This page has been archived and commenting is disabled.

Merrill's Contra-Bear Argument

Tyler Durden's picture




 

Merrill Lynch (excuse me, BofA/ML as they like to put on the lead left side of REIT prospectuses), presents its case for why optimism dominates and all theories voices by perma-bears "have little founding in economic theory or history." What is notable from the below multi-pronged perspective on the definition of the term "recession" is that BofA/ML's entire argument rests on the premise of a fiat currency as taken for granted. Eliminate that, and the construct of imminent recovery from any and every economic cataclysm becomes immediately flawed. Ironically, the only reason there is no mass violence and civil uprisings right now (which would have been the case had RBS and HBOS gone under, an event which according to Bloomberg was mere hours away), is because printing presses the world over went into overdrive with wanton monopoly money (or nightcrawlers as they have been penned elsewhere in the blogosphere) creation (or destruction, depending on your perspective). From BofA/ML, on why permabears are fools:

All you gotta do is act naturally

It is important to realize that in the absence of negative shocks, the economy has a natural tendency to (eventually) return to full employment. After all, the modern, activist anti-recession policies generally didn’t exist before the 1950s. The economy recovered from many recessions in the past without the help of the Fed or fiscal authorities. Economists do not fully agree on the mechanisms (or the speed) of a natural recovery. However, we think the following theories all have some validity:

  • Keynesian: Recessions occur due to a “coordination problem”: a shock hits and causes everyone to pull back on activity for fear that others will be cutting back as well. Recoveries are a reversal of these pullbacks. This is akin to the “feedback loops” view of the cycle.
  • Classical: Recessions cause wages and prices to weaken to the point where demand for workers and products rebounds.
  • Austrian school: A recession is a period of cleansing or “creative destruction,” where less productive industries die but it takes time for more productive industries to be born. Once resources start moving to the more productive sectors, a boom sets in.
  • Financial accelerator model: This is another feedback loop theory. When the economy weakens, lenders tighten lending standards causing further economic weakness, and that in turn causes even tighter lending standards. The opposite happens during recoveries: a better economy makes more people creditworthy, causing more credit and more spending. This is a favorite of Ben Bernanke.
  • Accelerator models: Recessions occur when firms react to weak sales by cutting production even more dramatically, driving inventories lower. The opposite occurs in the recovery: as sales pick up, firms try to boost production to match sales and stop the collapse in inventories.
  • Pent-up demand: A related view is that by the end of recessions, companies and households have delayed many essential purchases—the car is getting rusty, the house needs a new roof, the computer needs updating, the machine tool becomes outdated. This pent-up demand drives spending once a semblance of confidence returns.

The one notable exception to this view is Marxism. In Marxist theory the capitalist world is doomed to ever worsening cycles of boom and bust, culminating in its collapse and the assent of communism. Needless to say, we do not ascribe to this view.

The bottom line: the economy can grow without ever-increasing government stimulus. While policy actions play an important role in many theories of economic recovery, and most economists believe active policy helps the economy recover faster, there are many reasons to expect a natural normalization in economic activity. Extreme perma-bear stories have little founding in economic theory or history.

It needs no pointing out that the current recovery has no analog in history, as it is so much more than a manufacturing recession. To get educated on that, we recommend the BofA/ML gentlemen read the work of their former colleague David Rosenberg. 1950s was not known for a time where several hundred billion in securitizations were rolled out each and every year to profit from the stupidity of the subprime investors (and of Iceland). Our credit recession strikes at the core of the fiat currency system. Ironically, the Marxist view, the one slighted by BofA/ML, is precisely the one that would have been most appropriate if the Fed had not decided to interfere with the biggest wealth transfer in recorded history (from middle to upper class). And the most ironic outcome, is that we may have well skipped the recession part altogether: numerous pundits will attest that America exists in a state of Corporate Communism at this point. So just why again is a Marxist view irrelevant? Oh yes, it is so far below tenured economists (of the BofA/ML cadre) to even consider the alternative that their entire worldview has been flawed from the beginning.

