This page has been archived and commenting is disabled.
Head-Fake
A friend sent me the following chart. The arrows, shading etc. are his.
Note that he has a few questions. If you can answer the second question
you could make some money.
The green shaded area was clearly a head-fake by the market. This was
(in part) a reaction to the Greenspan comment that the economy had “hit
an invisible wall”. Alan was right. Many indicators and a fair number of
soothsayers (myself included) saw the signals and concluded that a
double dip (or at least a significant slowdown) was in the cards. As far
as the markets go that call was dead wrong. The view was that
employment would continue to worsen. That of course was spot on. Wrong for the right reason. Yuck.
The yellow line covers the time that QE2 first became official. It took
the Fed another two months to actually implement the policy after the
September comments by Ben. But there was very little doubt on the
outcome right from the get-go. Yes there were speeches and planted news
stories that suggested there was some debate. That was all show pony,
there was never any doubt about the outcome.
Stocks have loved it. Why not? The Greenspan Put worked great for a while. QE is even better. The Bernanke Put is ‘In the Money’.
The thinking is you can’t lose. A very dangerous state of mind. The
bond reaction was: buy on the rumor and sell (hard) on the news.
Looking at the chart since September you have to ask the question; “Is this real or is this another head-fake?”
It’s hard to fight the lines that point up since September and not
conclude that the market is telling you a sustainable recovery is being
formed. I read a fair bit and can say that an awful lot of pundits are
looking at this and concluding that the worst is behind us and that
reasonably solid growth is on tap for 2011. The next read on the Leading
Indicators will no doubt show an uptick, the principal reason being
that the yield curve has steepened.
I am going to stick my neck out and say it is a head-fake. It is not
clear sailing in front of us. Some things that I think “fight” the
conclusion that stocks, bonds and pundits are drawing:
-Sustaining the Bush tax cuts is not a stimulus. No one’s check is going
to be bigger as a result. This is more of an absence of a negative
versus a positive.
-The $115b, 2% reduction in Social Security taxes is a stimulus. But
not much of one. It comes to $15 a week for the average worker. Helpful,
but I don’t see it changing things too much. The reduced deductions are
largely offset by the elimination of the Make Work Pay program. Net net
no big deal.
-The dollar is too strong to think that our economy is going to grow
much. 2011 will bring us higher trade and current account deficits.
-2011 will be a year of non-stop muni “crisis” talk. What this really
means is that the states, counties, cities, towns and villages will all
be cutting expenses. They have to. They (for the most part) have to
balance their budgets. Big cut backs in muni spending will drag on GDP.
-BABs is dead. This is going to make a difference in how big ticket
projects are financed. Large construction projects of hospitals,
schools, roads and the like are going to have to be scaled back.
-Energy prices are rising. In 2011 we will see this in both electricity
and gas. That $15 a week savings from SS is going right out the window
and into a gas tank.
-The cost of food and insurance is about at least 10% YoY. Don’t look at
those CPI numbers. Look at your bills. Real disposable income is going
down, not up.
-We will spend most of 2011 with unemployment NORTH of 10%. Give me a
break, how can we expect much growth with that as a backdrop? Sure the
checks are still going out. But this is the third year that we have been
at post depression highs on UE. We also know that the UE numbers are
bogus. The number of people who are out of the system altogether or are
working part time just keeps getting bigger.
-ARRA, the 09 stimulus, is essentially finished. Another absence of a positive.
-We will have ZIRP. A plus. But how much of one? Loan demand is not
responding to ZIRP. Most large companies are sitting on bundles of cash.
ZIRP actually hurts them.
-Mortgage rates are not getting cheaper. Long-term bonds for corporates have backed up a bunch.
-We have six months of QE2 left. The last month will see only small
amounts bought by the Fed. Therefore in approximately 75 days we will
be sliding downhill on this program. I’m not sure what it means or what
will be the outcome. I know it will add to a sense of instability as
something very significant will be passing into uncertainty. Put
differently, we have 53 trading days left to half-life. Not much time at
all.
-Don’t’ count on the EU lifting US GDP in 11. Not going to happen. China
is a question mark. I say that they cool in the coming year by more
than the current thinking.
