This page has been archived and commenting is disabled.

On The One Year Anniversary Of 666

Tyler Durden's picture


Some solid, big-pictures perspectives from David Rosenberg, comparing then and now:

The media are all over the fact that today is the one-year anniversary of the 12-year low in the stock market reached on  March 9, 2009, when the S&P sagged to that diabolical 666 level. (Funny how nobody celebrates October 9, which is the anniversary of the 1,565 high set back in 2007.) A lot has changed over a year, and that includes the factors that have supported the recovery in the equity market:

  • The VIX was 50, not 17.
  • The yield on the 10-year Treasury note was 2.9%, not 3.7%.
  • The budget deficit was $900 billion, not $1.5 trillion.
  • Baa spreads were 540bps and tightening, not 260bps and widening.
  • The market was 20% ‘cheap’ as per Shiller P/E ratio, not 25% overvalued.
  • The DXY was at 90 and depreciating, not 80 and appreciating.
  • Oil was at $47/bbl, not $82/bbl (we can see $80+ crude being good for the Saudi market; we’re not sure how it fits in bullishly to the S&P call).
  • Equity PM cash ratios were at 5.5%, not 3.6%.
  • Market Vane bullish sentiment was at 32%, not 53%.
  • Real GDP was -6.4%, not +5.9%; and the ISM was 36, not 57 (we were in the basement looking up, not on the rooftop looking down).

Enough said. This market has come a long way. It was not until September 2006, nearly four years into the last bull market, that the equity market managed to rise this far off the lows. This time it has taken less than 12 months.

While it is fashionable to look at how little the market has retraced its peak to trough declines and instead look at the market in that perspective in terms of potential future gains, recall that at the ‘peak’ of the last cycle, there was so much leverage underpinning corporate earnings that 40% of the profit pie was being influenced by financial activities. There was so much air at the 1,565 peak that it is almost unjust to do any real analysis from such a fictitious high. (There was a reason why one of the most moderate economic growth cycles of all time managed to see profits as a share of GDP soar to its highest level in five decades back in 2008 — it’s called financial engineering.)

The reality is that as the fluff was written down, reported earnings slumped 90% in the bear market and the S&P 500 dropped 60%. This is why the market bottom occurred a year ago with valuations at stretched levels relative to previous troughs. What changed were the rules of engagement as the Fed blew out its balance sheet in support of the mortgage industry, the government guaranteed the survival of the large banks, the shorting industry was sharply curtailed and the banks were allowed to hide losses again on their illiquid assets via accounting changes that were foisted onto the SEC from Congress in the name of saving the system. And of course, a government deficit that is now running at a record $1.5 trillion, and the spending to get the economy going has been so acute that even if revenues had not gone down with the economic turndown, the budget gap would still far exceed the $1 trillion mark.

If the bulls have a retort, it is that in the post-WWII era you have to go back to 1947 to find the last time that there was no follow through from year-one to year-two of a bull run. Well, maybe that is what we have to do in a post-bubble credit collapse where the economic growth is being dictated primarily by state capitalism … go back to 1947, or before.

In a nutshell, it comes down to valuation. Are you willing to outbid everyone else at the auction for the Ford Focus? Today’s WSJ has an interesting debate between Jeremy Siegel (bull) and Robert Shiller (bear) on the appropriate valuation metrics to deploy. The WSJ, usually an optimistic read, settles the score by invoking the work Boston-based Ben Inker, who relies on margins and corporate cash flows. Based on this particular model, the S&P 500 is currently overpriced to the tune of 20%, which makes fair-value around the 900 mark (what our research also shows).

