why is it that people look at a 100% run-up in the market and predict a 10% selloff rather than closer to 50%? I always find this confusing. what has changed to allow the remaining markup to continue to exist.
Hussman is a perma-bear.
He's been saying stocks were overvalued for nearly 4 years.
His track record is average at best too.
I doubt this is much of a new position for him.
He's definately been bearish long term based on valuation, but this is the first he's called for a recession - and his call is for recession imminently.
I could have sworn I would get the hat-tip on this for posting the link on the DB thread earlier today. Thought it was my moment in the sun. Congrats to Duceswild.
dryfly, I don't follow Hussman that closely (I read Roubini all the time), but I'm told this is a change in Hussman's view of the economy.
luke, this is a good question, and I think the answer is complicated - but I definitely don't expect anything like a 50% decline in total household value. I'll try to post an answer later this week.
I suspect this will be the most interesting recession since 1980.
I, too, think this will be the most interesting recession since 1980. That recession gave us "Morning in America" and a Laffable Laffer Curve based economy - AKA - Raygun-nomics. The structural energy problem faced by the US started to cause issues then, and we went for a short-term fix. After 25 years, give or take, of exporting inflation (by exporting jobs), we're left with the hollowed out 'service' economy (yes, Feudal Serfdom is a service economy), with nobody who can afford our products (services).
I wonder if this means sane fundamentals start coming back in line. In any case, the world is up for one heck of a hangover.
why is it that people look at a 100% run-up in the market and predict a 10% selloff rather than closer to 50%? I always find this confusing. what has changed to allow the remaining markup to continue to exist.
luke,
CR has written extensively on the "stickiness" of housing prices. That said, all of those reasons have been thrown out the window this time around, so yes, IMO you can expect much larger percentage losses this time around.
So, now it's more like "what has changed to not allow the remaining markup to continue".
tj & the bear said: "CR has written extensively on the "stickiness" of housing prices. That said, all of those reasons have been thrown out the window this time around, so yes, IMO you can expect much larger percentage losses this time around."
Not quite all the reasons. Significant job-loss is what loosens-up that "stickiness", so until that time...
Significant job-loss is what loosens-up that "stickiness", so until that time...
Inablility to make the house payments is what would loosen up the stickiness. On the one hand the payer's income could decrease (job loss), on the other the payment amount could increase (resets).
This time around, you don't have to lose you job in order to lose your house.
Stock have been overvalued for 4+ years. Just because they've gone up over that time doesn't change that.
You beat me to it, tj.
Shiller's been saying that stocks were overvalued since the mid 90s. He was smart enough, though, not to suggest that stock prices were going down anytime soon.
In fact, in 1996 he warned Alan Greenspan that stocks were likely to go up. A lot.
dryfly, I don't follow Hussman that closely (I read Roubini all the time), but I'm told this is a change in Hussman's view of the economy.
I read Hussman's articles and I think he does some very good level-headed analysis, and he refrains from making hard predictions (which humans are known to suck at).
He was especially bearish just prior to August and the more recent stock market misery, so I think that counts for something.
Lama, maybe that is Congress' next plan. Just pass a law ordering all private companies to give employees raises when their mortgages reset. Hey, with an election year coming up. . . .
Inablility to make the house payments is what would loosen up the stickiness. On the one hand the payer's income could decrease (job loss), on the other the payment amount could increase (resets).
This time around, you don't have to lose you job in order to lose your house.
All those bank firesales and builder liquidations also help with stickiness issues.
but Richard Berner (unlike his former boss Stephen Roach) had not been bearish up until September. Berner has now turned bearish. Morgan Stanley - Global Economic Forum
If Richard Berner is talking recession, and it appears he is, then IMHO this is another significant development on the recession front. Two in the same day!
Wow, it looks like red is going to hold despite a strong effort by the PPT/I-banking cabal late in the day (the short-covering explanation for the sizeable futures purchases that are now occuring in both the morning and in the final two hours does not make sense to me).
Nov. 12 (Bloomberg) -- Legg Mason Inc. invested $100 million in one of its money-market funds and arranged $238 million in credit for two others as a cushion against potential losses on commercial paper linked to subprime mortgages.
Dustdevil,
Tucson didn't fully participate in the insanity of Phoenix, so, it will take longer to fall, and not as far.
I would start checking out the REO market at wells fargo- they have quite the selection of property starting to appear in and around the ol' Pueblo.
A friend who was selling last year was p'oed that his casa there wasn't worth the 250K it would be in phoenix, but then, that is life. Bubbles were based where there were a lot of direct flights from LA and OC;-}
"If Richard Berner is talking recession, and it appears he is, then IMHO this is another significant development on the recession front. Two in the same day!"
