"It all points to possible problems ahead for the economy, some bloggers say, because deepening housing woes could have a cascading effect. According to Calculated Risk, a blog written anonymously by "a senior executive, retired from a public company, with a background in investing, finance and economics," there's "evidence that the housing slump is spilling over into consumer spending." Disappointing earnings forecasts by Sears and Home Depot point to that possibility, Calculated Risk said. "If this housing bust is similar to the early '80s or '90s, real home improvement investment will slump 15% to 20%," he predicted."
And yet, between the last 20 minutes of yesterday and the first 10 of today, the entire credit-led fall in the equity markets was erased.
I said this would happen yesterday. My reasoning was that there are too many undercapitalized shorts in the market, and we get a bunch more jumping in at any sign of a downturn. The "hedgies" or whomever can just blow these guys out and take their money, so why wouldn't they do this?
There is some kind of hidden interest at work here, trying not to let anything in the credit markets affect the equity markets.
Never in the past would such dislocation be completely dismissed.
I think if you manage to subtract all the miners, oilers, melters and diggers from S&P500, you will have a bear market. Unfortunately I don't know how to do that.
Even a lowly event such as the demise of Refco was not awarded such a luxury, now imagina a system wide credit event like the one we have now. It's not obvious at all.
Still, its amazing that if a few hedgies needed to liquidate equity because of credit troubles, they could do so into a rising market.
At the top of the market everyone is given the opportunity to walk slowly to the exit, getting the best price for his holdings and keeping all profits intact.
I'm beginning to think unemployment is a 'short term' leading indicator. Sebastian's arguments have had enough validity for me to look again - hard - at the various indicators. And that particular one...
I'm going to agree that a surge in unemployment leads a recession. It has done so, historically, by somewhere between two and six weeks. I think there are way too many variables for me to say it's always necessary - just that it's highly probable.
On the other hand, trying to use unemployment as the tripwire will fail you. It will definitely do so as unemployment has give a false signal more than once. And it might do so as, well, frankly two weeks warning is too late for a lot of things on this scale. Oh, and one more thing... there are way too many variables, and that plus the fact that how unemployment is measured has changed (several times in the past few decades) means that what you think you're watching may not be what you are actually watching.
There's nothing like discovering your tripwire is now made of a material that's stretchy, and so goes off a few steps later than it used to.
Well, we keep seeing oil prices and interest rates rising into these rallies. As long as that keeps up I think there's only so far stocks can go.
A day where oil goes up a dollar and interest rates rise 3 or 4 bps isn't good day for the consumer. And, ultimately, what's bad for the consumer is bad for stocks. You might have to wait awhile, though.
Another melt-up phase wouldn't surprise me at all, even though I think it's unlikely. This is just the nature of excess liquidity - anything can happen in the short-term.
Here's what we're celebrating today on Wall Street:
Chain-stores reported flat sales in June, confirming flat expectations for tomorrow's retail trade data from the Commerce Department. Many chains, especially in apparel, are discounting prices in order to prop up sales. The result is another surge of earnings warnings similar to a wave that hit when April's results were posted. Profit weakness in the sector could very well be hurting payrolls in the sector, which have declined in two of the last three months.
But Wal-Mart, by far the nation's largest retailer with more than $27 billion in monthly U.S. sales, posted U.S. same-store sales growth of 2.5%, well up from 1.3% in May. The stock market is rallying this morning in part on Wal-Mart sales and in part on merger activity. But early gains for retailer shares stand in contrast with the sector's profit outlook.
This rally was prepared yesterday near the close, anyone that checks intraday charts knows that.
Yeah, that was definitely my reaction when I saw the close. That in combination with all the dire articles in the past week or so made me think somebody would be planning a short-squeeze.
That's exactly what I would do if I had the money. I'd call all my hedgie friends and say "tomorrow let's blow all these guys out."
ac, it was not just the close, it was what happened AFTER the close in the 15 minutes the futures trade. They made most of today's rally back there and then. NQ went from 2000 to 2009.50, ES went from 1526.50 to 1531.50, ER2 went from 844.30 to 848.80.
