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Is Something Big In The Market Coming?
As usual, some prudent market observations from Rosie.
A good friend, and long-time reader, was kind enough to pass along these thoughts yesterday. Basically, the stars are starting to align for something really big to happen.
First, the Shanghai index peaked in August 2009 and had a secondary top in December 2009 (global demand slowing?). Many emerging markets are all negative year to date.
Second, gold peaked in the first week of December 2009 (and now breaking down) while the U.S. dollar index (the DXY) is breaking higher (Greece has not been resolved).
Third, TIPs (ETF) peaked the first week of December 2009 (and just broke to a new four month low).
Fourth, commodity prices peaked in the first week of January and appear to be rolling over. Head-and-shoulders top from October 2009 peak?
Fifth, could we be in for a March peak in equities? The NYSE new high list peaked six trading days ago. Recall that a market correction followed in October of last year and January of 2010 following similar peak in new highs.
Sixth, despite signs of economic cooling in Q1 (around 2.5% growth and half the Q4 pace) and lower inflation expectations, the 10-year Treasury note yield is ratcheting up (in a destabilizing fashion) and devoid of any bearish economic data (for a range of technical/fund flow reasons as was the case in the summer of 2007 — we never said at the Grant’s conference in New York that it was going to be a straight line down). But in technical lingo, it does look as though the yield is breaking out from a triangle since the December 31, 2009 yield peak —go back to that period in December and January, 3.85% on the 10-year Treasury-note served at least three times to be major technical support — a break of that this time around would mean some serious near-term trouble (the nearby high closing level was 3.98% back on June 10, 2009).
Rates may be rising because:
- Of added supply concerns from Obamacare;
- Sovereign credit quality;
- Heightened fears over a looming trade spat with China (if the Treasury accuses China of being a ‘currency manipulator’ next month);
- Hedging related to the most recent huge wave of corporate bond issuance;
- Swap rates have also become unhinged (they traded at an unprecedented 8bp discount to 10-year Treasuries yesterday) ….
… but yields are NOT rising from inflation (in fact deflation signs are re-appearing again). Hence, real yields are on the rise ... not typically what an equity bull would like to see with real growth now softening. Rising real rates as real growth slows means it is time to get more defensive, not more cyclical (especially with small-cap stocks up nearly 10% year-to-date, doubling the performance of the large-caps. This will not be sustained as the global and domestic economies cool off through the balance of the year.)
Bottom line: Stronger U.S. dollar. Rising bond yields. Lower commodity prices. Slower growth. And the stock market is flirting at post-crisis highs. Bond yields are rising temporarily and this will very likely prove to be a good buying opportunity; however, over the near-term, higher yield activity may well persist and the question is how the equity market is going to handle this backup in market rates. Recall that the 10-year yield had a March to June 2007 spike of 90bps before the rate and credit collapse took hold in the back half of 2007! Could it be that history is rhyming again? The March-June period has been seasonally weak for the Treasury market in five of the past six years.
Add to all that is the further extra intrigue of the S&P 500 having just ‘celebrated’ the 10th anniversary of the first bubble peak reached in 2000. As painful as it is for the bulls to see, the equity market is still down 23.5 % from those March 2000 highs, not to mention still in the red by 25.4% from the record high posted in October 2007. The Nasdaq is still a Japanese-like 53% shy of its 2000 all-time high.
And lastly, there is no V-recovery anywhere, except in the Fed-prodded stock market.
Look at the consumption/housing subindex (see Chart 3) and tell us what sort of V-shaped recovery we have going on. The equity market needs a reality check in a major way — this is 75% of GDP we are talking about that is still flirting with record lows. No traction at all.
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QTR end will be interesting.
he sounds like a broken record
the stockmarket is calculating in the possible inflation to come.
Why is the stock market making that calculation, but commodity markets arent?
Balanced against deflationary forces...
Liquidity and expectations RE: liquidity. Central banks can create liquidity, but they can't control where the liquidity goes. In this cycle, it went into risk assets.
