Although, should the wheels begin to come off again, I would caution that Bernanke has many more cards up his sleeves. I would urge everyone to go back and re-read Bernanke's 2002 deflation speech. He outlines all sorts of other options available to the fed, including buying long-term treasuries, corporate debt, announcing a fixed long term rate, etc.
There is a stark change in tone in the latest minutes. The good news on core inflation in Q1 is dismissed as probably transitory. The growth forecast is lowered, but easing finanical strains are seen lowering the risk that the economy will suffer unanticipated harm from the financial side. The central tendencies show core inflation remaining out of target through 2009, and headline inflation likely to run much higher than had been expected in January.
These guys are mad, in a calm, grey, central-banker way.
Reminds me of the science fiction movies where the protagonists expend most or all of their ammunition fighting the aliens in what they think is the main attack, but then find out they have just been fighting a scouting party.
"Reminds me of the science fiction movies where the protagonists expend most or all of their ammunition fighting the aliens in what they think is the main attack, but then find out they have just been fighting a scouting party."
More like Custer's Last Stand. They chase the Indians and chase them and chase them.... until they find themselves led in a shallow bowl of land with all the Indians in the world looming up on the ridgelines.
What we get is the actions that are supposed to be reported by law or charter. Who's willing to bet the Fed (and the powers that control them) have done much more than is being reported???
Quick example: Who knew it extended a $13 b loan to BSC in the week of march 11th???
No one did until last week.....
Ny guess is that they have done far more 'operations' than they report.
U.S. trucking company Jevic Transportation Inc has filed for bankruptcy protection because of the tight credit market and high costs including the price of fuel, and has stopped its operations, according to its website
Watch these state pension funds. They all report on the 30th of November. With the losses in structured products and stocks the gov;t workers are for in a rough summer. Calpers in in real trouble.
No chance. The Fud will keep cutting until they get back to 1%, middle class be damned. They know the economy will tank anyway. They also know they will likely be replaced by the next administration, so screw it, cut and make the hedge funds and bankers happy.
IMO Ultimate bottom for S & P is about 1200 give or take 20 points. That is where the market last consolidated for a year. It could go lower but I wouldn't be near the market after that long or short. I like TIPS.
cd - dunno about EEV. I have been sitting on a small position watching it get clobbered daily. Tough call. I like SRS & TWM better here and have been fighting the tape on it. SKF might have a big move as insolvent lenders go TU and the fed stands by...
The bears had it all wrong. They said the Fed was pushing on a string, when in fact, it was pushing on a lever, with oil on the other side of the fulcrum.
this sell off has been rapid. Do you think we selling accelerate tomorrow. Friday is before 3 day holiday so I think that might be a rest day on light volume.
"this sell off has been rapid. Do you think we selling accelerate tomorrow. Friday is before 3 day holiday so I think that might be a rest day on light volume."
Good point. But IMO, the risk is to the down side. And I certainly would not have a good night's rest being long at the close today. We'll see tomorrow...
IMO Ultimate bottom for S & P is about 1200 give or take 20 points. That is where the market last consolidated for a year. It could go lower but I wouldn't be near the market after that long or short.
Well extrapolating from history would suggest that a return to trend would take the S&P 500 closer to 900 and a good old fashioned "bottom of cycle" type correction could take it below 500. That's not counting inflation. Of course bears in 2002 thought these kinds of values would have been reached long ago, and they weren't.
But they're still consistent with historical trends.
barely, eev 52 wk low 58, I think fxp and eev markets sell off tonight..they will read into minutes much like here..my 2 cents...I'm sitting on twm, srs also..good luck..
the fed may cut all the way to zero and it will probably delay the inevitable death of some of their wall street buddies. the fed is helpless against stagflation however. stagflation will kill The Consumer. this market is on the edge of a cliff now.
ac, I'm with you -- history suggests much lower levels. But I don't think the bulls are ready to give in just yet. I expect some optimists will go bargain hunting off of this severe drop.