Took him long enough. I remember Roach's and Berner's commentaries on the Morgan Stanley site, where Roach would say "This economy can't keep living on credit cards," and Berner and the rest of the MS analyst crowd would waggle a finger and say, "C'mon Steve, you know the American consumer will just keep spending forever and ever and ever...."
I give Berner no credit. Roach knew what was what and said so. And bailed out to China months ago.
Aside from shorting financials, what are good plays in a long-term bear market?
- Unsympathetic
How about Nordstroms (JWN) and Williams and Sonoma (WSM), high-priced retailers whose stock prices have climbed quite high during the cash-out housing bubble? Before you focus in on their seemingly tame PE ratios, look at their long-term stock price chart, and think of what kind of economy they depend on to keep up their earnings levels.
Also, Google and Apple are obvious candidates. Those stocks still have a long way to fall, IMO.
We'll see if my luck holds: gold and gold mining stocks down with the Chinese market and unwinding of the carry trade. SDS up, too.
Keeping my fingers crossed that in the forthcoming crash (within two weeks?), that SDS rockets up, gold and gold mining stocks crater, and that I nimbly move from 100% SDS to 100% gold and gold mining stocks.
It's been a long, painful eight months since I moved out of 100% gold and gold mining stocks to 100% SDS. We'll see if this blind squirrel finds the nut, after all!
The two strongest sectors of the U.S. economy that drove growth this year are very vulnerable and will fall fast and hard:
government
CRE
When that happens in 2-3 months, everybody will be saying recession.
Government in this country has become a bubble unto itself. A lot of state and county executives should be put in jail for spending every last dime they collected in the boom years and putting hardly anything away for the rainy days. Now, demands on govt. services are going through the roof because so many people are hard-up and there's no money to pay. As bad as Wall Street is in living for today and damn tomorrow, government was worse.
Fitch Downgrades $37.2B Of CDOs, Slashing AAAs to Junk
21 minutes ago - Dow Jones News
By Anusha Shrivastava Of DOW JONES NEWSWIRES
NEW YORK(Dow Jones)--Fitch Ratings downgraded Monday the credit ratings of $37.2 billion of global collateralized debt, with more than $14 billion worth of transactions falling from the highest-rated AAA perch to speculative-grade, or junk, status.
Fitch warned two weeks ago that such downgrades were in the cards, putting the amount at $36.8 billion, due to the rapid deterioration of collateral used to back these complicated structures, as well as due to changes in its own methodology used to evaluate default risk.
The rating agency said more than 60 CDO transactions are still on watch for potential downgrade, with a resolution due on or before Nov. 21.
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com
(Aparajita Saha-Bubna contributed to this story)
Dow Jones Newswires
11-12-07 1445ET
Copyright (c) 2007 Dow Jones & Company, Inc.
Could we see margin calls that cause hedge funds and others to continue their selling of stock positions to raise capital?
Seeing that in print from ac is the scariest thing I've read in a long time.
Care to elaborate?
Well, to be fair, I don't really know anything, and if August taught us one thing it's that these things can turn on a dime and rebound even when things look really bad.
ac- all it takes is rumors of uncle sugar coming to save the day.
I have been perplexed by the activities of some of the homebuilders- rising when they should be falling over the last few days, and I am coming to the conclusion that we will have another big blowoff coming in the markets just as everyone shorts for easy money.
Certain stocks and indicies that I consider heavy leverage and carry trade plays got murdered toward the end of the day.
I do think if things really get out of hand we would see an emergency rate cut.
I don't think a full blown market crash really helps anyone. If pressured, I'd have to put myself in the "orderly decline" camp. Plus I think most of the euphoria gets expended on the first rate cut of the season.
stealthwii-
paired trade with yen- buy gold and short yen ten years- offsets the costs of borrowing, by borrowing cheap- but if the yen moves you cover or buy futures. I suspect close both sides was easier for some folks.
"I give Berner no credit. Roach knew what was what and said so."
I give Berner a little credit for the TIMING. Same with Hussman. What good is a recession call 1 or 2 years in advance? Of course, Hussman's call may be early too...only time will tell.
EWZ,
That sounds about right for Hussman's market sentiment. He is no permabear for sure.
The R word all over CNBC... Finally. Maybe some of these delusional home sellers and realtor's will wake up and realize its not all about what THEY want.
The markets are indicative of hedge funds getting clobbered. First it was the credit spread trade (clobbered), then the quant trade (clobbered), then the macro carry trade (clobbered), and now, the short financials/long commodity stocks trade that most long-short hedge funds love to love. It was carnage for long-shorts today (excuse me if I sound unsympathetic).