-Wild Card. There are always surprises. Rarely are they good.
What are the odds that we see a head-fake? A surprise outcome where
numbers and events force a significant rethink of the now prevailing 3+ % growth in 2011
story? I would say those odds are not too high. Does 30% probability
for a hard landing sound right? It’s very hard to handicap. One thing
about this; if we do see the head-fake it is going to put a big dent in
markets that are now trading very rich.
If the first few weeks in January give us another run up in equities and
yet cheaper bonds it might be worth buying some out of the money
puts/calls. The money spent may be a throwaway. But if in fact what we
are seeing is a big misread on the economy and a distortion by QE2
then we are going to see the bottom levels on the chart again.
Something like that happens and there are big multiples on the money
spent on the bet.
»
- advertisements -
+2
I so very heartily agree with both of you: (1) We don't have a market, so it's difficult to say this is even a data point, and (2) I applaud the effort to try to make sense of it (I just fear no extrapolation is possible).
However, independent of this "market data", we all know (ok, most of us know) that debt service is in parabolic blowout, states and munis are getting ready to default, pensions are toast, businesses are paralyzed in fear and confusion regarding forward liability (like because of health care), and there is a worldwide conflagration in the bank system and sovereign debt.
No, Hell no, absolutely not, is "things getting better". We will see DOW 36,000 or DOW 3,600, but we will NOT see strong GDP in any sensible form. (Of course, since we similarly cook-the-books for GDP reporting, it may be "written down" as a strong number.)
IMHO, market numbers are not data at this time. They reflect many levels of noise (Fed monetization, private-to-taxpayer liability shifting, generational liability shifting, probability updates as to which sovereigns default first, speculative future hedging, and the very simple changing of accounting standards [such as elimination of reserve requirements, and the disavowing of any mark-to-market].)
In contrast, in the "real" world, every business is cutting back, shutting down, and frozen in fear -- worldwide. The "real" economy is based on "real" productivity -- goods and services. Too many business models fundamentally no longer work, through inefficiency, margin collapse, and other cost-push. Many never made sense (like a lot of CRE), but were done through mere speculation of continually increased leverage velocity. That is not improving, and will not improve, until after a structural correction.
That structural correction is default. It is imminent, and it is in progress.
No, only the silly person will pretend things will be fine (e.g., they will "grow out of their problems") in Greece, Ireland, California, Illinois, and a Nation Near You.
Listened to Jim Cramer in car at 11 pm last night, after seeing some comments here. Brief Summation...
Open....Ha Ha , You Bears are Morons na na nanana. ha bears run , financials on a stampede, you doomers ranting about foreclosure fraud, ha.
Back to car around 11:55....Ha Ha you Bears thinks you know something about the financials...Ha, Dow up a whopping 35 pts! Ha!
The most junvenile, infantile, Cramer, ever. By Far. The word "bear" was mentioned at least 40-50 times.
Premature Taunting...15 yards....
"Listen"ing to Jim Cramer" and what he says is one thing.
I thought he was a b.s. financial talking head/tout.
But.
His charitable trust is up 26% for the year.
Is your trading account up 26%?
as they say.
money talks and b.s. walks.
twittering as stocktradr
How the fuck can you know that his "charitable trust" (LOL) is up 26%? Because he told you so?
Cramer has admitted publicly to committing fraud and being a crook. It is not surprising that he is not in jail, but it is a very sad commentary on our country nonetheless.
He is a perfect repesentative of the market and Wall Street. Without him, Wall Street might actually be regaining some credibility... but he makes us understand that the market is a crooked clown casino and should not be supported because of what it stands for, irregarless of any money making potential and too big to fail.
You get the FFR Award for listening to Jim Cramer.
BTW, FFR = Full Fucking Retard
ha ha ha ha ha ha ha, do i have to study and learn BTW, FFR? or will YOU be around, still, long enough to be worthy of the effort??