In fact, Seb and O-Joe are probably running their stock screeners right now!
ice background on the oil runup: from today's senate hearings
so much for the Chinese wall between an investment bank's trading desks and their "research" departments
cd - dunno about EEV. I have been sitting on a small position watching it get clobbered daily. Tough call. I like SRS & TWM better here and have been fighting the tape on it. SKF might have a big move as insolvent lenders go TU and the fed stands by...
With GMO warning of an emerging market bubble it makes me wary too. It seems like it's best not to be in the way if the hedgies keep going on a leveraging frenzy into emerging markets and commodities.
I think they will until they can't.
Of course timing the deleveraging of foreign stock markets is going to be one of the most profitable trades around.
I think Latin American markets fell like 30% in two weeks last August.
U.S. trucking company Jevic Transportation Inc has filed for bankruptcy protection because of the tight credit market and high costs including the price of fuel, and has stopped its operations, according to its website
Anon,
Thanks for posting this. The trucking industry is really hurting, and it will drive up corporate costs, because it makes just-in-time-inventory mgt. more difficult.
There was an interesting article in NY Times about nascent industry of air taxi, which was just taking off but now is grounded by lack of access to capital and higher fuel costs.
I'm becoming a convert to the idea of limited decoupling. I have a feeling the Chinese will spend fairly freely in dealing with the earthquake. They have been very open about the situation and now their prestige will be behind rebuilding.
This is relevant because when it comes to keeping their $1.3T in treasuries to support the dollar and maintain their peg, or cashing them in and building schools that can stand up to earthquakes, I don't think there's any question how they'll choose.
Another point, both the delta region of Myanmar and Sichuan are big agricultural producers. I think food prices have bottomed for the mid-term.
Rich-3 times was hard enough..I think I'll take some profit..That would be a great script to warm up some telesales people before they start dialing for dollars...
20% correction would mean 1200, Within the historical norms of a correction. It might go 30%. There was a lot of volume between S&P 800-1000 over years. If we get into those levels we are looking at a worldwide crash and nobody will be making money. 1200 is my number for now.
My conviction to fight the tape on the TWMs & SRS SKF was the light volume and steady drumbeat of dire economic news. It was too easy to keep the market up with low volumes. Little busier today. I am a little surprised in the 3P juice, heading into unemployment claims in the AM.
I will be dumping my shorts in the PM tomorrow. I think existing home sales shows an upside surprise. Plenty of time to reload. It's going to be a LONG tough summer, for equities...
So the Fed is predicting stagflation. Obviously, the last time this occurred, the USA borrowed its way to prosperity for almost 3 decades. What monetary or fiscal policies are available? Or are we truly in the age of the "superclass" where nation-states are irrelevant? (BRIC are not true nation-states, but rather nationalized corporations.)
the best thing about this plunge is that NOBODY even remotely expected it at this moment. fed's comments have absolutely NOTHING sensational in them. i agree with an earlier poster that this may very well be the crucial inflection point for stocks.
Although, should the wheels begin to come off again, I would caution that Bernanke has many more cards up his sleeves. I would urge everyone to go back and re-read Bernanke's 2002 deflation speech. He outlines all sorts of other options available to the fed, including buying long-term treasuries, corporate debt, announcing a fixed long term rate, etc.
The problem is that market participants can read these speeches too, anticipate the use of these tools, and pro-actively devalue the dollar and drive up interest rates.
If the flight from the dollar becomes so extreme because of helicopter fears the situation could gain a 1930s style momentum where the Fed not only has to abandon any kind of easing policy, but is forced to aggressively raise rates and implement other draconian financial policies to stem a crisis of confidence in the dollar.
They already could be entering dangerous territory -- notice today that interest rates and commodities kept rising despite their threats and despite the decline in stocks.
This is quite a change from past sell offs and could point to a more aggressive move away from the buck.
I agree I get worried when it seems like everyone is bearish or bullish but we are few and many I talk to think that like real estate markets go perpetually higher. i argue with my own family why stocks and housing will be in the dumps for years and flat at best.
