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Albert Edwards Channels Conan - All Hope Must Be Crushed For A True Bull Market To Emerge
While the bulk of tangential themes in Albert Edwards' latest letter to clients "The Ice Age only ends when the market loses hope: there is still too much hope" is in line with what we have been discussing recently: myopic markets focused on momentum not fundamentals ("It's amazing though how the market can get itself all bulled up and becomes convinced that we are the start of a self-sustaining recovery. And funnily enough there's nothing more likely to get investors bullish than a rising market"), short-termism ("One thing you can say for the market is that it has an extremely short memory"), and that so far 2012 is a carbon copy of 2011 ("One thing you can say for the market is that it has an extremely short memory. Let us not forget that the performance of the equity market so far this year is almost exactly the same as we saw at the start of 2011 (in fact the performance has been similar for the last 5 months"), his prevailing topic is one of hope. Or rather the lack thereof, and how it has to be totally and utterly crushed before there is any hope of a true bull market. And just to make sure there is no confusion, unlike that other flip flopper, Edwards makes it all too clear that he is as bearish as ever. Which only makes sense: regardless of what the market does, which merely shows that inflation, read liquidity, is appearing in the most unexpected of places (read Edwards' colleague Grice must read piece on why CPI is the worst indicator of asset price inflation when everyone goes CTRL+P), the reality is that had it not been for another $2 trillion liquidity injection in the past 4-6 months by global central banks, the floor would have fallen out of the market, and thus the global economy. In fact, how the hell can one be bullish when the only exponential chart out there is that of global central bank assets proving beyond a doubt that every risk indicator is fake???
Why every last bit of hope must be crushed:
One key lesson from Japan is that an essential ingredient to the end of a long valuation bear market is revulsion. It is when "buyers-on-dips" become "sellers-on-rallies". It is when volume dries up to almost nothing. It is the loss of hope. In Japan we saw huge rallies in the Nikkei on the back of short-lived cyclical recoveries. Each cyclical failure and further new lows in the equity market saw hope being progressively crushed. Previous US valuation bear markets typically take 4 or 5 recessions to fully play out. We have only had two.
The market is once again in a hope phase - hoping that the US is now in a self-sustaining recovery; hoping that China might be soft-landing; hoping that the Greece bailout and the ECB liquidity polices have settled things down in the eurozone. These bursts of hope are essential in long bear markets. Essential in the sense that hope must be crushed. It will be crushed. Hope still beats in the breasts of equity investors. The market will rip out that hope and consume it in front of investors' eyes. Only then can the bull market begin.
On why he is not a flip-flopper:
Arielle, one of our senior salespersons e-mailed me a couple of weeks ago with a question: “Hi, any change in your views? Just checking…as I have questions from Clients.” Reading between the lines I think the question was whether I am near throwing in the towel. Bloomberg reports that "Global Strategists Abandon Bearish Views After Missing Rally" - link. Rest assured, I am not one of them. What will make me more bullish? As I believe that we are still in the grip of a valuation bear market the answer is easy - cheaper valuations.
Edwards, like Janjuah, sees no point in trying to provide policy recommendations as there is nothing that can fix the system now - implicitly it is too late, as the Keynesian end-game has taken us too far. We had a chance with Lehman in 2008 to reset the system and to bring it to a sustainable footing; it is now too late with everyone dodecatuple all in on a faulty system.
It is easy to moan that policymakers are still making a mess of things and it would be fair to say that I certainly moan more than most. I find it far harder though, when I am asked what I would do if I was standing in policymakers shoes. Let me make an admission. I do not have the clarity of view that many have about the "right" policy prescription for the current macromess. There are just bad and less bad choices. The key thing for me was not to get into this mess in the first place and I was amongst the vocal for many years about the ruinous polices that were being pursued. For me it's a bit like the old joke when you ask a local person the way to somewhere and the extremely unhelpful answer after much intakes of breath is "Well, I wouldn't have started from here."
Finally, while we have covered the topic to death, Edwards nails it on corporate profits.
A flattening of the profits cycle is exactly what you might expect as the easy, early cycle productivity gains come to an end. It is worth noting that the last time this occurred was just ahead of the start of the recession which the NBER date as having started in December 2007. Back then too, both markets and policymakers all felt the economy was still quite healthy. Indeed neither non-farm payrolls nor the headline ISM signaled the economy had already entered recession at the end of 2007 - indeed like now, payrolls actually accelerated in the second half of 2007, just as profits began to slip!
