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Setting Up the Classic Wash Out: Part I
Russ Winter of Winter Watch takes the floor today with Lee Adler of the Wall Street Examiner and Aaron Krowne of ML-Implode.com to expound on why the current washout will set up a great buying opportunity in certain beaten down stocks. Tune in to hear Russ's point of view as he faces a grilling from his colleagues.
This podcast goes with Russ’s post: click here to listen to Radio Free Wall Street’s FREE podcast. ~ Ilene
~ Ilene
Courtesy of Russ Winter of Winter Watch at Wall Street Examiner
Just like clockwork, the major analysts (like MER) are coming out with their macro calls, replete with charts showing the China hard landing story I was telling about six to nine months ago. Only problem is that China, the emerging markets and many commodities are already down 30% or more. Not to be outdone, now Morgan Stanley lowers its 2012 oil target from a bubbly $130 to $100 (I presume this is Brent Sea oil). I am amazed at how these Captain Obvious “analysts” do nothing more than state the obvious, and rather late at that. Seems the challenge with being early picking a top are temporary 5 to 10% losses, but the problem with being obvious is suffering more along the lines of 30% plus losses. I’ll take the former.
Bloomberg:
China has three major problems, wasteful slash and burn economic actors/gamblers, inflation, and holding too many Old Maid Cards (US Treasuries and agencies) . On the inflation, as long as the central banks don’t quickly let the crack up boom (CUB) right back out the bag, things are much better especially of late (see third chart: JJG grains). If this can pass through quickly at least riots and revolution might be postponed. I will be posting general comments about the set up for inflation separately.
I do think there was cyclical double ordering (Inflation Causing Boom, then Bust) and hoarding (Farming Sector: History Repeats Itself) back in the spring, and that is being disgorged. This economic dynamic is important to understand. QE3 will do little to encourage the double ordering that has already occurred, but rehoarding and CUB trades are another story. I was writing throughout the first half that the Chinese low wage export model was severely impacted and shipments were way off. I even felt that the box loads coming into West Coast ports was old inventory and billing scams. As a personal observation, I strongly feel the Chinese goods in the US today are rock bottom in quality. I have seen no reporting on this, but I’m convinced of it.
At the time, I attributed this mostly to inflation pressures, much more so than weak American or European demand. I think western demand for cheap products is permanent and really one of the things that keeps the tires from falling off. The only problem was the Chinese could no longer afford to sell cheap. Now there are numerous reports out of China that enterprises have collapsed leaving huge debts. This is also under reported in the West, but here is a story out of China that’s important to read, even if poorly translated to English. I think that has been happening by degree all year and is only now being reported (but mostly in China). Apparently, firms were kept afloat during this period by engaging in usury-like rates (called Lao Gao). In fact, in China, this is being referred to as the ” Lao Gao (usury) crisis.”
The other part of this exquisite timing is that it sets up the hedge fund complex for lots of redemptions. The deadline for holders is Sept. 30 and then the Boyz — who have been heavy into the China growth story and commodities and under severe pressure to hang on — get to meet redemptions to boot. Can anyone say “margin call”? As I have been reporting, Aunt Millie has been abandoning US domestic funds, but hung in with her emerging market mutual funds. To me, this is setting up the perfect wash-out scenario. There’s a lot to cover, so I’ll be back with Part II at Actionables with more detail how we should process and position for this going forward. If anyone cares to dialogue on this post in the meantime, I’m eager to participate and get your thoughts.
Source: ICI
Click here for more information on Russ Winter's Actionable.
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get ready to abandon the ship
http://www.wikinvest.com/index/Baltic_Dry_Index_-_BDI_(BALDRY)/WikiChart
using contrarian theory ths would mean a buy opportunity
The only true contrarian theory applicable to a rigged market is to avoid it altogether, as it is a logical theory being applied to illogical "markets." There is nothing contrarian when deciding which illogical lie might pay off, as any can evaporate in an instant.
It's really just gambling in an environment where one cannot determine the odds.
Russ is OK, but Lee is an arrogant prick. I've been listening to them for years and stopped about a year ago when I could no longer take any more of Lee and his half-baked blather and spew. For one thing Lee's background is in real estate, not stocks or commodities trading. Second, he is an extremely linear thinker and it shows in his methods of analysis. About the only thing he seems to be able to grasp is cycles analysis which is a very 2 dimensional, you might even say 1 dimensional, form of analysis, and requires no more math than the ability to use +/- operands. Lee has a very high opinion of his own market forecasting abilities (while missing entirely the 2008 crash) but regularly denigrates and dismisses all other forms of anaylsis including oscillators and elliot wave, I think because he knows very little about them. Last but not least I have heard him flame Ron Paul and his supporters numerous times, calling him an old goof, a dope, and casting many other undeserved aspersions onto him. That was the final straw for me. Russ OTOH is more fair and level headed. But as long as Lee is the host of RFWS I refuse to listen to that podcast ever again.
only one chart you need to look at to get perspective on where this whole world economic pile of shit is heading.
http://www.dryships.com/pages/report.asp
Dry ships index tells us more than enough about where it is heading, prepare now!, it is going to get dicy soon.
In fact, in China, this is being referred to as the ” Lao Gao (usury) crisis.”
The problem is, everything they say sounds like lao-gao tao bao owww.
The usurious interest rates mean they are fast learners. Now if they could only learn Engrish..
Redemptions for year end can be deadlined 10/31...
The Big problem is the meddlers have broken the pricing mechanism. People no longer seek value of discounted cash flows. They have to discount interventionism of all sorts. They grossly mis-valued the massive interventions that enabled the housing bubble, just like the miscalculated the tech bubble. Now they try to discount Q's and TARPs, etc.
Meanwhile, housing still hasn't reached a clean clearing price, what -- with the Fed holding $2 trillion in mortgages.
The "Risk Free Rate"? Who the hell knows what that actually is anymore.
Or the clearing price for labor? 90 weeks of benefits allow labor to be picky and keep on believing that their prior buggy whip jobs will reappear, rather than just getting on with it.
Many good points here. I've been in "who the fuck knows" territory since I started trading back in 2007. If you're not assuming everything is total bullshit, you are the sheep. Yet, the idea that we're not playing in a rigged casino still seems to not be penetrating into the wider psyche.