The truth is much simpler: after Lehman fell, the financial system, which relies exclusively on two taken for granted concepts: confidence and trust (which at their core are one), saw itself in an unprecedented $26 trillion hole, as the two core precepts for a functioning fiat economy were pulled, very much like the proverbial rug under the house of cards. The tally of the damage was done by both SIGTARP and former Goldman banker Nomi Prins (attached).

 

 

What is the conclusion: the collapse of the liquidity pyramid, the disappearance of securitization, and the near-death experience of a fiat system has had an opportunity cost of $26 trillion, which had to be funded, backstopped and guaranteed by the heart (but not soul cynics would add, as that has already been sold to Satan or Wall Street, whichever comes first) of the currency devaluation system itself: the US Federal Reserve. An opportunity for what? Simply to perpetuate a current broken system which rewards only entities such as the aforementioned BofA/ML (the firm would have been bankrupted 100 times over if it had not been for the relevant parties stepping in at the right time), affording Messrs Harris and Matus (whom we have lots of respect for otherwise) the luxury of spewing such unsubstantiated optimistic drivel even though their paychecks are still guaranteed by the US taxpayer (perhaps they could take their optimistic cheerleader role with a little more humility in this light). And what is the flipside? A global reset: where the debts of every man, woman and child in the US could have been wiped clean (several times over). Of course, that would mean the end of the current banking system as we know it, as all those bank balance sheets have loans as assets, either securitized or in whole, that are intricately tied with the current broken iteration of capitalism (that and waging wars, but that is a topic for another day). This would also include mortgages, which at last count were about $12 trillion in notional. If Obama is so focused on making the home ownership dream a reality, he could have easily accomplished that, and at less than half the cost to the US middle class. After all the latter will be the only one left picking up the pieces when this latest ponzi scheme blows up. Which, like any bubble, it will, sooner or later. However this time the fate of the Fed (in other words America itself) is tied in with that of the bubble. Its burst, when it comes, will be the end of the current paradigm, call it what you will. And what is most unfortunate, is that the BofA/ML Messrs. Harris, Matus, Hanson, Helwing, Bigg and Dutta, are all too well aware of this.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 10/10/2009 - 13:14 | 95312 Anonymous
Anonymous's picture

So what do you think the common element is that brings everyone here to this site, excluding the trolls? The type of person that comes here for the presented information because it rings true personally. Is it that we want to see the people that perverted our economy finally pay for their fraud or is it simple monetary gain / preservation of capital? Could there be a certain threshold for IQ or EQ that allows people to see past the lies of TPTB, but it seems like there are bright people that follow the MSM religiously and believe what they are told, never questioning the presented information. Could it be the simple effort in wanting to know the truth that drives people to sites like these?

I for one do not invest outside of 401K and remain in that simply for the employer match. I can lose 50% and still have my principle intact. I personally come here for clarity and not investment advice. I am the type of person that would purchase a pay per view event on cable to see Paulson sodomized in jail by Bubba who possesses the sick fantasy of hearing their victims scream. I am just trying to find out the common theme that brings people to sites like these and rejects the BS spewed by people with invested interests in seeing this corrupt system remain alive.

Sat, 10/10/2009 - 13:38 | 95337 Sqworl
Sqworl's picture

Welcome home...now register and you will be taken seriously...sodomizing Paulson was your password...but having Lloyd hanging upside down in the same cell with next written on his bald head would be nice too!

Sat, 10/10/2009 - 15:09 | 95398 Anonymous
Anonymous's picture

I think what keeps people coming here is objective reporting mechanism; also perhaps the anon-insider coup reporting style.

To get to the heart of the article though, Merrill/BofA etc. are all existing because of the self-fulfilling prophecy, it's becoming ponzi-esque but not fully because now nobody is buying so instead it's valuation escalates based on internal projections. The scariest part of the element is the justification that 'everything will be okay' as long as you believe pundits/analysts/FRB chairmen; despite massive dollar carnage loan tranches, economic activity and equities are still only moderately inverted (they aren't outperforming dollar declines). In essence zero value is being added via the currency torpedoing, and in fact the inability for risky assets to underperform on a 1:1 ratio indicates confidence is still waning and and the plan isn't working as well as expected.

