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Rosie On "Rented" Market Rallies
Not much to discuss here, as the market has clearly entered a parabolic phase (which never ends well, we might add), supported not by economic factors but by a collapse in the US reserve currency status, which, as Zero Hedge has been repeating over the past few months, is purely predicated by the dollar now being the new carry currency choice. Yet here is Rosenberg's market commentary released today. While he is undoutedly correct, the low volume, momentum chasing, "don't fight the tape" rally continues.
MR. MARKET IS ON STEROIDS
Not much more to say. The S&P 500 is now up more than 60% from the lows, which is truly amazing and kudos to those who called it. But the question is whether the fundamentals will ever catch up to this level of valuation — usually after a 60% rally, we are fully entrenched in the next business cycle. Never before have we seen the stock market rise so much off a low over such a short time period, and usually at this state, the economy has already created over one million new jobs — during this extremely flashy move, the U.S. has shed 2.5 million jobs (as may as were lost in the entire 2001 recession).
It is acknowledged by all the pundits that the recession is over, even though we can see that only industrial production and maybe with the help of the government, real sales, but employment and real income are still falling from where we sit. So dating the end of the recession as the NBER did in late 2001 is one thing just because industrial activity troughs, but it took several quarters for income and employment to bottom back then, so we had a listless recovery in 2002 and a stock market that did not really embark on a sustainable rally until mid-2003. A recession coming to an end is one thing, but sustainable market rallies require solid recoveries. The stock market right now believes that we are going to see that V-shaped recovery, but we remain skeptical since post-credit bubble collapses typically see consumer spending, which is over 70% of GDP right now, sputter even as other line items, such as government spending, kick into gear.
In any event, it’s not even worthwhile debating the economic outlook at this juncture. It’s about how much good news is already being discounted in the equity market, and believe it or not, there is more good news being priced in today than there was bad news being discounted back at the March lows. This is an overbought and overpriced equity market and we remain of the view that there is too much risk and too much growth being discounted to be a full participant.
It is not apparent today, to be sure, but it will be — if not by the fourth quarter, then certainly by the first quarter of next year — that there is not going to be normal recovery following what was an abnormal credit-induced recession. We say that knowing how forgiving Mr. Market is today over any adverse data points, and how giddily it is responding to positive news. We have preferred to express any pro-cyclical views in the fixed-income market where corporate bonds provide better income than a 2% dividend yield, better downside protection if there is a relapse, and a more reasonable assessment of the economic climate that lies ahead.
By the time the U.S. stock market rallied 60% off the October 2002 lows, we were into July 2005. We were into the third year of the expansion. Go back to the onset of the prior bull market in October 1990 — by the time we were up 60%, it was January 1994! It took almost a year to accomplish this feat coming off the 1982 lows too and back then, we had lower interest rates, lower inflation, lower tax rates, lower regulation and an eight-year uninterrupted economic expansion to sink out teeth into. So we are witnessing something truly without precedent — a 60% surge off a low in six months. This didn’t even happen in the 1930s!
The counter-argument, of course, is that the market this time around is coming off massively oversold lows. Not true. The market was far more oversold and the internals were much more compelling at the 1982 and 1990 troughs. The multiples on price-to-earnings and price-to-book, not to mention dividend yields, were much more attractive at the other lows.
No doubt we had a financial scare at the March trough, but valuation at the time was priced for -2.5% real GDP growth and $50 EPS, which is hardly Armageddon even if a bad outcome. And while it is true that the S&P 500 slid 60% from peak-to-trough, we have news for you — so did corporate earnings.
In any event, this is the same market that lost its marbles in 2007, hitting fresh all time highs by October of that year with visions of new definitions of global liquidity, and at the time it was pricing in 5.5% real economic growth for the coming year. Instead, we had zero growth on average. Mr. Market is a discounting barometer to be sure, but he is not always right.