More like Custer's Last Stand. They chase the Indians and chase them and chase them.... until they find themselves led in a shallow bowl of land with all the Indians in the world looming up on the ridgelines.
Bob Dobbs | Homepage | 05.21.08 - 2:49 pm | #
ac - "notice today that interest rates and commodities kept rising despite their threats and despite the decline in stocks."
good point about yields heading higher as equities get clobbered. Inflation can do that when faced with decline in growth. Could finally be time to put on the short TLT trade.
If the flight from the dollar becomes so extreme because of helicopter fears the situation could gain a 1930s style momentum where the Fed not only has to abandon any kind of easing policy, but is forced to aggressively raise rates and implement other draconian financial policies to stem a crisis of confidence in the dollar.
They already could be entering dangerous territory -- notice today that interest rates and commodities kept rising despite their threats and despite the decline in stocks.
If the flight from the dollar becomes so extreme because of helicopter fears the situation could gain a 1930s style momentum where the Fed not only has to abandon any kind of easing policy, but is forced to aggressively raise rates and implement other draconian financial policies to stem a crisis of confidence in the dollar.
Only if SAFE & PBoC throw in the towel - they haven't, read Setser's latest (see link on CR's sidebar: <a href="http://blogs.cfr.org/setser/2008/05/20/steins-law-china-edition-what-can-not-go-on-forever/>Stein's Law China Edition
Point is the reserve growth & CAD can't go on forever... when the Chinese throw in the towel & stop trying to manipulate the dollar could fall like a freaking meteor.
But so far it really hasn't - not like it could - in spite of all the hand wringing & whining.
stocks and bonds down today. what if commodities join the bear party too? i don't remember all these asset classes falling simultaneously ever. should that happen i think we'll enter some really scary times.
Tips are something that can play both sides of an economy. One can get the benefits of bonds that is they go up when stocks sell off. When inflation is high enough to depress equities TIPS rise as it did in March. In a low growth deflationary scenario Tips goes up with bonds though less so. Bad for Tips is low inflation high growth but I don't see that anytime soon. Also many tips funds pay a very small yeild. It is a conservative instrument that I recommend for those over 50+ who can't wait for economic cycles to turn their way.
This is taking the froth that was in the last couple of weeks out. If the Fed really means it (and I think they do) it's a long-term positive. The first reaction is often wrong.
May be I am not asking this correctly as I know why people buy them ....
I want to know why you like them when the data that produces it's yield is bordering on crap (and getting worse)......
In a more realistic data environment they would be wonderful for that purpose....what we have is suppression of reality for that market....they do not reflect reality..
If that scenario plays out (as it has) it doesn't make much sense to tie up capital to an obviously rigged vehicle that has not produced very tangible results.
I need your opinion not a definition of what they are...I know what they are...
Sorry I like them for people who need to preserve capital and cannot stomach wild swings in the market. Commodities and currency will have wild swings and stocks will be depressed for years. Bond s will suffer with any signs of inflation. We all know about real estate and CD rates will be low for years. What other instrument is there for people who are retired or going to retire.
No, I mean holding rates. Some equities can do well as inflation hedges. Where else to put cash? Bonds? Oy-vey. Money Markets? Negative real interest rates. Commodities? A wee bit crowded. Stocks with pricing power and or big divvies, not the end of the world. If the divvies are 4-5% you can afford to wait till they come back. And in summer I like to be in the mountains where there is no cell service, no internet, so I don't pay much attention.
exactly my point above.....why invest in something that gets it's cue from a faulty indicator to start with. Even with the 'revision' upwards by .02% does that come close to reflecting the reality of close to 8-9% that we are seeing in reality....hardly...
Tim-
you are giving me a definition of what TIPS are and a historical reason for investing in them....you may understand what they are and why they are used but that does not factor in it's yield when reality is one thing and reported data is another.
Close call is when more than ONE governor dissents. They're gonna cut and keep cutting, and make stuff up as they go too. Whether ruin by market dynamics or by the FED's dilatory manipulations, this economy is going to go through a very, very rough patch.