We're darn close to the dollar at .72 which is an all time low and the SP is still off nearly 30% from the high; devaluation is a time buying measure a means to an end not the end.

Sat, 10/10/2009 - 13:15 | 95314 Anonymous
Anonymous's picture

Not sure if anyone has mentioned this in the comments, but the WSJ had a chart yesterday tracking the dollar this year. Not surprisingly, if one puts the DOW over the same chart, it shows stock market going in the opposite direction of the dollar.

Sat, 10/10/2009 - 17:04 | 95449 Anonymous
Anonymous's picture

That's just the purchasing
power you thought you had
being transmogrified into
stock market gains for
the banks. Don't give it
another thought.

Sun, 10/11/2009 - 07:58 | 95766 Marge N Call
Marge N Call's picture

Pay no attention to the loss of purchasing power, all is OK. Gold is a silly yellow rock, no value there. Please move along.

Sat, 10/10/2009 - 13:17 | 95316 Marley
Marley's picture

It's the neologistic economy baby! 

Sat, 10/10/2009 - 13:17 | 95317 Anonymous
Anonymous's picture

That "Who Got It" pie chart pretty much says it all, doesn't it?

Sat, 10/10/2009 - 13:25 | 95328 Anonymous
Anonymous's picture

>>The one notable exception to this view is Marxism. In Marxist theory the capitalist world is doomed to ever worsening cycles of boom and bust, culminating in its collapse and the assent of communism. Needless to say, we do not ascribe to this view.<<

Hey ML...you sure about that? Sure sounds like the GS model for the world to me...how bout you prove it to us instead of making empty claims!

Sat, 10/10/2009 - 13:27 | 95330 Anonymous
Anonymous's picture

there is no recovery....none.....nada....zip....zilch....

i have long maintained that the negative marginal productivity of debt precluded a recovery and stand by that
assertion....the banks are insolvent and cannot lend or
support a recovery....the fed is broke.....

the banksters and politicians are pillaging and raping america of its capital....capital is in full warp flight out of this country....the dollar carry trade further prevents domestic recovery....

the straw which broke the camel's back is the recent severe
gold BACKWARDATION which is now PERMANENT....the uk treasury is completely out of gold....the usa treasury is in similar state....

folks - there is NO recovery....there never will be....it
is absolutely and completely and totally impossible....the paris hilton analysts, dame edna experts, and other gadflies of the financial world can prattle on into euphoric flatulence about a recovery but they are all LYING straight through their rotten teeth as the fed-cia controlled press peddle their messages from satan....

Sat, 10/10/2009 - 13:35 | 95334 Anonymous
Anonymous's picture

Zero Hedge gets mentioned in FT article.

Paranoid theories can’t take the shine off gold
By John Dizard
Published: October 9 2009 20:21

For a few years after the 1971 “closing of the gold window”, the end of US government gold sales, there was residual interest in foreign governments’ valuation of their gold reserves. A website popular with goldbugs, Zero Hedge, recently revealed a 1975 Federal Reserve memorandum to President Gerald Ford, in which an argument between the Treasury and the Fed is outlined. Zero Hedge describes the memo as a “smoking gun”, and goes on to say: “So to all conspiracy theorists claiming that gold is being manipulated on a daily basis by the Federal Reserve: when it occurs over and over, and is so well documented, it is no longer a theory.”

The memo itself is rather less dramatic and has nothing to do with manipulation on a daily basis. Essentially, the Fed chairman, then Arthur Burns, was telling Mr Ford that if the French buy lots of gold it will lead to an increase in world liquidity and more inflation. As usual, Mr Burns was wrong. Gold was not necessary to inflate or deflate world liquidity; that could be done through money market operations by government currency issuers, including the French and the Americans.