To reiterate, while acknowledging the obvious, which is that there is more momentum in the economy and the markets over the short-term than we had thought would be the case. However, our overall fundamental views and our outlook for 2010 have not changed at all and neither has our investment philosophy. If the S&P 500 was hovering closer to 800 or 850 right now, we could see the case for equities, but the market has simply moved too fast and is way ahead of the fundamentals, even if they do turn positive. Understanding that equities are a long duration asset, we have found over the years that investors have shortened their time horizons, and while it has become fashionable to price the market on an earnings stream three years out, the error term around any profit projection that far out is extremely wide. All we know is that as far as the coming year is concerned there is currently more room for disappointment than there is for upside surprises.
There is too much growth priced into the market and equities remain highly risky. Then again, this is a market that is “all in” on the V-shaped recovery view and it will likely take some shockingly weak data points to shake this conviction. By and large, the data are coming in above consensus estimates and there could well be enough of a spillover into 4Q to prevent a complete relapse, thought 2010 remains a wild card. We also cannot underestimate the extent to which the government, having invoked multiple stimulus measures, from becoming even more aggressive. We are hearing rumblings that not only will the $8,000 first-time homebuyer tax credit be extended beyond the November 30 expiry date, but that the cap will be raised significantly. Damn the torpedoes, full steam ahead — there’s a mid-term election to fight in 2010.
Sentiment is clearly bullish, which normally would indicate an overbought market, but as we said earlier, these are far from normal markets. According to the latest Investors Intelligence poll, bulls command a 47.8% share of the respondents and bears are at 24.4%. Only 27.8% are in the “correction” camp, which is startling considering (i) how extended this rally is, and (ii) the time of year we are in.
We noted yesterday that the Nikkei posted six 20%+ rallies since its bubble burst in 1990 and no fewer than four 50%+ rallies. Indeed, you can count 423,000 rally points from all the up-days since the secular bear market began in 1990 and yet the index is down 74% since that time. So actually there is nothing in this flashy move off the lows in the S&P 500 that is inconsistent with a pattern of a bear market rally — this is not the onset of a whole new sustainable bull market, in our view. These are rallies than can only be rented — not owned, and are purely technically-motivated and momentum-driven. They are not premised on improved fundamentals, despite economic data that are skewed to the upside by rampant government intervention. Just remember — nobody ever built more bridges or paved more river beds to skew the economic data than the LDP did in Japan for much of the 1990s.
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the valuation may not be that high when you consider the s&p is where it was in 1999 and that in 1999 your dumb american dollar bought you 2-3 times as much of everything OTHER THAN the s&p
the valuation is high, though maybe your point is that it doesn't matter. the rest of your point is unintelligible, and sounds a bit french besides.
" . . . the rest of your point is unintelligible, and sounds a bit french besides."
Whoa. You got a problem with the French?
Christ.... here goes the whole freedom fries thing again...
FRECNCH ?
Moi?
Just remember, france is ahead of the us
in every way shape and form, the economy
is not in freefall and we do not enjoy your
rates of unemployment.
Now, go back to jacking off to pictures of
Denis Kneale and Kudlow.
Did you see the structure of the AMR capital raise. Clearly lessons have not been learned.
http://news.bbc.co.uk/1/hi/business/8261227.stm
I did. No reason air miles that have not been flown are any different from the assets like already eaten cheeseburgers the fed is taking as collateral for newly printed cash. It's all getting laundered through the banks to create the mirage of stability and growth.
Vendor financing courtesy of the taxpayer. If Bernanke breaks the dollar and sends oil to 200 bucks and AMR goes under. Taxpayers can kiss the money goodbye I guess.
Thanks to things like Uncle Ben flooding the market with liquidity, devaluing the US$, and fund managers chasing performance, no one cares about the fundies. The question is when will they start to care?
The problem is that everyone is focusing on the US$, but every country is doing the same flooding so they're all spiralling down and the devaluation isn't as visible as if only one country was doing it. What you'll get at the end of the day is the same thing that's been happening since the beginning of the Fed and as usual average folk won't notice a thing. Inflation in a deflationary world.