Expect to see all hedge fund babies (including gold and esp. gold stocks) being chucked out with the bathwater for a little while as these hedge funds try to de-lever. IMO, that's what all the futures selling late in the day is about -- hedge funds desparately trying to hedge their volatility by buying puts.
Needless to say, I think exploding hedge funds are the next shoe to drop.
Absolutely. Hedge funds and program traders. I think a bigger question is what camp are you in?
Inflationary
Deflationary
IMHO, both have valid arguments and talking points as to why their particular scenario is more likely to play out. Very hard to decide. Either way... I just want housing prices to come back down. I've been patient for soooo long, and saved my nickels. Time for some reward.
I'm in the inflationary camp, but humble rather than dogmatic. In otherwords, I won't be surprised if I'm wrong.
Its a political question, IMO. What is the government's most likely response to the pain of recession? The government, btw, includes the Central Bank, which rarely goes against strongly felt public consensus.
The likely response is to avoid unemployment and accept inflation. It will be thus for years before the public gets fed up with the latter.
Dogmatic deflationists will tell you it doesn't matter what the Central Bank and government does. They've never lived in Argentina.
Given your explanation on what's behind the gold price dive, it'll be interesting to see what happens when/if the Fed cuts again. You know further cuts will work against the dollar, which should boost gold back up again, no?
I guess going forward it'll be a battle between on the one hand (a) a flight to gold as a safe-haven, both against the falling dollar and against feared loss of principal in default and BK, and on the other hand, (b) selling gold to deleverage and meet margin calls.
Long term, I think (a) wins. And possibly gold wins big if it becomes the next object of speculative fever. Like for instance if the general public buys into it based on inflation fears and purely on momentum after another Fed rate cut.
There is just no way to use gold as a prudent long term store of value without also periodically being in league with wild-eyed, levered momentum investors.
The markets are indicative of hedge funds getting clobbered. First it was the credit spread trade (clobbered), then the quant trade (clobbered), then the macro carry trade (clobbered), and now, the short financials/long commodity stocks trade that most long-short hedge funds love to love. It was carnage for long-shorts today (excuse me if I sound unsympathetic).
Gotta wonder how many of them were facing redemption calls and tried to swing for the bleachers. See Cassandra Does Tokyo: Exit Games for more on the choices hedge fund managers face when redemption requests flood in.
If there are a lot of them on one side of a trade I wonder how long it is going to take for other HFs to get on the other side of the trade and SQUEEEZE.
"I read Hussman's articles and I think he does some very good level-headed analysis, and he refrains from making hard predictions (which humans are known to suck at).
He was especially bearish just prior to August and the more recent stock market misery, so I think that counts for something.
You won't get rich with his funds though.
ac | 11.12.07 - 3:52 pm | # "
you most likely wont loose ur ass either, works for me!
David - Thank you for your posts. Further proof I need to do much more research before making a move.
I, like others, have been looking for a haven to guard against inflation, for at least some of my savings.
I notice the Euro is up greatly, but I dont personally see it as a good inflation haven, since they have housing issues there also, some worse than ours (Britan, Spain) and I think their banks will react like ours.
Conjure Bag is pleased to see that at least some of the economic intelligentsia are coming around to his view. However, Conjure is quick to point out that Nouriel, as much as Conjure likes him, is waffling somewhat by saying that he expects the onset of a recession in the first HALF of '08.
Hussman, on the other hand, uses the term "immediately ahead." Conjure senses more waffling here and asks me to repeat his long-standing forecast:
Recession Q1-08
Conjure still wants to know if there will be a prize because he expects to win it. Macanudos, Dom Perignon, Martel XO, Stoly (even Conjure slums occasionally), or a free subscription to Calculated Risk are all acceptable to him. He is quick to advise, however, that he is more forthcoming when he has more to smoke and drink.
I don't think you'll find anything that will out-perform inflation and has a good "sleep" factor. I have a lot of money in CD's. I fiqure they may not beat inflation... but I'm not losing it all either.
MOM said: "Sebastian still hasn't grasped that employment starts to fall AFTER recessions begin. It is not a cause, but an effect."
You know, if you have something to say to me you can speak to me directly.
What others here (and you among them I take it) don't seem to grasp is that without a leading indicator of recession indicating recession there won't be any problem with employment.
And another thing, since I'm wound-up. How is it that the bears are now enlisting the bearish arguments of the former bulls that were "wrong" before? Are the NAR, NAHB, the IB's, sell-side equity strategists and assorted other pundits that were clearly "bullish shills" (and worse) before now magically "right"?