Sat, 10/10/2009 - 13:57 | 95345 Anonymous
Anonymous's picture

the significance of the document is that it thoroughly
refuted all claims that the fed and cia had no interest
in the price of gold....to the contrary they have
been in involved in daily gold price monitoring and
manipulation since at least the early 1960s through
the london gold pool....the fact that the cia was
party to the conversations is a huge revelation....

subsequent articles by elite financial types openly
advocate gold price suprression schemes...larry
summers being the prime example in the late 1980s...

the concern by burns was not that the french were
going to buy gold but that the usa would dishoard
revalued gold in settlement of claims against the full faith
and credit of the us government whatever the fuck
that is....

Sat, 10/10/2009 - 13:38 | 95336 phaesed
phaesed's picture

Start taking your money out of the bank... now.

 

More of this to come.

Sat, 10/10/2009 - 13:41 | 95338 Sqworl
Sqworl's picture

@phaesed: got no money to take anywhere! They took all of it...every last cent...

Sat, 10/10/2009 - 13:56 | 95344 Anonymous
Anonymous's picture

Speaking of banks, I'm wondering why the FDIC did not close any yesterday.

Sat, 10/10/2009 - 14:39 | 95371 Anonymous
Anonymous's picture

it's broke...

Sat, 10/10/2009 - 16:30 | 95435 deadhead
deadhead's picture

+1

truthfully, i was shocked.  we got at least 500 banks that are candidates, maybe more, excluding the TBTFs and we didn't even get one mom and pop out of georgia or illinois or cali.  wow.

while we know the DIF is basically busted, they will get some devalued buckies soon enough....i'm wondering if the fdic is simply overwhelmed....i also imagine that they are getting many "no thank you" responses to some of the crap that they are trying to unload...

Sun, 10/11/2009 - 04:01 | 95727 Bear
Bear's picture

They have to hold out until 12/31, so Lewis can take 100% of blame.

Oh this works ... it's also bonus time for BAC, GS, MS, C, et all!

Sun, 10/11/2009 - 08:00 | 95768 Marge N Call
Marge N Call's picture

They are on furlough every Friday to save money. If they all take Fridays without pay for the next 700 years they will be solvent.

Sat, 10/10/2009 - 14:07 | 95351 buzzsaw99
buzzsaw99's picture

Fine, nice of Merril to share. If that's true then they should knock themselves out buying shares hand over fist.

Sat, 10/10/2009 - 16:31 | 95436 deadhead
deadhead's picture

i think they might be a little happier if we bought new bonds, proceeds of which will pay of reit debt to bac. then again, I could be wrong.

Sat, 10/10/2009 - 14:11 | 95352 glenlloyd
glenlloyd's picture

I don't know what alternate universe that BoA/ML drivel came from but it wasn't this one.

The real question is what were they attempting to accomplish by publishing that? Do they at all expect people to believe it? The only thing it demonstrates is their complete lack of understanding about the present situation and the consequences. And that they don't live in reality...which I guess we already sort of knew.

Sat, 10/10/2009 - 14:19 | 95358 Fritz
Fritz's picture

What a surprise.

Merrill finally goes positive on the market just in time to bait grandma and grandpa to go all-in so the Merrill brokers can generate a few commissions before the end of the year.

Has Merrill not done enough damage to their client base already?

Sat, 10/10/2009 - 14:20 | 95359 msorense
msorense's picture

Just a little insight from the real economy:  My small business (engineered components to high tech companies) has exploded over the past few weeks.  I mean orders have shot up about 2-3X easily.  I have had to scramble to secure materials and bring inventory in.  I buy precision bearings from China and you should know that their prices have remained exactly the same since 2003 even though our currency has lost about 40% since then and the Fed has almost tripled the money supply since 2008.  Although I am a uber-bear,  I can see that a "recovery" for our Ponzi economy is very possible under such a scenario where the government/Fed can print to no end without stoking a massive rise in prices (I'm using Schiffs definition here - the expansion of the monetary supply is inflation - rising prices are normally a symptom). 

I hate the Chinese and the Asians for the way they patronize the dollar, but that's reality.  Therefore, it is entirely possible for the economy to come back again and go on for years.  Only when they break away will you see an EXPLOSION in prices.  But if they are not willing to now I don't know if they every will.

