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Karl Denninger Sees Dow at 3,000 Next Year
Karl Denninger of Market Ticker thinks there is a secondary banking crisis around the corner that will trigger a cascading collapse in the stock market, and another government bailout. TARP 3 anyone? We could reach 3,000 in the Dow and 300 in the S&P 500.
This is one of many controversial and incendiary opinions about the state of the global financial markets Karl voiced to me in a wide ranging interview on Hedge Fund Radio. Karl says the idea that we are going back to an S&P 500 earnings of $105-$110 a share in the face of the soaring cost input factors is totally laughable.
Bernanke is making the same mistake we saw in 1933. The nightmare scenario for him is a coincident dollar and stock market selloff. The risk of hyperinflation will force him to back off on easy money. If the market goes up by 30% and the dollar devalues by 30%, then you haven’t made any money. When cost push pressures show up, corporate earnings are going to disappear. Companies like Kimberly Clark are reporting the largest raw material cost increases in history. Even Apple is seeing cost push problems.
“Foreclosure Gate” will be much worse than expected. There is upwards of $200 billion worth of exposure just on the “put back side”. The large banks also have second line exposure on their own balance sheets that is at least as big, if not bigger. In dollar terms, interest income has been good, but their spreads have been collapsing.
Banks problems may become impossible to hide in 3-6 months. They are passing around the losses trying to hide the truth. Banks made their earnings in the recent quarter by taking down reserves. Not providing for these risks is absolute fancy.
The 900 pound gorilla in the room is the second line problem, which is mostly concentrated in the top banks, including (BAC), (C ), (JPM), (WFC). Industry wide, only $1 trillion of $3.5 trillion in real estate losses has been realized, and at some point, someone is going to have to swallow. Wells Fargo is the most leveraged, could be the first to go, with $1 trillion in off balance sheet exposure, including all of the garbage they took in from Wachovia.
Are you wondering why financials have done so poorly this year? Investors are still laboring under the false premise that these firms are too big to fail and that the government won’t let anything bad happen to them. It is assumed that in the worst case, they will see flat earnings and no EPS growth for the next couple of years. Karl thinks that is incredibly naïve. The big pension funds that own most of these stocks are going to get hosed.
The majority of money has been made in the bond market. Karl hates to buy near a top.
Commodities are starting to look scary. The “softs” have delivered parabolic moves which never end well. Oil breaking through $100 could be the triggering event for the corporate margins crash which takes the stock market down. Break $87 and it’s off to the races. This will cause tremendous damage to the economy. Then bring in the “RISK OFF” trade, because everything will go down, starting sometime in 2011.
Until then, you can day trade, play in the futures market, and make plenty of money. Just keep everything on a tight leash. Stay away from positions that are hard to get out of. Dollar strength could be the key triggering event. Europe could also be another. And then there are potential black swan events, like state attorney generals halting the foreclosure process.
Karl believes the technology sector is very over extended. Apple (AAPL) is now 20% of PowerShares QQQ Trust (QQQQ). Apple’s success is attracting competition. Google Android sales have suddenly rocketed, a tectonic ship for the market. LG and Samsung are more attractive than Google (GOOG) or Apple, because they supply the processors and screens. Intel at $20 doesn’t look bad, especially if it breaks the 200 day moving average to the upside. In so many areas in the tech world he loves the companies but hates the prices.
Karl Denninger is the publisher of the daily blog, Market Ticker. He was the CEO and one of the founders of MCSNet, a Chicago area Internet and networking company which he sold in 1998. Since then, Karl has been a successful independent trader. In 2007, he started posting Market Ticker, a highly entertaining and prescient, if not irreverent daily blog. He also created TicketForum, an online trading forum. In 2008, Karl received the Reed Irvine Accuracy In Media Award for Grassroots Journalism for his coverage of the market meltdown. To learn more about Karl Denninger, you can visit his website at http://market-ticker.org/ . To listen to my lively interview with Karl on Hedge Fund Radio in full, please click here at (insert link to radio show).