Rosie has been talking about a "big thing" and a "major market correction" all the way up from like 800-900 SPX last year. All I hear is "market overvalued", "complacency" bla bla bla. Rosie is not any better than a monkey throwing darts at a board. Why listen to this guy?
I could not have said it better myself, and judging by the junk flags by fellow ZHers it seems they continue to drink the bear flavored kool-aid that Rosie has been serving since last March.
Were you guys bullish in 2007? Kudlow, Cramer, and the rest of the media pundits were. They also sounded like a broken record.
I'm on Rosie's side, but these posters raise a legitimate point. You can be a little early with a call, but after some period of time, you're just plain wrong. If I call a tech crash in 1996 and it happens in 2000/2001, should I get credit? We're now a full year into a runup that's gone on far, far longer than most of us ever expected. Everything in my heart and brain tells me that a correction should be coming. But... it's not a certainty, and even if it were, the timing of it wouldn't be.
Again, I think Rosie is right. But it's not crazy to factor into your analysis the fact that he's been saying the same thing, thus far incorrectly, for a while now.
I agree. Remember how early Paulson was on his subprime call and how he said he even questioned himself on this call because the market defied what he was saying.
The market is merely a reflection of the delusional participants. The Emperor has no clothes, but it still makes for a super-nice new suit.
You are assuming he is wrong and that the equity market is right simply because its behavior has not jived with Rosie's fundamentally based predictions. Let's back up a bit...when the credit markets were completely frozen and it was very obvious that the financial system was locking up, the equity markets were hitting an all time high in the summer of 2007. Is that logical? Is that forward looking? Is that reliable or mirroring of real fundamentals in the least? No. Brutally wrong and the biggest miss since 1929.
The quote of the market being a voting machine in the short-term and a weighing machine in the long-term comes to mind. Right now very few people are showing up at the polls which are being run mainly by algos. There is one golden rule if you want any chance of outperforming over the long haul and that is think for yourself (trend followers don't bother with this but are very good at exiting when if the trend breaks). At a minimum, right or wrong, Rosie does that. Most people out there are looking at the market and talking heads to tell them what to think. What opinion have you formed on your own from examining the data? Don't tell someone they are wrong because the market goes one way or another in the near-term - make the case on fundamentals or alternatively forget fundamentals, and trade trends.
+1 Wow Slim, that was a nice piece of logical reasoning.
Well spoken.
Thanks for the post TYLER. David is always a logical read and opinion.
Jupiter big.
Rosie isn't the LIAR. Who is the liar? And how do liars fare?
liar? No. just timing. The PPT has led many astray . Got TRUST?
Dr. Egon Spengler: I'm worried, Ray. It's (the FINS trade) getting crowded in there and all my data points to something big on the horizon.
Winston Zeddemore: What do you mean, big?
Dr. Egon Spengler: Well, let's say this Twinkie represents the normal amount of psychokinetic energy (risk) in the New York area. Based on this morning's sample (from the bond market), it would be a Twinkie... thirty-five feet long, weighing approximately six hundred pounds.
http://www.youtube.com/watch?v=V13CZnUCOaQ
I LOVED IT!
Thanks for the laugh!
Be well, JW
And they were right! Something of Biblical proportion! Dogs & cats, living together............
Mass hysteria => irrational exuberance
Someone should start a fund that fades Rosenberg.
Jump you fuckers!
Jump twice!
Yeah, just like Roman Polanski when he dressed up like a woman and jumped, then jumped again! in his movie The Tenant:
http://www.youtube.com/watch?v=dEFbvcRpUZI
Awful quality, but 01:30 into the clip for the jump. Apologies for awful quality.
funny as hell. Thanks. Jump twice. LOL
Pork bellies! I have a hunch that something exciting is going to happen in the pork belly market this morning....
"Pork bellies!"
