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Jeffrey Gundlach: Time For Investors To Prepare For A Substantial Softening In The US Economy

Submitted by Tyler Durden on 04/18/2011 20:47 -0400

While presenting his view on this morning's S&P warning to Reuters, in addition to expressing his now "well-accepted" contrarian outlook to that of Bill Gross via-a-vis the US Treasury response to the end of QE2, DoubleLine's Jeff Gundlach (his latest complete presentation was posted here first) had some very cautionary words for both the economy and for stocks.

Gundlach said Treasuries, whose major holders include foreign investors, will be in high demand as the U.S. economy will "soften substantially" with no monetary stimulus in the pipeline.

The S&P warning, which cited a risk that policymakers may not reach agreement on a plan to slash the huge federal budget deficit, is "good for Treasuries and bad for the economy and stocks," Gundlach, who oversees $9.8 billion at the Los Angeles-based firm, told Reuters.

So while Gross and Gundlach disagree over the future of yields ("U.S. Treasuries will perform well following a downgrade by Standard & Poor's on Monday of the rating agency's credit outlook for the United States, DoubleLine Chief Executive Officer Jeffrey Gundlach said on Monday"), both essentially agree that equities are now substantially overvalued... At least until such time as more monetary stimulus is injected now that any fiscal injection is pretty much a non-starter until 2013.

The only question remaining is when will the rest of the market, which continues to ignore sanity and is on persistent robotic autopilot, grasp this simple math.

Last week on an investor conference call, he said: "By now it's getting relatively close to June 30 and it's about time for the markets to start discounting the end of QE2 and a weaker economy."

Oddly enough, as today's S&P action, which was certainly inspired by Wall Street itself to no small degree, demonstrated, even the street itself is doing all it can to precipitate a sell off and thus set the stage for more monetary loosening, yet manages at most a 1% or so drop in risk assets. Which is why while many joke about the market, calling the reflexive upward climb of stocks SkyNet-like, one wonders: does even Wall Street now scratch its head over how to control the ETF, HFT and POMO-inspired relentless climb in stocks?

Is SkyNet now truly self-aware?

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Mon, 04/18/2011 - 20:50 | 1182362 AbandonShip

Anyone see that Krugman guy lately? Penny for his thoughts. Literally, just one penny.

(woohoo, never been first before! Bitchezzz....are we still doing that these days?)

Mon, 04/18/2011 - 20:53 | 1182382 topcallingtroll

Yeah bitchez can go with anything now.

It is still traditional for it to be preceded by a comma.

Mon, 04/18/2011 - 23:46 | 1182852 TruthInSunshine

I weep for my nation when 99.99% of the adults don't realize the extremely basic scam being pulled on themselves and their children, whereby a private bank is charging them interest on money it is loaning to them via their government, all sanctioned and blessed by their alleged 'elected' representatives.

I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs. - President Thomas Jefferson.

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution; I mean an additional article, taking from the federal government the power to borrow money. - Thomas Jefferson

If (As the supreme court had recently inferred) Congress has the right under the Constitution to issue paper money, it was given to them to be used by themselves, not to be delegated to individuals or corporations. - President Andrew Jackson

From the testimony of Marriner Eccles, Chairman of the Federal Reserve Board, before the House Banking and Currency Committee, Sept. 30, 1941:

Congressman Patman: "Mr. Eccles, how did you get the money to buy those two billions of government securities?"

Eccles: "We created it."

Patman: "Out of what?"

Eccles: "Out of the right to issue credit money." (i.e.Out of the right to create it. Do you see the insanity of it all? You and I must work hard for every dollar of ?? that we earn, while the banksters havethe legal right to create money! RWS).

Banking was conceived in iniquity and born in sin.....Bankers own the Earth. Take it away from them but leave them the power to create money, and, with the flick of a pen, they will create enough money to buy it back again.....Take this great power away from them and all great fortunes like mine will disappear (he was said to be the second richest man in Britain) and they ought to disappear, for then this would be a better and happier world to live in.....But, if you want to continue to be the slave of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit. - Sir Josiah Stamp, President of the Bank of England

Permit me to issue and control the money of a nation, and I care not who makes its laws. - Mayer Anselm Rothschild

"The few who understand the system, will either be so interested in its profits, or so dependent on its favours that there will be no
opposition from that class, while on the other hand, the great body
of the people mentally incapable of comprehending the tremendous
advantage that capital derives from the system, will bear its burdens
without complaint, and perhaps without even suspecting that the system
is inimical to their interests."

Quote by: John Sherman
Protege of the Rothschild banking family Date: June 25, 1863 Source: in a letter sent to New York bankers, Morton, and Gould, in support of the then proposed National Banking Act

Tue, 04/19/2011 - 00:25 | 1182911 baby_BLYTHE

Andrew Jackson Versus The Bank of the United States (on the battlefield not worthless courts)

As his term continued, Jackson truly grew a desire to crush the Second Bank of the United States. Over time he had decided that it could not continue as it was, and that it did not warrant reform. It must be destroyed. Jackson's reason for this conclusion was an amalgamation of his past financial problems, his views on states' rights, and his Tennessee roots. The Second Bank centralized financial might, jeopardizing economic stability; it served as a monopoly on fiscal policy, but it did not answer to anyone within the government. Above any principled concerns, however, the Bank became a political battle.

Congress chartered the Second Bank in 1816 for a twenty-year period, giving it thirty-five million dollars in startup funds. A board of twenty-five directors controlled the Bank, but only five were publicly appointed by the President–the rest came from stockholders. The directors controlled branches, invested funds, and oversaw operations. Over time, the Bank proved quite good at managing credit and providing profits for the stockholders and government–perhaps too good. In 1819, the Bank had caused a financial panic by calling in credit from smaller state banks, forcing many of them into bankruptcy. This Panic of 1819 led to such a depression that western regions of the country still suffered in the late 1820s.

