) money at it.
Bernanke still has a few hundred billion in the kitty earmarked for MBS purchases. He will spend all of that and more if needed. The original $1.25 trillion dedicated for MBS was no Congressional Bill nor public vote nor even a recommendation from groups of economists. It was merely a number Bernanke picked out of his ass figuring it would probably be enough to stabilize things. Just as his prediction of "confined to $200 billion of subprime debt" turned out to be far far off the mark, it seems even his astronomical figure of $1.25 trillion isn't going to cut it either.
So he will just pull another number out of his ass and the party will continue, at least the party at 85 Broad. As for the rest of us, we better get back to work because there's hell to pay in taxes to support Ken Lewis retirement and Lloyd Blankfein's wife's shopping sprees.
I'll bet the next thing they'll do is go all Roman Catholic on us and outlaw condoms (where's Earl Butz when you need him?) so that those of us who still have all our equipment in working order can go out and make the babies necessary to pay off this massive debt and money buildup.
The things I would have to do for my country! ;)
-Michael
re: condom ban. Don't you really mean unemployed youth?
Bubbles a blowing; futures up 82 points. I'll huff and I'll puff....
Bernanke is in a panic this night over gold. The liquidity he unleashed is about to break out of control and discredit him. He knows that gold will set off a financial panic that nothing will stop. When I see comments that nothing will stop the market, I answer gold will stop it in its tracks.Bernanke will do whatever it take to stop gold now.
+1
he has a real problem with old bucky. if he lets it get much lower, Obama gets raked over by every other country and ben knows he better act sooner or later. the later he acts, the more dramatic the equity crash and bigger dent to the CONfidence game.
The Repubs are now bitching about the dollar. And, for the umpteenth, Tim Geithner out again with this from FT...
"“It is very important to the United States that we continue to have a strong dollar,” Tim Geithner, Treasury secretary, said at the weekend. “We recognise that the dollar’s important role in the system conveys special burdens and responsibilities on us and we are going to do everything necessary to make sure we sustain confidence.”
Tim, you have zero credibility.
"“It is very important to the United States that we continue to have a strong dollar,”
We continue to hear this same blather from the FED even during the Bush adm., when they let the USD reach $1.60 / Euro. They will continue to sell the U.S. consumer down the road...
Asian central banks intervene to limit damage from tumbling US dollar
Font Size:DecreaseIncreasePrint Page:Print
UPDATE: David Roman | October 08, 2009
Article from: Dow Jones Newswires
THE US dollar continued to tumble against most Asian currencies today, prompting another wave of intervention by central banks in South Korea, Taiwan, and the Philippines seeking to limit damage to their export industries.
http://www.theaustralian.news.com.au/business/story/0,28124,26182658-501...
Alcoa looks like a good $5 stock now selling for $15.
Let me at it:)
Article was posted at 11:24 pm on Wednesday, at the time spus were trading in the 1060 handle. Please note 1060 > 1055 .
There are a bunch of inconsistencies to the Alcoa rally we're supposed to get this morning. First of all, Asia, which is supposed to be the reason for AA's strength, is generally strong but with some notable weakness in Taiwan and Japan. You can say the same thing about London - it's up but not by a lot. Third, is anyone short Alcoa to a significant degree? I seriously doubt it after the last couple of days of trading.
The great wall of liquidity strikes me as more trading liquidity designated for clobbering shorts intraday than someone taking new positions. Once short sellers are exhausted, all the liquidity becomes meaningless if its not taking long positions.
I'll be surprised if we get more than a half percent move up on the S&P today.
Initial claims at 8:30 this morning. The bid on futures could evaporate just as quickly as it came into being if this number sucks. If it doesn't suck, stocks will take off like an Iranian mid-range ballistic missile. Next stop Tel-Aviv!
one of my favorite sites for getting a quick indication on ES is Carl Futia's trading blog http://carlfutia.blogspot.com/
Til the 12th at least the market has to stay positive (Jupiter stationary) - that Jupiter is basically responsible for the whole rally. Besides some sentiment numbers have come down too much from Rydex to Isee averages and the SEQ 13 count is missing as well hence we need to retest the highs before earnings will trigger correction. Goldman will suprise to the upside thats what you got to sell into.
Liquidity, shmiquidity. Indeed it may be driving demand, but the market is sustaining these gains because EVERYONE <that I interact with outside of ZH> is convinced that the economic recovery is official. I have sat in on several conference calls with top Mutual Fund managers, and they're convinced the recovery is in.