As we said before, it will be interesting to see where the next round of buying for equities will come from. The general public has been selling into the rallies. So have corporate insiders. Portfolio managers have their cash ratios near record lows and foreign investors have been minor participants. Have a look at the front page article of today’s NYT — half of U.S. corporate pension funds are re-allocating from equities towards fixed-income (Public Pensions Are Adding Risk to Raise Returns). Indeed, it is State governments, who have massive fiscal deficits to close, and are busy adding risk to their pension funds (lord help us). They are still assuming average 9.5% returns in equities (and 5.75% in bonds) despite the fact that the trend in nominal GDP definitely augurs for nothing less than a 5-6% range for the future. And, many are still locked into a 60/40 asset mix middle (stocks/bonds) despite the realities of a post-bubble deflationary world.

Rosie follows up on our discussion from last week (The Primary Source Of January's Surprising Boost To Consumer Credit? Why, The US Government Of Course) when we observed the pathetic misread by the mainstream media of the latest consumer credit numbers, which were entirely government driven.

Revolving credit slid $1.7 billion in January and the level, at $864.4 billion, is now the lowest since October 2006. This is key and attests to the lingering consumer frugality theme.

Moreover, the government was the sole supplier of funding that actually showed an increase in consumer exposure. All the gain was in federal government loans, they surged more than $10 billion and this was a student loan program being offered by the federal government. Every other lender — commercial banks (-$5.5bln), credit unions (-$1.4bln), ABS pools (-$1.1bln), savings institutions (-$500mln), nonfinancial business lenders (-$1.9bln), and finance companies (-$3.9bln) each posted declines in outstanding credit during the month. So, the credit contraction is far from over despite the illusion of the headline number.

And, lastly, this amusing tidbit:

We don’t like to appear as conspiracy theorists, but if you recall, the equity market bottomed on February 5 on two pieces of news that triggered a significant intra-day reversal. The first was the initial hints of an EU rescue plan for Greece. Later in the day, December’s consumer credit data were released, showing a modest decline of $1.7 billion versus the estimate of a $10 billion contraction. When you take into account the downward revision to November, what comes out of the wash is a December level of consumer credit outstanding that is was actually $6 billion lower than expected. But obviously not the way the data are being treated by Wall Street research departments or the media for that matter. Finally, with last Friday’s number, December was revised down an additional $3 billion as mentioned above. Hence, December’s number, which originally helped turn the market around, was $9 billion lower than November, versus the original release of -$1.7 billion.

Government fudging that would make Goebbels shed a tear.

Full note from Dave and Gluskin Sheff.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 03/09/2010 - 12:15 | Link to Comment deadhead
deadhead's picture

History will show that the Fed's continued interference with the equity market after the march through july stabilization falsely created a propped up market, supported by the US government and wall street sell side propaganda machine, whose intent was to restore confidence (and allow the banks control of the market to recapitalize themselves, which they didn't do because the execs took all the profits and pocketed them), only to have it all go for naught when Mr. Market returned and crushed the equity indexes back towards previous lows.  this is going to continue to play out like 1929 and we are still in the early 30s.   the depression era "experts" of bernanke and obama's Romer will continue to spend, spend, spend so as not to make the mistake of the Fed in the 30s of withdrawing liquidity.  Mr. Minsky suggests the outcome might be different on the debt side of the equation.

Tue, 03/09/2010 - 12:34 | Link to Comment crosey
crosey's picture

Please tell me more about Mr. Minsky's specific debt-side suggestion?  Thanks.

Tue, 03/09/2010 - 13:46 | Link to Comment macfly
macfly's picture

I'm honestly beginning to wonder if I should turn bullish, since everything is based on a lie, why not join the liars, especially if they have the printing presses. Can they not bid and hold this market forever?

Tue, 03/09/2010 - 13:51 | Link to Comment Anonymous
Tue, 03/09/2010 - 14:31 | Link to Comment crosey
crosey's picture

IMHO, when TPTB have all the mechanisms are in place to manage a downturn in equities (and profit from it, i.e., it's okay to short again), and upswing in treasuries, the correction will be allowed to take place.

Or, a financial asteroid will hit....something no one saw coming.  Deja vu all over again (thanks Yogi).