By Jackson's administration, the Bank had expanded into twenty-nine branches and was doing roughly seventy million dollars of business a year, handling twenty percent of the nation's loans and monetary notes and one-third of all deposits. Perhaps more important, Jackson–who because of his previous election experiences remained wary of voting improprieties–thought that a bank with that much power could not remain independent of the electoral process. While the Bank in 1830 remained relatively clean and did not abuse its power, Jackson believed it was a disaster waiting to happen, and set out to shut it down.

When the Bank, led by Nicholas Biddle, realized Jackson's intentions, it began a public campaign to curry favor. Biddle announced that the Bank intended to pay off the national debt–another of Jackson's pet causes–by January 8, 1833, the eighteenth anniversary of the Battle of New Orleans, in Jackson's honor. The offer, of course, came with the caveat that the Bank would get a charter extension. Biddle also began to offer financial favors to Jackson's friends, in the meantime proving Jackson's belief that the Bank could play political games if necessary. Jackson did nothing and waited for the right moment to act.

Biddle then surprised everyone by asking for a recharter in January of 1832–a Presidential election year–four years before the current charter expired. Biddle believed that by making the Bank an election issue, he could force Jackson to support it out of fear that it might cost him the election if he did not. Jackson figured otherwise.

The recharter bill came to the Senate floor in March, and it met with surprising support. Senator Thomas Hart Benton, a Democrat from Missouri who led Jackson's congressional opposition, scrambled to counter the support. Benton convened a House investigation that restated many of Jackson's complaints and publicized them in newspapers across the country. The effort was too little, however, and the recharter measure passed Congress by early July. When the bill arrived for Jackson's approval, he told Martin Van Buren, "The bankis trying to kill me, but I will kill it!" Jackson and his advisors carefully crafted a veto that would not anger the public and therefore would not cost the Democrats support in the fall election. Citing the stockholding of foreign citizens and the Constitutional questions the Bank's monopoly raised, Jackson ended with a stunning broadside to the Bank, arguing that its favoritism went against the role of a government that should stand for honesty, equality, and fairness. When Congress could not overturn the veto, the battle turned to the November polls.

The 1834 election developed into a battle between Henry Clay and John Sergeant of the National Republican party, Jackson and Van Buren in the Democratic party and–in the first third-party bid in American history–William Wirt and Amos Ellmaker from the Anti-Mason party. Clay latched onto the Bank issue, as it was one of the only weak spots in Jackson's presidency. The Democrats, meanwhile, shaped the campaign as one between the rich aristocratic Clay and the "everyman" worker Jackson. Jackson won handily in the Electoral College, defeating Clay 219 votes to 49. However, in the popular vote, Jackson's two opponents garnered 530,189 votes while Jackson won 687,502–hardly a strong mandate from the people. In fact, Jackson stands as the only president in history to be reelected by a smaller percentage of the vote than he won in the first election. The Bank issue had indeed cost Jackson dearly.

The Nullification Crisis with South Carolina and the tariff issue distracted Jackson as he transitioned to his second term, but by the spring of 1833, he again focused on destroying the Bank. He announced that he would withdraw the government's money from the Bank, much to Biddle and Clay's dismay. Jackson, however, faced worries from the Treasury Department that the state banks afforded the same security as the national Bank. Nevertheless, on September 25, 1833, the Treasury ordered all government deposits would be placed in state banks as of the beginning of October. Biddle countered that the Bank would cease offering loans nationwide, which sent the nation into a near-panic, as state banks were unable to meet the new demand–even with the government's new funds–and many curtailed their loans. Jackson became only more dogged in his quest to stop the "monster" bank.

In 1834, Jackson began a push to move towards "hard" currency, gradually phasing out small bills over more than twenty years. He and Benton believed that only gold and silver provided proper security, as, during financial bust periods, working-class people could not get credit. Hard money, then, ensured the workers would always be paid in money that had real value. The move terrified many rich Democrats, who saw a future in which they might not be able to conduct business with large bills. In a final attempt to end the Bank, Jackson ordered it to cease issuing pensions to Revolutionary War veterans and to relinquish those funds. Biddle refused, and the bank battle quickly deteriorated. Jackson's own Attorney General questioned the moves, and Jackson faced barrages from business leaders up and down the East Coast who thought he must mean to ruin the country.

Some Democrats began to leave the party. Joining with National Republican, states righters, nullifiers, and other Jackson enemies, they formed the Whig party–headed by none other than Clay. The views of those involved were so disparate that they could only unify under the banner of opposing Jackson's bold new uses of Presidential authority. Indeed, the Whig newspapers soon mockingly anointed Jackson "King Andrew I." The new party, coupled with a rumor that a new bank might launch in New York to counter the national bank, brought the nation new fear of financial disaster.

Although Van Buren eventually quieted the new bank rumors, the country still hung in the balance when the Senate voted to officially censure Jackson for his actions in February 1834. Adding insult to injury, the Senate also refused to confirm Jackson's new Treasury Secretary. Jackson filed a protest with the Senate, saying the Bank's abuses of power made it an "imperative duty" for him as chief executive to rid the country of the Bank. He carefully ended with an appeal to the people, explaining anew his reasons for opposing government monopolies and saying that he was proud of his actions.

Above everything, Jackson prevailed. By April 1834, the Bank was dead. The Democrats in Congress rallied behind their leader and passed resolution after resolution supporting Jackson. The financial panic passed quickly. In the 1834 elections, Democratic candidates won handily across the country and gained the majority in the Senate–which, under the new leadership, quickly expunged Jackson's censure and apologized.