Today's rally was decided yesterday before the close.
do u guys believe in the PPT? if so, just how much can these guys buy the market? would the printed $ show up in any gov't figures? my god, with all the bad news/data its amazing how long the market has held on. are we never going to see even another pullback in our lifetimes?
I don't really believe the PPT. But coordination between investment banks has precedent, and the Chinese/Russians/Arabs might have been persuaded to buy as well (if Saudi Arabia funds the guy that blew up Amaranth, sure as hell they fund a lot of other people, and if China buys $3bn in Blackstone, sure as hell they might buy billions of other sheet).
"This is just the nature of excess liquidity - anything can happen in the short-term."
How long is the short-term? This nonsense has been going on for several years now.
I found some article the other day on how the falling dollar was collateral damage to the BoJ's attempt to keep the yen stable wrt. the yuan, and that the ZIRP would continue until the yuan floats. Should have bookmarked it. Anyone else see it?
Not so sure ZIRP continues until the Yuan floats. The yen has been devaluing versus de yuan for some time now.
The ZIRP should end this year. Auguest will see 0.75% rates, by the end of the year it should be up to 1% at least. It can go ALL that higher because Japan has an incredible amount of public debt (same will happen in the US when the economy implodes).
so we blow our dough in chinese toys. chinese money flows back in for easy credit. we foreclose our homes. prices go down... chinese have less "money"...
1% is still low enough to support the carry trade, isn't it? 1% is less than 5.25%. Not that the BoJ is the source of all liquidity, but certainly a good bit.
1% might still be, but the carry trade in a currency subject to low inflation or deflation, is suicidal over the long term, even with the low rates.
If you recall, things in Japan were once bloody expensive when converting from yen to other currencies. Well, not any more. PPP (purchasing power parity) will sooner or later mean the yen goes higher (perhaps explosively) in spite of the low rates.
Low inflation/deflation actually ADDS VALUE to the currency having it over the long term, even if it supposes low rates and short term pressure.
Great graph CR- but think about the implications of the total change since 1998- $10 billion per month to $60 billion per month.
$120 billion pumped out into global liquidity versus $720 billion pumped out into global liquidity. Doesn't this begin to account for the need for the fed to provide endless streams of money? When that money comes back here to make more money, it pumps up wall street even more! But aren't soaring commodity prices a sign of the end of this super vendor finance scheme?
Is it any wonder that the world is afloat in liquidity? I am beginning to wonder what happens if our petrofinanciers and trade good financiers decide to mark us up some more and get even more of our money flowing out. At some point even Wall Street will wake up and realize that this trend can't go on forever...or can it?
Maybe I shouldn't worry, if this goes on for another twenty years I will be retired with enough hard assets to live off of, and I just won't care when we finally bellyflop like Argentina.
Of course the MEW peak and trade deficit peak ex oil doesn't prove causation unless someone does an awful lot of work. But it does make a whole lot of sense... less credit fueled buying of imported "stuff" with which to fill the garage.
Since the price of oil IS rising though.. . the total deficit is helping to drive the dollar down. The CME dollar index futures contract (based on a basket of 17 currencies of key trading partners) made a 15 year low Tuesday and again today.
"Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly."
When did that bear market begin? I could have sworn the DOW has been setting new highs for the past year.
Lord Keynes would chuckle over that one... kinda redundant, no?
As far as the yen-yuan thing, I agree ZIRP or Real ZIRP (ZIRP taking into account Japanese inflation) will be with us until one of two things happen:
(1) Yuan REALLY floats
(2) Japanese quit trying to be an export powerhouse.
Actually (2) could happen before (1) since their population is aging faster than about anyone on Earth - including the EU. Hard to build Toyoyas for export from the old folks home.
Also everyone gets all jazzed about Japan's debt... If you stack their private personal savings up against their public sector debt it results in a much smaller problem than it appears... an issue but not financial Armageddon.
