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Why This is Not 2008
Much of the investment community is now bracing for a repeat of the 2008 crash, when the S&P 500 plunged by a gut punching 52%. For proof, look no further than last week’s dramatic selling, when traders could not unload equities fast enough.
Unfortunately for those puking out positions here, this is anything but a replay of the melt down from three years ago. Much like the military, they are over preparing for the last battle, and blind to the one ahead of them. Let me tell you why those capitulating now, have got it all wrong:
*In 2008, banks were essentially insolvent. Since then, they have raised over $50 billion in primary capital.
* Nonfinancial companies are sitting on the highest cash mountains since 1955, some $2 trillion, or 11% of total assets.
*In the last three years, the consumer savings rate has leapt from 1% to 5.4%.
*Public interest coverage is at a ten year high.
*Business inventories have gone from bloated to fighting lean.
*Debt/GDP has fallen from 100% to 90%.
*The cheap dollar is fueling surging exports.
*Short term interest rates have fallen from 3% to 0%, and will remain there for two years.
*Junk bond yields have plunged from 25% to 8%, opening up financing avenues for many subprime corporate borrowers.
*Companies have announced buyback programs of $550 billion, and some $450 billion of this may be executed.
If you were an automaton, and only saw these numbers, you would be loading the boat with equities right here. But you’re not, and are probably still nursing scars from 2008 which only recently healed, and still need to be scratched whenever there is a sharp change in the weather. One can never underestimate emotion when it comes to stock market valuations.
My late friends, who traded the 1929 crash and continued on throughout the thirties, told me the experience was so traumatic, that many customers stayed out of the stock market for decades, if not for the rest of their lives. We may be seeing a repeat of that now.
The bottom line here is that while the market is overdue of a nice 5%-10% correction, we aren’t going to crash. We’re not going to zero, to 666 in the S&P 500, or even below 1,000. For that you’ll have to wait until next year, or 2013 at the latest.
For these who wish to participate in Macro Millionaire, my highly innovative and successful trade mentoring program, please email John Thomas directly at madhedgefundtrader@yahoo.com . Please put “Macro Millionaire” in the subject line, as we are getting buried in emails.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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*In 2008, banks were essentially insolvent. Since then, they have raised over $50 billion in primary capital.
-Notwithstanding, today they are even more insolvent.
*Nonfinancial companies are sitting on the highest cash mountains since 1955, some $2 trillion, or 11% of total assets.
-These companies must be preparing for something.
*In the last three years, the consumer savings rate has leapt from 1% to 5.4%.
-Unfortunately nobody knows how much of those "savings" were actually written-off-debt and not real savings.
*Public interest coverage is at a ten year high.
-Yawn
*Business inventories have gone from bloated to fighting lean.
-And they will continue oscillating between bloated and lean forever, however as always the timing is highly uncertain.
*Debt/GDP has fallen from 100% to 90%.
-The size of our lies is increasing. Or our calculator is broken.
*The cheap dollar is fueling surging exports.
-You can see on the US trade deficit just how our exports are surging.
*Short term interest rates have fallen from 3% to 0%, and will remain there for two years.
-Continued cheap credit will have a big impact on the ones already drowning in debt. And from a cashflow perspective money continues to be worthless.
*Junk bond yields have plunged from 25% to 8%, opening up financing avenues for many subprime corporate borrowers.
-The search-for-yielders have moved on to different territories. It is going to end the same way as last time.
*Companies have announced buyback programs of $550 billion, and some $450 billion of this may be executed.
-Because if you cannot increase sales, or widen revenues, this is the only way to push up stock prices.
Absolutely true, the current time period is not 2008. I just looked at a calendar, and it indicates that some time has passed, namely three years. Consequently it is now 2011 and no longer 2008.
As regards the financial crisis of 2011, it could easily turn out to be even worse that that of 2008, as the sovereign states that once bailed out banks now need to be bailed out themselves, while the banks in turn have been revealed to be just as bankrupt as they were prior to the last bailout. This situation has a great deal of potential, as the stock market eagerly reminds us once again today.
Gotta chime in: This was very entertaining. Unfortunately, very few of those numbers look as good as they're painted here (painting by numbers?).
Context is everything. Why are Mom and Pop out of the market? Maybe because they don't want to lose it all this time? And they're now having to acquire a taste for Spam? Or maybe they're really smarter than the hucksters think they are?
After reading this dribble, I really need to go buy some more PM's.......
That's right. This is not 2008 ... it is much worse ...
If Zero hedge ran out of bad news that means the top is near.
John ....... In all honesty and with all the care and concern that one human being can muster for another I tell you this :
Buy PM's :p You literally have no idea wtf you're doing in this instance.