Tue, 04/19/2011 - 06:31 | 1183195 1fortheroad

Good job Blythe, but it seems NOBODY gives a shit.

Tue, 04/19/2011 - 01:23 | 1183008 No More Bubbles

Dead on! It's why they all need to be lynched. It's really not that complicated......

Hey ZH - YOUR fucking CAPTCH SUCKS BALLS!

Tue, 04/19/2011 - 01:30 | 1183018 blunderdog

If you're annoyed by the CAPTCHA, you just don't spend enough time here.

Tue, 04/19/2011 - 01:44 | 1183038 carbonmutant

Tue, 04/19/2011 - 05:24 | 1183167 chistletoe

Jesus! Kids can't even make change these days!

Give a cashier $10.25 for a tab of $6.25 and he will stand there helplessly confused.

The captcha is a good thing! If we would all learn some simple arithmetic

we would not be in this mess in the first place!

Tue, 04/19/2011 - 06:51 | 1183209 Moe Howard

+ -11 - [] = -123

Tue, 04/19/2011 - 07:59 | 1183292 Cash_is_Trash

The education system is so incompetent; as Carlin said, it teaches people to be smart enough to do menial jobs but dumb enough to not question the system.

The kids today are trash. Just look at the tatoo and piercing culture, the shit rap music they all enjoy, the helplessness of their friends and family.

A part of me say help 'em, a part of me says fuck 'em.

Tue, 04/19/2011 - 08:10 | 1183316 TruthInSunshine

The captcha is a perfect indicator and timer of the collapse of civilization, and ZHers know this.

When the average number of log in attempts reaches 4.2721, due to incorrect responses, and given that average ZHers are roughly 3x as intelligent as the average American (and 30x as intelligent as the average Keynesian), 'Mad Max' style living conditions will be imminent.

Tue, 04/19/2011 - 06:20 | 1183190 Hernando

Very good comments.

Only once in the Bible do we see Jesus become physically violent when he went ballistic against the Moneychangers in front of the Temple.

Today, we are in the midst of a war between Satan's powerful forces of darkness and 99% of the American people. We know the greedy demonic forces are winning so far.

Mon, 04/18/2011 - 21:01 | 1182401 Gimp

I give Krugman credit for one thing...always being wrong!

Tue, 04/19/2011 - 01:45 | 1183039 carbonmutant

Look, being consistent is important...lol

Tue, 04/19/2011 - 06:33 | 1183196 Sudden Debt

and being consistently wrong is as hard as being consistently right :)

Tue, 04/19/2011 - 15:20 | 1185209 Titus

+10

Mon, 04/18/2011 - 21:04 | 1182414 Misean

Good Keynsian stimbubbulous policy that. Massively over paying for worthless work. You'd go far in Princeton's ebubblegnomic department, mate.

Mon, 04/18/2011 - 22:53 | 1182695 TruthInSunshine

PragCap Link

Let's see how an economy that is sucking wind really does when the plug of TBTF stimulus and crack fiat for speculative junkies is yanked.

Bernanke sees the knives drawn and the mob headed in his direction.

The political calculus by Obama from risking truly runaway inflation for a long time to come - in the year's run-up to his re-election bid - with $4/gallon gas and higher (now) among other ridiculous and speculatively bid up prices crushing Americans and those abroad - has got to be an underlying factor here.

I'll go one step further, admittedly in total speculation mode: Prepare for news of a coordinated IMF/Fed/ECB framework/agreement/policy of a massive scale. The tipping point is arriving and objects are bigger than they now appear, even by those attuned.

Mon, 04/18/2011 - 23:09 | 1182749 akak

Anyone see that Krugman guy lately? Penny for his thoughts. Literally, just one penny.

I believe that he is now writing pro-Fed, pro-Wall Street, pro-big government, pro-status-quo tripe under the nom de plume of "Leo Kolivakis".

Mon, 04/18/2011 - 23:13 | 1182772 TruthInSunshine

Krugman is busy working on what he expects will be his next big 'success.' It's a treatise on the massive and historically unprecedented debt crises of sovereign nations, and his proposed solution will be to print the precise amount of the aggregate debt by which to pay said debt off.

Tue, 04/19/2011 - 08:36 | 1183388 Sean7k

Even Leo makes more sense than Krugman.

Mon, 04/18/2011 - 20:50 | 1182370 Dejean Splicer

So how does that big guy Mr.Icahn get out just in time?

Mon, 04/18/2011 - 21:27 | 1182472 WestVillageIdiot

He dies.

The fucking devil was in high school when FDR took office. We can only hope he takes Greenspan with him to that warm place called hell.

Mon, 04/18/2011 - 20:51 | 1182372 topcallingtroll

If the selloff that is going to occur at the end of qe2 is widely anticipated then it will occur earlier.

Sell in may and go away.

Tue, 04/19/2011 - 05:29 | 1183169 chistletoe

sell today and pray.

Mon, 04/18/2011 - 20:57 | 1182381 bob_dabolina

Gundlach is the man.

Shit, I'd probabaly let him fuck my sister.

Mon, 04/18/2011 - 21:20 | 1182446 Gimp

Please post pics of sister!

Mon, 04/18/2011 - 21:28 | 1182475 WestVillageIdiot

I'd probably let him fuck your sister, too.

Mon, 04/18/2011 - 23:55 | 1182869 Problem Is

+1111

Question: How do you circumcise a PhD Economist from one of the "right" schools??

Answer: Kick his sister in the jaw...

Tue, 04/19/2011 - 06:37 | 1183200 Sudden Debt

you say that about everybody.