Pretty much covers it.
So to recap, Conan summarizes best what is best for a bull market:
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The meat grinder is running out of meat.. need to grind everyone up before we can enjoy a tastey burger.
http://hedge.ly/yV3LEp
The meat grinder is running out of meat.. need to grind everyone up before we can enjoy a tastey burger.
4:08 into this video......
http://www.youtube.com/watch?v=qs35t2xFqdU
Zimbabwe market went into the ionosphere despite horrid fundamentals - Never underestimmate the replacement power of equities within an hyper-inflationary spiral. Atlas Shrugged meets Animal Farm 2012. If you have been shorting equities in here, you have a tourniquette on your rectum and that is why I have been XtraBullish. Shorts are getting slaughtered and that is because the worst asset ever is FIAT scrip. Short cash and buy non-cash assets including stocks and you will avoid Armeggedon.
You probably missed this post:
"Marginal Utility" Of Central Bank Intervention Is Rapidly Diminishing"
Here is the punchline: gold now benefits more from currency devaluation/central bank intervention than stocks, and increasingly so.
Derive your own conclusions.
You are ruining Mr Draghi's tea break as Ben B's breakfast!
I think this is the punchline:
"Central Banks will have to go exponential to escape the linear and reflexive impacts of their peers and competitors in the central bank world - or perhaps we really are once again hitting the asymptote of Keynesian ridicule."
Will they/can they actually go for the exponential liquidity Kool-Aid of hyperinflation because they have no other tools in the toolbox as their inept forebears have? This is what will dictate how ugly it gets outside our front doors when the whole facade finally falls off Oz's control booth.
Zimbabwe? This is your hope?
Problem with that plan is you will eventually have to get out which means you'll have to time all this: Equities to cash to hard assets. Dislocation has only begun so a one two three step approach is assuming orderly price fluctuation amongst all 'asset' classes. Ag + Au + Towels(cotton) will do just fine for me.
Ah, the grand illusion sucking the sheeple in as asset prices skyroket - that is all they see - blinded by greed. Pay no attention to the underlying fiat falling, it means nothing. LOL, stupid sheeple.
Oil was not priced in Zimbabwe dollars. The price of oil will stomp the market just like last time.
How great of a movie is it when that's the main characters' first lines-- 1/4 of the way into it no less.
As far as when the market loses hope, hope is something that is hinged upon central banks being able to do something. The market is desperate for central planning because the market is the insolvent financial system and its lemmings. Crush central banking and you crush the cancer, crush the cancer and you can begin anew.
Loss of hope follows taking of losses. Since taking of losses has been thwarted (at least for the banks), there is no recovery. Period.
These bursts of hope are essential in long bear markets. Essential in the sense that hope must be crushed. It will be crushed. Hope still beats in the breasts of equity investors. The market will rip out that hope and consume it in front of investors' eyes. Only then can the bull market begin.
---and re-electing Obama in 2012 is the quickest route to that scenario.
When the fire is big enough, putting it out with dynamite is often a better strategy than pissing on it.
Obama's reelection is likely. There are too many people out there who think they are drowning and in need of free money. It matters not to them that the money has run out any more than it matters to the Greeks. Desperate junkies don't care where they get thier junk.
Obama's reelection is meaningless.
It will hasten the inevitable which is preffereable to delaying it.
when we hear the lamentation of the women (and the women wannabes)
What an huge load of horseshit. You want the "market" to do well. End "mark to fantasy" accounting and allow true price discovery. Prosecute the fucking fraud and uphold the rule of law. The paper-pushers grow more desparate every day, awesome.
Dead green shoots dwarf economy.
Green shoots dwarf dead economy.
Economy shoots dead green dwarf.
Green dwarf shoots economy dead.
who makes all this stuff up, anyway?
it clearly has no basis in reality. As if someone's opinion/delusion was tradeable!
the piece on china's great wall car company with plants in all third world locations wasnt an indication of what's really up. Just throw in VOLVO's technology base and...
oh yeah, that already happened.
Would I like the "market" to do well? Sure.
If I'd actually get some benefits from it!
