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Rosenberg On Government Sponsored Volatility
In his piece today, Rosenberg analyzes the increasing lumpiness of volatility in the secular market, observing an increasing performance variation as the duration of major market moves is reduced, while the delta from the flatline keeps growing. Ironically this is happening even as implied correlation drifts lower over time. And even as all eagerly await to see just what the financial regulation overhaul will look like, Rosie observes that the market is now experiencing "intense volatility that has been and continues to be nurtured by government policy." As we shift to a market which is backstopped by taxpayers holdings of assets on which even the FASB encouraged informational opacity, one wonders just what is the real value of information that prices now convey?
From Gluskin Sheff's Breakfast with Dave:
MARKET COMMENTARY
We invoked the Shiller normalized P/E ratio yesterday as a great historical benchmark to use in terms of valuation purposes. Using this metric, we found that the S&P 500 enjoyed above-average multiples each month from November 1988 right through to November 2008. Imagine as we mean-revert how long the market will have to trade below historical multiples.
When we go to the bear market, what we see is that the S&P 500 did not move into fair-value until November 2008 — think about that for a minute. The first 13 months and 40% of the bear market merely eliminated the overvalued condition in the stock market. And for the next five months, the S&P 500 was undervalued, having hit a 20% breach at the March lows. By May 2009, however, when the S&P 500 crossed the 900 mark to the upside, the index had managed to move back above the fair-value line where it has stayed ever since — and now a breach of 25% in terms of overvalued terrain. Further to this thought process, have a look at Andy Kessler’s op-ed column on page A23 of the WSJ (Lessons of a Dow Decade).
When we look at the past 12 years, dating back to LTCM and the bailout that ensued, we have endured a 60% rally, followed by a 50% selloff, followed by a 100% rally, followed by a 60% selloff, followed by a 70% rally. The whole way along, the equity market is basically flat for a buy and hold investor.
The point in all this is the intense volatility that has been and continues to be nurtured by government policy. The lesson is that investors will now lose out by going long after a 50% selloff from the high and are unlikely to feel much pain from selling into a 70% rally from the low. All the while, the name of game is to minimize the volatility in the portfolio and embark on strategies that have low correlations to the equity market.
Finally, what is amazing is that equity market bulls are looking for the next leg up to come via improvement in the U.S. labour market. The USA Today runs with an article (page 4B) concluding that “investors need to see a Labor Department report that says employers are creating more jobs than they’re cutting. Until then, investors are going to stay cautious.” This is a truly unbelievable comment considering the S&P 500 has surged 70% in the past year — 10 years of price appreciation lumped into one — even though 3.3 million jobs were lost. Since when has Mr. Market shown that it really has an eye on the labour market? It’s all about a chase for relative yield in a low rate environment — a highly speculative environment, which is why U.S. companies have managed to float a huge $12 billion of new bond supply in each of the past two days; the hunger for yield.
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'I want a doctor to take your picture
So I can look at you from inside as well
I'm turning Japanese
I think I'm turning Japanese
I really think so'
-The Vapors
'The price is wrong, bitch!'
-Happy Gilmore
'Time wounds all heels.'
-John Lennon
'Deflation is the midwife of hyperinflation.'
-Anonymous Monetarist
'For a moment there, I thought we were in trouble'
-Butch Cassidy
'In the long run we are all dead.'
-John Maynard Keynes
Holy financial porn Fatman!
The chart above in yesterday's WSJ is as nasty, if not more so, than anything that even Doug Short has put out.
A picture shrieks a thousand slurs; this reversion ain't just mean, 'tis sadistic.
Chart at : http://anonymousmonetarist.blogspot.com/2010/03/picture-shrieks-thousand...
This graphic, double entendre intended, accompanied an article in the Whoa! Shill Journal that featured, the venerable Robert Schiller (no wonder I saw fear in his eyes in his last Bloomberg interview), and some cat who states that 'the market should spend a good portion of time trading below fair value, to match the time it spends trading above fair value.'
Now that's a chilling thought -rather somber fare from the opus of Nancy Capitalism.
If only there was someone who could present a more bullisht picture, some authoritative voice that could offer succor that pitchforks, torches, and wheelbarrows aren't the most appropriate 'stocks' for the long run...
Mr. Siegel I presume?