Mon, 04/18/2011 - 20:53 | 1182383 gordengeko

Skynet is selling risk assets to ARIIA who just won't let the bid die. It's their world we just comment on it.

Mon, 04/18/2011 - 21:34 | 1182491 WestVillageIdiot

Just think how much gold and silver will fall out of weak hands if everything crashes this time.

It is funny that the gold bashers think that anybody that owns gold has every penny they have placed in metals. Who else can remember late 2008 and 2009 when metal prices crashed with the stock market? You could order metals but the sites for physical were overwhelmed. I think I ordered silver eagles for about $12 each. They took 4 months or more for delivery. It was worth the wait. It will be worth it again.

The next crash will fuck housing in a way where it can't get unfucked. Nobody seems to be talking about that forgotten elephant in the room. I think Bernanke knows that if the stock market crashes housing will be fucked beyond measure. "Bye bye" financial system, at that point. There will be no tax credits or FHA left to jump into the breach.

Mon, 04/18/2011 - 22:01 | 1182556 tickhound

Good points...

Only this time I think the metals will blast off... with help from where we usually least expect.

Mon, 04/18/2011 - 22:12 | 1182580 Long-John-Silver

I agree and history backs you up. The initial crash in 1029 caused people to run the banks and go for cash in Dollars, Gold and Silver crashed. When the second crash hit people had lost all trust in Dollars and turned to Gold and Silver. Gold became a direct competitor with Dollars, which led FDR to attempt to confiscate Gold. He got 1% of the Gold dumb people kept in Bank safety deposit boxes. The rest of it went into a thriving black market. Our second crash is happening now. People are fleeing to Gold and Silver once more. It'll be interesting to see if Obama attempts to confiscate Gold and Silver as FDR attempted to do.

Mon, 04/18/2011 - 22:28 | 1182607 A Lunatic

No one need confiscate PM's. You cannot pay taxes with them therefore you ultimately lose the waiting game. Yes I know, they can't arrest, kill, round up, fine, (insert paranoid delusion here) everyone etc, however that special fact is cold comfort indeed when you wake up at 2am with eleven highly trained black ops dudes pointing Mossbergs at your head for non payment of said taxes.

Mon, 04/18/2011 - 23:29 | 1182829 Missiondweller

Except in Utah. Other states to follow.

Of course you can always wait to convert some gold to cash to pay federal taxes.

http://www.goldalert.com/2011/03/utah-approves-gold-silver-as-legal-tender/

Mon, 04/18/2011 - 23:49 | 1182856 Manthong

I'd sell my sister into sex for fiat before I hand over PMs for taxes.

Mon, 04/18/2011 - 23:50 | 1182858 Manthong

Actually, she could use the overtime.

Tue, 04/19/2011 - 00:28 | 1182915 TheMerryPrankster

It's not really work in you enjoy it.

Tue, 04/19/2011 - 01:07 | 1182983 gorillaonyourback

no long john our money was backed 40% by gold back then, he confiscated to print more money. but either way it was stolen

Mon, 04/18/2011 - 22:27 | 1182612 old naughty

The least expect can also work in the other direction...question is are you the majority?

Mon, 04/18/2011 - 23:47 | 1182854 Hacked Economy

Ditto, Village Idiot.

I usually get my silver at about 10%-15% below spot...and that's for actual physical delivery. All because I'd time the purchases to coincide with a downtick in the spot price action. Honest truth...and I'll take my secret method to the grave to protect it (hehehe).

But with the increased fervor and the ramp up in silver price, I haven't been able to do that for the past two weeks, and actually had to pay (gasp!) actual spot for my PM yesterday. That was at $43! If it crashes, it might be the last time for quite a while, because the downplay might be a buildup for a slingshot up-play that will send the spot rocketing. So if it crashes, you better believe I'll buy all I can...even if I have to wait for delivery.

But going from 1-7 days to four months for delivery might make me lose a little sleep until it arrives. It's not really mine, ya know, until it's in my hands.

Tue, 04/19/2011 - 06:38 | 1183201 1fortheroad

Yea, right, and what idiot would sell to you at spot? You are an Idiot.

Tue, 04/19/2011 - 10:38 | 1183825 Hacked Economy

Actually, about a dozen people (idiots, as you call them) have. It's all about perception and timing. Plus...having cash (FRNs) in hand and waving them in front of sellers does wonders. I've amassed thousands of dollars' worth of physical that way.

Yer just jealous that you didn't do it. So who's the idiot now?

Mon, 04/18/2011 - 20:54 | 1182385 Humpty Pundit

I am anxious to see if Q1 earnings and Q2 guidance over the next 3 days has any impact.

Mon, 04/18/2011 - 21:21 | 1182448 MrPerspective

Look away from the headline names. TXN had decent earnings and will see a strong end of year, once Japan is back on line for them.

Instead, take a look at companies like Crane that posted great earnings and raised their guidance. If these guys are raising their guidance it's a pretty good sign that the economy's strength has taken hold.

Also, check out earnings from the regional banks, pretty stellar so far.

Read beyond the headlines, folks before jumping to silly conclusions.

Mon, 04/18/2011 - 21:38 | 1182498 WestVillageIdiot

"Also, check out earnings from the regional banks, pretty stellar so far."

It's amazing what decreasing loan loss reserves can do. Are you fucking kidding with this post? The banks are getting squeezed by rates that make it nearly impossible to book new loans. If the muni market takes another hit the regionals will get clobbered. I would also love to know how much MBS those regionals are holding. I don't believe a single one of these banks is doing as great as they try to say.

Mon, 04/18/2011 - 20:57 | 1182391 Misean

That should read "Softening of 401K Market". For those without permanent access to the money spigot, the ebubblemy has been soft for quite a while.