Because the Bulls (except a few) are FINALLY capitulating to reality. In other words; THEY GET IT! If nothing else it proves that Bulls can no longer avert their eyes from the train wreck that is the economy.
Add a recession on top of the current self reinforcing downward pressures on the housing market, and we could see some truly huge price decreases coming.
What will housing prices look like in the OC when housing prices drop to the price to rent or price to income ratios seen in the mid 90s?
Everyone says that prices can't drop 50% from where they are now. This is the same thing as saying the price to income or price to rent ratio can not return to what it was in 1993. Give me one good reason WHY NOT?
BrantW- "This is the same thing as saying the price to income or price to rent ratio can not return to what it was in 1993. Give me one good reason WHY NOT?"
Brant, when you start predicting 50% price drops in anything (houses, stocks, etc) you're branded as a raving permabear. Give it some time. Once prices are down 25% it will be more socially acceptable to suggest 50%.
When I first started glancing at Roubini's writings, he was calling for a recession beginning in Q4 2005. Since then he's rolled his recession call forward. He's certainly entertaining. And like a stopped clock, he will be right at some point. But before you put much weight on his predictions, you might want to figure out why he has been so wrong for so long.
Brant, when you start predicting 50% price drops in anything (houses, stocks, etc) you're branded as a raving permabear. Give it some time. Once prices are down 25% it will be more socially acceptable to suggest 50%.
Prices are already down 25% in Phoenix, cowboy, not to mention Florida, CA Central Valley, etc.
It can't be!
All is contained!
Stop these varlets!
Crack the opec taps!
We must do something!
How about we propose a trade to Felipe Calderon?
You send us two million barrels a day more oil and we won't send back 8 million people.
It may come to that. I suspect this will be the most interesting recession since 1980.
Someday this war's gonna end...
why is it that people look at a 100% run-up in the market and predict a 10% selloff rather than closer to 50%? I always find this confusing. what has changed to allow the remaining markup to continue to exist.
if we're considering changes of opinion, they may not get more dramatic than morgan's "superbull" teun draaisma.
I thought Hussman was considered generally bearish all along, not so?
Looks like Hussman's channeling Conjure Bag.
Hussman is a perma-bear.
He's been saying stocks were overvalued for nearly 4 years.
His track record is average at best too.
I doubt this is much of a new position for him.
dryfly,
He's definately been bearish long term based on valuation, but this is the first he's called for a recession - and his call is for recession imminently.
I could have sworn I would get the hat-tip on this for posting the link on the DB thread earlier today. Thought it was my moment in the sun. Congrats to Duceswild.
dryfly, I don't follow Hussman that closely (I read Roubini all the time), but I'm told this is a change in Hussman's view of the economy.
luke, this is a good question, and I think the answer is complicated - but I definitely don't expect anything like a 50% decline in total household value. I'll try to post an answer later this week.
Insurance Guy, sorry I missed your comment!
Best to all.
Anonymous,
Stock have been overvalued for 4+ years. Just because they've gone up over that time doesn't change that.
No problem, CR. You're the best.
AllenM -
I suspect this will be the most interesting recession since 1980.
I, too, think this will be the most interesting recession since 1980. That recession gave us "Morning in America" and a Laffable Laffer Curve based economy - AKA - Raygun-nomics. The structural energy problem faced by the US started to cause issues then, and we went for a short-term fix. After 25 years, give or take, of exporting inflation (by exporting jobs), we're left with the hollowed out 'service' economy (yes, Feudal Serfdom is a service economy), with nobody who can afford our products (services).
I wonder if this means sane fundamentals start coming back in line. In any case, the world is up for one heck of a hangover.
why is it that people look at a 100% run-up in the market and predict a 10% selloff rather than closer to 50%? I always find this confusing. what has changed to allow the remaining markup to continue to exist.
luke,
CR has written extensively on the "stickiness" of housing prices. That said, all of those reasons have been thrown out the window this time around, so yes, IMO you can expect much larger percentage losses this time around.
So, now it's more like "what has changed to not allow the remaining markup to continue".
tj & the bear said: "CR has written extensively on the "stickiness" of housing prices. That said, all of those reasons have been thrown out the window this time around, so yes, IMO you can expect much larger percentage losses this time around."
Not quite all the reasons.
Significant job-loss is what loosens-up that "stickiness", so until that time...
Sebastia
tj -
OK, fine. Let me know when they're undervalued and I'll go long 4 years after you tell me....