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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I wonder if Denninger owns any gold or silver in bullion form, and in significant quantities relative to his net worth. Do you, Karl?
the beauty of it is that the more that think DOW is 30,000; the closer he and ZH get to being right.
the whole thing needs to be reset to ZERO.
bold to make such a call on the game of chaos where five minutes out is beyond my predictive abilities...to some degree. admitidly i am skilled at speculation.
nevertheless, Kevin is a PATRIOT and has what few demonstrate they have, COURAGE to STAND UP and protect the rights and responsibility that FREEDOM requires.
THIS is your wake up call. I dont care your origin of birth, or nationality. We have one thing in common....the God given right to be FREE.
Strength and Honor
Sorry -- hit double post
The bans, the calls
Now everyone knows why the traders who haven't blown their account have left Denninger for Suckerforum.com
Yeah TF'ers -- Karl will not let anyone tell you (unless you want to draw a prety much instant ban not to mention suckerforum is one of his stop words) but that is where most are posting now
Someone called the flags right
Look at the postive comments about the Furher-- nothing flagged
The negatives -- well...
Denninger has his 'flag' monkeys working overtime
And Curb
You are full of it. People who have followed Denninger know damn well he has been long maybe 5 times in the last 18 months -- MAYBE. Funnier yet, is when he finally buys, he catches the high (beer money, LMAO). That is the truth and the people who were on TF who were traders know it. The people who were not perma dedicated to doom calls (losing calls) left TF and went to SuckerForum. (suckerforum.com) You don't realize it because you don't trade Curb.
Now click on junk as your leader will have you do and then do the same with your puppet account. Make sure you PM Karl to do it too
LOL. more like Dow 30,000. Cost and earnings mean nothing. The whole thing is fake and the price is whatever the gubermint wants it to be, I thought he was smarter than that... Are you sure this isnt a typo error and he meant to say 30,000 ???
Here is an interesting read on the Dow reaching lower levels:
http://www.scribd.com/doc/26276296/Dow-1000-is-Not-a-Silly-Number
"History does not repeat itself, but it does rhyme."
inflation is too great, he is mistaken.
http://covert2.wordpress.com
One reality that should be addressed when talking about the "Dow" is that it is an ever-changing basket of stocks. Let's say this index tanks because Apple and GE dive 95% - those companies will be replaced by Barrick and Yamana in the index, and presto! All of a sudden the Dow becomes stable again.
The dow of 1948 is not the dow of 2010 is not the dow of 2012.
That's a good idea in theory, the only problem is the gang responsible for rejiggering the index higher, always picks the winners from the last business cycle.and secondly they tend to err on the side of stability, not thinking, these guys might go higher, but thinking defensively, like these guys won't go lower.
In so many areas in the tech world he loves the companies but hates the prices.
now that's sort of funny, i mean if you have no pricing power, of course that was what they have always said about Amazon, they may lose money on every product they sell, but they can sell more than anyone else
what is there to love. In energy I love the prices, Natgas for instance, but hate the companies. if there is a round of hyperinflation that seems logical
Do we even have Dow 3000 hats? Oh Noez!
I have been designing a line of DOW 1000 products. 3000 is just too short a time frame. Including a Euro design man's speedo, with the message "Got your Dow hanging, right here". Alternate "Got your Euro hanging, right here.."
Well said... Karl banished me for sending him a personal email (rather than disagree in public) to call him out on some of his health care positions... absolutely respectfully! I was banned from commenting on his site without ever making a comment on his site. Apparently he gave me an opportunity to "rise to the occasion" (translation... agree with his views) but it seems I did not meet his expectations... lol!
Probably half of the people that hang around here have had a run in with Douchinger.
Bingo. Here are several examples of bans being handed out over a simple respectful disagreement...
http://www.dailypaul.com/node/144952
http://www.godlikeproductions.com/forum1/message1144130/pg1
A site was deleted that posted a story about how Karl banned everyone on his forum when a user simply asked if a small percentage of one's porfolio diversified into Gold (5-15%) was a good deal...