Tue, 03/09/2010 - 14:55 | Link to Comment Anonymous
Tue, 03/09/2010 - 19:11 | Link to Comment Anonymous
Tue, 03/09/2010 - 12:16 | Link to Comment Anonymous
Tue, 03/09/2010 - 13:33 | Link to Comment Anonymous
Tue, 03/09/2010 - 12:18 | Link to Comment Great Depressio...
Great Depression Trader's picture

Funny thing is that last yr at this time all these people were talking about shorting the market via TZA SKF. Even CNBS was talking about short ETFs for the dow and SPX. Some clowns on CNBS were saying that they were shorting until SPX 500-550 level.

At this point the market looks tired, could go a bit higher. If this pops to 1200 i have to wack it down.

Tue, 03/09/2010 - 12:22 | Link to Comment Fritz
Fritz's picture

What the hell - just keep ramping the SPY.

Tue, 03/09/2010 - 12:28 | Link to Comment Divided States ...
Divided States of America's picture

Simply put, we are putting billions and billions of future consumption from the next 10 years into this recovery, and its still lukewarm at best. When they realize this aint going to work, they are going to raise taxes on us. By then, the elites already made their money by selling of their ownership and trading with inside knowledge. What a great world this is for the elites, they just cant lose.

Tue, 03/09/2010 - 12:32 | Link to Comment crosey
crosey's picture

+1.  But there will be no way that they can milk the masses for enough taxes to cover the gap.

A paradigm shift is inevitable, by choice (early) or by the passage of time and elimination of other options.

Tue, 03/09/2010 - 12:31 | Link to Comment Anonymous
Tue, 03/09/2010 - 12:32 | Link to Comment Anonymous
Tue, 03/09/2010 - 12:32 | Link to Comment Anonymous
Tue, 03/09/2010 - 12:33 | Link to Comment Anonymous
Tue, 03/09/2010 - 12:33 | Link to Comment Dr Hackenbush
Dr Hackenbush's picture

the number 666 alone is a clear sign of in your face manipulation. And in hindsight, the perfect 'fear signal' diversion clearing the way for the fox run - through the hen house!



Tue, 03/09/2010 - 13:04 | Link to Comment SilverIsKing
SilverIsKing's picture

So what's the "blue sky signal"?




Tue, 03/09/2010 - 13:34 | Link to Comment Dr Hackenbush
Dr Hackenbush's picture

all time highs by summer 2011  - led by tech



Tue, 03/09/2010 - 12:33 | Link to Comment rubearish10
rubearish10's picture

Feels like pissing in the wind doesn't it?

Tue, 03/09/2010 - 12:35 | Link to Comment RobotTrader
RobotTrader's picture

Simply staggering gains.....

Only once in a lifetime do you get the chance to score this big in stocks.



Tue, 03/09/2010 - 12:45 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I wonder if people will use their ipads to trade on the Hollywood futures index?

Tue, 03/09/2010 - 13:22 | Link to Comment tahoebumsmith
tahoebumsmith's picture

Only once in a lifetime do you get the chance to score this big in stocks... This will be the very last time you will ever see such a ralley. As you know this was only created by Liquidity put into the system via Ben and Co. Now that the wad has been shot and the sharks have skimmed their fat off the top, the market has no way to support itself. At my best estimates this ralley gave the CRONIES that caused the crisis about 3.5 trillion yet it cost the American Taxpayers about 13.5 trillion! Lets just continue to play kick the can and forget about the fact we have to be sustainable in the future. Now that anniversary of 666 is here and the 60% has been made and the very banks that caused the crisis have made record bonuses and have been rewarded for fucking the average American, the recession is over right? WRONG. Since the recession began in 12/07 the unemployment rate has gone from 6% to 9.7%, the amount of foreclosures have nearly tripled, millions of jobs have left the country, banks have more toxic crap on their books then ever, 47 States are on the verge of insolvency, the National Debt has gone from 11 trillion to 16.5 trillion, FDIC is insolvent as well as Fannie and Freddie. Also medicare can't take on the 1.4 million babyboomers this year without higher taxes, medicade and social security are nearly depleted, Heathcare has shot up 28% and incomes have shrunk nearly 2%. In addition to all that great recovery news we have the Fed that has almost tripled its balance sheet, sent another 3 trillion out the back door to who knows who, doubled the amount of currency floating around and sold our souls to the likes of China and Japan. So the recession is over right? just because the CRONIES were rewarded with their fucking ralley and their second homes in the Hamptons? This country is so in denial they need to join Gamblers anonymous. Everything has become a bet, nothing but one big casino backed by a bunch of fat flippin CRONIES playing kick the can and pretending they know the outcome. I hope everyone enjoyed their profits from last year's miraculous ralley because the liquor bottles are almost empty, the glass table has nothing left but coke residue and fingerprints and the floor is covered in maxed out credit cards.