"My research shows that the common P/E is 18.5" when the economy is coming out of a recession, Siegel says.
The way he looks at it, the market now is trading at about 14.5 times forecast 2010 profits, making it cheap compared with the typical P/E of 18.5.
If stocks rise to 18.5 times profits, the S&P 500 could rise to 1400 this year, a 23% gain from today's level, he notes. "We could easily see 10% to 12% stock returns with low inflation" in future years, he says.
Whew, don't know about you but I feel relieved, Schiller is just calculating PE wrong. No worries!
Waitaminnit...
By JEREMY J. SIEGEL
FEBRUARY 25, 2009
Wall Street Journal
S&P adds together, dollar for dollar, the large losses of a few firms to the profits of healthy firms without any regard to the market weight of the firm in the S&P 500. If they instead weight each firm's earnings by its relative market weight, identical to how they calculate returns on the S&P 500, the earnings picture becomes far brighter.
A simple example can illustrate S&P's error. Suppose on a given day the only price changes in the S&P 500 are that the largest stock, Exxon-Mobil, rose 10% in price and the smallest stock, Jones Apparel Group, fell 10%. Would S&P report that the S&P 500 was unchanged that day? Of course not. Exxon-Mobil has a market weight of over 5% in the S&P 500, while the weight of Jones Apparel is less than .04%, so that the return on Exxon-Mobil is weighted 1,381 times the return on Jones Apparel. In fact, a 10% rise in Exxon-Mobil's price would boost the S&P 500 by 4.64 index points, while the same fall in Jones Apparel would have no impact since the change is far less than the one-hundredth of one point to which the index is routinely rounded.
Yet when S&P calculates earnings, these market weights are ignored. If, for example, Exxon-Mobil earned $10 billion while Jones Apparel lost $10 billion, S&P would simply add these earnings together to compute the aggregate earnings of its index, ignoring the vast discrepancy in the relative weights on these firms. Although the average investor holds 1,381 times as much stock in Exxon-Mobil as in Jones Apparel, S&P would say that that portfolio has no earnings and hence an "infinite" P/E ratio. These incorrect calculations are producing an extraordinarily low reported level of earnings, high P/E ratios, and the reported fourth-quarter "loss."
As the fourth-quarter earnings season draws to a close, there are an estimated 80 companies in the S&P 500 with 2008 losses totaling about $240 billion. Under S&P's methodology, these firms are subtracting more than $27 per share from index earnings although they represent only 6.4% of weight in the index. S&P's unweighted methodology produces a dismal estimate of $39.73 for aggregate earnings last year.
If one applies market weights to each firm's earnings using the same procedure that S&P employs to compute returns, the results yield a more accurate view of the current profit picture.
AM here:Guess we now know the way Siegel 'looks' at it. Couldn't believe this tripe when I first read it. It took all of a few seconds of rubbing a couple of brain cells together to generate the obvious retort. The methodology of computing S&P earnings is only valuable in the context of the constancy of such methodology over a long duration. Taking a snapshot utilizing a different method tells you nothing lest you perform that calculation over the long-term and then compare your snapshot with historical results using the same methodology. In other words using a new methodology to come up with a PE of 20 needs to be understood within the context of using that same methodology to come up with PEs at say historical troughs...
Clearly, Jeremy Siegel is a witless hack.
He should be ashamed of himself as should the WSJ.
Here's a little bit of background on this fella ...
WIKI: Jeremy Siegel was famously bullish in 2000 just as the stock market was collapsing. In a BusinessWeek interview in May 2000 when asked whether valuation measures indicated the stock market was overvalued he replied: {Have we learned anything over the past 50 years? When we compare a 100 years' PE's, we're going through the Great Depression, a banking collapse, and all the rest. Have we learned how to prevent a banking collapse? A Great Depression? I would say, yes, we've had incredible success. Have we been in the longest economic expansion in history? I would say yes. Are earnings of the top companies growing at the fastest rate that they ever have, far faster than the peaks that you mentioned in the past? Yes."}
At the 2006 Berkshire Hathaway annual meeting, Berkshire Vice Chairman Charlie Munger called Siegel "demented" for "comparing apples to elephants" in making future predictions.
Siegel's personal, for-profit website, jeremysiegel.com, is highly atypical among academic professors. In addition, Siegel has not published any peer-reviewed academic works over the past decade.