Riddle me this Mr MHFT...Just where did all the losses go? How did all the insolvency just go away? The terd was on the ground and all they have done is bury it...How about those mark to market gimmicks? Or off balance sheet transactions? Or the 2.3 Trillion increase in the FED'S reported balance sheets? Or the 5.4 Trillion increase in National Debt? Or the millions of homes that make up the shadow inventory? How about that shadow banking system? or better yet the time bomb of them all, the derivitives market? Oh and let's not forget about where the terd is buried over at Fanny and Freddie. MHFT are you blind, or are you simply just in denial? In 2008 the terd was on the ground and everybody was smelling it. The only difference now is the terd has been covered up with more terds, in fact it has become a full blown septic system that will eventually fail and leach its ugly stench back to the surface and reveal its smell once again.
Is that you Tim Geitner?
Is Lady Jane involved in this enterprise? If so. I'm in.
I so much more enjoyed ZH until the last week when they start crapping in my eyes with MHFT's nonsense. I've met the dude. His moniker is accurate.
WTF is this kind of assine commentary doing on zero hedge....? does cnbc run zero hedge now...? more than 50% of the articles are now BS pumping for idiots.....
Here's a video of MHFT in action:
http://www.youtube.com/watch?v=zDAmPIq29ro
and if you remove the mark to unicorn accounting standard currently being utilized by the banks...where does that put them?
they were insolvent then and they are insolvent now. wishing or pretending will not change anything.
no...this is not 2008. it's much much worse.
MHT - You're obviously well liked!
Regardless, we are in a much worse position now. Globally we're screwed, not just the US.
S&P will dive, it might even try to test 666 before the year end.
"prolonged economic depression" says Schiff:
We're not "facing a double-dip recession" as the media suggests; instead, we're really in the midst of a prolonged economic depression.
On each step of this multi-year downward spiral, global investors are slowly but coherently altering their preferred safe haven. Alternatives are being desperately sought, though actions first by the Japanese central bank and more recently by the Swiss have prevented their currencies from fully realizing potential gains as dollar-alternatives.Fortunately, gold doesn't have a central bank, so it can rise as fast as the dollar falls.
Read more: http://www.businessinsider.com/the-last-haven-standing-2011-9#ixzz1WoDRYD5A
Schiff is dead wrong on Japan (I like him though).
85% of Japanese savings is in JGBs!!! When your "savings" are in the entity going bankrupt, you can't bail it out.
No bankruptcy...money dilution...buy gold,oil and other commos...
But Schiff sees the Yen as an alternative to the dollar. If they hyperinflate away, why would the Yen still be an investment to be in?
It's ridiculous. On Japan if it's Schiff vs Kyle Bass, Kyle Bass wins hands down.
http://seekingalpha.com/article/221754-the-case-for-a-sovereign-debt-def...
The key point:
"Every 100 basis points costs Japan 25% of revenue for debt service."
Let that sink in.
it is not a double dip recession. It is about a 150 million plus one MHFT "dips" recession (all the dips that dogmatically support everything Obama or democrat, regardless of reality).
Politics matter because folks are so politically biased that they won't see what the hell is going on even when their team is screwing it up. I dumped MHFT because it was clear that he had a political axe to grind.
Until folks get agnostic towards their party, solutions will not be here.
Just another dumb bunny pimping his wares.
Tyler lets the pimps spew so that this place doesn't become an echo chamber. I kind of enjoy it; they're sort of like the clowns in a Shakespeare play. It's fun to watch them scramble for shiny rocks on the edge of a smoking volcano.
1. "In 2008, banks were essentially insolvent" Yup still are, and the EU banks are completly insolvent.
2. Americans cant SAVE if they have NO jobs and $500,000 in debt already.
3. Housing has gotten worse, NOT better.
Print another 15 trillion, or this goes to zero really really quick.
Long Hail Ceasar and Gold.
How did shorting the swiss franc 2 days ago work out for you idiot! Its up 5%. Thank God I'm not dumb enough to listen to your trade recommendations. What about that elite trader friend that said his one big trade was to short the euro right before it ran 8% higher in 2 weeks. Save yourself some face and don't make any currency trading recommendations.
If you were on automation, you would load the boat on equities? They just ran 10%. Where the hell have you been?
I love the comments on this site. Hilarious!
Hey, dude. I often have lots of problems with his work, sometimes he's off. pbut you put on multiple trades, and cut your losses. I have done well with uup (dollar bull these past few days. I also agree with the 10% ramp up on trend not a good buying opportunity according to the charts. But, calling someone an idiot is out of bounds even for ZH. There asre ways to be very insulting without the name calling.
