Recovery Will Mirror the Decline?

Leo Kolivakis's picture

Submitted by Leo Kolivakis, publisher of Pension Pulse.

Treasury Secretary Timothy Geithner testified on Capitol Hill on Thursday before the Congressional Oversight Panel stating that confidence has returned to markets:

emerging financial sector stability, Treasury Secretary Timothy
Geithner said Thursday that a number of government rescue efforts in
place since the Wall Street crisis are no longer needed and that banks
will repay $50 billion in rescue funds over the next 18 months.


testifying before a congressional watchdog panel, said the nation still
has a ways to go before "true recovery takes hold." But he said
improved conditions in the banking industry have prompted Treasury to
begin winding down emergency support programs implemented after the
collapse of Lehman Brothers last year.


"The financial system is
showing very important signs of repair," Geithner said. He added later:
"I would not want anyone to be left with the impression that we're not
still facing really substantial enormous challenges throughout the US
financial system."


The cautious but upbeat tone reflects a
growing push by the administration to present the government financial
rescue efforts as a success amid lingering public apprehension about
the economy.

Earlier today, Federal Reserve
Bank of Atlanta President Dennis Lockhart said the U.S. economic
recovery will probably be “lackluster,” hobbled by strains in financial markets and weak consumer spending:

the medium term, I see a slow recovery with ongoing repair of the
financial sector,” Lockhart said today in remarks prepared for a speech
in Jacksonville, Florida.


“There are risks to even this lackluster


The Fed said yesterday that 11 of its 12
regional banks, including Atlanta’s, reported signs of a stable or
improving economy in July and August, adding anecdotal evidence that
the worst U.S. recession in seven decades is over. The number of
Americans filing first-time claims for jobless benefits dropped last
week to the lowest level since July, the Labor Department reported


Policy makers said last month the economy
appeared to be “leveling out,” with a “gradual” resumption in growth
likely. Still, consumer spending was expected to be constrained by “job
losses, sluggish income growth, lower housing wealth and tight credit.”


“Although consumer confidence is rising, actual
consumption has remained muted overall,” Lockhart said. “Consumers
remain cautious because of employment concerns and wealth loss.
Households continue to deleverage, that is, pay down debt.”

market participants are much more optimistic about the recovery. Jeff
Matthews of the hedge fund RAM Partners appeared on Tech Ticker stating
that this is a normal cyclical recovery and in all recoveries, the recovery mirrors the decline:

way to make big money on Wall Street is to stick your neck out and take
a position when everyone else thinks you're a nutcase.


Our guest
Jeff Matthews of hedge fund RAM Partners did just that earlier this
year when he said the economy was headed for a standard cyclical
recovery. At the time, most people thought the world was still on the
verge of collapse.


Now the economy argument is usually between
those who think we're headed for "double-dip" recovery (a short, happy
boom followed by another bust) or a "square-root-shaped" recovery (a
short, happy boom followed by years of treading water). Our guest Liz
Ann Sonders of Schwab, who was also an early bull, made the latter case earlier this week.


Matthews thinks both views are wrong. He thinks this will be a
"v-shaped" recovery, in which the economy recovers far more sharply
than most people think. He thinks those who keep bleating about a
"jobless" or "shallow" recovery like those in the early 1990s and 2000s
are missing a key point:


The slope of the economic recovery, Jeff
says, mirrors the slope of the economic drop. We had a sharp collapse.
So we're going to have a sharp recovery.

I suggest you listen carefully to the interview (click here
to watch it), especially when he talks about cognitive dissonance and
taking the emotions out of it ("stock markets are not a reflection of
your self-worth").

So is Mr. Matthews right or is he wearing
some rosy glasses? The hardest thing for me to explain to people is
that the stock market is a beast on its own. Right now, the market is
pricing in a recovery. Whether it is a V-shaped or W-shaped recovery is
immaterial, it's a recovery.

And as we head into the last quarter of the year, there are a lot of anxious portfolio managers who are suffering performance anxiety.
What does that tell me? They're going to go long risk assets like high
yield bonds, emerging market equities and bonds, commodity currencies,
commodities and high beta stocks.