Mon, 04/18/2011 - 20:55 | 1182392 Humpty Pundit

Bob - I may be interested in your sister - what does she look like?

Mon, 04/18/2011 - 21:02 | 1182403 Misean

Hopefully not Robo's mom.

Mon, 04/18/2011 - 22:21 | 1182599 old naughty

So he is Robo's unc...

Tue, 04/19/2011 - 06:36 | 1183202 Sudden Debt

just go and have a look see. She's walking near the corner of Boulevard avenue.

Don't forget to bring a 20$ bill.

Mon, 04/18/2011 - 20:59 | 1182394 cosmictrainwreck

don't know if it's "self aware" but shure as shit self-perpetuating. Would love to see that feedback loop on the downside.....

Mon, 04/18/2011 - 21:08 | 1182418 disabledvet

again "if skynet became self-aware he would immediately commence the boozing and skirt chasing while lying about the size of his wanker." come to think of it--maybe the robo-traders finally are! "Dow up 220 points tomorrow" in mistaken belief that "they are rich, too!"

Mon, 04/18/2011 - 21:12 | 1182430 nonclaim

how to control the ETF, HFT and POMO

random network latencies would do wonders...

Tue, 04/19/2011 - 03:28 | 1183137 Seer

Careful there, that's knocking on the "terrorism" door.

Just root for Mother Nature (or, for those that don't believe in nature, "God") to handle things.

Mon, 04/18/2011 - 21:12 | 1182431 winning

So buy the dip or sell the top??!!?!?

Mon, 04/18/2011 - 21:15 | 1182438 MrPerspective

This morning was the time to buy the dip. You missed the near term bottom. We'll see a bigger pull back in late summer but not before we run back up to the year's high. That should happen near term.

One need look no further than AAPL that attracted major volume buyers at 320 today and tacked on 11 bucks. Nice dip that you don't get very often in a strong player like AAPL.

Mon, 04/18/2011 - 21:34 | 1182489 Blano

Welcome back Harry!!!

Tue, 04/19/2011 - 00:33 | 1182927 TheMerryPrankster

Haven't seen him since "Harry Wanker and the Half blood Banker, part 1'

Tue, 04/19/2011 - 05:56 | 1183177 The Profit Prophet

Isn't it pathetic when the paid shills have to recreate themselves once they've been outed. I'm surprised he didn't come back as Bald Pussy.....

Mon, 04/18/2011 - 21:10 | 1182432 MrPerspective

With SPX priced at about 13 times forward earnings, it's about as cheap as it was when it was at 750 in 2009. Worst case, it pulls back maybe a total of 8=10% sometime in the summer. Then it will be super cheap and buyers will once again line up.

Every knucklehead on every market program says the market will sell off at the end of QE2 which tells me, not a chance in hell of that happening. Too many expect it.

Mon, 04/18/2011 - 21:21 | 1182450 Deep

what was the market trading at 2007 peak, 12-14 time forward earnings. be very careful with wall street la-la land estimates. the economy is clearing slowing down, if you believe those forward estimates, good luck.

Mon, 04/18/2011 - 21:28 | 1182467 MrPerspective

I wouldn't say "clearly slowing down". Sure it's not as strong as everyone anticipated but still pretty strong when you look at ISM and employment gains. As I stated above, read the earnings beyond the TXN's of the world and you'll see raising guidance into the next Q along with strong earnings.

Consumers are doing well and retail sales have been steadily growing. These guys put up great sales numbers for March despite supposedly much higher input costs. People don't get how these input costs barely affect these big retailers.

Mon, 04/18/2011 - 21:33 | 1182486 Deep

We are in much worse shape than 2007 peak. It looks like reveune might be topping out here, with margins at close to all-time highs, the cyclical PE ratio is only been higher 4 times going back to 1900's, 1. great depression, 2. tech bubble, 3. 2007 peak, the dividend yeild on the SP 500 below 2%, i think sticks are very expensive.

Ya if you believe the stock peddelers, they are cheap, but i dont recall a time wall street ever saying stocks are expensive. They are snake-oil salesmen, would sell out their own mother to make a buck.

Plus, with rates already at zero, thefed balance sheet tripling in size in 2 years, the FED is fucked. When we do have a another major slowdaown second half of year, whats the FED gonna do.

Ya the FED can manipulate the market short term, but in the long term, markets will do what needs to be done. We fixed nothing, and the problems are worse now. We have half of Europe broke, looks like Greec is gonna defaukt anytime, that will lead to Ireland, then Portugal, then Spain.

Anyways, be very carefeul, a 8-10% correction is noting after a 100% runup, try more like 20-30% at the minimum. My target is still 500 on SP when everything is said and done with.

Mon, 04/18/2011 - 21:45 | 1182517 WestVillageIdiot

Blue Horseshoe thinks MrPerspective is a douche bag Wall Street shill.

Tue, 04/19/2011 - 02:33 | 1183097 Creed

People don't get how these input costs barely affect these big retailers.

how do I know you smoke crack?

Mon, 04/18/2011 - 21:25 | 1182461 Tyler Durden

Fwd PE are completely irrelevant as even implicit tightening will immediately take the benchmark S&P EPS far lower. The only thing that does matter, is the chart first presented on Zero Hedge in December, and subsequently everywhere else

Mon, 04/18/2011 - 21:35 | 1182495 MrPerspective

We've already had "implicit tightening" for a few months now and SPX still sits above 1300. IMO, tightening up to 50 basis points is priced into this market and reflected in the forward p/e.

QE1 & 2 did exactly what they were intended to do, jump start the economy. Judging by every economic data point in the past couple of months, I have no doubt that the end of QE2 will anything more than a negligible effect on the economy. That's why I think the sell off will not happen in June/July, which will frustrate the hell out of bears, but a slight pull back in August from a much higher level will occur.