Tue, 03/09/2010 - 15:35 | Link to Comment Commander Cody
Commander Cody's picture

Please be careful not to denigrate casinos as an analogy to our financial markets.  Casinos have rules - the markets don't.  Agree on everything else though.

Tue, 03/09/2010 - 20:02 | Link to Comment Anonymous
Tue, 03/09/2010 - 12:37 | Link to Comment rubearish10
rubearish10's picture

Rosey and others,,,,if the S&P is overvalued by 20%, why are EPS estimates rising yet again? Come on man, are we just being stupid, let's buy it, hey?

Tue, 03/09/2010 - 12:42 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The high was 1565.  Who knows what happened in 1565? 

Answer:  Siege of Malta.

666; ironic?  Pshaw.

Gold's recent high was 1226.  King Louis took the crown that year.  You think this is crazy?  Then ask yourself, why did gold not have a high of 1225?  Because that was a bad year for the knights.  They got expelled from Transylvania.  and BTW, we can trace Dubya's blood to Transylvania.  He is a distant relative to Vlad the Impaler, this who Dracula was based off of.  It is true that they are vamps, sucking the life from the earth.

I do not trade on this info, but I love looking back and seeing their numerology.  It is fascinating.

Tue, 03/09/2010 - 12:57 | Link to Comment Great Depressio...
Great Depression Trader's picture

Then you will love this:

tower of babel= bubble

The tower of babel was the worlds first speculative bubble. According to the Book of Jubilees it was destroyed by a wind from God. Jubilee= debt forgiveness


Tue, 03/09/2010 - 12:57 | Link to Comment Anonymous
Tue, 03/09/2010 - 12:59 | Link to Comment JR
JR's picture

The economy is scheduled for a “double-dip”…that is, renewed decline…

IS THE RECOVERY REAL? | Paul Craig Roberts

Happy news! The government has come up with a 5.9 percent GDP growth rate in the fourth quarter of 2009. The recession is over.

Or is it? Statistician John Williams has informed us that 69 percent of this growth, or 4.1 percentage points, is the result of inventory accumulation. That leaves a 1.8 percent growth rate, and the 1.8 percent is likely due to the underestimate of inflation and other statistical problems.

The Federal Reserve’s own monetary evidence contradicts the recovery assurances from Fed chairman Ben Bernanke. The Federal Reserve continues to pour massive reserves into the banks. The monetary base, which consists of currency in circulation and bank reserves (the basis for new loans), has surged from $850 billion in 2009 to $2.2 trillion on February 24.

Despite this potential for massive new money creation, the broadest measure of money growth is still contracting. The banks are too impaired and so are consumers for the banks to create new money by making loans.

The economy, in other words, is going nowhere.

As I have emphasized for years, an economy that moves its high productivity, high value-added jobs offshore is going nowhere but down. Except for the super-rich, there has been no growth in people’s incomes for a decade. To substitute for the missing income growth, consumers took on more debt. The growth in consumer debt kept the economy going. However, most consumers have now reached their maximum debt load, and millions went beyond their limit, resulting in foreclosures and lost homes.

There are no jobs to which people can be called back to work. The jobs have been given to the Chinese and Indians.