Also 1% BOJ is fine for carry if volatility stays low... Maybe they don't carry USD initially but what about Aussie, NZD or others? Money is money and fungible... create a lot of it in one place and a demand for debt in another and its like the charge building up in a thunderhead... ZAP.... CRASH! BANG! BOOM!
Throw in SWFs currency manipulation and you have opportunity for continued liquidity flash flooding.
Bloggers have been discussing how asleep the rating agencies have been for longer than a few days. I guess they
didn't want to print this, since it would point out how asleep they've been also:
Bloggers Report Ratings Agencies Finally Get Around To Downgrade Securities
last.
CSCO @ 29
aye,i,aye,,,,
Called Bluff,
point being?
Real Trade Balance
Dec-2006........-57871
Jan-2007........-55903
Feb-2007........-57608
Mar-2007........-59603
Apr-2007........-55246
May-2007........-55233
In real terms the trade balance actually contracted in May.
Real nonpetroleum import growth continues to weaken.
It looks like trade will make a significant positive contribution to 2nd Q real gdp growth.
JOBS JOBS JOBS !!!!!!!!!!!!!!!!!!
As long as people have jobs they will spend money.
Consumer spending makes up the bulk of our economy.
Doom and gloom all you want.
I will not get nervous until I see many people losing their jobs.
By the way great blog.
OK but what does Gann's Nine Square show is next?
Peter, isn't employment a lagging indicator?
Margin debt expanded by the most ever in May. Retail is buying in heavily.
Bloggers Downgrade Ratings Agencies
"It all points to possible problems ahead for the economy, some bloggers say, because deepening housing woes could have a cascading effect. According to Calculated Risk, a blog written anonymously by "a senior executive, retired from a public company, with a background in investing, finance and economics," there's "evidence that the housing slump is spilling over into consumer spending." Disappointing earnings forecasts by Sears and Home Depot point to that possibility, Calculated Risk said. "If this housing bust is similar to the early '80s or '90s, real home improvement investment will slump 15% to 20%," he predicted."
Yahoo! 404 - Page Not Found
Oil up almost a buck early today.
Freddie Mac: 30-yr mortgage averages 6.73% vs 6.63%
Ouch. Might be more where that came from.
And yet, between the last 20 minutes of yesterday and the first 10 of today, the entire credit-led fall in the equity markets was erased.
There is some kind of hidden interest at work here, trying not to let anything in the credit markets affect the equity markets.
Never in the past would such dislocation be completely dismissed.
And yet, between the last 20 minutes of yesterday and the first 10 of today, the entire credit-led fall in the equity markets was erased.
I said this would happen yesterday. My reasoning was that there are too many undercapitalized shorts in the market, and we get a bunch more jumping in at any sign of a downturn. The "hedgies" or whomever can just blow these guys out and take their money, so why wouldn't they do this?
If somebody hands you a dollar bill, you take it.
Indeed the same thing happened in February ... the credit markets suffered around Feb 23, and the market only blew up a week or so later.
Seems like a lot of rigging going on.
I join your point. Employment is a lagging indicator and could be safely ignored. It means nothing, even though this is counter-intuitive.
The problem is, intuition is not your friend, the science is.
I think if you manage to subtract all the miners, oilers, melters and diggers from S&P500, you will have a bear market. Unfortunately I don't know how to do that.
Still, its amazing that if a few hedgies needed to liquidate equity because of credit troubles, they could do so into a rising market.
Yep. I recall I was jumping over my head in my blog around Feb 23. It was a huge panic on credit markets, but not nearly as big as this week.
Even a lowly event such as the demise of Refco was not awarded such a luxury, now imagina a system wide credit event like the one we have now. It's not obvious at all.
At the top of the market everyone is given the opportunity to walk slowly to the exit, getting the best price for his holdings and keeping all profits intact.
Dow up 117 at 10:38. The liquidity is still flowing.