See this good article on Chris Martensons blog:

http://www.chrismartenson.com/blog/sound-one-hand-clapping-what-deflationists-may-be-missing/29151

Sat, 10/10/2009 - 17:08 | 95451 Anonymous
Anonymous's picture

Good for you. Unfortunately, even
if there is a recovery, stock prices
at 27 times 2010 GAAP estimates more than
reflect nirvana.

Sat, 10/10/2009 - 23:44 | 95647 aswipe
aswipe's picture

I too have my own business as a grain broker and business is terrible. The dairy, hog and beef industries have been on the brink of bankruptcy for a year and may fall if the dollar rallies. We have massive builds on inventories of most all agricultural products this year and believe me we are in a deflationary cycle that may last another year. It will be early next year when the bankuptcies hit. Business sectors that cannot manage inventories quickly are in deep shit.

Sun, 10/11/2009 - 12:45 | 95869 JR
JR's picture

I hear you and see some of the same. But I don’t agree that “it is entirely possible for the economy to come back again and go on for years” without the consent of the economy.  It always seems to reach out and grab you by the nape of the neck if you stray too far into economic La La Land—even if you’re economy enemy number one, Ben Bernanke.

Just a thought to pursue: Could it be that in areas of high-technology concentration that venture capital is returning to American shores, breaking out of the bankers’ global financial loop by seeking less risk and more hands on safety, looking for honesty and partnerships with entrepreneurs and investors and researchers and developers who can be trusted?  Perhaps, just perhaps, it is the glimmer of a return to America’s former contract society--the basis of a free, market-based economy--and repudiation of top-down, world sanctioned socialism induced by the Fed cartel’s New Finance securitization revolution whereby risk is “detached from banks and spread across the globe to the point no one could identify where real risk lay.”

However, and here is where the economy intervenes against its enemy, i.e., the heightened risk brought to bear by the investment banks. The consumer will have his say and he is saying, my reserves are low and I am concerned about the future.

And so, the downsizing continues. Sam Newhouse’s media dynasty is shedding Gourmet (the nation’s oldest food magazine), Modern Bride, Elegant Bride and Cookie.  Earlier it shed Portfolio and Domino. Gourmet’s ad pages were down 50 percent in the second quarter.

Chris Rodriguez at Seeking Alpha in an article,  Retail Firms at Risk for Bankruptcy, published the following list Sept. 29 from Audit Integrity, a Los Angeles research services company. The results are from an independent corporate bankruptcy study which identified 20 major U.S. corporations that are at risk for filing bankruptcy in the next 12 months. Says Rodriquez: “A different assessment done by commercial real estate investment firm Madison Marquette identified a separate list of U.S. retail chains at risk for bankruptcy in the not too distant future. The retailers at biggest risk on that list include Chico’s, Cost Plus World Market, Dillards, and Talbots.”

Here is Audit Integrity’s list as published by Reuters:

* Advanced Micro Devices, Inc.
* Amkor Technology, Inc.
* AMR Corporation
* Apartment Investment and Management Co.
* CBS Corporation
* Continental Airlines, Inc.
* Federal-Mogul Corporation
* Hertz Global Holdings, Inc.
* Interpublic Group of Companies, Inc.
* Las Vegas Sands Corp.
* Liberty Media Corporation (Capital)
* Macy's, Inc.
* Mylan Inc.
* Oshkosh Corporation
* Redwood Trust, Inc.
* Rite Aid Corporation
* Sirius XM Radio Inc.
* Sprint Nextel Corporation
* Textron Inc.
* The Goodyear Tire & Rubber Company.

http://seekingalpha.com/article/163836-retail-firms-at-risk-for-bankruptcy

Sun, 10/11/2009 - 13:30 | 95901 deadhead
deadhead's picture

thanks for the post JR.  i'll be watching the Oct 14 Commerce dept figures but moreso, it will be very interesting to watch retail around, say, December 26 and thereafter.