I have been writing and
telling everyone to keep buying the dips. There is a lot of
liquidity in the system and we have not seen anything yet. When things
really take off, there will still be naysayers and skeptics out there,
but even they will eventually throw in the towel.

Now, let me
stop here for a second and talk about the economy. Unlike the markets,
the recovery in the economy will not be V-shaped. In particular, those
millions of job losses will not come roaring back. This will be another
jobless recovery, just like the last recessions, but there are signs
that the U.S. labor market is improving.

Importantly, companies managed to boost their workers' productivity and their own profits in the spring mainly by slashing costs and capping their employees' pay:

— the amount of output per hour of work — rose at an annual rate of 6.6
percent in the April-June quarter, the Labor Department said. That's
the largest advance since the summer of 2003. And it's slightly better
than the 6.4 percent productivity increase the government had estimated
last month.


At the same time, labor
costs fell at an annual rate of 5.9 percent — the sharpest drop since
2000 and slightly more than the 5.8 percent drop estimated a month ago.


said the rising productivity and lower labor costs supported their view
that the longest recession since World War II is coming to an end.

Mark Zandi, chief economist at Moody's, said it's "very typical" for productivity to surge at the end of a recession as businesses aggressively cut costs.


say they don't expect productivity to keep surging. But they said the
productivity jump in the second quarter, combined with falling labor
costs, might persuade employers to slow their pace of layoffs and
eventually resume hiring.


That is critical because until the
labor market heals, consumers probably won't step up their spending.
And consumer spending, which accounts for about 70 percent of economic
activity, is a vital ingredient in any sustained rebound from the
recession. A dismal job market makes that prospect uncertain.

Surging productivity means that Q3 and Q4 growth will surprise to the upside. As profits increase, stocks will head higher.

are other signs of recovery worth mentioning here. The WSJ reported
that the Man Group is launching an onshore version of its AHL product,
one of the largest single hedge funds with some $20 billion assets
under management, in a further sign of the company's confidence in boosting sales to private investors:


AHL Diversity is a managed-futures trading program, which means it
follows and seeks to exploit persistent market trends. It will be
managed by Man Investments, the asset management arm of Man Group, and
marketed by hedge fund advisory company Dexion Capital Group.


The world's largest listed hedge fund aims to attract sophisticated
investors who will be able to buy in with a minimum initial investment
of just GBP100 from its launch in October.


"Historically, the
performance of trend following managers has tended to be uncorrelated
to traditional stock and bond markets," said Tim Wong, chief executive
of AHL.


"We saw that with
AHL's highly impressive performance last year when its best performing
fund delivered 33% at the same time as some equity markets fell 40%,"
he added.


Man Group has successfully wooed private
investors even as withdrawals by institutional investors have
continued. In July the company reported strong sales to private
individuals, posting a rebound to $3.4 billion in its first fiscal
quarter to June 30.


The introduction of Man AHL Diversity
onshore will give individuals exposure to more than 90 global markets
and 29 international exchanges trading continuously which makes for a
highly liquid product following trends in everything from currencies
and interest rates to agricultural assets and metals.

the London-based alternative investment manager is yet to be fully
convinced about the early turnaround in the global economy, so it stays
conservative on equity investments, said John Rowsell, managing director of Man Investments:

are still very cautious in terms of where we think the risks are and
how much normalcy or rebound there has been in the economy," Rowsell
told Reuters in an interview in Hong Kong.


have not come back as strongly as expected. More importantly,
consumer's access to credit has been severely curtailed and their
appetite for credit has been affected."


Man's assets under management had dipped to $43.3 billion by the end of the June quarter.




hedge fund managers are still clawing back from a wave of redemptions
which saw investors pull out more than $150 billion from funds of
funds, amid the financial crisis, according to Hedge Fund Research.


fund managers started to put "risk on/risk off" trading strategies in
practice this year as global markets recovered, but Rowsell said it was
not yet a good time to leverage risks.