The economy is set for a "double-dip," that is, renewed decline. This, of course, means larger federal, state, and local budget deficits. The U.S. federal deficit is now so large that it can no longer be financed by the trade surpluses of China, Japan, and OPEC.

Currently the deficit is being financed by deterioration in the Federal Reserve’s balance sheet. The Fed is creating new reserves for the banks (thus the surge in the monetary base) in exchange for the bank’s toxic financial instruments. The banks are using the reserves to purchase Treasury debt instead of making new loans. This makes money for the banks, but does not grow the economy or create jobs for the millions of unemployed.

According to reports, recent auctions of Treasury debt have not gone well. China, America’s biggest creditor, has reduced its participation and is even selling some of its existing holdings. Whenever all of a new Treasury debt offering is not taken, the Federal Reserve buys the remainder.  This results in debt monetization. The Fed pays for the bonds by creating new checking accounts for the Treasury, in other words, by printing money.

On February 24, Fed chairman Ben Bernanke told Congress that the U.S. faced a serious debt crisis and that the Fed was not going to print money in order to pay the government’s bills. In fact, Bernanke would have no choice but to print money.

Bernanke’s warning to Congress is his way of adding Federal Reserve pressure to that of Wall Street and former Treasury Secretary Paulson for Congress to balance the budget by gutting Social Security and Medicare. In case you haven’t noticed, no one in Washington or New York talks about cutting trillion dollar wars or trillion dollar handouts to rich bankers. They only talk about taking things away from little people. It is not the Bush/Cheney, Obama, neocon wars that are in the cross hairs; it is Social Security and Medicare.

Other Obama economic officials, such as White House economist Larry Summers, a former Treasury secretary, have called for a middle class tax increase. The problem with this "solution" is that a good part of the middle class is now jobless and homeless.

Money will have to be found somewhere if the Fed is to avoid printing it. During the Clinton administration a Treasury official proposed a 15 percent capital levy on all private pensions to make up for their tax deferral status. This idea didn’t fly, but today a desperate government, which has wasted $3 trillion invading countries that pose no danger to the U.S. and wasted more trillions of dollars combatting a crisis brought on by the government’s failure to regulate the financial sector, is likely to steal people’s pensions as well as to gut Social Security and Medicare.

The reason is that the dollar’s role as reserve currency is at stake. If the Federal Reserve has to monetize the federal deficit, the world will turn its back on a rapidly depreciating dollar. The minute the dollar loses the reserve currency role, the U.S. can no longer pay its bills in its own currency, and its days as a superpower come to a sudden end. Wars can’t be financed, and Washington’s pursuit of world hegemony will hit a brick wall.

The power-mad denizens of DC will do anything to further the expansion of their world empire.

Paul Craig Roberts was Assistant Secretary of the Treasury during President Reagan’s first term.

Tue, 03/09/2010 - 13:17 | Link to Comment doublethink
doublethink's picture


"The result has been a massive transfer of wealth, with its centerpiece the greatest theft from the public purse in history. This campaign has been far too consistent and calculated to brand it with the traditional label, “spin”. This manipulation of public perception can only be called propaganda. Only when we, the public, are able to call the underlying realities by their proper names—extortion, capture, looting, propaganda—can we begin to root them out." Yves Smith, ECONned

Tue, 03/09/2010 - 13:13 | Link to Comment Anonymous
Tue, 03/09/2010 - 13:17 | Link to Comment Anonymous
Tue, 03/09/2010 - 13:29 | Link to Comment Anonymous
Tue, 03/09/2010 - 13:52 | Link to Comment Anonymous
Tue, 03/09/2010 - 14:05 | Link to Comment Gimp
Gimp's picture

Any equities showing a profit I am selling as fast as possible into this rally. How far the mainpulators can go is anyones guess but it looks like they are running out of liquidity.