AM here : Mr. Siegel you are officially in the Anonymous Monetarist Hall of Shame.
AM,
While I'm a fan of your insight and prose, I call foul (fowl?) for quoting yourself in your own piece. On the other hand, it's a great quote.
'Deflation is the midwife of hyperinflation.'
-Anonymous Monetarist
Since I just quoted you quoting yourself, I suspect your Karma and my Qi (Ch'i) are now both centered. You many now return to your regularly scheduled programing.
'I call foul (fowl?) for quoting yourself in your own piece.'
Point taken good sir...
But in response must suggest ...
Just nailing down attribution for the Googlebot :)
LOL
Understood.
There's no one else on our side other than ourselves. Or as Cognitive Dissonance once said "Self promotion starts with yourself". :>)
Musical chairs.....
The Secular Market as opposed to the Spiritual Market? Musical chairs there between?
a comment about the dow transports...
"...driving that train, high on cocaine...."
Casey Jones
The Grateful Dead
Deadhead, if you really want to know what is going on in transports the best index to check is at the following link contained in the recent press release from Ceridian...
http://www.ceridian.com/about_us_article/1,6266,16495-73936,00.html
The index to check is www.ceridianindex.com
Basically, ceridian owns comdata network. Comdata network is the cash advance/fuel card provider within the united states that has the market cornered. (Probably 95% market share) If you are in the trucking industry major fleet or private fleet your trucks and drivers run on comdata cards and thus this index directly tracks the # of transactions and gallon purchases. Take a look at the graphs, they will tell you exactly what is going on in tonnage, line haul and the transports in general.
Nearly every long term chart I've seen over the past 3 months, government or otherwise, shows the recession ending sometime in 2009.
Whew, that was close. Is it OK to come out of the storm cellar now?
CD,
I posted that information because it is informative. I work in the transportation industry which is still suffering severe consolidation after months of hearing nothing but crickets all day long in our office. Many folks I know in the industry have suffered 50-75 % drop in business and have cut back dramatically. Daily we are getting cold calls from drivers looking for work, unheard of a year ago. I can really get a handle on what is going on in the industry from our rep at comdata, and I will tell you that the last conversation that I had with him suggests that volume is flat, no growth and most are holding their own. The graphs on the above link are showing me that we are getting the normal/moderate spring bump that always occurs. Transports aren't coming back IMHO, they are flat.
ReallySparky,
My apologies, I didn't make sure you understood where my venom was directed. I wasn't being sarcastic towards you at all. I actually found the chart useful and have bookmarked it for future reference. But I've noticed that since the Bureau of Economic Lies along with the Federal Reserve ended the gray area of recession (pun intended) on all their economic charts, everyone else is falling in line and doing so as well.
Thus the public meme of "happy days are here again" is reinforced. I have no doubt that some economic activity is picking up. There is always a pick up in spending when the world doesn't end and people decide they still need that new pair of dancing shoes. But people would be surprised how effective such a subtle thing as this is in pushing forward a belief the powers-that-be wish the average Joe accept as truth.
eh they just ended it on their charts so when the "double dip" hits, it looks like americans will have had some breathing room for all the future pain!
http://popup.lala.com/popup/360569475237641700
Rosenberg is wrong, again. This has nothing to do with the "government", unless I missed the ballot entry for Fed Chairman. This is 100% Fed-driven, pumping trillions of new dollars into the system in the hopes their "trickle down" monetarism will work.
Government power and fiscal cost overruns are the means for survival in a democratic society? I can't grasp this philosophy.
Great stats, great analogy but where does it leave those who defy what's happening before our very eyes? What will it take for the once loved near and dear to us marketplace to become what it was,,,part of the American and global dream to use investments as a means to prosperity??
low vol is a necessity to facilitate complex spreads across markets with derivative instruments of all stripes. if / when vol returns, daily volume records on every other global bourse will cease registering and 'real' volume will return. can't lay up X capital as collateral (let alone VaR) if / when VIX n friends regain a simple 3x handle. plus, when red-blooded people return to press the sell button then (3x VIX), well, there will be real blood on the streets of water n broad. enjoy it while it lasts cause the next time such a low vol environment exists, the DJ could be half its size.