The DOW could be at 100K and people would still be getting stiffed on their paystubs by the government AND their employers.
land price increases are not fake. they're up enormously...and will surge even higher as "Silicon Valley investors" snap up even more "super sized hobby farms" with all their Apple billions. that's just for starters as foreigners...desperate for food...start buying into the boom in the newly created "Farm Inc."--sending prices even higher. Great for railroad stocks like Union Pacific and Burlington Northern. Throw in an ethanol craze and expect prices at the pump to soar far earlier and far higher than expected. If i recall correctly LA and Chicago experienced incredible prices shocks the last time this happened. Of course "they can thank themselves" as upon running Washington DC they turned General Motors over to the financiers of Wall Street and the "Union People."
The biggest and most important bull market for a very long time has been not in the realm of money but in the realm of ideas: the bull market has been in the 'stock' of the State. The belief in a benevolent and effective central power in human affairs.
Even now, most people believe in the idea of the State so much that they think the idea of a society without a government is a contradiction in terms, in the same way that, before America, most people thought the same about a country without a king.
This basic idea goes back at least 12,000 years as one of the ideological pillars of the mainstream of humanity.
The transition we have now entered is not only, in fact not primarily financial. It's a paradigm shift on a huge scale. It will not be complete until the idea of central control is so discredited, abhorred, and feared that it will never arise again in the human mainstream.
So...I wouldn't worry about when the stock market is going to (1) become honest again, and (2) enter a real bull phase, without the covert support of the State.
We have bigger fish to fry.
"We have bigger fish to fry"-
Understatement of the century. Many fish that most won't see coming until they have already been swallowed whole by said "fish".
A lot of fish will die when you fry in the chaos of anarchy as you question the heirarchy of social construct.
Some basic thoughts come to mind in your perspective fed on abhorrence of state :
1° The issue here is the balance in society between Power and Liberta: the one gives coherence and direction to a human aggregate; the other motivates the individual in his quest; irrespective of collective centrifugal forces. These two prime movers of society have as iconic heroes in our mythology, Zeus and Prometheus; in our modern world, Pericles and Socrates (as Plato's hero in his texts, the first recital of social construct known to western man). How do you find an equilibrium in society, to balance the logic of power (centrifugal force) and the logic of knowledge/individual freedom (centripetal force); keeping in mind that social political fabric cannot stand a vacuum, source of anarchy and maximum entropy dissipation, making the road to nihilist destruction only issue possible, causing inevitably in its wake the search for a new civilization construct as a vital existential necessity beyond the force of the individual himself; as in 476 AD.
2° My point is that the current age of reductionist analytical reasoning : cutting the Gordian knot by a Dictator/king like Alexander, builder of time honoured centralised empires etc. etc. ... is now outdated. Conan/Genghis Khan will no longer be a role model.
The equlibrium between Liberta and Power, as fruit of both human intelligence evolution and its ambitions as that of society's technological potential, requires a holistic construct where we define new rules for complex societies. The game is no longer winner-take-all type chess, zero sum and sterile, but more a Go construct, eternal complex system dynamic; where there are no "absolute" uber-class/ethnic/cultural category winners and similar losers. Society will be more cohesive and more individualistic according to new referentials. Not based on Kinder-Kirche-Kuche. Just the realm of central Power control and Liberta space will change, depending on the circumstances as the pendulum swings.
We are there now. AND WE HAVE TO FIND ITS NEW RULES. It is illusory IMO to think we can go back to being simply more intelligent "pioneers", in an empty world, and to live individual dreams unhampered by others. We are in a complex world construct, where the simpler rules of the past have to become more multi-functional and less like Conan the Barbarian mindframe.
To achieve that "new frontier" dream we have to voyage into space and leave planet Earth!
Time's arrow seems to point that way now on Planet Earth. Or towards mutual annihilation of both Power and Liberta.
The current financial construct is a typical reductionist power play where the new world order elites think they own it all; but in fact they have opened Pandora's box, just like Alexander did, which will make them lose it all for themselves as for their surrogates.
The French Revolution is a very similar scenario. Anarchy followed by formidable and lasting change.
The market has been completely dependent on central banks for four years (if you don't count the previous decade of bubble blowing). Back when just Ben was printing it made sense to be long - now the Fed, ECB, and BOJ are printing like mad, China is easing and sporting one hell of a housing bubble (as is much of asia), the PIIGS are collapsing and gas and food prices are soaring.
Forget self sustaining recovery - they are printing trillions just to keep it all from imploding. The bulls are willfully ignorant because it has been profitable to be delusional. When it falls to hell - they will think it is just another pullback and buying opportunity.
Faith that the central banks can do no wrong will prove to be their downfall.
Wrong post Tyler, this is the best post!
http://www.youtube.com/watch?v=uLpHpYXyUQw
hahaha!
everytime i see this i lauff!