Mon, 04/18/2011 - 21:43 | 1182513 Tyler Durden

Just how much of the $7 billion in daily POMO that is going on until July is part of this implicit tightening that "we have had for a few months?"

Mon, 04/18/2011 - 21:46 | 1182522 WestVillageIdiot

Tyler, why are you even conversing with this guy? I think I saw him on the subway the other day. He was jacking his carrot and screaming, "I love Ben Bernanke".

Mon, 04/18/2011 - 22:31 | 1182627 tom a taxpayer

Or was that Timmy on the subway?

Tue, 04/19/2011 - 00:07 | 1182883 Hacked Economy

No, go ahead, Tyler. You're asking some good questions. I want to read the answers and am interested in how this conversation ends up.

Mon, 04/18/2011 - 21:54 | 1182546 francis_sawyer

"QE1 & 2 did exactly what they were intended to do, jump start the economy"

---

"QE1 & 2 did exactly what they were intended to do, jump start the STOCK MARKET"

There... Fixed it!

Sincerely,

Francis Sawyer

Mon, 04/18/2011 - 22:04 | 1182568 WestVillageIdiot

QE1 and QE2 did exactly what they were intended to do, line the pockets of those closest to The Fed.

Mon, 04/18/2011 - 22:10 | 1182573 NOTW777

of what "economy" are you speaking - the jamie dimon economy or the food stamp economy

Tue, 04/19/2011 - 02:41 | 1183101 Creed

of what "economy" are you speaking - the jamie dimon economy or the food stamp economy

that was a good one

Mon, 04/18/2011 - 22:14 | 1182585 buzzsaw99

We've already had "implicit tightening" for a few months now...

time for your meds again.

Tue, 04/19/2011 - 07:04 | 1183213 1fortheroad

Shit, another bad month to get off my meds and I can get anything I want.

Tue, 04/19/2011 - 07:13 | 1183219 1fortheroad

Im thinking 90 days or Thorazine.

Tue, 04/19/2011 - 07:19 | 1183228 1fortheroad

Or 1/4 dose for robotrader=360 days.

Tue, 04/19/2011 - 08:09 | 1183311 Cash_is_Trash

That shit's leathal my man.

Mon, 04/18/2011 - 21:40 | 1182504 francis_sawyer

So Tyler... When you say "PE"... Is that the 'irrelevant' (PROFIT to EARNINGS - as described by our teleprompter in chief), or more traditional 'irrelevant' PE)...

Just asking because Harry Wanger needs to know how to price this all in... He's doing 'God's Work' remember!

Mon, 04/18/2011 - 21:48 | 1182535 prophet

"Secular bull markets can only occur when P/E ratios get low enough to then double or triple as inflation returns to a low level. As a result, secular market cycles are not driven by time, but rather they are dependent upon distance—as measured by the decline in P/E to
a low enough level to then enable a significant increase."

from: http://www.crestmontresearch.com/pdfs/Stock-PE-Report1.pdf

Tue, 04/19/2011 - 02:24 | 1183086 Yen Cross

Tyler I wnt to explain this chart. It's not a RSI or Stochastic. It's an time vs Earnings chart!

Mon, 04/18/2011 - 21:15 | 1182440 Gimp

QE is NOT going to end, expect QE3 infinity...got to keep the PONZI going until the dollar hits zero

Mon, 04/18/2011 - 21:31 | 1182487 Eally Ucked

Non-farm employment 130.7 mln in that number 90.6 mln employed by Private Service Industry and 22.2 mln in gov. jobs, so we have around 17.9 mln people creating something. How that service industry will survive without QE's?

Tue, 04/19/2011 - 06:48 | 1183208 1fortheroad

They can work for tacos, I will work 4 bannas and beers.

Tue, 04/19/2011 - 02:28 | 1183089 Yen Cross

Thanks for the Knowledge. Qe-3 light ?

Tue, 04/19/2011 - 06:33 | 1183197 Sudden Debt

There won't be a QE3. It's time for a name change.

but the basics will remain. Print it and burn/waste it.

And whatever falls from the truck will serve for the bonusses of the bankers.

Mon, 04/18/2011 - 21:21 | 1182454 Cynthia

Notice that the folks at S&P waited until Bennie and the Fed got done handing out gigantic sacks of nearly interest-free cash to Wall Street before announcing that they would downgrade our nation's debt. This is screaming out to me, as it should everyone else here, that S&P is operating on behalf of the jet setters on Wall Street to drop a debt bomb on our Main Street economy in order to keep themselves flying high on a huge cloud of cash...

Hey kids, plug into the faithless
Maybe they're blinded
But Bennie makes them ageless
We shall survive, let us take ourselves along
Where we fight our parents out in the streets
To find who's right and who's wrong

Oh, Candy and Ronnie, have you seen them yet
But they're so spaced out
B-B-B-Bennie and the Jets

http://www.youtube.com/watch?v=q3Yvy7_-rHA&feature=related

Tue, 04/19/2011 - 02:27 | 1183091 Yen Cross

Consolidate @ 1280!

Mon, 04/18/2011 - 21:32 | 1182483 I am Jobe

Ok, I need a drink after the Downgrades today.

The only question I have is is QE3 being discussed and if so how many trillions and BTW, Obama for another 4 Years. Might as well finish it off. Great experiment.

Mon, 04/18/2011 - 21:32 | 1182485 RobotTrader

Asia getting the beat down.

They better turn this thing around ASAP.

Especially those gold stocks, otherwise, we are going to be headed for a bruising.

Mon, 04/18/2011 - 21:40 | 1182514 I am Jobe

French Fries to soak up the ketchup anyone?