Recession may alaredy be here according to David Rosenberg.
Wholesale inventories are rising fast.
Housing Depression: Recession Already Here?
Sandy
Significant job-loss is what loosens-up that "stickiness", so until that time...
Inablility to make the house payments is what would loosen up the stickiness. On the one hand the payer's income could decrease (job loss), on the other the payment amount could increase (resets).
This time around, you don't have to lose you job in order to lose your house.
Q1 2007 called... it wants its recession back.
Sebastian still hasn't grasped that employment starts to fall AFTER recessions begin. It is not a cause, but an effect.
Stock have been overvalued for 4+ years. Just because they've gone up over that time doesn't change that.
You beat me to it, tj.
Shiller's been saying that stocks were overvalued since the mid 90s. He was smart enough, though, not to suggest that stock prices were going down anytime soon.
In fact, in 1996 he warned Alan Greenspan that stocks were likely to go up. A lot.
DaveNYC, You mean your wages don't reset with your mortgage??
dryfly, I don't follow Hussman that closely (I read Roubini all the time), but I'm told this is a change in Hussman's view of the economy.
I read Hussman's articles and I think he does some very good level-headed analysis, and he refrains from making hard predictions (which humans are known to suck at).
He was especially bearish just prior to August and the more recent stock market misery, so I think that counts for something.
You won't get rich with his funds though.
Lama, maybe that is Congress' next plan. Just pass a law ordering all private companies to give employees raises when their mortgages reset. Hey, with an election year coming up. . . .
Fleckenstein thinks a market crash is about a 50-50 shot.
Stage is set for a stock crash - MSN Money
Aside from shorting financials, what are good plays in a long-term bear market?
Inablility to make the house payments is what would loosen up the stickiness. On the one hand the payer's income could decrease (job loss), on the other the payment amount could increase (resets).
This time around, you don't have to lose you job in order to lose your house.
All those bank firesales and builder liquidations also help with stickiness issues.
anonymous,
Not a bad strategy, but 3 years would be better, since I first noted the tech bubble in 1997 and the housing bubble in 2002.
Roubini is well known bear for years
RGE - The Coming US Consumption Slowdown that Will Trigger an Economy-Wide Hard Landing
but Richard Berner (unlike his former boss Stephen Roach) had not been bearish up until September. Berner has now turned bearish.
Morgan Stanley - Global Economic Forum
RE: Hussman Funds
"You won't get rich with his funds though"
Nope, you won't...but you will preserve capital during a Bear.
Nope, you won't...but you will preserve capital during a Bear.
True. And that's far better than most people do, I've found.
If Richard Berner is talking recession, and it appears he is, then IMHO this is another significant development on the recession front. Two in the same day!
When do we see the big reductions in house prices? I'm still seeing 2005 prices here in Tucson. Are any markets immune to a downturn?
Wow, it looks like red is going to hold despite a strong effort by the PPT/I-banking cabal late in the day (the short-covering explanation for the sizeable futures purchases that are now occuring in both the morning and in the final two hours does not make sense to me).
C'mon Far East, crumble further! Go yen, go!
Or otherwise they 'bust the buck?!'
Legg Mason Gives $100 Million to Money Funds, Arranges Credit
By Christopher Condon and Miles Weiss
Nov. 12 (Bloomberg) -- Legg Mason Inc. invested $100 million in one of its money-market funds and arranged $238 million in credit for two others as a cushion against potential losses on commercial paper linked to subprime mortgages.
[snip]
Dustdevil,
Tucson didn't fully participate in the insanity of Phoenix, so, it will take longer to fall, and not as far.
I would start checking out the REO market at wells fargo- they have quite the selection of property starting to appear in and around the ol' Pueblo.
A friend who was selling last year was p'oed that his casa there wasn't worth the 250K it would be in phoenix, but then, that is life. Bubbles were based where there were a lot of direct flights from LA and OC;-}
Find a desperate investor and rent a house cheap!
Someday this war's gonna end..
Lot's of folks I work with are wild about the q-balls.
One guy can't get enough so he writes puts.
This has been a real issue of contention lately.
Tomorrow should be an interesting day (long weekend and such).
IMO today's a scary day in the markets. Much more so than the past 3 days even though.
Something is wrong.
This will be WAY more interesting than 1980!
Everyone had savings, then!
That's a spooky article, energyecon; thanks for the link.
C'mon, LM, bust the buck!
Sebastian
You little pump monkey. Where's your little brother Tennis_8?
donna, yes, and the government could afford deficit spending financed via very willing lenders.
No more.
Heck, if you can preserve capital in a downturn, it's darned easy to make it in an upturn.