I'm beginning to think unemployment is a 'short term' leading indicator. Sebastian's arguments have had enough validity for me to look again - hard - at the various indicators. And that particular one...
I'm going to agree that a surge in unemployment leads a recession. It has done so, historically, by somewhere between two and six weeks. I think there are way too many variables for me to say it's always necessary - just that it's highly probable.
On the other hand, trying to use unemployment as the tripwire will fail you. It will definitely do so as unemployment has give a false signal more than once. And it might do so as, well, frankly two weeks warning is too late for a lot of things on this scale. Oh, and one more thing... there are way too many variables, and that plus the fact that how unemployment is measured has changed (several times in the past few decades) means that what you think you're watching may not be what you are actually watching.
There's nothing like discovering your tripwire is now made of a material that's stretchy, and so goes off a few steps later than it used to.
Well, we keep seeing oil prices and interest rates rising into these rallies. As long as that keeps up I think there's only so far stocks can go.
A day where oil goes up a dollar and interest rates rise 3 or 4 bps isn't good day for the consumer. And, ultimately, what's bad for the consumer is bad for stocks. You might have to wait awhile, though.
Another melt-up phase wouldn't surprise me at all, even though I think it's unlikely. This is just the nature of excess liquidity - anything can happen in the short-term.
Here's what we're celebrating today on Wall Street:
Chain-stores reported flat sales in June, confirming flat expectations for tomorrow's retail trade data from the Commerce Department. Many chains, especially in apparel, are discounting prices in order to prop up sales. The result is another surge of earnings warnings similar to a wave that hit when April's results were posted. Profit weakness in the sector could very well be hurting payrolls in the sector, which have declined in two of the last three months.
But Wal-Mart, by far the nation's largest retailer with more than $27 billion in monthly U.S. sales, posted U.S. same-store sales growth of 2.5%, well up from 1.3% in May. The stock market is rallying this morning in part on Wal-Mart sales and in part on merger activity. But early gains for retailer shares stand in contrast with the sector's profit outlook.
The stock market is NOT rallying because of Wal Mart OR merger activity.
This rally was prepared yesterday near the close, anyone that checks intraday charts knows that.
Of course, WMT and Alcan help.
Also, in most days (and probably due to incredible margin buying), we're having a rally at the start of the day.
Margin debt expanded by more than 35 billion just in May, the most ever.
This rally was prepared yesterday near the close, anyone that checks intraday charts knows that.
Yeah, that was definitely my reaction when I saw the close. That in combination with all the dire articles in the past week or so made me think somebody would be planning a short-squeeze.
That's exactly what I would do if I had the money. I'd call all my hedgie friends and say "tomorrow let's blow all these guys out."
ac, it was not just the close, it was what happened AFTER the close in the 15 minutes the futures trade. They made most of today's rally back there and then. NQ went from 2000 to 2009.50, ES went from 1526.50 to 1531.50, ER2 went from 844.30 to 848.80.
Today's rally was decided yesterday before the close.
incog and ac,
do u guys believe in the PPT? if so, just how much can these guys buy the market? would the printed $ show up in any gov't figures? my god, with all the bad news/data its amazing how long the market has held on. are we never going to see even another pullback in our lifetimes?
I don't really believe the PPT. But coordination between investment banks has precedent, and the Chinese/Russians/Arabs might have been persuaded to buy as well (if Saudi Arabia funds the guy that blew up Amaranth, sure as hell they fund a lot of other people, and if China buys $3bn in Blackstone, sure as hell they might buy billions of other sheet).
"This is just the nature of excess liquidity - anything can happen in the short-term."
How long is the short-term? This nonsense has been going on for several years now.
I found some article the other day on how the falling dollar was collateral damage to the BoJ's attempt to keep the yen stable wrt. the yuan, and that the ZIRP would continue until the yuan floats. Should have bookmarked it. Anyone else see it?
Not so sure ZIRP continues until the Yuan floats. The yen has been devaluing versus de yuan for some time now.