Could you imagine what that would do to discretionary income overnight? The gov't primary job is to keep people in the dark spending until they have to raise their taxes to provide services people can no longer afford.
it's not about what I do....you made the statement that you liked them but it is apparent to me that you don't know why. As bob_in_ma mentioned inflation in underreported so that means a potential loss on a bond.....that's not something I take lightly.
It doesn't matter where I hedge against inflation since I have several options...that should not change you're understanding of the original statement...which was:
Duck is right. Gas taxes should be raised, probably to $6. The money should be rebated so that there are no taxes on the first $ 50k income for families and $25k for singles. Should be done st the state level too.
MS okay you got me put it all in gold yeah all of it. I give up. Seriously I like gold for someone under 50 but I think it has to come in first. Summer is usually a bad time for gold.
Sure we will if you keep ignoring the original topic..
You make a statement..you should be able to defend it without being pushed.
Can you answer your own questions?>>
It wasn't a question Tim.....it was a statement. It was a response to your aversion of the original topic.
It doesn't matter where I hedge against inflation since I have several options...that should not change you're understanding of the original statement...which was:
I like TIPS>>
Sounds like you need some help with some hedging strategies.
Playing word games is not what I want to waste my time on.
MCO Moody's: Senator seeks probe of Moodys errors - FT (36.91 6.99) -Update-
FT reports Chuck Schumer, the powerful New York senator, has called for the SEC to investigate revelations that Moody's awarded incorrect ratings to billions of dollars of complex debt because of a bug in its computer models. Mr Schumer also said on Wednesday that, if an investigation proved mistakes had occurred, the US regulatory agency should impose "appropriate sanctions" in the form of fines for the credit rating agency's failure to disclose the errors to investors. "The ratings inaccuracies that were disclosed are deeply troubling," Mr Schumer wrote in a letter sent Wednesday. "However, the fact that Moody's only downgraded these incorrectly rated products in January of 2008, nearly a full year after they became aware of the problem, is much worse, and is indicative of a culture of shirking responsibility that must end." Another senior Democratic lawmaker, Paul Kanjorski, who chairs the House subcommittee on capital markets, said the error deserved "close scrutiny" and that he expected regulators to review the matter.
For the record, Foreign Central Banks bellying up to the bar hand over fist to load up on Treasuries, have to be amongst the stupidest lot out there. They get lied to, conned, defrauded and they're still to stupid to get it. They keep printing money like mad to buy our money at rates below inflation, real inflation. No, hands down they ARE the dumbest of the dumb. Thank God for the Forrest Gumps of this world.
I will watch Cramer on Bubblevision tonight to see if the veins in his head pop. Hmmm Fast Money is on now and Ratigans' hair oil looks like he changed it recently. A bit more curly too. They are using words like "reload" and are talking faster.
Though the Fed won't 'put a cork in it,' - they'll continue to pronounce their intentions as if they were the all powerful Oz of Credit, - this chart and explanation should help us to resist the inevitable propaganda.
precious metals are not overcrowded. Pick any 100 people off the street. Probably only 50 have any real savings, and of those 50 i would bet that at least 49 hold bonds and stocks, though most likely indirectly through some kind of retirement fund.
TIPS and other $ based bonds, along with most other bonds priced in fiat are absolutely risky investments that should only be held with a true understanding of the quality of the debt AND of the currency.
I have made great returns from precious metals for 4 years, and sold my first stock ever today, realizing a gain of nearly 10% from holding skf for a little over a week.
Hey speculator, if you liked Iron Man, you might like MVL. Nicely undervalued stock.
Aside: I don't know jack about technical analysis -- and I don't want to -- but isn't 1390 starting to look more like a magnet than like "support" or "resistance"?
Finally, (almost) on topic: Why did the market react so strongly to the release of the Fed minutes? Futures options already priced in a pause to the rate cuts: Federal Funds Rate Predictions: Current ::
U.S. lawmakers on Wednesday urged the Securities and Exchange Commission to investigate a reported coding error that may have led Moody's Corp to incorrectly assign triple-A ratings to some complex European debt products.