Really bad day. Carry trades on yen and Swiss franc are unwinding.
"If Richard Berner is talking recession, and it appears he is, then IMHO this is another significant development on the recession front. Two in the same day!"
Took him long enough. I remember Roach's and Berner's commentaries on the Morgan Stanley site, where Roach would say "This economy can't keep living on credit cards," and Berner and the rest of the MS analyst crowd would waggle a finger and say, "C'mon Steve, you know the American consumer will just keep spending forever and ever and ever...."
I give Berner no credit. Roach knew what was what and said so. And bailed out to China months ago.
Aside from shorting financials, what are good plays in a long-term bear market?
- Unsympathetic
How about Nordstroms (JWN) and Williams and Sonoma (WSM), high-priced retailers whose stock prices have climbed quite high during the cash-out housing bubble? Before you focus in on their seemingly tame PE ratios, look at their long-term stock price chart, and think of what kind of economy they depend on to keep up their earnings levels.
Also, Google and Apple are obvious candidates. Those stocks still have a long way to fall, IMO.
Disclaimer: I just bought puts on all these.
For the record, I follow Hussman since 2002. He turned bullish right on time, precisely on March 2003.
He turned cautious during 1st half of 2006 and very bearish erly this year.
He is very conservative and honest despite he manages "other peoples money"
EWZ
Nuther thing (OT - again),
Looks like all the ABX AAA and AA set new lows...
He is very conservative and honest despite he manages "other peoples money"
He eat's his own cooking too, all of his own money is invested in his 2 funds of his along with some of mine.
Nuther nuther,
All but 3 or 4 of the CMBX hit new highs as well.
Really bad day. Carry trades on yen and Swiss franc are unwinding.
I'm looking at some leverage implosions today that look worse than anything I remember from August.
Wild stuff.
IMO today's a scary day in the markets. Much more so than the past 3 days even though.
Something is wrong.
ac
Seeing that in print from ac is the scariest thing I've read in a long time.
Care to elaborate?
Never mind you beat me to it. Sorry
lol. and also col.
We'll see if my luck holds: gold and gold mining stocks down with the Chinese market and unwinding of the carry trade. SDS up, too.
Keeping my fingers crossed that in the forthcoming crash (within two weeks?), that SDS rockets up, gold and gold mining stocks crater, and that I nimbly move from 100% SDS to 100% gold and gold mining stocks.
It's been a long, painful eight months since I moved out of 100% gold and gold mining stocks to 100% SDS. We'll see if this blind squirrel finds the nut, after all!
ac,
I'm assuming it's due to carry trade unwind, no?
The two strongest sectors of the U.S. economy that drove growth this year are very vulnerable and will fall fast and hard:
government
CRE
When that happens in 2-3 months, everybody will be saying recession.
Government in this country has become a bubble unto itself. A lot of state and county executives should be put in jail for spending every last dime they collected in the boom years and putting hardly anything away for the rainy days. Now, demands on govt. services are going through the roof because so many people are hard-up and there's no money to pay. As bad as Wall Street is in living for today and damn tomorrow, government was worse.
Does this concern anyone?
Fitch Downgrades $37.2B Of CDOs, Slashing AAAs to Junk
21 minutes ago - Dow Jones News
By Anusha Shrivastava Of DOW JONES NEWSWIRES
NEW YORK(Dow Jones)--Fitch Ratings downgraded Monday the credit ratings of $37.2 billion of global collateralized debt, with more than $14 billion worth of transactions falling from the highest-rated AAA perch to speculative-grade, or junk, status.
Fitch warned two weeks ago that such downgrades were in the cards, putting the amount at $36.8 billion, due to the rapid deterioration of collateral used to back these complicated structures, as well as due to changes in its own methodology used to evaluate default risk.
The rating agency said more than 60 CDO transactions are still on watch for potential downgrade, with a resolution due on or before Nov. 21.
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com
(Aparajita Saha-Bubna contributed to this story)
Could we see margin calls that cause hedge funds and others to continue their selling of stock positions to raise capital?
Seeing that in print from ac is the scariest thing I've read in a long time.
Care to elaborate?
Well, to be fair, I don't really know anything, and if August taught us one thing it's that these things can turn on a dime and rebound even when things look really bad.
ac- all it takes is rumors of uncle sugar coming to save the day.
I have been perplexed by the activities of some of the homebuilders- rising when they should be falling over the last few days, and I am coming to the conclusion that we will have another big blowoff coming in the markets just as everyone shorts for easy money.
Nothing is easy today.
ac,
I'm assuming it's due to carry trade unwind, no?