Go away TROLL
You seem to be stalking the VeloSpade chick. You got a bone to pick?
rotfl
For the market to fail requires either Ron Paul works B.Baranke into a corner he can't get out of or the Euro explodes or Korea explodes. Iran might explode but that would be a positive to the markets. Those are the trip wires and all constitute a hard landing. Short of that I don't see the market working down from here as long as their pumping money. It's kind of like 1935 to 1937 when the market crashed only after the Fed doubled reserve requirements overnight. Up until then they were rockum sockum as FDR and the FED threw money at everything. It's when they turn the tap off that it goes into the drink.
So until that happens (and it eventually will), I guess you buy the f%*@ing dips.
http://abcnews.go.com/Business/wireStory?id=9958995
Old article, but what are the odds of this and wouldn't that force the spigot shut?
If the US allows the IMF to create a new reserve currency then the US will become Greece to China's Germany.
We will grow olives for the Chinese and they will put us into debt slavery, demanding that we have ever increasing austerity and never being able to pay off our debt.
However, if we end the Fed, that is exactly will happen ... and the US will need to learn how to be a viable country all over again.
The "recovery" axis could also be residual, forensic evidence of the Plunge Protection Team massaging a bit of those QEII funds into the market...but the PPT is the stuff of legend, isn't it ?
Bruce's observation that the extension of the Bush tax rate reductions is effectively the "absence of a negative" is completely correct. This is no enhanced "stimulus," per se; it is the extension of the status quo...the individual tax rate baseline will not change for 2011.
Combine the chart with your bullet points and you have a nut-shot followed up with a face-plant. There is nothing to sustain this. Real Estate? Technology? ... no and no ... Rising commodity prices, the price of labor going to zero ... we may as well hope that aliens save us because there is nothing on the horizon that could pull us out. Where will the growth come from? Where will the increase in productivity come from?
Not a head fake - The only thing that will make this new market go down is the FED pulls the plug on QE. It won't . Everything you have stated is correct about the economy but the economy doesn't matter to the market or the FED because the FED believes the market is the economy . If more money is needed to print over debt problems it will be printed again and again and again . Ben would prefer an inflationary depression rather than a deflationary one . People would prefer no depression but that isn't in the cards .
Think about what is at stake for those in power if the market falls apart, that alone should be enough of an indication as to why it will never be allowed to fall again or it will be held up as long as it can be .
If gold breaks out toward 1600, the Bernank will be forced to crash gold and take the market down with it. The same thing could happen if the 10Y breaks out.
A 20% crash from SPX 1300 will sit better than a 10% crash from 1100.
"The only thing that will make this new market go down is the FED pulls the plug on QE".
Right, it is different this time because the Fed has admitted it is fucking with this "new market" all the time.
You are quite right...unless that is part of the plan. :-(
Dow back to 14000 in time for the 2012 elections. Some corrections along the way. But mainly a gradual, gentle uplift over the next two years.
Why? Because they can.
I'm not wishing to be right, or wrong. I'm just looking at what has happened to the market since it crashed. Keeps rising in the face of all that says it shouldn't. Those about to retire need to have their retirement plans back to normal before they will feel comforted. Need a comforted population for the 2012 elections.
I am not so sure about the Dow being at 14000 in 2012. You may want to rethink that. I hope you are right, but I fear you are not.
How does the Dow go back to 14k?.
We do not even know WHO is IN the markets.
UP instead of BACK?
True, but its not difficult to surmize WHO is in the market and what they are buying/selling through simple inductive/deductive reasoning.
"WHO is in the market and what they are buying/selling through simple inductive/deductive reasoning."
ha ha ah ha and YOU are/will be providing a 'newsletter' telling ALL...no?
S&P corrects 50 to 75 points then on to 1300 then a dive into the abyss....all before end of Q1 2011.
Velo Troll-Soup - and of course, all the 'details' are 'self evidently obvious'
Go away, you have nothing HERE to add, excepting 'noise'
my 'most likely' scenario as well. Real dive comes after Valentines or there abouts....
I see I am in good company.
Its funny how many traders, analysts, charlatans, etc... are trying to figure this market out.
Its quite simple. Nothing is occurring that has not already happened before.
In fact, back in 1948, Edwards and Magee describe our current market on page 757-758 in their book "Technical Analysis of Stock Trends."