Having said that, their reasoning for continued market strength is downright absurd -- citing return to peak earnings in 3-4 years, China pulling us out of recession, laughably optimistic job recovery data, etc. One of them actually attributed, and I quote, "genius Keynesian policies" that will pull us out of recession. I felt like I was listening to parrot who was exposed to daily viewings of CNBC.
After listening to these goons, I was downright scared at what the top money managers have convinced themselves and their sheepishly obedient clients of.
The biggest fallacy with the liquidity argument is, I think, that ultimately if the few that get access to this liquidity manage to drive up prices higher and higher, as people claim they are doing, then those very same liquidity-rich buyers are increasing the risk of holding overvalued equities without having liquid buyers on the other side of the trade onto whom they can unload their positions without a precipitous market collapse.
If the liquidity argument is indeed true, then higher market gains will only increase the risk of rapid downside risk, instead of a slow decline toward fundamental valuations, or even a relatively sustained level in a market where the P/E decline toward reasonable levels.
The Bond market is not buying into this "recovery is over " scenario...
The Curve has been flattening at the long end now for quite some time, not exactly the "Boom time" signature that the equity markets are forecasting in their P.E. tea leaves...
Could they be the real soothasyers?
This is how fractional reserve banking systems die. As near as I can figure it out so far if you don't let the crash and liquidation and resets occur then it flattens out to .25 percent to .5 percent bond market. Which is why it's only working at the short term super low interest level. If we could just refinance our houses and CRE on revolving commercial paper we could kick it out for another 100 years.
and you have a friend in the investment world
who agrees with you for perhaps different or the
same reasons:
http://www.kitco.com/ind/Summers/oct082009.html
i like this guy because unlike your mutual fund
managers, summers sees a grey dark winter....he
says the rally is almost over for technical reasons
related to the 88 week ma....
your instincts combined with ta are the key to
understanding the end of the liquidity rally....
Tim Geithner as quoted in FT:
“It is very important to the United States that we continue to have a strong dollar,” Tim Geithner, Treasury secretary, said at the weekend. “We recognise that the dollar’s important role in the system conveys special burdens and responsibilities on us and we are going to do everything necessary to make sure we sustain confidence.”
I feel so much better now.
Liquidity works both ways. It certainly has reinstituted the risk trade but a stock market run based solely on liquidity can take a serious dive just as quickly. There's any number of events that could lead to all the loose money heading for the exits (terrorism, etc).
A great deal of third quarter earnings will be inflated due to cost cutting and the stimulus. Fourth quarter, when the bulk of the stimulus spending has waned and the financial statements are actually audited, will be the real test.
I wouldn't be the least bit surprised to see a sizable sell the news in the next few weeks as money is taken off the table.
Bottom line: Rally!
a typical retracement from highs to lows will put this S&P Emini at 1126....hte bears are the ones fueling this rally..and they will continue to cause even more short covering today and tomorrow when we break new highs for 09'... mark my level..
Didn't this guy post several weeks ago saying the market realistically couldn't trade above 1,037?
Every bank in creation, including our own Fed, getting long stock futures in size trumps all. Yes, they are making a mockery of the entire financial system and our currency, but they don't seem to care.
As old timers (30 years plus in the business), we've seen a lot, so we are always appreciative, and humble. The business has been very good to us. That's why we'll start by thanking the likes of TD, staff, John Bourgearel, Dave Rosenberg, Nic Lenoir, and the many others (to many to mention) who regularly take time out of their days to post, respond, contribute, and attempt to teach and educate everyone on the ZH site. A short "thank you." We have a saying: "Wall Street is the most highly regulated, legally corrupt industry in the world." And today, more than almost any time in history, government is intimately involved in the financial markets. Not good in our opinion. A lot is wrong, and, they in many ways, are making it worse (not better). There is no one we've talked to over the last 12 months who isn't frustrated and confused. That is going to continue. We all can mentally masturbate the fundamentals, the technicals, and everything in between. But, this is key, sit yourselves down in a corner and define and figure out what it is "you want" -- for you, your partners, your business, your family? Why... because this is going to get a lot worse before there is any real semblance of normalcy. So, from someone who has seen a lot on Wall Street, prepare yourself. Define it, manage your risk carefully, execute your strategy, and whatever you do, don't over leverage yourselves, personally or professionally. Like I mentioned to TD the other day, we have an eerie feeling. We don't like what is going on in the markets, and how they trade. We are very cautious, and nervous. Good luck everyone.
Well said.
I so wish my company did not block IScribed articles.
Anyone know how to go about unblocking them?
Tyler, maybe also link the .pdf version?
Mine seem to get blocked on the Firefox browser, but can read them in Explorer..