Do you mean the Amerikan middle class? You can trade futures on fat Amerikans? I learn something new on ZH everyday....
Hey, watch where you're poking your finger.
In fact, I think I resemble that. :>)
Was reading that there are 17 unfilled gaps (as of today) on the 60-minute S&P chart since the rally started.
For those who say they'll never get filled, the same was said of the gaps that kicked off the 2006 start of the rally to new all-time highs and look what happened there.
Well I just spoke with some guy named "Eddie" who has a telepathic connection to the force all microprocessors draw on for their calculated wisdom, and he says the market is going to continue it's climb unabated even if the human species is wiped out by a plague.
Well, that is where we're headed...
That seems as plausible as most other forecasts.
Hollywood will seen be producing Terminator 5: Rise of the HFT
The machines keep trading.............
Another 1% added onto the S&P today.
he's using the wrong playbook - the market is not trading on the 2002-2008 reflation correlation.
btw please let us know when he turns bullish so we can sell...
DOW heading for 36K, f**k job recovery, it ain't happening.
When we can all buy stocks and live off the income, who cares?
What income? Dividends are sparse like the sahara. You might be able to live off of the proceeds of day trading, but that's a pretty risky lifestyle. Like flipping condos in the aforementioned wasteland.
Could it just be that the Multinationals have basically saved our asses? Also any US company still standing (small to large) should be seeing higher sales (excluding construction) as a result of the demise of their competition and the fact that jobs are no longer in a free fall.
I think the black swan right now is the positive demand within the emerging markets. The emerging markets are allowing our US multi Nationals to post some very impressive numbers. I don't have an answer as to why these emerging markets are performing so well. Is it that their natural citizens have finally reached a level, financially, that they can consume and make a difference? Are their government's spending keeping them afloat? I don't know. But, I propose we look out below if this demand falls anytime soon.
I don’t even see that the sovereign debt issues being an issue. It is clear that the WORLD supports and is not concerned about this debt as long as there is a guarantee by someone, somewhere.
Maybe all of us who have been doom and gloom have been wrong. I've about decided I can't go on like this. Life must go on. I'm starting a spec in the next few weeks. To hell with them.
Demand in emerging markets might be real, but that would mean that PE ratios should be lower, no? If that demand is flowing through to earnings, anyway. Yet, earnings are in the "overvalued" portion of the PE ratio distribution over the past 50 years.
I don't think PE ratios are significant for this (current) economy. They may be significant for the stock market. A correction in the stock market due to valuations should not have a significant impact on the economy unless they are at levels seen in the dot com era and even then the collapse wasn't just a PE issue. I mean that was truly a dream, pie in the sky time for American business.
All I'm saying is that regardless of what statistic you find, the market is up big time since last March and American businesses appear to be doing VERY well.
I'm not saying that a correction in the market would effect the economy. If anything, it would make the market more reflective of the economy.
My point was that for the demand story in the emerging markets to be real, in terms of US multinationals, it has to flow through to earnings. If it was flowing through to earnings, PE ratios would be lower. Of course, that's an "all things being equal" statement, but we know that US demand is lower. For these PE ratios to be justified going forward, you have to assume one or more of a variety of very good outcomes will happen, e.g. emerging market demand stays high, allowing multinationals to grow into their PE ratios, US demand picks up, also lowering PE ratios, both happen, etc.
As for US company performance since last March, Tyler nails it when he says that is a function of cost-cutting. That typically gives a company a one-time shot in the arm, so no surprise that current earnings are higher in the wake of those cuts. However, it's also a prisoner's dilemma because if everyone's cutting costs, it hurts consumers, which means less spending. Government's stepped in, but that's unsustainable. At some point, even the densest person realizes that all this debt is going to lead to higher taxes and says enough is enough.
We can not only guarantee that. We can lend you ,money on your hopes. How about that hope derivative ! 2012 galactic alignment we celebrate you and have a derivative based on the black hole in Galactic center.