Gee.. I wonder who's going to loose out in this dealio?
Mr Rosenberg writes very well but I still don't know whether this story has a happy ending.
According to his CNBC interview yesterday he said the market belongs between the low and where it is now, lol.
Someone please reconcile for me the crashing dollar and the surging Treasuries. It must be an anticipation play of a big reversal. But when the money starts to flow out of the safety of the Treasuries, will it find its way into an already over bought equities market?? It could be a manifestation of the dollar carry trade with the bucks going into equities, but that doesn't explain the rise in Treasuries.
A year ago, every time the government added a new stimulus measure (diluted the dollar) oil spiked, and Treasuries and the dollar tanked. The flight to the safety of the dollar made sense back then - but only in the context of th US losing the ugly baby contest.
All of Ben's printing flowing into the equity market it consistent with the S&P nosebleed. That is about the only thing that makes sense to me. It isn't the corporate insider selling leading the way upward.
I think the next correction will have treasuries and equities going down the drain pipe.
Presently they are both rising. Will be fun if both reverse and there is no safe haven other than gold, oil and goddamn coffee beans.
Gold is lit to pop and oil is rising for no reason on sagging demand and tankers full. ask why.
Oil , like housing, is in shadow inventory mode.
They'll ship it to China and burn it in pits before they let a bbl go under $ 55.
Possible addendum to reversal:
The crashing dollar and surging Treasuries paradox could be a function of the visible (the dollar) vs. the invisible (indirect bids at Treasury auction). We see the former falling all around us, while the latter is a complete and total scam, pure, unallowyed illusion, with dollars being printed to maintain the perception of Treasury strength, with money from the follow on buy-backs from the PDs used to buy up equities, as we all know. Like any scam, it will work for a limited duration, but eventually the scheme bleeds into the markets and you get the inevitable 'reconciliation' of facts, which will not be pretty and could/should lead to incarceration (or worse) of the perps.
You know who they are. And they are simply trying to run out the clock.
How long til revelation (small 'r')? Hard to say, it's an awfully big beast. Like cutting off the Stegasaurus' tail to kill the second brain, it takes a while til the first brain knows the second's been eated by the T-Rec(ession).
So how long til information seepage reaches the markets?
I think not that terribly long.
mr. a.
well composed in my view.
Depends if the Fed pulls out their secret weapon. Rumours are swirlling about a pending pardon for Madoff.
Rubbish.
Now, a pre-emptive pardon for Hank Paulson... that might rattle things.
Though for the better or the worse, I'm not prepared to speculate.
cougar
Can't argue with that. But common sense never seems to prevail in the New Reality.
Close your eyes and smoke some more Hope.
*correction, you mean "Hopium"
Not smoking anything. I'm just not in denial that things can continue on even though it doesn't seem to make sense to many.
10 4. Fundamentals mean nothing anymore. Reminds me of .com valuations. PE 100 looks a bit like PE 10, therefore it's now the new indicator for fair value!...no wait, some of these awesome stocks have no earnings at all, scratch that, everything is awesome.
Hey, stop bogartin' the Hopium!
FedEx earnings down 53%, revenue down 20%. Looks like a green shoot to me! Buy, buy, buy!
gee, tyler, looks like Matt Phillips at the wall street journal is reading zerohedge....hmmmm
Is the Dollar Set to Become the New Yen?
http://blogs.wsj.com/marketbeat/2009/09/16/is-the-dollar-set-to-become-t...
The 23rd Psalm, According to Goldman Sachs by Gary North
The FED is my shepherd; I shall not want.
It maketh me to lie down in green shootsdom: it leadeth me beside the still Lehman.
It restoreth my credit: it leadeth me down the paths of leverage for its name's sake.
Yea, though I walk through the valley of the shadow of debt, I will fear no evil: for thou art with me; thy TARP and thy TALF they comfort me.