“Jesus, when does the idiocy stop? I am sick and tired of people asking the same dumb questions and bringing up the same moronic points. I do not like gold, ok? Got it? Good. It’s a useless hunk of metal and owning it is how you destroy your personal wealth. If you want to talk about useless hunks of metal, go over to the tinfoil hat brigade websites, where they are stockpiling their bunkers for the end of the world. That’s all I have to say on this topic, forever. And to my critics and detractors, **** you, my answer to you is and must be best and most-simply expressed in the following image" (Flamming Middle Finger)
Later Denninger was seen at a local foodmart asking the checkout clerk if he ever heard of the Market Ticker. Not being in the financial community or an internet blogger on any forum, clerk's simple reply was, "Sorry, no".
Denninger still upset, uddered under his breath, "You're Banned".
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I agree with the poster above, toathis. Denninger is a self made millionare. He has much more to risk if we have a currency crisis and dollar collapse. His bennies along with everyone elses will be WORTHELESS!
karl Denniger? I fart in the general direction of sunny Niceville.
Is this your advice or Karl's? It is horrible. It is not only double speak but unrelenting.
The model of an inverse 1:1 dow vs. dollar is years old (as was the better metric of an inverse 1:1 gold vs dollar). New models have emerged since; one as dollars gold 1:1. As the dollar gains strength, it is used to buy gold. Soon this trend too will die. The next trend should have a selloff in dollars, yes, but the relationship for the dollar vs, stocks should be much different than before. All I know is that by the time this said phase is over, the dow will be 1:1 with gold. The following scenario will be the end of the game, as 'gold standards', however real (as in functional and considering paper entities or NOT), will be dictated (sarc/on) from high (sarc/off), from the IMF and World Bank. This because what is true above is true below (and what is true below is above which is why everyone should be at least be holding silver bullion).
Denniger is so good at using the old paradigm of FIAT neo Keynesian fibinomics he is blinded by truths such as PMs being the best 1) medium of exchange for large purchase items 2) Unit of account 3) Store of wealth. Trace the dow at 3k, you will find gold at 3k. But it would not last, as monie would pour from the system of FIAT into physical PMs.
If he can chart so well, what would he say about today's gold chart? Would he be mightily bullish, as I am?
Bernanke may be making the mistake of '33, but it is not the same the US Treasurie made. The US dollar, although fake as FIAT, was backed by a country running on easy credit (oil) and with resources unpolluted. There was also a good measure of gold stolen by the gov to back the currentsea with. Real estate may have been overvalued, but unlike then, prices were let to find their real value. Today, because the dollar has no value to trade oil and gold, it is a pariah in a scarred land. Housing will do no more than be the finale enfuego that will burn the whole of the paper economy.
Good point
Peter Schiff and Hyper-Inflationists see a Gold: Dow, 1:1
Robert Prechter, the Deflationist's Deflationist, also is calling Gold:DOW, 1:1
Gold is a great investment even if the worst occurs. It would seem Karl is merely covering his tracks on his Gold bear call when even fellow Deflationists/Fiat lovers are bullish on GOLD
Over the years Karl has some very good points, yet he constantly underestimates the power of fraud and the bankers/Fed's ability to have laws (retroactively) changed. Karl needs to factor in the power of the Fed (just ask JFK... if you could).
IF one believes that the system operates on a system of rules, then Karl is right.
The problem is, that there are no rules.
Will the rules matter at some point? Maybe. But that's why this whole argument is a policy argument and not an economic one.
I'm always surprised by the bears who attack bears because they aren't batting 1000.
+1. Boken clock may only be right twice/day. The fact remains, when it's right, it's right. Ain't no escaping it.
You say "keep everything on a tight
leash?" lol, the exit door is
already shrinking and will shrink down to a pinhole when you want out.
Denninger has been a DEAD WRONG doomer for sometime now. His profanity-laced rants are the only noteworthy mention and remains the only reason for my visit to his "Ticker" (Entertainment Purpose). Which has slowly morphed into his personal blog rather than journalistic newsite due to many of his calls being DEAD STINKING WRONG.