Sat, 10/10/2009 - 14:24 | 95360 Prophet of Wise
Prophet of Wise's picture

Anon #95314: Not sure if anyone has mentioned this in the comments, but the WSJ had a chart yesterday tracking the dollar this year. Not surprisingly, if one puts the DOW over the same chart, it shows stock market going in the opposite direction of the dollar.

You are onto something...now just go back and do the same as above with the S&P/DOW/Wiltshire 6000 against the USD fiatcos but take it one-step further and take them back to 1971 instead of just one year and you will see the results produce exactly the same conditions/correlations. The value of the USD is and has been inversely related to the value of the S&P since 1971. The purchasing power [inflation adjusted] value of the US dollar since the creation of the Federal Reserve [The Finance Wing of the Church of Satan] has fallen 96%.

http://www.ask.com/bar?q=value+of+US+dollar+since+1971&page=1&qsrc=2417&ab=7&u=http%3A%2F%2Freddit.com%2Finfo%2F62ncu%2Frelated

 However, let’s trace what an ounce of gold or silver – true money – has been able to purchase at various periods in history, and how it compares to today.

1979: Gold’s average price that year was $306.68. This bought an average-priced full size bed.

30 years later, $950 would still buy you a full size bed.

 1963: A gallon of gasoline in America sold for 31 cents. This meant that 3 silver dimes could buy a gallon of gasoline. The total weight of silver in 3 silver dimes is .217 of an ounce.

Today, 3 silver dimes would buy a gallon of gasoline anywhere in the U.S.

 600 AD: In the Middle East, a chicken at the time of Mohammad would cost a family one silver Dirham (3 grams).

  Today, 1,400 years later, a chicken in the Middle East would still cost a family one silver Dirham.

 Time of Christ: Under the Roman Empire, an ounce of gold purchased a Roman citizen his toga (suit), a leather belt, and a pair of sandals.

  Today, one ounce of gold will still buy a man a suit, a leather belt, and a pair of shoes. 

 400 BC: Some scholars report that during the reign of King Nebuchadnezzar, an ounce of gold bought 350 loaves of bread.

 Today, an ounce of gold still buys about 350 loaves ($950 divided by 350 = $2.73/loaf).

 1000 BC: King Solomon was known to have purchased many horses for his army. Historical records show he bought them in Egypt for 150 shekels of silver each. 150 shekels was about 55 troy ounces of silver.

  Today, you can still buy a riding horse for 55 troy ounces of silver ($800).

I've maintained for years the Matus/Harris duo are the present Pied Pipers of Hamelin bought-and-paid to send the lemings over the edge.

Sun, 10/11/2009 - 07:31 | 95761 aus_punter
aus_punter's picture

doesn't this ignore the concept of compound interest ?

Sat, 10/10/2009 - 14:23 | 95363 Anonymous
Anonymous's picture

Let's make this simple.....

$26 Trillion left a $70 Trillion Economy....

Thus leaves $43 Trillion to price all....= deflation....

...........................................

The economy needs lots of positive moving business units.....particularly small ones....

A unit has both income and debt...

When income increases and debt decreases....the units move forward....

When income decreases and debt increases....the units move backwards....

Currently....all govt. policies are unsustainable and move all units backwards....

It does not matter what the label is....

It is what it is....negative economics....

Sat, 10/10/2009 - 14:24 | 95364 Anonymous
Anonymous's picture

I went out shopping today in a local town, I walked from the supermarket car park to a shop I wanted to go to in the town centre... it was a very short walk but I thought I would just look at the shops along the way... 7 had closed down!
There were hardly any people out shopping for a Saturday afternoon and it was a nice sunny day which should have got more people out.

It was a very short walk for such an enormous amount to have closed, this recession is not going to be over in 6 months!

Sat, 10/10/2009 - 14:28 | 95365 TraderMark
TraderMark's picture

Kirby Daley (who!?) on CNBC Australia saying all the things we say in the dark corners of the blogosphere (somewhere Gasparino and Kneale are preparing attacks on Kirby if he is dare shown on US version) - and not being laughed at unlike CNBC USA.