That's my guess.
Certain stocks and indicies that I consider heavy leverage and carry trade plays got murdered toward the end of the day.
I do think if things really get out of hand we would see an emergency rate cut.
I don't think a full blown market crash really helps anyone. If pressured, I'd have to put myself in the "orderly decline" camp. Plus I think most of the euphoria gets expended on the first rate cut of the season.
why would gold crash along with the stock market? wouldnt gold be the "safe haven?"
with more than $14 billion worth of transactions falling from the highest-rated AAA perch to speculative-grade, or junk, status.
um, dude where's my pension?
JG, Painful day on the TSX-V. What gives IYO. I'm long, but not looking forward to the next month or two.
Stealthwii -
Google: Margin Call
stealth,
I believe the thesis is that margin calls will result in the liquidation of profitable positions first - that would be gold.
stealthwii-
paired trade with yen- buy gold and short yen ten years- offsets the costs of borrowing, by borrowing cheap- but if the yen moves you cover or buy futures. I suspect close both sides was easier for some folks.
Lots of paired trades causing strange movements.
"I give Berner no credit. Roach knew what was what and said so."
I give Berner a little credit for the TIMING. Same with Hussman. What good is a recession call 1 or 2 years in advance? Of course, Hussman's call may be early too...only time will tell.
EWZ,
That sounds about right for Hussman's market sentiment. He is no permabear for sure.
The R word all over CNBC... Finally. Maybe some of these delusional home sellers and realtor's will wake up and realize its not all about what THEY want.
Oh and Maria looks like she has had a rough day... LOL
all it takes is rumors of uncle sugar coming to save the day. [AllenM]
Wouldn't you say Uncle Sugar's credibility has taken quite a lickin'?
Time for the dam to burst?
Excellent, Thanks for the info. Ill look into Margin Calls.
I took my money out of the market a few months ago. I had been debating whether gold would be a good investment to get back in.
Sorry, Jane D., about the short-term pain. No doubt, though, that long-term, gold and gold mining stocks will be the place to be.
I agree with the explanations from e- and A- for the downward movement in gold.
Stealthwii,
The markets are indicative of hedge funds getting clobbered. First it was the credit spread trade (clobbered), then the quant trade (clobbered), then the macro carry trade (clobbered), and now, the short financials/long commodity stocks trade that most long-short hedge funds love to love. It was carnage for long-shorts today (excuse me if I sound unsympathetic).
Expect to see all hedge fund babies (including gold and esp. gold stocks) being chucked out with the bathwater for a little while as these hedge funds try to de-lever. IMO, that's what all the futures selling late in the day is about -- hedge funds desparately trying to hedge their volatility by buying puts.
Needless to say, I think exploding hedge funds are the next shoe to drop.
David -
Absolutely. Hedge funds and program traders. I think a bigger question is what camp are you in?
IMHO, both have valid arguments and talking points as to why their particular scenario is more likely to play out. Very hard to decide. Either way... I just want housing prices to come back down. I've been patient for soooo long, and saved my nickels. Time for some reward.
Dustdevil,
I'm in the inflationary camp, but humble rather than dogmatic. In otherwords, I won't be surprised if I'm wrong.
Its a political question, IMO. What is the government's most likely response to the pain of recession? The government, btw, includes the Central Bank, which rarely goes against strongly felt public consensus.
The likely response is to avoid unemployment and accept inflation. It will be thus for years before the public gets fed up with the latter.
Dogmatic deflationists will tell you it doesn't matter what the Central Bank and government does. They've never lived in Argentina.
David Pearson,
Given your explanation on what's behind the gold price dive, it'll be interesting to see what happens when/if the Fed cuts again. You know further cuts will work against the dollar, which should boost gold back up again, no?
I guess going forward it'll be a battle between on the one hand (a) a flight to gold as a safe-haven, both against the falling dollar and against feared loss of principal in default and BK, and on the other hand, (b) selling gold to deleverage and meet margin calls.
Long term, I think (a) wins. And possibly gold wins big if it becomes the next object of speculative fever. Like for instance if the general public buys into it based on inflation fears and purely on momentum after another Fed rate cut.
There is just no way to use gold as a prudent long term store of value without also periodically being in league with wild-eyed, levered momentum investors.
Its ironic, but there you go.
The markets are indicative of hedge funds getting clobbered. First it was the credit spread trade (clobbered), then the quant trade (clobbered), then the macro carry trade (clobbered), and now, the short financials/long commodity stocks trade that most long-short hedge funds love to love. It was carnage for long-shorts today (excuse me if I sound unsympathetic).