Karl made his millions before the Tech crash. He fears his account being reset to "0" once the dollar crashes and Hyper-Inflation arrives. Day trading won't do it for the Neo-Con any longer. He too will join us in the FEMA camps digging holes and refilling them again.
Gotta watch my mouth though. Posting about FEMA Camps, even though LAW exists that authorizes them, is a "Bannable offense" on the Tickerforum.
Karl is reading your comments, folks. He is reading this now. I expect at least 3 junks. One of course, being his ghost account here. TIME TO REVEAL YOURSELF MR. DENNINGER!
Seems we would have taken the DEFLATION route if it was in the cards, no? We have had the opportunity everyday since 9/11. NOT COMING!
Thanks to Tyler and ZH staff for allowing open freespeech. Some people just cannot accept a thesis that happens to differ from their own.
Karl has been LONG the market more than SHORT this year..... Read his stuff...watch his videos. He has been a trader of the market despite what his LONG term view of the economy. Assholes like you just don;t seem to get that there is a differnece in long term marekt calls and day to day trading.
Get your head out of your ass and learn something....damn I hate posts like this... They leave the subject out for for ridicule without his ability to defned himself.
+3.14^2.71
With so many 900 lb. gorillas climbing into the room. One wonders when they will starting tearing you apart.
They just ordered martinis and stimulants too...
Denninger is a deflationist on the premise that losses on impaired assets will have to be recognized at some point, and this will hit balance sheets across the board. The inflationistas claim that this day of reckoning will never come because TPTB will simply print money to cover the losses, and interest rates will magically remain near zero forever.
Which narrative makes more sense? Damn if I know.
Inflation in "must-have-to-live" assets (food, clean water, gasoline, basic necessities)
Deflation in "nice-but-not-required" assets (houses, cars, boats, aircraft, etc.)
does anyone know approximately WHEN this is supposed to take place ? i've heard "in the spring" . I'm scared & in the process of trying to sell a house before the houseing market totally collapses. If I sell the house, do I even dare put the cash into a bank & then, watch that cash get lost to a currency devaluation or even worse, currency destruction ? ......... honest question from me, i'm not like the rest of you, am just a housewife who has stumbled upon the biggest story & scam, can't even believe that I know all this stuff !
#1: Sell the house. Prices are going lower, but even more important will be the ability to up and vanish quickly (as in a matter of weeks, days or even hours possibly).
#2: Convert 80% of your assets into gold, 10% into silver and keep no more than 10% in fiat cash. Depending on where you live and how much precious metal you will end up with, you might want to buy a barely-large-enough safe that can securely attach to the foundation of your house yet still be transportable in the trunk of your car if and when the crap hits the fan and sends you packing (to the countryside or another country).
#3: Figure out what foreign country you want to move to, and do everyone you need to be ready to move there within days. You may never leave... but if things get bad enough, you'll be damn glad you know where to go, and how to get there quickly and smoothly. At least for now, FedX will ship your precious metals to other countries, so you can ship your wealth (in at least 3 separate insured packages) just before you "get on the plane" (or into your car), and retrieve it at the FedX depot in your chosen destination city or town.
Selling a house now would depend upon the affordability of the house.
We are in a well condo development with a lot of mature trees and interesting terrain and a good school district. Prices dropped to about 2/3 of max value but were supported somewhat by people needing a less expensive place to live. In our portion of the development, there were 4 bankruptcys and 2 units that were on the edge in 122 units.
I would say that debt to equity ratio and desireability of location would have a lot to do with such a decision.
From the people I read, some say 2 months some say 5 years. The direction is sure, but the timing is difficult. I'd go 1/3rd Food (this is going to get really expensive), 1/3rd gold, 1/3rd Food production (like a garden or farm land).
That is a good question: how to use the proceeds from a house sale. I would put it into gold, as a type of "cash" that cannot be devalued. If 100% gold makes you nervous, then 50% gold and 50% tbills (treasurydirect.gov) is not the worst thing.
I am pretty sure the house:gold ratio (ie real value of houses) is heading down, but I'm not sure about the nominal (house:dollar) ratio. The value of dollars might fall faster than the value of houses = higher house prices in dollars.