Thou preparest a table before me in the presence of mine enemies: thou anointest my balance sheet with digits; my bonuses runneth over.
Surely profits and influence shall follow me all the days of my life: and I will dwell in the house of the FED for ever.
lol
Amen!
I see you've written CNBC's new manifesto.
He writes well and gives a good play by play, however, up 55% is up 55%. He missed the rally... an epic rally that any investor would have benefited from. Call the turn Rosie! You don't even have to be exact, but within a month would be nice.
I can understand how he keeps his job as an economist with the excellent analysis and prescriptives, but as a strategist he is weak and has hurt those following his writings.
I don't think he missed it...he has said all along that spx up to 1200 is a distinct possibility.
Excellent piece in the FT by the only economist to predict the current crisis.
http://www.ft.com/cms/s/0/da02133a-a2e9-11de-ba74-00144feabdc0.html
There is alot happening. Fund managers trying for performance, hot money from the fed, gambling on xmas and a housing recovery, stimulus, currency wagers. There just isn't any way this ends well. As long as "they" don't try to cash out the market can go up, but if/when "they" do, look out, the money just isn't there at these valuations imo.
AS long as the HFT, SLP, and QEs are on, the markets will keep getting higher.
More huge put buying in WFC today in OCT--75000 struck at $27 and 36000 struck at $30. Very litte call buying to speak of. This has been going on for over a week now-from the 24 strikes to now 30.
thank you Howard....I follow the banking sector and have for years. WFC amazes me more than its peers because I think they might be the worse. I simply don't follow the options markets and I appreciate and look forward to your comments about the put/call action.
i recall several folks saying last week that wfc put for this month was heavy....seems like someone is determined to have those sink into oblivion.
YW, DH. The big boys are definitely playing hard in OCT on WFC. JPM has had very little activity, looks like lots of players messing with C today in OCT, 85000 $4 puts (priced at .16) and 40000 $4 calls (.60) + 62000 $6 calls (.06-.07)--could be a bull spread there based on a "successful" Citicrap offering to sell some of the taxpayer share, i'e selling the $4 puts and buying the $6 calls for a net positive of a dime but that's just speculation. Besides, those things trade for peanuts. One other large trade of note 10000+ on $32 MS OCT calls.
Been watching this too. What I want to know is who's on the other side of these trades? I mean, if this really is as simple as it looks (probably not), and it's Buffett covering his ass against WFC decking, the only seller that makes any sense is the Fed or a Fed proxy.
I'm so paranoid these days I'm looking for this as a trap somehow, holding me back from sliding into a big short here.
you left out the parts where he acknowledges improvements in some areas. overall tone to his report has definitely changed with this one, as I read it.
"Never before have we seen the stock market rise so much off a low over such a short time period"
Well, whatif this was a result of the massive panic sell-off (push down heavily by Goldman Sachs) that preceded it?
"1982 and 1990 troughs."
Yes that was WAY back then when the US and world did business differently. You cannot compare those apples to these oranges.
We need an event for this to crash again. So unless you're John Travolta in "The taking of Pelham 123" then we're out of luck for a sell-off. What do they have up in Canada, the moose! Maybe Rosie can start a Moose Flu pandemic rumor.
Thanks and good day to you Sir.
"Yes that was WAY back then when the US and world did business differently. You cannot compare those apples to these oranges.
Thanks and good day to you Sir."
Yes, history is a useless study and only fit to be told as the fairy tale it is ; to women and small children.
Very posh post Sir.
Thanks and good day to you Sir.
Passani on CNBC (all obama market,healthcare,business) says at the mkt. open theres an attempt to sell off then suddenly buying across the board? WTH
WFC put buyer is probably Buffett. He's no idiot.
He's sure got enough of the stock to play it that way.
I did look into WFC the other day, the 90+ delinquency number is about to go vertical and they have taken virtually nothing through the P&L as yet. The real hit should just about wipe out TCE which I guess is why they haven't done it.