Man's fund strategies, convertible bond arbitrage has put up a strong
showing for Man after its rocky performance in 2008, while its credit
strategies have also done well but returns from macro have been
subdued, Rowsell said.


have also been making money without necessarily going long on them.
Basically, you can make very attractive returns without having a lot of
beta in your portfolio at this juncture," said Rowsell, a former
director at the Chicago Mercantile Exchange.


said Man preferred to invest in markets which have higher "dispersion"
such as Japan and the Western markets over China, which many other
asset managers regard a top pick.


the wake of the Lehman Brothers debacle, Man has been adjusting its
business model to better manage risks by transferring a part of its
investments into managed accounts from co-mingled accounts.


a managed account the hedge fund manager's role is limited to the right
to make investment decisions while clients have control over the assets
of the fund being managed.


are not doing this simply for transparency but for control over the
assets. We also can then control the relationships with the prime
brokers which is a potential area of risk," said Rowsell.

Rowsell said Man had been increasing the number of managed accounts as
well as the proportion of its assets in these accounts and aims to move
well over half its investments to managed accounts eventually.

half its investments to managed accounts? That means they will be
focusing on liquid strategies that are easier to get out of if things
blow up again. Institutions should be paying attention to what this
giant in the hedge fund industry is doing because that is exactly what
I wrote about in hedge fund heave-ho. Stick to liquid strategies using managed accounts and forget highly leveraged illiquid strategies.

of hedge funds, Bloomberg reports that according to Eurekahedge, hedge
funds returned 1.1 percent in August, the sixth straight monthly gain,
as managers investing in Europe and distressed debt outperformed:

Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, gained 13
percent this year, according to the Singapore- based data provider’s
preliminary report based on 30 percent of the funds that reported
August performances. Net inflows to the industry totaled $4.5 billion
last month with over 50 percent of the reporting funds attracting
capital, the report showed.


funds are benefiting as stock markets rebound on signs economies are
recovering from the first global recession since World War II, and
managers investing in distressed assets are finding opportunities in
the wake of the financial crisis. The MSCI World Index of 23 developed
nations jumped 3.9 percent in August, bringing its year-to-date advance
to 18 percent.


“Hedge funds have benefited greatly from
the global stock- market recovery,” said Masaharu Ito, a senior analyst
at Daiwa Institute of Research Ltd.’s capital market research
department in Tokyo. “Given how many of the funds still have some sort
of exposure to the equity market, their performance going forward will
largely depend on the direction of stock markets globally.”


More than 300 funds have started while 400 fund-closures were confirmed this year, Eurekahedge said.


Asia Underperforms


Six of Eurekahedge’s seven regional indexes rose last month. The measure tracking Asia-focused hedge funds declined.


gauge tracking European managers advanced 2.6 percent, making it the
best performer in August, as funds benefited from gains in regional
equities, Eurekahedge said. Eurekahedge’s North American Hedge Fund
Index climbed 1.8 percent as the Standard & Poor’s 500 Index rose
for a sixth-straight month.


Managers in Asia excluding
Japan underperformed, with the Eurekahedge Asian Hedge Fund Index
losing 0.4 percent, as stocks in China, Hong Kong and Taiwan fell.
China’s Shanghai Composite Index tumbled 22 percent in August, its
biggest slide since October 2008, pushing the benchmark into a
so-called bear market.


The measure tracking Japan’s
hedge funds added 0.7 percent as the benchmark Nikkei 225 Stock Average
rounded off a six-month, 39 percent advance.


nine Eurekahedge measures tracking different hedge-fund strategies
rose. An index of managers investing in distressed debt jumped 6.2
percent, making it the best performer, largely driven by a few
emerging-market-focused funds, Eurekahedge said.


Distressed Securities


securities are mostly loans and low-rated, high- yield bonds of
companies that have trouble meeting interest and principal payments.
Investors can profit if prices rebound or the securities are swapped
for equity in a restructuring. Distressed loans usually trade below 90
cents on the dollar and bonds below 70 cents.


global index last year slid 11 percent, the most since the firm began
tracking data in 2000. In July, hedge- fund assets increased by $10.6
billion, bringing total assets under management to $1.35 trillion,
Eurekahedge said last month.