I call it Kirby Daley has detached from the Matrix.

http://www.fundmymutualfund.com/2009/10/kirby-daley-has-detached-from-ma...

 

Sat, 10/10/2009 - 15:05 | 95390 NRGTDR
NRGTDR's picture

The more they try to defend the system, the closer we are to its end.

Sat, 10/10/2009 - 16:30 | 95434 JR
JR's picture
Speaking instead of the contra-bull argument, this from Barron's October 12 issue:

Danger Signs: DIVIDEND DISTURBANCE

DESPITE THE INCREASING CAPITULATION (or perhaps because of it) among bears to the idea that this market is unstoppable, there are some real danger signals. That's the view, at least, of Robert Prechter, president of Elliott Wave International, a market-timing permabear who said a market low was being formed in February.

Consider the dividend yield -- the annual dividend divided by stock price. The yield for the Dow Jones Industrial Average has fallen from 4.7% on March 9 to 2.95%, about the same as in September 1929 -- and lower than at all other stock-market peaks of the 20th century, writes Prechter in his most recent report. With the dividend yield so low, "people are too optimistic about making capital gains," Prechter says. "When dividend yields are low, it has always indicated a market top," he adds.

But that isn't all that gives Prechter pause. At the end of July, mutual-fund cash holdings stood at 4.2% of assets, not much higher than the all-time low of 3.5% at the July 2007 stock-market high.

Moreover, sentiment readings have gone bullishly haywire -- a notably contrarian signal. Prechter, who predicted both last year's major decline and the 1987 crash, and who is issuing an updated version of his 2002 Conquer the Crash later this month, notes that the Daily Sentiment Index reported by MBH Commodities recently hit 92% bullish, compared with just 2% at the March low.

Prechter doesn't know what might trigger a market swoon, although he thinks it will be "at least as large" as the 60% drop from October 2007 to March 2009. His prescription? Short-term Treasury bills and gold.

http://online.barrons.com/article/SB125512951348777129.html?ru=&mod=barr...?

Sat, 10/10/2009 - 17:02 | 95447 Marley
Marley's picture

Check out P/E ratios.

Sat, 10/10/2009 - 17:30 | 95457 JR
JR's picture

Absolutely (thought I had, sorry).  As Abelson pointed out in Up and Down Wall Street, same issue of Barron's: "In a recent report on valuation, David Rosenberg of Gluskin Sheff, notes that on an operating ("scrubbed") basis the price/earnings ratio of the Standard & Poor's 500 has expanded a whopping 10 points since its March low, and stands at 27.6.  Historically, Dave observes, when the economy is making the switch from contraction to expansion, as it did in the third quarter, the P/E is 15." 

Ugly things, facts.

Sat, 10/10/2009 - 17:33 | 95460 tjfxh
tjfxh's picture

Translation of the oligarchs' contra-bear argument: buy assets, especially equities and houses, in order to reflate our toxic debt, or else we'll take you down with us, and you'll go lower than we will.

The Mafia calls it "an offer you can't refuse."

Sat, 10/10/2009 - 19:02 | 95500 Zippyin Annapolis
Zippyin Annapolis's picture

Who can Ever believe the prime bankers? They created this mess and now it is a replay of "Wizard of Oz" scene "don't pay any attention to tha man behind the curtain".

 

BTW Where is Tyler and Zero on the latest OTC Derivative Regulation "cave-in" by the House Democrats? The House Financial Services bill carves out virtually every swap dealer and end user, a move that was added and abetted by NY off -Committee Dems, so called "New Dems".

 

The House Ag version is tougher, but the tide is clearly on the side of the Prime Brokers.

 

Talk about cycles, this one evidently has not hit the 8.6 year peak--

Sat, 10/10/2009 - 19:03 | 95506 trader1
trader1's picture

nice work by nomi prins

Sat, 10/10/2009 - 19:14 | 95514 Anonymous
Anonymous's picture

Re- the link to One Hand Crapping... Chris may have made the single greatest typo in the history of the internet...