Good to know. Thanks.
Whitney Tilson spoke credibly on the very subject yesterday on "FAST Honey."
Thanks for that BD. Explains the action.
http://www.cnbc.com/id/32877931
WFC: "We've trimmed most of our position, what we have left we're hedging short"
He's short RF and ZION, still liked WFC long.
Looks like someone tried to squeeze him on RF. A re-entry seems to have happened at 6.6
Now where's the GS-BOT squeeze on ZION? 25% of the float is short.
Where did that DXY spike come from? The market got killed, if only for a short time...
Does the question contain the answer?
It seems to me that in order to keep up the CONfidence game and get people shopping, they will continue to prop up the stock market at least through the xmas shopping season. No serious downward trend until after the first of the year at the earliest.
Rosie doesn't factor in Moral Hazard. This government refuses to believe that Capitalism requires winners and losers. Can't happen if Ben and Timmie refuse to let the guilty die.
PPT kicked in at 1:42 eastern. Check out that candle on the 1 minute chart.
Spanish markets madness.
The irrational, parabolic exuberance of the american markets is child's play compared to the unlimited exuberance and stupidity of spanish markets and investors.
Spain the country where I live: Roughly the eighth largest economy in the world. Unemployment 20% (official, actual 27-30%). The country with more mortgage debt to GDP in the world. The country that has suffered and continues to suffer the biggest housing bubble in the world. The country with the largest trade deficit in relative terms in the world. Government budget deficit in 2009 about 25% of GPD.
IBEX, the main Spanish stock index: expressed in US dollars, has risen 105% from March low as the country moves towards the worst depression in its history (an history with tons of economic depressions).
I think IBEX must be the stupidest stock index in the world and a good barometer of the exuberant global stupidity. Correlation with SP 500 must be equal to 1, is something like a high-levered, high-beta version of the american stock indices.
IBEX expressed in US dollars (for comparison purposes)
http://stockcharts.com/h-sc/ui?s=$IBEX:$USD&p=D&b=3&g=0&id=p15234491349
Thanks for checking in from Spain. Good luck with that, seriously. And let's hope the Spaniards don't do anything to earn them their own bloody chapter in the history books... again.
cougar
Nice to get a window to the outside world. Thanks Basque.
At some point the Central Banks are going to have to realize that injecting liquidity into stock markets does not actually help anything.
The surge in teasuries is nothing other than some of the scared "sheeple" seeking the safety of Uncle Sams' golden debt !! Or atleast thats what a recent WSJ article seemed to suggest. After all fin advisers are too eager to have their investors park assets in so-called safe investments....and the party in the stock market continues since low rates can justify high multiple P/Es.. it does not matter that the sheeple are protesting interest rate hikes by quitting payments altogether and sending viral videos asking everybody else to do the same !!
It's an end-game.
In the mad scramble onto the roof where the helicopter is idling, you grab anything of value you can carry out but you do it fast. There is no future, starting in about 60 seconds. Nothing exists beyond the event horizon of getting the f*ck out, and you hit that horizon in 60 seconds. Anyone not angling to be on the chopper when it leaves is already dead.
In those remaining 60 seconds absolutely nothing else matters. And when the time is up the world evaporates around you, the rules change, the struggle begins, and those who got on the chopper leave the world behind as surely as those left standing on the roof, clutching their now-worthless papers, screaming into the wind, wishing they had been 5 seconds faster and knowing with the finality of the soon-to-be-dead that the world is going to take them with it when it goes.
cougar
"Which foreign banks got 500bn?"
"I don't know!"
You can't handle the truth!
WFC was at an average high of $35 before the crash. It's only natural to sell around $30. Doesn't mean the 'big boys'
know anything we don't.
rally around the family
http://www.youtube.com/watch?v=-58-36lSqG4&feature=related
The four sisters will get bitchy
http://www.youtube.com/watch?v=Jz8wU9DdbqU&NR=1