Youre dreaming MHFT, on the second read thru your article after puking, it is apparent you either dont know this economic collapse was planned or youre just outright stock pimpin. Everything you said in this article is made up unicorn bullshit.
A bankster shill - no doubt.
A bankster shill - no doubt.
madhedgefundtrader, go back to peddling your crap products. You sold out. You're like a series of late night infomercials for financial markets. You're a spam merchant. Nothing more.
'Ooo! Non financial companies are sitting on $2 trillion mountain of dollars!' Yea transfered from the publics pocket to theirs....and now what, theyll start handing it back to bankrupt america? This guy is so chock full o bullshit.
That is the most Rosy Scenario I have heard in a long time. Thank you for allowing me to wallow briefly in blissful ignorance.
You're right it's not 2008. It's worse. Markets have not been allowed to clear. Until that happens each shock will be worse than the last.
Hey give the guy a break, he could be right, not for any of the reasons he listed, but with the Fed channeling trillions into equities via bankers that get to take a large cut the market might not completely take a dump.
I do find it curious though that there was no mention of QE or the fed. But there was a hedge in that a correction possiblity was mentioned. Reading this piece you would gather that MHFT believes that equities were priced by the actions of Main Street investors acting on economic fundmentals. That would be sad.
Until guys like MHFT understand we have too many riders and not enough horses. then we are going to keep sliding into oblivion.
Making stcks look better was the 2009 plan, they cant do that anymore not with the USD -20 points lower and commodities 50% higher across the board.
WTF is EVERYONE now on the Whore St payroll? I guess we still have Tyler. How Tyler allows this fucking shills 'analysis articles' up here I dont know, yesterday he says hes short now hes sell side pimpin again today...but I wish him all the worst in the coming terrible future. Hey MHFT see ya in the riots ahead bud.
MAD is right...this is NOT 2008...it is much much worse.
The guy overlooks other differences, like:
the Fed is out of monetary bullets
the federal government is out of fiscal bullets
Europe is in MUCH worse shape, especially their banks
the consumer is in MUCH worse shape
And this is just starters
Its hardly 2008 anymore, $25 trillion thrown down the hole since then and in 2008 gold was $500, silver $7, oil $25, the USD at 91....yea its MUCH MUCH worse than 2008.
Understanding the messenger is absolutely essential when evaluating the message being delivered. MHFT's message is not about altruism, but is simply a reflection of someone who is in the stock selling business. Other groups like CNBS, Wall Street pundits, etc. who are also in the stock selling business tout the benefit of their product rain or shine. It's logical behavior since people in the stock selling business benefit monetarily when people buy stocks and help stocks go up. As an analogy, I like to ask people what do you think a plastic surgeion would tell you if you asked him or her whether you needed a nose job? There is only one answer because the doctor is in the nose job selling business! Caveat emptor.
Yea, hes a pimp.
Be nice to him. Whenever you buy gold someone had to sell. Whenever you short a stock someone had to buy it. There is a use for the greater fool. Plus the the future is not writ in stone, who knows he might be right, not likely but could be. That said, does this guy live on the same planet as me?
LOL call someone a fool then double post. Karma
Wait...did I get lost? Is this the CNBC site? If I wanted pollyannaish fantasies I'll turn on the talking heads and watch them half orgasmically exclaim "Were off the lows!"
MadCowHedgeFundTrader forgot to include the fact that along with those "stockpiles of cash" and for now [alleged] "record profits," publicly traded corporations are sitting on a record 12 trillion USD worth of debt (they rushed to sell debt in the form of bonds in record low interest rate environment).
He also forgot to mention that banks are operating off of mark-to-unicorn fart balance sheets, and that their primary and historical method of making profit - i.e. lending - is dead and broken. The banking sector should be renamed "The Walking Dead."
And let's not forget that unlike in 2008, we not only face the risk of just massive bank crashes of epic proportions, but of SOVEREIGNS CRASHING.
Small details, these. /sarc
He probably also believes that WTC 7 fell for "no reason"...
Well it did -it just fell for no reason. The government wouldn't lie to us about something like that, would it? If it tried, the crackerjack team of investigative reporters in our national media would surely uncover the truth and expose them? Right?
If Bush, Cheney, the Neocons and the massad was involved in 911, Obama would throw them all in jail-right? Obama is Muslim-certainly he would jump on the chance to expose Israeli involvement in 911 -that would allow him to achieve his life time dream of helping the palestinian refugees regain their homeland? Right?
'Record profits' simply on the back of a collapsing dollar...thats over now as well. Everyone knows if this dollar goes 2 points lower it is game over.
...Not to mention that the BRIC wall is starting to crumble. BRIC™ was the memo at CNBC for the last 5 years.