BTW, by "gold" I mean that you buy gold bullion from a reputable dealer like Tulving.com or Apmex.com. For house-size amounts, kilobars (33 oz) are a good option. Store the gold at an independent depository like First State Depository in Delaware. You can have the dealer ship it there directly if you wish, insured of course.
Put 50% into bullion, 50% into farmland.
Keep in mind (depending on where you live) that housing prices could easily fall another 20%. If you can get out now at what seems reasonable, do it. Cash proceeds, unless you are a knowlegeable (and successful) day trader should go into PMs. Just my humble opinion.
You mean "will the fed go bankrupt" ? Well, so far it hasn't happened.
I still want someone to tell me what happens to the Treasury's ability to service the national debt once this great collapse occurs. And after they tell me that, they can tell me what happens to USD. Been asking for years, no takers have yet explained how this ends well for USD.
SWR,
The Treasury will always be able to service the natioal debt, as the Fed will simply mark up the T-Bond holders cash account when the T-Bond matures. The issue is not a default. The US Government has no motivation to default on it's soverign obligations. The question remains, will the ever expanding debt lead to hyperinflation.
If the market closes the year out over 11,000 on the Dow, then 2011 we are on our way to new highs. Karl may be right about the fundamentals, but his macro trading prdictions are far from prescient.
I'll try. If you mean a collapse in equities, that would probably buoy support for Treasury debt sales as it did in 2008. As everyone stampeded into equities through 2007, so everyone stampeded into bonds afterward. An across-the-board collapse in equity and commodity prices should support bond sales. Then we'd be looking more at a Japan scenario. In my mind, the more dangerous scenario is if asset prices continue to rise indicating that the Fed's reflationary efforts are working too well. In that case, a rise in interest rates could be very difficult as it might hamstring the Treasury's ability to roll its ever-expanding debt and fund the USGOV. Then we could be looking at a collapse of the currency and political upheaval.
I agree with Chubbar. There is no "Japan Scenario" for the U.S. Frankly, there is probably no longer a "Japan Scenario" for Japan, as they are exhausting their domestic savings pool and their debt-to-GDP is at shocking levels. In any case, Japan has no global empire to maintain, the U.S. has no export-based economy with which to earn foreign exchange.
Should the U.S. fall into deflation there might be a rush into Treasuries, but how will the government pay them back? With what tax revenues? How long will the now-more-than-half of Americans who are net tax consumers, by virtue of either working for the government or being on some kind of government assistance (arguably, in many cases the same thing) tolerate the stoppage of checks-in-the-mail?
We aren't looking at a Japan scenario anyway you cut it. We are a debtor nation that is unable to service it's budget deficit without resorting to monetization, to say nothing about rolling over debt paper.
The dollar strengthening isn't going to cause much of a change to the revenue side of the ledger for the U.S. gov't. Defaults in the banking industry will eventually set off cascading cross defaults in the almost quadrillion derivatives these asshats put on during the run-up.
The fact of the matter is that the U.S. gov't is bankrupt with no visible means of settling the outstanding international debt or outyear entitlement liabilities unless they inflate. Either way the gov't defaults. Yeah, the dollar may strengthen considerably in the interim due to competitive devaluations or people shunning equities but eventually we'll see a default in gov't paper if they choose the deflationary route, that isn't going to be dollar positive, imo.
I wonder when Mish will do a review of Denninger's investment advice over the past three years to show how wrong he has been? After all, Mish trashed Peter Schiff for being wrong for six months.
'Being wrong for 6 months'...well in fact they are all right that everything is a total joke and has no earthly business levitating higher, but as long as a few idiots can step in and reanimate dead markets with trillions of free so-called 'dollars', then they'll be called 'wrong'.
I'm too scared to short WFC and friends in the face of back-to-back-to-back-to-back-to-back POMO days.
Karl consistently underestimates the depravity of the Federal Reserve to do all its power to keep the Stock Market from falling.
I agree with many of Karl's scenarios however, when the market starts to tank, I could fully see the Federal Reserve directly buying ETFs for "price stability" while the price of bread goes up to $10 a loaf.