Hedge funds are mostly
private pools of capital whose managers participate substantially in
the profits from their speculation on whether asset prices will rise or

Does all this mean the W-recovery
is off the table? Not necessarily. What it means is that there is a lot
of liquidity in the system that will spur another asset bubble. And we
all know that asset bubbles do not end well.

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Anonymous's picture

There are many remaining economic land mines out there.

The most prominent, however, for the domestic GDP is the distressed State of California. Cali is the largest GDP and effective buying income generator in America. NY State isn't even a close second. Cali also generates more Fed tax revenue than any other State by far.

I've lived here my entire life and have never seen such corporate and personal wealth destruction taking place everywhere in the State.......excepting the barren deserts.

CA is home to nearly half the option ARM and Alt-A dogshit loans set to peak in the system in an average value of $ 446k. There are empty commercial properties popping up at alarming rates, meaning cash flows for the extend/pretend CRE game are drying up fast. Tenants are most definetely in the driver's seat on rent rate resets for a long time. It is EERIE !!

If that weren't bad enough, the notoriously underfunded public sector pension system is being held together with projected annual return values averaging 8 %.......clearly imaginary bookeeping for the near term with a flood of gold-plated government boomer retirees going out early on buyouts.

State, County, University and municipal employee wages have been furlough-shaved by 10-15% and it is still not even close to the cuts necessary for 2010. Ditto for private sector employees. Friday has become the new Saturday. Thursday has become TGIT !!

My point is that severe distress in Mississipi, Louisiana, or Arkansas is one thing. But when the largest GDP contributing State is on its ass for at least the next 7 years.......coupled with NV, AZ,Fl, and a host of other non-Sunbelt is just delusional to believe the consumer here will come roaring back soon to help on a National level.

Non-Stimulated Consumption will be aligned with mandatory replacement in CA, meaning an anemic pace. That means the projected inventory ramp up will be muted at best.

So I have to ask.....where is a new accelerated demand coming from to rebuild a National economic landscape when the largest State in the Union and the World's 8th largest economy is on feeding tubes ??

Maybe living in Cali has simply distorted my view of the green shoots.

Anonymous's picture

Wait this market out? If you are an investor, you make money when the market goes up AND when it goes down. Death Spirals anyone?

Anonymous's picture

Fiat money has been around for hundreds of years across many nations. Surely there must be an example of a Depression with Quantitative Easing. So please stop making comparisons to the last Depression just because it is the most familiar.

Anonymous's picture

Time to wait this market out. No consumer $ = no corp earnings/recovery. Recent increased manuf and productivity is merely due to exhausted inventory levels. Businesses simply must restock or close thier doors, there is no middle ground. Consumer still facing decreasing credit lines, lower wages, less hours worked, past sources of discretionary money vanishing, HELOC gone, mortgage upside down, and growing negative sentiment (not confidnece). This is a simple formula for ongoing problems that will be with us well thru 2011, at least. Do your homework, the same analyists that gave you your confidence in early 2008 have again returned to soothe your wounds and apprehensions today. Be safe and wait this market out until at least after Qtr 4 earnings. Yes you may miss a few run-ups, but the current risks far outweigh the profit potential.

TeresaE's picture

If I was basing my assumptions on the previous post-WWII recessions, then I might buy a V shaped recovery.

But I look to the last catastrophe to play out to this severity (and it wasn't as severe as what is lurking around the corner now), the depression.

Most people know that the stock market crashed in '29.  What they don't realize is that is rebounded and set new highs.

Then it crashed again.  Just not as dramatically as '29.  Before the second crash, the papers, government and bankers were screaming, "crisis averted," "the recession is over" and "stocks have bottomed."

And rose again before plummeting to basically nothing in '33.

It took WWII to end the depression.

Not Washington.

Not the Federal Reserve

Not the bankers

Not Wall Street

but WWII and the instant decrease of our population and increase in production.


This time there are BIG differences overlooked by nearly all the "experts" and pundits.


We have NEVER kited checks at the rate we are kiting them now.  We have never been prepared to add MORE to the government debt.  We have NEVER produced so little, with such a fat, lazy & apathetic population.