For those unfamiliar, DIP THIS: MEGAPHONES bitches!
If you don't mind me asking, where do you see the megaphone pattern? Dow or S&P? 6 months or 1 year chart? I tried to look for that pattern on the chart, but couldn't find any.
Are you serious? Weekly and monthly on both indexes from late 2009 onward. I spotted this manifestation early on in the financials index, which being a leader, then appeared in the others. In fact, an argument could be made for an even bigger megaphone formation in the monthly DOW going back to 1999.
i'm seeing at least four megaphones on this mobile prison guard tower, ready for the clampdown that comes with the anarchy of a manipulated revolution?
http://www.youtube.com/watch?v=tVQRMrlQ95U
when it comes to reading the tea leaves, you see what is in YOUR mind, nothing more, the crystal ball merely alienates that fact...so WHAT are you, an investor, planning to do about IT? build an underground bunker filled with food and comfort, THAT I WILL TAKE FROM YOU...
"Are you serious?"
Yes, serious as a hear attack.
" Megaphones are all around"... and they all say the same thing,
"Pay no attention to the man behind the curtain".
I am with you BK. I think the FED is at the end of the rope, there will be no QE3, a year ago I thought QE2 and a stimulus will be in the cards by Spring 2010, and I was obviously wrong about timing! It did take both a few more months to be produced, but both happened.
QE3 will be wished for, but will not happen since it should be the end of the FED as we know it.
Better hedge now while it is cheap.
Doesn't look like a head-fake to me. It looks like a market without QE2. What is happening NOW is a head-fake. Take away the Fed and this economy tanks.
Rising energy costs is the only thing that will give people the kick in the ass to get off oil
Oil , given to us by oil-men (Bush clan) who are best mates with religous Saudi nutters who want to subjugate us (Bin-Laden clan).
Fuck 'em, part of the predatory class.
Would it really matter if the economy got worse? Isn't the Fed basically committed to keeping it at least sideways for perceptions sake? From my neck of the woods it looks like a grinding stagnation. Those who have jobs live the same way, those that don't have jobs have a hard time getting them and reduce spending. Some are less motivated to even look for work. I have a long time friend who is deep into his second year of unemployment and pleased as punch living in a house in the boonies he inherited getting free money.
I'm horrified by rising energy costs. That will strangle out the economy quite brutally.
Agree 100% Shameful. Energy has long been a powerful force.
The Saudi's are no doubt looking at all that free money the Gubermint's handing out and trying to figure out how to get their share (aside from buying the banks). Despite all logical computations surrounding demand, I predict Oil will make a siginificant jump in the coming months, and simply never come back down. $100/bbl is the new norm, in my opinion. Gas will never be allowed to get anywhere significantly under $3/gal. again, and the ripple effect on the transport-heavy economy in the US will be very significant.
And everyone's favorite robber-baron from the midwest is heavily invested in what? Coal and trains, that transport coal.... Whatchathinks gonna happen to those prices when oil heads north? How do we make electricity in the US? Thats right... the other black-gold.
Yup.... Captain America's gonna make a lot of money next year, right alongside the terrorist regimes in the middle-east. So go buy that electric car from Japan (the jackass @ 1600 Pennsylvania avenue will trot out a stimulus program touting how it will save the average American... right after the abortion known as GM starts shipping that piece of crap "Volt") and jack it into the grid to send your money through the utility company to the rich and powerful (they own those companies too, so its all good).
It is real as long as the bond markets let the Ben Bernank continue his QEx.
Depending on how good the TPTB play their hand, it can continue for many more months...
Bruce's statement:
This has me a bit stumped... A "recovery" is not the same as a stock market that is hyped on thin volume and pump-babies. The rest of the article is spot on.
If anyone is wondering why the stock market drops, or does not advance as expected, on good economic news the reason is simple. A good, recovering economy means no more QE, no more free money, no more Fed intervention. Sort of weird to think that the folks who are riding the wave are in their heart of hearts hoping for a shitty economic recovery.
You give the system too much credit, why is that? You have faith in your PBR? Or wait, PBS, you have faith in your PBS? I want my MTV.