Mon, 04/18/2011 - 21:46 | 1182521 jomama

lmao.

Mon, 04/18/2011 - 21:45 | 1182515 johny2

Sell in april, come back in September for a free journey on the QE3, or just buy some silver and stay away till the 2012 and the end of the dollar.

Mon, 04/18/2011 - 21:46 | 1182528 jomama

you may want to avoid using the words 'sell' and 'silver' in the same sentence.

Mon, 04/18/2011 - 21:47 | 1182531 I am Jobe

"The more corrupt the state, the more numerous the laws." - Cornelius Tacitus (55 - 117 A.D.)

Mon, 04/18/2011 - 22:48 | 1182685 IdioTsincracY

He that can't endure the bad will not live to see the good.

Mon, 04/18/2011 - 21:51 | 1182541 I am Jobe

Hate to say this but US companies are prepping the pink slips and this time layoffs are going be higher. They just don;t give a F anymore

Mon, 04/18/2011 - 22:18 | 1182588 Gimp

Like to know when US Companies gave a flying Fuck about their employees?? It's all about the inner circle of executives and how much they can take out of the company before it collapses..then move on to another host..true parasites..

Tue, 04/19/2011 - 01:55 | 1183049 Big Corked Boots

Mon, 04/18/2011 - 23:44 | 1182849 Shocker

This is so true, we are heading higher in unemployment

Mon, 04/18/2011 - 22:01 | 1182560 Itsalie

All this coordinated "intervention" for the last 2 weeks, starting with squid downgrades and all corporates given green light tobring on the skeletons in their closet for this earnings season, yet all we see is BTFD. Looks like the Fed and its masters will be forced to tank all risk assets to justify QE3. Market thinks nothing of "cry wolf 3rd time", knows QE3 will be here, and buying every dip in stocks and corporate/junk bonds. Gold/silver doesn't think the elected puppets and buffoons in washington will comply with orders to provide a "viable austerity plan". Gold surely now heading to $1500, silver to $50; oil taking a pause but $150 won't be far off. Bring it on, wall street, the BTFD super-cray computer has taken on a life of its own.

Mon, 04/18/2011 - 23:32 | 1182834 blunderdog

Substantial softenings are bullish, right?

Tue, 04/19/2011 - 01:12 | 1182988 topcallingtroll

Lmao

Mon, 04/18/2011 - 22:12 | 1182578 Boston

Japan still bullish on US Treasuries.

And now Pimco (at least Crescenzi) is starting to get religion?

http://www.bloomberg.com/news/2011-04-19/treasuries-hold-advance-as-japan-s-yosano-sees-quality-after-s-p-warning.html

Mon, 04/18/2011 - 22:39 | 1182650 vote_libertaria...

"I need some bag holders."

Mon, 04/18/2011 - 22:42 | 1182656 bothsidesnow

I thought sheeple were not allowed on ZH. What did you expect Yasano to say I just used a pile of 10s to wipe my ass.

Mon, 04/18/2011 - 23:41 | 1182837 Boston

Sounds like someone's short.

Mon, 04/18/2011 - 23:48 | 1182855 mynhair

OMG, TPHGTH, and it ain't my fault.

Mon, 04/18/2011 - 23:53 | 1182861 palmereldritch

This could explain why NATO ran out of ammunition in Libya...the FED bought it all.

Tue, 04/19/2011 - 00:25 | 1182912 mt paul

BYOB....

bring your own bullets

bytches

Tue, 04/19/2011 - 00:50 | 1182959 Grand Supercycle

DOW bearish megaphone weekly chart:

http://stockmarket618.files.wordpress.com/2011/04/2011-04-16_dow-wk_x.png

Tue, 04/19/2011 - 00:59 | 1182965 Marty Rothbard

As zero hedge et. al. educates more, and more people as to the banksters game, how will the banksters protect themselves? Inevitably this knowledge will trickle down to the average man. The main stream media will lose what little credibility it still has, as simultaneously economic conditions obviously deteriorate, and pretty girls on FNN celebrate the "recovery", while crying crocodile tears over rising unemployment, and rampant inflation.

It will be interesting to see if the populist politicians, that will inevitably be elected, can be as easily corrupted, as the sociopaths currently in office. If you leftists out there think the tea party is angry, just wait till the bulk of the populace is out of a job, out in the street, and it is anounced, that impeachement is off the table ala Nancy Pelosi.

I call dibs on Hank Paulson, Dick Cheny, and Alan Greenspan.

Tue, 04/19/2011 - 01:07 | 1182986 topcallingtroll

Ditto timmah, blankfein for me.

Who wants Dimon?

Tue, 04/19/2011 - 01:04 | 1182982 topcallingtroll

Deflation monster is coming back.
He will definitely eat your precious metals too.
He is very hungry.

Tue, 04/19/2011 - 01:29 | 1183017 Marty Rothbard

In the last big depression, yes, there was a rush to dollars, but what were the dollars? Gold coins, and silver coins, thats what. Paper backed by gold circulated, but you could go to a bank, and freely exchange your paper for the metals. Now days, dollars are paper, representing the debt of a corporation, which buys trillions in securities, for much more than anyone in their right mind would pay for them, the federal reserve. Gold, and silver, are money, just as they always have been. Once your securities start plummeting in value, which will you choose?

Dibs on Pelosi too.

Tue, 04/19/2011 - 01:54 | 1183052 topcallingtroll

You have a valid point.

But if this is correct it means the pm bull market is just now getting started.

The implications of fiat repudiation are huge. I dont see any.government in the usa allowing that. We will starve the people with mass unemployment and demand destruction first.