Those three facts and history lead me to believe the best we will get is a zigzagged shaped recovery with a distinct downward trajectory.


IF we don't implode first.  Party on.






Missing_Link's picture

Yes, but read Leo's article again.  This depression is a different beast than the Great Depression due to liquidity.


I agree that we'll see a zigzag-shaped recovery, but the overall trajectory is likely to be up or sideways, and seldom down for long.

brodix's picture

So it's Mission Accomplished?

Anonymous's picture

I think there is a good case to be made for downturns to occur at election times.

Bush oversaw the crash of the economy, which helped Obama into office. Obama was held hostage by his campaign financiers, and when he cgave them everything they asked for, the market ramp started again. Remember Obama's March 6 'buy' call?

So we are now looking for the next election of CONgressmen, who after securing power, will probably oversee another significant decline in the visible economy (the stock market).

The divergence between the real economy and the stock market is already enormous, and now some are predicting it will get bigger? Thats great, but tell me when this BS ends. That seems to be the tough part.

Anonymous's picture

This is a moron story. The stock market has a mind of its own? It is called pass the bag. The productivity story nothing more than something to cover up the fact that the economy collapsed in the first half of the year. We are witnessing an attempt to steal what is left, not the underpriced companies, but the remaining assets of the working people of the world. The only productivity gain was the increase in the capacity of Wall Street to steal money from people. Bear markets generally take stocks back to their true value, the indexes covering up all the stocks that go to zero on the meantime, money stuffed in the pockets of their promoters. No one can explain why the stocks that dominate a market disappear in the next market, ala GE, LU, AIG, MSFT, INTC, CSCO, ENE, WCOM, so on and so on. The losses in these stocks is roughly 50% of the current SPX, yet it is forgotten by the renewal of AAPL and the invention of high flying GOOG. This is merely a promotion of another attempt to pass the bag. 2% dividends have never supported stock values long term. 3% dividends have never supported stock values long term and anything under 4% hasn't provided a long term buying opportunity.

Can anyone explain to me why we are continuing to see roughly 4/10th of 1% of the working population of the US lose their jobs weekly and the street and government call this a recovery? This is roughly the amount represented by the filings for unemployment weekly and a sizable number of Americans aren't eligible for this benefit, meaning it understates the job losses. If we were expanding employment at a normal pace, the size of these job losses wouldn't be this large, meaning the typical 350K or so jobs created weekly in a real expansion aren't there. Thus the 200K to 300K monthly job losses are a fraud, as are the GDP figures. Wall Street has machines running these stocks to entice people to buy. The SPX at a 2% dividend is a sell for the long term, not a buy. Deflation is a irreversible condition.

Anonymous's picture

I have a feeling that loading up cheap long dated out of the money puts is gonna pay off big. A little foray into junk equity in the meantime wouldn't hurt either :D.It just doesn't pay to sit on the sidelines and sulk as the gravity challenged markets ramp up month after month. Some of my perma-bullish friends have started talking the way they used to in 2007, even mocking me for exiting all the stocks I held at a loss.Time is ripe for a crazy run-up as all the retail comes in followed by the inevitable return to mother earth.

Leo Kolivakis's picture

"This website does not give investing advice, douchebag."

If they listen to your advice, they will lose a fortune. -)


Yossarian's picture

Do losses even matter under this regime?  Seriously, what happens when there is a default? To make a complex process very simple, banks shovel the bad debt onto The Fed balance sheet in return for freshly printed money (figuratively speaking).  The Fed just creates this money and can continue to add assets to "grow their way out of their bad debt problem."  And even if their balance sheet were severely impaired, how would anyone know and would they even care considering that, as long as the public is duped by the fraud that is the current fiat currency system, The Fed can continue to print money with which to run their "business."  Oligarchy. 

They steal from us everyday's picture




Missing_Link's picture

Why mid-2010, exactly, Monsieur Nostradamus?