Tue, 03/09/2010 - 14:47 | Link to Comment Anonymous
Tue, 03/09/2010 - 14:50 | Link to Comment Anonymous
Tue, 03/09/2010 - 15:09 | Link to Comment JR
JR's picture

The only data out this morning are the Redbook and Goldman’s ICSC store sales; both took a jump in the year over year figures to the +3% range which is simply a misreporting of the facts.  I would think of these more as “sales at existing stores that remain open” and not an indication of what is happening in the economy where state sales taxes are still down nearly 5% yoy.  ~ Nathan’s Economic Edge

From fashionable State Street in Santa Barbara, California, to Main Street's small businesses throughout America to the nation’s most expensive wine-producing area, Napa Valley, the evidence of your eyes tells you that the government’s toady economists are shamelessly cooking the recovery books.

Yesterday, I saw the Santa Barbara empty storefronts--block after block with consignment clothing and tattoo piercing businesses moving ever nearer the national chains such as Saks Fifth Avenue and Macy’s. This morning’s newspaper brought Bloomberg’s report that as many as 10 wineries and vineyards in Napa are facing distress sales or foreclosures, up from zero in 2008 in an economic climate in which local banker Bill Stevens says, “We have 250 vintner clients saying this downturn is the worst in 20 years”; in which 7% called their finances “very weak,” or on “life support.” 

Stopping along Monterey beach to walk the dog on my way back to Silicon Valley, it was impossible to miss a coastal housing development with progress halted and all finished houses--formerly $4 million and up—posted with red auction signs.  In a new, nearby Seaside business development of a downtown mall fretted with beautiful stonework and tiles, Starbucks has pulled out leaving only a lonely Kinkos, a deli-chain store and a huge Chase branch among the numbers of blank storefronts still empty after more than a year.

How then does one explain some of the improving profit statements on top of a down turning economy that’s reducing its inventories and potential growth?

A recent Reuter’s article on Zale Posts Profits on Store Closings, Seeks Capital shows how it’s done: Over the holidays, Zale canceled millions of dollars of orders from vendors and delayed payments. Zale eased its discount levels and closed 28 stores during the second quarter (ending January 31), boosting its gross margin by 5.8 percentage points to 49.8 percent.

The Dallas-based chain, the largest jeweler in North America by store count, then reported a profit of $6.7 million, or 21 cents per share, for the second quarter, compared with a year-earlier loss of $31.8 million, or $1 per share…Sales fell 14.3 percent….Inventory was down 13 percent from a year earlier….Long-term debt was lowered to $367.6 million at the end of the quarter, down 5.6 percent from a year earlier...

Zale closed 187 stores in 2009.

This all reminds me of Mr. Lincoln’s question: “How many legs does a dog have if you call a tail a leg?  Answer: Four, because calling a tail a leg doesn’t make it a leg.”

Government economists who call continued increases in unemployment and business failures and down-sizing as signs of recovery are calling a tail a leg.

Tue, 03/09/2010 - 15:48 | Link to Comment Commander Cody
Commander Cody's picture

The propaganda will continue as long as it can.  It is especially important to keep the illusion going until election day.

The elitists will steal until there is nothing left to steal.  There is no plan to save anybody but those in power.  The rest of us are damned.

Tue, 03/09/2010 - 17:56 | Link to Comment Tic tock
Tic tock's picture

..'ah,' said the Gold Harlequin, '..the essence is to let them believe there is no liability.'

-the Liberty St. Letters

Wed, 03/10/2010 - 00:29 | Link to Comment glenlloyd
glenlloyd's picture

Nothing like a double-dip of the chocolate government fudge.

Thu, 04/15/2010 - 10:20 | Link to Comment mark456
mark456's picture

Good linux hosting option package offered by ucvhost which not only provides the best in terms of hosting packages but also believes in truly being there for the customer, 24x7. vps web hosting Moreover , they offer unlimited bandwidth as well as nearly 1GB storage along with database maintenance, email facility along with storage, availability of sub domain and many other important features for a very low price. ucvhost thanks

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