Recumbent exogenic synthesis is highly correlated to endemic events in liquidity driven markets. Enjoy the party while it lasts.
I love how the Rosie naysayers focus on the area he's getting wrong (equities) and don't talk about the area he's gotten right (corporate bonds).
At worst, it's been a fucking wash, you dumbfucks. Can you please STFU already.
MARKET WARNING:
http://williambanzai7.blogspot.com/2010/03/market-warning-sign.html
Nobody knows what the market is going to do.
All we can say is whether what it does is right or wrong.
Yawn, nothing "big" is happening but we are in for a long, tough slug ahead. No matter, liquidity tsunami is still going on, and risk assets will continue to be bought.
http://www.youtube.com/watch?v=vA9aAwiXRYM&feature=related
Not certain, but I think you can hear Leo's car being crushed at 1:28 of this video.
Like the dotcom and subprime this will continue until they can no longer find the greater fool.
Of course the MSM plays a role in alerting J6Pk to the risks but they won't be doing any of that until the next administration.
This is just a novice opinion but I think Rosie's eyes are stinging and he is saying:
"I smell smoke."
Everybody goes, "There's no fire."
"But I smell smoke."
"Shut up. There's no fire."
"I still smell smoke."
"Would you shut the fuck up. THERE IS NO FIRE."
Then every one runs out of the house like a bunch of drunk frat boys that just set the house on fire with gasoline and a bbq...
Pretty much. Like goddamn drones or something - an uphill battle just to inquire about the true nature of our mutual predicament.
If just look at the stock market, why not just follow the trend until it is broken, everyone everyone wants to predict the next big thing when we all know that the government is doing everything possible to buildup a mirage.
If we can not fight against the trend, follow it until it is broken
It's amazing how many of us devote so much of our time and energy to the market illusion when only a generation ago you'd be considered a nut if it wasn't your profession.
If my kids devoted so much of their time and energy on perpetual motion machines, I'd slap them.
Hey, Rosie, less talk, more action!
so rosie joins the dollar bull camp....
Roise says gold is "breaking down". I know that Rosie is a respected analyst...
But come on...anyone who says that a small correction and then 4 months of stable sideways movement is "breaking down" makes it very hard to take them seriously.
Also, a stronger dollar? It's already at 82. That's very high already. It seems, to me, more likely that it's going to get weaker, not stronger.
Deflation? What deflation? I just read that the number of millionaires increased by 16% in 2009. Oil is still over $80 a barrel (and is in an uptrend). Gas prices are still high. Food prices are still high. M1 still expanding by over 10% a year. Where are these signs of deflation?
"Markets can remain manipulated longer than you can stay solvent."
Not sure who originally penned that, but I think it fits. I'm also extremely apprehensive of any technical analysis when all of the components are subject to manipulation. Some may say that doesn't matter in straight technical analysis, but I can't see how it wouldn't. If the trend is a result of manipulation, then how much faith can be put in analyzing it? At what point do the fundamentals reassert themselves? How will they reassert themselves in a manipulated environment? There's group-think, and there's contrarian group-think; both are dangerous. Anticipating future manipulation and its effects is the real challenge!
A lot of people on this site use terms like "drinking the kool aid" , propped up by algos, Goldman this , JPM that, "They" are manipulating the market etc
Have you ever considered that a lot of you are drinking Rosenberg's Kool Aid, which is basically to expect a market crash anytime now and that the world is about to end ? He has a real penchant for talking about what has happened and what is happening now and the implication is that the stock market is too dumb to see whats going on. Well, the market keeps going up and his targets seem less and less relevant by the day. I think if you start with a bearish bent and you read his stuff you probably find it quite comforting as it reinforces your beliefs.....but lets be frank, he has been wrong (on the market) for a long long time now.
Theres one indisputable fact and that is that the bullish camp , JPM GS etc see a lot of money flow. I'm not sure that Gluskin Sheff does and maybe thats his problem.
I fully expect his defenders to jump down my throat here.
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