Anonymous's picture

Productivity is a BS statistic. Companies increase "productivity" by cutting wages and other forms of compensation. Problem is that in a 70% consumer-driven economy cutting worker's compensation gives them less money to spend, which ultimately cuts into profits. I just don't see how you go from 17% unemployment and the next wave of option-ARM resets in 2010 to a new economic golden age.

Hephasteus's picture

With economic brilliance! These are the finest most brilliant minds on the planet. With enough accounting fraud they can do anything!!!

Leo Kolivakis's picture
"We're Not Out of the Woods Yet": Bank Rally to Stall in Q4, Rosner Says

Everybody, it seems, knows the banks face future losses from commercial real estate, still-rising foreclosure rates, and credit card delinquencies, among other loan types.

Investors are currently ignoring the “massive losses” ahead for the industry and instead are focusing on the various and sundry ways the government is helping banks recapitalize on the cheap, says Josh Rosner, managing director of Graham Fisher.

But Rosner, who turned bullish on the sector last spring after making some very prescient warnings in 2007, says the bank rally is likely to end by late October, when investors start discounting what’s ahead. “We’re not out of the woods yet,” he says.

Furthermore, Rosner says there are other risks to the industry that aren’t being priced in currently, most notably the FDIC’s ability (and need) to raise fees further as its insurance fund dwindles to dangerously low levels.

The FDIC is likely to hold off until the industry becomes healthier, Rosner says. But "when you think you've got earnings visibility as an investor, all of a sudden you really have to say 'hold on, what are the assessments going to be for the insurance fund'?  It has to be significant. At some point the industry has to pay back the FDIC."


TeresaE's picture

You hit on another oft overlooked situation.  Crain's Detroit had an article about the FDIC coming after the regional and smaller banks.

They have already paid over 40% more in fees this year and the FDIC has notified them all that they will be paying MORE this fall alone.   Every dime sent to the FDIC/government is one less dime for their securitization and for any consumer/commercial lending.

My small business savings account with Comerica is now charging me three times the fee for "FDIC insurance" than they are paying me in interest.  (and don't forget the added injury of paying taxes on the "interest").

Banks are (again and again) slashing credit and raising rates on everything they can.

How long before us paying fools get fed up and shove our money in our mattresses, IF we still have money or a job?

Leo Kolivakis's picture

Ummm, I went long stocks in late February and so what if the markets went up 50%? We can easily go up another 20% from here.

bjennings's picture

So after a near 50% rise in the markets you are just now coming around to the idea of a recovery.  How timely you all are.  How many folks do you think you got to buy into shorting the market since March?

They steal from us everyday's picture

This website does not give investing advice, douchebag.

Frank Owen's picture

I don't think I've come across that term on ZH before...

Leo Kolivakis's picture

Bruce et al.,

I understand your skepticism but you have to understand that EVERYONE is still worried and thinking exactly like you, which is why the rally will continue. Pension funds have been mostly distrustful of this rally and many have stayed on the sidelines. Their biggest fear is that it will continue heading up and they will have to chase equities higher. Classic retarded response. When all the pensions jump back into stocks, that is when I will be looking to get out.

Of course, I am not recommending you jump into financials here. You are better off sticking to the Nasdaq-100 (QQQQ) or ML semiconductor holders ETF (SMH) or a networkers ETF. I still like Chinese solar stocks and am heavily invested in them. Gold could be the next asset bubble...we shall see.

As for liquidity, with sovereign wealth funds like the Chinese Investment Corporation (CIC) and the Norwegian Petroleum Fund pumping billions into stocks and bonds as well as hedge funds, there is more than enough to go around. Moreover, the banksters on Wall Street are printing money on spreads and profiting from their trading operations.

People need to understand that the power elite want inflation, not deflation. They will do everything in their power to get inflation again. Will it work? I am not sure because the deflationary headwinds - including an aging global population retiring on next to nothing and debt hobbled consumers facing higher taxes - will act as a serious anchor to inflation that we had in the 1970s.



Charley's picture

In previous downturns, the V-shaped recoveries were an artifact of Washington's interest rate squeeze to purge the economy of inflation. Both 1991 and 2001 were shallow bowl shaped recoveries, and differed significantly from the previous engineered events. This downturn, although not shallow, will, resemble 1991/2001 downturns.