Tue, 04/19/2011 - 03:47 | 1183142 TwoShortPlanks

"But if this is correct it means the pm bull market is just now getting started"

LOL, just wait until FEAR seeps into the general public and it's all over the news on every channel.

That 99.7% of the population tha has no "meaningful amount of precious metal" will be the raging bull. I give it till the end of the year before it wakes up.

Tue, 04/19/2011 - 03:51 | 1183144 TwoShortPlanks

I see a future where Banks offer good rates of return on Term Deposits for Bullion, just so they can sure-up their bottom line with PMs. Banks will wise-up soon enough.

Tue, 04/19/2011 - 02:01 | 1183061 infiniti

it took about 15 hours for the QE3 media spin to start.

http://www.bloomberg.com/news/2011-04-19/bernanke-may-reinvest-maturing-...

Tue, 04/19/2011 - 13:37 | 1184793 Paul67

Exactly, they will roll this debt into the significantly higher interest rates (set by the free market) coming post QE2.

So in summary we’ll have three very bad things happening at the same time. First, we’ll have those cashing out the bonds and flooding M1 and M2 which will drive inflation.

Second, we’ll have those rolling over existing debt and buy new debt at significantly higher interest rates (driven by inflation above) creating ever larger fiscal deficits (Federal + State + Muni)

Third, we’ll have a stock market crash due the sucking sound of private capital flowing into these high interest rate bonds resulting in even more insolvent public/pension plans, 401K/IRA largely based on equities and low interest bonds right now.

I just don’t see anyway out of this at this point though it will be mildly amusing to see how the MSM spins all of this.

A sea state change is coming akin to the Revolutionary War, Civil War/Reconstruction, Depression/WWII to America and indeed the entire world. It will be a clearly definable change in social order pre and post transition period. What it looks like is anyone’s guess but it will be very different than today and it will be very pain in getting to that new point of stability.

Tue, 04/19/2011 - 02:35 | 1183095 Yen Cross

TCT I sense a quitting thread here? You have been that smart ass I like.

Tue, 04/19/2011 - 03:38 | 1183105 TwoShortPlanks

Can someone please answer this question?

General: I have come to the realisation that the term everyone is using, including here on ZH, is in fact, misleading spin or simply wrong altogether. Quantitative Easing currently being conducted is nothing of the sort.

First, a definition and assumption: QE is the printing of money by a Central Bank for the expressed purpose of removing Bonds from the Open Market, and in doing so forcing Banks to lend into the economy. The increase in the monetary base should be offset by both the stimulation to the economy and by Interest Rate increases/decreases.....True???

Now, my actual question: What name do you give to a process whereby a Central Bank prints money for the expressed purpose of soaking up toxic assets (frauds actually), in conjunction with funding a deliberate speculative Bull Run on Stock Markets (possibly a political move rather than economic), while also subsidising an ever expanding Federal Deficit. At the same time, distracting Banks from normal lending practises to Stock Market rallies and Bond Flipping...all that instead of directing those funds into, A) the economy, B) Mortgages and, C) Industrial expansion......What the hell is that Monster called?

Is the Fed now playing Market Manipulator of first resort...er...Market Maker of last resort?

Is what we are seeing Quantitative Market Making...Quantitative Marketing causing Quantitated Markets?

Do we now live in a world of QM?...Coz it sure as hell has nothing to do with QE!

Tue, 04/19/2011 - 07:47 | 1183272 palmereldritch

It's called organized crime.

This crew just has the history of stealth, deceipt and unopposed accomplishment that they get to mask it with the word 'sovereign'.

Tue, 04/19/2011 - 08:20 | 1183341 TruthInSunshine

ZIRP is FAR more liable for the incredible mess we and our economy are in - thanks to The Bernank & The Dudley, primarily - than anything else.

In reality (and I will inevitably get shit for saying this, but 'facts is facts'), the money supply has risen modestly (approximately 4%) since 2009.

It's bank excess reserves that have risen more dramatically. But bank excess reserves do not equal the money supply. And bank excess reserves are somewhat of the ether - as they can build and shrink quite rapidly.

Most importantly, bank excess reserves are rather inefficient in leaking into the actual physical economy during historical periods of deleveraging and low demand for loans, let alone low willingness to make loans, i.e. a credit restricted environment.

ZIRP is the chief culprit in insane commodity price spikes, as a result of greater willingness to speculate given low yields on cash.

Tue, 04/19/2011 - 05:18 | 1183165 AldousHuxley

What happened to the sure thing QE3? Still few weeks left until June.

Tue, 04/19/2011 - 07:02 | 1183211 Moe Howard

Wake up to find silver gained 4 cents and gold dropped a buck ninety while I slept. Whatever happened to money working for you 24/7? Silver, ok, try harder, gold - get back to work!

Tue, 04/19/2011 - 08:12 | 1183314 Cash_is_Trash

Sometimes we get smell of pofits in the morning and sometimes we get a stinking beat-down.

Tue, 04/19/2011 - 14:45 | 1185058 jmc8888

Yep Hamilton had it right. Jackson, and Jefferson as well.

Great comments/quotes by the above.

Now if people just understood the linkage between what they face and these points. Why it isn't about social security, or medicare, or about welfare...and how you aren't suffering because these things exist. It's about the structure which necessitates welfare, and why in addition to screwing over those people by forcing them no other choice, it's screwing over the more prosperous, but still being constrained small business owner (I'm not talking about taxes...but we all know that our taxes are being spent on ponzi perpetuation) by the structure of the system.

The game is rigged against serfs and small business owners, and one shouldn't blame the other. It's the structure and those at the top controlling it, turning the rest on each other, that needs to be confronted, and their constituencies awakened.

Jeffrey Gundlach: Time For Investors To Prepare For A Substantial Softening In The US Economy

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