The stock market could cease to exist tomorrow and I couldn't care less.
Dudes and dudettes I am so sick of all this manipulatuion!!!! Look at gold and silver just now. Bastards are selling at the top, after Asia and Europe go in. The funny thing is that JPM is going to get SCORTCHED on this. But, they are holding trillions on trillions to fix these prices. I mean, if they need more doe, they can just raise taxes? hahaha! BASTARDS!!!!!
http://www.kitco.com/
Leo , history has taught me not to bet against the establishment - JPM are part of the establishment.
Do you really think theyre going to get toasted over their paper gold and silver positions? It just isnt going to happen without the implosion of the Fed and the USG. Think about it.
Now , im not saying that mother of all black swans is not going to happen , but whether im long or short gold at that point in time is going to be incredibly irrelevant. Where i live and who my neighbours are and what access to water/food i have will be far more important. Perhaps after 5 years of painful readjustment your shiney yellow metal will then be relevant. But good luck protecting it during that carnage. Read House of Rothschild to see what KINGS and Nobles had to do just to protect their shiney wealth. J6P wont stand a chance. Just extend and pretend , load up and let someone else worry. Thats the message. Futile to stand against it.
To start, I completely agree with this statements; Water, food, etc will be more important than PMs. May I add that most important is an open heart, and open mind. I have studied the Rothschildes; "Let them eat cake" was rebuked by "Off with their heads"; true. I do not think this is exactly relevant for the "commoner" though. I believe at the height of crisis, the people of the world will come together and shun the elite. State run banks is our solution; global currentseas are theirs.
As for the establishment; 'problem, reaction, solution'. They benefit on the way up, and on the way down. Monie ain't no thang! You have studied the RedShields? You know; "[O]ut of order, chaos; out of chaos, order."
Gold and silver will only store wealth; they do not store knowledge. Knowledge is power, and thus power is life.
Leo , i have more knowledge of the redshields and their meddling than is healthy. Put into context, we - the serfs that is - are never going to "rise up and be counted" unless its part of "their" plan.
Feudalism , serfdom - it always has and always will be thus.
I detest it but i nor you cannot change it. Populous uprisings are orchestrated. We are SHEEP. Either become so abstract you can live your own life out of their sphere of influence (very difficult) or play their game.
The french and russian revolutions did nothing for their people/society - dig deeper and ask yourself "cui bono".
If the Jewish banking scum want gold to go higher , then higher it will go , if they need it lower to pass whatever agenda (zionist war , power grabbing , wealth creating etc) then lower it will go. Money supply , oil , stocks - all are constrained within a band.
Do not underestimate the power of these crazy zionist bankers. I am an aethiest , i have no axe to grind , but these people are 1000 times more dangerous than any AQ operative.
"State run banks is our solution; global currentseas are theirs."
there is no 'solution'; the price of freedom is constant vigilance. anything man built can be taken apart.
Gold now testing 1st level of support, at $1101. There is extreme support at $1080. Go ahead Rockefeller, make my day!
Don’t you mean "intense volatility that has been and continues to be nurtured by government intervention, manipulation and covert purchases in the markets."
Good old Rosie. Been calling for a top all the way from 800 SPX to 1150. Hiliarious.
It's funny how people keep referring to "Mr. Market"...there IS no Mr. Market, not anymore. He's long dead - only a Fed created zombie exists in its place right now.
IT IS ALL A LIE.
.
The legendary market analyst, Charles Biderman, recently conducted an in-depth study of market liquidity. He came to the conclusion that the market's being propped up by the government. I agree 100%. When the empty-suit mutual-fund managers and the neanderthal momentum traders realize that the illegal, immoral and unethical actions of the government are the only thing propping up this pos, it is going to crash.
Yes but even my momentum model which has been working for years is taking now. It's just as Rosenberg points out "the increasing lumpiness of volatility [with] the duration of major market moves reduced, while the delta from the flatline keeps growing.
I'm considering stopping trading for a while, I just can't tell how long the scammarket will be compromised.
As an aside, surely with all today's technology, email records, hackers for hire, etc. the SEC/FBI could easily track where rumours start from. Which leads us straight back to the problem that it appears market manipulation [by the establishment] is legal now.
Guess that means we outsiders can't win anymore..
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