Hank Paulson in a presser, 2006 - "I think the economy is going well, and I don't foresee a recession in the near future"
Hank Paulson to Hedge Fund Managers in Europe, 2007 - "Short baby, short!"
"One key lesson from Japan is that an essential ingredient to the end of a long valuation bear market is revulsion. It is when "buyers-on-dips" become "sellers-on-rallies". It is when volume dries up to almost nothing."
I hate to nitpick here, but isn't this exactly the situation that you have been describing all year?
There comes a time in the affairs of man when he must take the bull by the tail and face the situation.
W. C. Fields
the 30's and 70's bear markets ended only after a number of quarters of single digit market p/e's. the mid to late 70's saw increasing 'earnings' (inflation driven mostly) while markets went down. probably due somewhat to inflation expectations going higher and higher putting a greater discount on current prices and 'required return'.
market p/e's could go up quickly with slower earnings growth (due to fewer people to fire/cut costs), a slightly stronger dollar eliminating fx 'profits' into dollars, and higher input prices/lack of pricing power due to higher commodity prices. put these together and suddenly current market levels are 16x; and we need a 25% correction to get to 'cheap' at 12 again, but as the cycle spins, a series of corrections, higher rates higher commodity slower profits etc and then we are at spx900, at 9x, with 10yr treasury at 3.5%. no where to hide except commodities, esp gold/silver/oil.
in the 70's the fed kept adding money to quell inflation, now we add money to fight deflation. they will keep doing the same thing over andover until only at the end will someone do the opposite, a la volcker raising rates when it seemed like suicide resulting in two hard (but quick) recessions to right the ship for a time at least. this time we will have to endure the whipsaw of massive deflation then hyperinflation to get back to balance. it will hollow out any middle/upper class 'investors' as this era has already hollowed out gen x and y from desiring to own a home, and the still-coming repudiation of higher education due to high cost/low return and over indebtedness.
I totally agree with Tyler: As a culture we take, I think, models and measurements to an extreme. It is terrifying that models become mistaken for reality. Worse, all models are built on definitions which we assume true despite the fact that there is no truth in a definition.
In this case, I think there is great error in the distinction between wealth and assets. In the 1960's, for example, it took a room full of PhDs to operate equipment that has less functioning capacity than the chip in a cheap phone. The mainframe went from millions of dollars to less than a dime in a short amount of time. We consider that wealth-generation today even though its value as an asset depreciated significantly.
I think similarly for housing and fear the consequences of valuing it otherwise.
@.." his prevailing topic is one of hope. Or rather the lack thereof, and how it has to be totally and utterly crushed before there is any hope of a true bull market."
i think i see the problem.
the psychological attributes of a population are
a response to the degree of order and organization
in their reference frame / culture. temporal developments /
evolution of the conditions require a psychological
shift or adjustment on the part of the population to
correspond to the changes in conditions.
in history no people has ever been capable of this so
empires fall, fail from within.
hope is not the problem. the problem is the "money" system,
usury,
that demands ignorance and perpetual ponzi expansion.
.
http://www.youtube.com/watch?v=weXKuURMgMs&feature=related
A Talk With Ramana Maharshi.
.
http://www.youtube.com/watch?v=4WHUdK3dBEo&feature=player_embedded
THE PURE AND SIMPLE TRUTH PT 3 (who are we and why are we here?) to Thrive
there's still hope!
http://www.jinrongbaike.com/
http://www.cnhedge.com/
So is Albert Edwards bullish on the dollar?
BTW... the screenwriter actually put the words of Genghiz Khan in Conan's mouth.. except he didn't care for lamentations.. he said "embrace the enemies' wives and duaghters."
Tyler , your post was the story last year, yet the cbs inflicted huge losses on those who bet against them. Soon every remnant of real investors will be gone from this market. The market does not reward fundamentals or truth anymore , even in gold. Time to train in firearms you will need them.
Fed's Fisher says economy brighter, no need for QE3
Reuters
February 23, 2012
http://finance.yahoo.com/news/feds-fisher-says-economy-brighter-14091104...
The market was supposed to be pricing in another LSAP. I guess everything is just fine now without it. Amazing how that happened without millions of good new jobs being created...
After inflation-adjusted using unofficial data (not the official fake inflation data), the stock market actually started declining significantly since early 2000's. With high inflation rate, the real return of the stock market will continue to decline despite having nominal rally.