The ZIRP should end this year. Auguest will see 0.75% rates, by the end of the year it should be up to 1% at least. It can go ALL that higher because Japan has an incredible amount of public debt (same will happen in the US when the economy implodes).
(I mean to say it CAN'T go all that higher)
so we blow our dough in chinese toys. chinese money flows back in for easy credit. we foreclose our homes. prices go down... chinese have less "money"...
that "helps" our trade deficit right?
1% is still low enough to support the carry trade, isn't it? 1% is less than 5.25%. Not that the BoJ is the source of all liquidity, but certainly a good bit.
1% might still be, but the carry trade in a currency subject to low inflation or deflation, is suicidal over the long term, even with the low rates.
If you recall, things in Japan were once bloody expensive when converting from yen to other currencies. Well, not any more. PPP (purchasing power parity) will sooner or later mean the yen goes higher (perhaps explosively) in spite of the low rates.
Low inflation/deflation actually ADDS VALUE to the currency having it over the long term, even if it supposes low rates and short term pressure.
Great graph CR- but think about the implications of the total change since 1998- $10 billion per month to $60 billion per month.
$120 billion pumped out into global liquidity versus $720 billion pumped out into global liquidity. Doesn't this begin to account for the need for the fed to provide endless streams of money? When that money comes back here to make more money, it pumps up wall street even more! But aren't soaring commodity prices a sign of the end of this super vendor finance scheme?
Is it any wonder that the world is afloat in liquidity? I am beginning to wonder what happens if our petrofinanciers and trade good financiers decide to mark us up some more and get even more of our money flowing out. At some point even Wall Street will wake up and realize that this trend can't go on forever...or can it?
Maybe I shouldn't worry, if this goes on for another twenty years I will be retired with enough hard assets to live off of, and I just won't care when we finally bellyflop like Argentina.
Someday tihs war's gonna end...
Of course the MEW peak and trade deficit peak ex oil doesn't prove causation unless someone does an awful lot of work. But it does make a whole lot of sense... less credit fueled buying of imported "stuff" with which to fill the garage.
Since the price of oil IS rising though.. . the total deficit is helping to drive the dollar down. The CME dollar index futures contract (based on a basket of 17 currencies of key trading partners) made a 15 year low Tuesday and again today.
Here's a Peter Schiff article on the carry trade:
Will Japan Destroy the Yen to Save the Dollar?
Safe Haven | Will Japan Destroy the Yen to Save the Dollar?
"Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly."
When did that bear market begin? I could have sworn the DOW has been setting new highs for the past year.
...is suicidal over the long term...
Lord Keynes would chuckle over that one... kinda redundant, no?
As far as the yen-yuan thing, I agree ZIRP or Real ZIRP (ZIRP taking into account Japanese inflation) will be with us until one of two things happen:
(1) Yuan REALLY floats
(2) Japanese quit trying to be an export powerhouse.
Actually (2) could happen before (1) since their population is aging faster than about anyone on Earth - including the EU. Hard to build Toyoyas for export from the old folks home.
Also everyone gets all jazzed about Japan's debt... If you stack their private personal savings up against their public sector debt it results in a much smaller problem than it appears... an issue but not financial Armageddon.
Also 1% BOJ is fine for carry if volatility stays low... Maybe they don't carry USD initially but what about Aussie, NZD or others? Money is money and fungible... create a lot of it in one place and a demand for debt in another and its like the charge building up in a thunderhead... ZAP.... CRASH! BANG! BOOM!
Throw in SWFs currency manipulation and you have opportunity for continued liquidity flash flooding.
Wow - can't they get any title right?
Bloggers have been discussing how asleep the rating agencies have been for longer than a few days. I guess they
didn't want to print this, since it would point out how asleep they've been also:
Bloggers Report Ratings Agencies Finally Get Around To Downgrade Securities
BTW - is the market really booming, or is the dollar busting?
Can't have a panic if the exit is engulfed in flames.