In other words, it will be both deep and bowl shaped, provided there is any recovery at all. It is not altogether clear that the debt hobbled economy can sustain such an event.

Hephasteus's picture

It is bowl shaped it's just that QE is warping the bowl.

Bruce Krasting's picture

I am on another page than you on this Leo. I think this is setting up as a perfect storm opportunity. All the QE stuff will be ending this fall. I am convinced that the POMO stuff is propping up all markets at this point. The ST subsidy stuff like clunkers and new home credits are ending too. The high end RE market is an absolute disaster. We are looking at a reverse trickle down economy at some point soon.

Shorts are almost non existent at this point so there is a market risk to that as well. The Wall Street recovery does not jive with all those angry people we see every day.

Many thought that Septemeber would be a cruel month. That is probably the best reason why it is not.  I always thought that October was the month for trouble. We shall see.



taraxias's picture

TPTB blew it. The market has rebounded off the March lows much too steeply and much too fast. If you missed out getting in again in March, what's the upside in getting in now? What's the downside risk? You decide.

Thanks for your contribution, Leo.


5THTURNING's picture

   I usually watch the bond market? What's up?

Are they now the dumb money? Is this what happened

in other "V"  recoveries? He said this is like the 30's was that

supposed to be a "V" until the government in 37/38 messed it up?

Wow, good luck when the whole market is government.

I can't have that kind of faith..when I don't see

"free" market anywhere I don't get the rules do you?  

capitalisa's picture

Sounds like a dead cat bounce to me.  A lot of "hope" in that analysis.

Missing_Link's picture

People have been saying that since March.  Time to put the dead cat theory to rest.

Anonymous's picture


As always, insightful.

However, you have been saying for months now that pension funds would be herding into stocks. Has it already began, or are they waiting to be convinced? I, for one, would be shaking in my boots if I waited and then bought in, even when doing so with dips.

I read today that Buffet is selling stocks and buying bonds. As widely publicized, insiders are selling.

I don't trust going long at this point, and will be inclined to sell what much of my stock should sentiment shift.

TumblingDice's picture

Wouldn't a move to more liquid assetts indicate lack of long term trust of the stability of the system? If that is the trend, to seek liquidity instead of long term illiquid investment, then it seems like the confidence just isn't there.

Also, increasing productivity doesn't neessarily lead to increased profits. As you said, companies are achieving this increased productivity by slashing costs and lowering their cost of labor; but these are exactly the costs that companies spend that actually return back to them as demand. I do not have the data but I would venture to say that when productivity rose previously, it was probably because of a rise in revenue, and not because of a reduction in costs. I do not see this productivity increase being healthy at all if it acts as a headwind for demand. Continued debt overhang along with increasing rates, along with productivity increases thans to layoffs are not the proper foundations for a healthy recovery.

Concerning the stock market, I do not think there is an overflow of liquidity out there, even with the various shifts in strategy for more liquid assetts (Man Group, HFT etc). The number one indicator I use for liquidity is margin debt, and it does not look like it is making a comeback.

I agree with your conclusion, assett bubbles do not end well, but this one may not even begin well.

Anonymous's picture


MinnesotaNice's picture

Interesting perspectives... but I am just not feeling a V-shaped recovery in the stock market it in my gut yet... and I have to feel it before I can act on it... herd mentality never works for me... but you have more exposure than I in that area... but I will just sit safe and sound in my storm shelter right now with my finances intact.

Missing_Link's picture

You're investing based on emotions, Minnesota.  Always a bad idea.

MinnesotaNice's picture

I don't know... I have made a lot of good trades... it's more like a 6th sense... like when birds sense an upcoming storm... but I do have one short position that I am holding onto because of emotion... and I refuse to let it go... and eventually I will be right... 1 year, 5 years, 10 years... :-)

bulldung's picture

Unfortunately herd mentality is reality. The hard part is staying near the front to avoid eating dust(powdered Bulldung)

Anonymous's picture

The hard part is staying near the front to avoid eating dust(powdered Bulldung)

Or powdered building.