Gotta wonder how many of them were facing redemption calls and tried to swing for the bleachers. See Cassandra Does Tokyo: Exit Games for more on the choices hedge fund managers face when redemption requests flood in.
If there are a lot of them on one side of a trade I wonder how long it is going to take for other HFs to get on the other side of the trade and SQUEEEZE.
"I read Hussman's articles and I think he does some very good level-headed analysis, and he refrains from making hard predictions (which humans are known to suck at).
He was especially bearish just prior to August and the more recent stock market misery, so I think that counts for something.
You won't get rich with his funds though.
ac | 11.12.07 - 3:52 pm | # "
you most likely wont loose ur ass either, works for me!
fellow S.U. grad. by the way-go cards.
David - Thank you for your posts. Further proof I need to do much more research before making a move.
I, like others, have been looking for a haven to guard against inflation, for at least some of my savings.
I notice the Euro is up greatly, but I dont personally see it as a good inflation haven, since they have housing issues there also, some worse than ours (Britan, Spain) and I think their banks will react like ours.
Re: Hussman
"He was especially bearish just prior to August and the more recent stock market misery, so I think that counts for something.
You won't get rich with his funds though."
You won't get poor either!
Conjure Bag is pleased to see that at least some of the economic intelligentsia are coming around to his view. However, Conjure is quick to point out that Nouriel, as much as Conjure likes him, is waffling somewhat by saying that he expects the onset of a recession in the first HALF of '08.
Hussman, on the other hand, uses the term "immediately ahead." Conjure senses more waffling here and asks me to repeat his long-standing forecast:
Recession Q1-08
Conjure still wants to know if there will be a prize because he expects to win it. Macanudos, Dom Perignon, Martel XO, Stoly (even Conjure slums occasionally), or a free subscription to Calculated Risk are all acceptable to him. He is quick to advise, however, that he is more forthcoming when he has more to smoke and drink.
I don't think you'll find anything that will out-perform inflation and has a good "sleep" factor. I have a lot of money in CD's. I fiqure they may not beat inflation... but I'm not losing it all either.
MOM said: "Sebastian still hasn't grasped that employment starts to fall AFTER recessions begin. It is not a cause, but an effect."
You know, if you have something to say to me you can speak to me directly.
What others here (and you among them I take it) don't seem to grasp is that without a leading indicator of recession indicating recession there won't be any problem with employment.
And another thing, since I'm wound-up.
How is it that the bears are now enlisting the bearish arguments of the former bulls that were "wrong" before? Are the NAR, NAHB, the IB's, sell-side equity strategists and assorted other pundits that were clearly "bullish shills" (and worse) before now magically "right"?
Sebastia
Seb -
Because the Bulls (except a few) are FINALLY capitulating to reality. In other words; THEY GET IT! If nothing else it proves that Bulls can no longer avert their eyes from the train wreck that is the economy.
Sebastian, I hope you're not counting Conjure and I as members of the bear camp, or the bull camp. We're in our own camp.
Add a recession on top of the current self reinforcing downward pressures on the housing market, and we could see some truly huge price decreases coming.
What will housing prices look like in the OC when housing prices drop to the price to rent or price to income ratios seen in the mid 90s?
Everyone says that prices can't drop 50% from where they are now. This is the same thing as saying the price to income or price to rent ratio can not return to what it was in 1993. Give me one good reason WHY NOT?
BrantW- "This is the same thing as saying the price to income or price to rent ratio can not return to what it was in 1993. Give me one good reason WHY NOT?"
Now, that's a good and scary question.
Brant, when you start predicting 50% price drops in anything (houses, stocks, etc) you're branded as a raving permabear. Give it some time. Once prices are down 25% it will be more socially acceptable to suggest 50%.
When I first started glancing at Roubini's writings, he was calling for a recession beginning in Q4 2005. Since then he's rolled his recession call forward. He's certainly entertaining. And like a stopped clock, he will be right at some point. But before you put much weight on his predictions, you might want to figure out why he has been so wrong for so long.
you might want to figure out why he has been so wrong for so long
IMV, support of suicide lending by institutional lenders kept the music going for another year.
The economy, outside of corporate profits, has been barely ticking over in real terms since 4Q05.
Those profits came from the monetary injection of consumers tapping mortgage equity lines.
Brant, when you start predicting 50% price drops in anything (houses, stocks, etc) you're branded as a raving permabear. Give it some time. Once prices are down 25% it will be more socially acceptable to suggest 50%.
Prices are already down 25% in Phoenix, cowboy, not to mention Florida, CA Central Valley, etc.
Take off those dark glasses.