Perversely, when a bank sells a ruined loan 'asset' to the Federal Reserve, it is a double shot of money to the system - the money initially created upon the issuance of the original loan, which is still out there in circulation, and a second bolus when the Fed creates money out of thin air to buy the failing 'asset' from the bank. One blob of money into the system when the loan is made, another when it is bought by the Fed. One loan, two blobs of money. Many have failed to recognize this feature of the Fed's asset purchase programs.

Bolus is of course an expelled ball of shit... Amen Chris!!

TD, or Cheeky, or PM.. when are we gonna get a piece on the August 28th Kansas MERS decision- or any of them from Nevada, Arkansas, or Florida from 2008? That's why the FED has been doing all this crap to cover mortgages. You didn't like my 1968 MN stuff on the FRNs I take it???

Sun, 10/11/2009 - 06:20 | 95753 Hephasteus
Hephasteus's picture

Which begs an analysis of just how undeniable the truth is that no currency can exist without violent protection? Is it an inevitablity that honest people must rise up and say put down the printing press or I'll fucking kill you? Is this going to turn into a 90's AT&T commercial?

Have you ever beat a banker to death his own briefcase? You will.

Have you ever burned an entire corporate building to the ground for sending you a false bill and then imposing it on your credit rating when you try to fight it? You will.

How rediculous does this have to be to get fixed?

http://onceuponawin.com/2009/10/08/win-pics-att-you-will-commercials/

 

Sat, 10/10/2009 - 20:36 | 95565 Anonymous
Anonymous's picture

Can't anyone see that we are in the midst of the Austrian School model?

[A recession is a 6 month period from the March lows where housing, autos and strip malls die but more productive industries like government and finance are born and fill the void. Once resources start moving solely into taxes and banking, a boom sets in.]

I really don't know how much clearer it could be.

Sun, 10/11/2009 - 07:40 | 95763 aus_punter
aus_punter's picture

"Austrian school: A recession is a period of cleansing or “creative destruction,” where less productive industries die but it takes time for more productive industries to be born. Once resources start moving to the more productive sectors, a boom sets in"

Taking credit from small business and giving it to numbskulls from Charlotte who never "got" derivatives.

I think the boom will be the sound of the US economy imploding

Sun, 10/11/2009 - 13:14 | 95889 Anonymous
Anonymous's picture

"Ironically, the Marxist view, the one slighted by BofA/ML, is precisely the one that would have been most appropriate if the Fed had not decided to interfere with the biggest wealth transfer in recorded history (from middle to upper class)."

Tyler, is ZH now promoting Marxism as a valid theory?

Sun, 10/11/2009 - 18:18 | 96034 BabaJ
BabaJ's picture

I sometimes question my gut feeling that capitalism as we know it is destined to  fail due to its intrinsic contradictions due to the propaganda bombardment designed to lull me into a false sense of security regarding the state of the global economy.

 

I then pop down to zerohedge.com to witness what in my eyes is evidence that endgame is what we are now experiencing. The unsustainable nature of the current system is apparent for all who are not blind.

Sun, 10/11/2009 - 18:25 | 96038 Cheeky Bastard
Cheeky Bastard's picture

BabaJ; weren't you a regular over at MarketWatch ? I'm asking because your avatar and your name sound awfully familiar, and i could swear i had a couple of awesome discussions with you long time ago. But if not, sorry for the weird post.

Sun, 10/11/2009 - 19:14 | 96059 BabaJ
BabaJ's picture

It is indeed me. I do still enjoy certain elements in MW community, but here I can actually comment on articles worth reading - and the avatar fits a lot better on the white background anyway ;-)

Now - if certain other people had chosen to assume only one identity on several sites I may be able to experience the kind of familiarity you apparently currently are experiencing, or otherwise excuse my poor memory.

Tue, 10/13/2009 - 11:38 | 97527 AR
AR's picture

PHAESED:  Thanks for he above article.  Well written with some historical perspective as you promised late last week.  Be well...

Do NOT follow this link or you will be banned from the site!