Sen. Charles Schumer, a Democrat from New York, and Rep. Paul Kanjorski, a Pennsylvania Democrat, said the matter deserves close scrutiny, especially if U.S. investors were impacted.
stocks will suck
- commodites are potentially in a bubble
- RE is a deflating bubble
- cash is trash (thanks to the chance of raging inflation).
Where to invest?
I put a big chunk into municipal bonds at yields of 4.8-6%. First, they're relatively safe. Second, The yield spread between treasuries/safe corporates and munis is less than zero. Third, I believe the sunset on the 15% dividend rate will not be extended, and Federal tax rates for the wealthy are almost certain to go up, thus demanding an even higher yield spread than normal.
So it's not that I don't see an inflation risk, it's just that I feel that munis will hold their own. If T-bonds go to 6-7%, my munis will still be worth what I paid for them.
And I am hedged somewhat with gold, Ag and foreign currency.
But I don't buy the argument that inflation has been incredibly understated by the Feds. Barry R his really opportunistic about his complaints. Right now, he's whinging and whining about seasonal adjustments for gasoline. Did he make note when the seasonal adjustment exaggerated to the upside? Of course not. He's kind of from the Mark Hulbert school, using selective data mining to prove your preconceived notion...
Hey best of all possible worlds: gas headed to $12 a gallon, interest rates ready to rise, food prices up, bankruptcies increasing, foreclosures still to come (lots). What more could one ask for? CR thinks this will be a mild recession. How many agree?
No he doesn't. He thinks it will not be severe( >= 8% unemployment ), he has not thought it will be mild for a long time.
Of course I do think that he is too optimistic, but we should be accurate about his position. I also think he tends to skirt around the issue of the accuracy and validity of the reported unemployment statistics.
"Could someone give me any reason why stocks wouldn't return to their 2002 lows?"
Broader market would not have gone anywhere near that low if not for 9/11 and Iraq war build-up (Nasdaq was toast, but broader market was showing signs of stabilizing before 9/11). I can't say geopolitical events won't intervene now as well, but I can't say they will either.
Global growth is much, much stronger than it was in 2000. Much of Asia was still getting over the 1998 currency crisis.
Dems are likely to win the election. Despite what Doug Kass says, markets do better under Dems; just to see Bush's backside leaving town will cheer some people up.
3. Dems are likely to win the election. Despite what Doug Kass says, markets do better under Dems; just to see Bush's backside leaving town will cheer some people up.
Dems win what election? HOR, Senate, WH? I look for a split and more deadlock. I don't see that outcome being bullish at all.
"Bob_in_MA writes:
But I don't buy the argument that inflation has been incredibly understated by the Feds. Barry R his really opportunistic about his complaints. Right now, he's whinging and whining about seasonal adjustments for gasoline. Did he make note when the seasonal adjustment exaggerated to the upside? Of course not. He's kind of from the Mark Hulbert school, using selective data mining to prove your preconceived notion..."
As you point out, the whining about the seasonal adjustment is completely ridiculous. In the BLS report, the first number mentioned is the m-o-m rise in the non-seasonally adjusted (NSA) number. The NSA is the only "official" CPI index - it is what is used for TIPS, COLAs, etc. The seasonally adjusted (SA) number is only provided by the BLS as an aid to the private sector. The fact that PRIVATE SECTOR news organizations focus on the seasonally adjusted number is not the BLS' problem.
If you're going to do any analysis on the CPI (projections, pricing inflation-linked securities...), you need to work with the trend rate of inflation, which is seasonally adjusted. You can then add back the seasonal pattern to get a forecast for the NSA number.
In fact there is no clear consensus as to how to seasonally adjust CPI - even amongst inflation traders. Thus the fact that the BLS provides the SA version saves a lot of effort for people who don't have the technical know-how to do the adjustment themselves.
tj & the bear asked: "Could someone give me any reason why stocks wouldn't return to their 2002 lows?..."
The SP500 goes through major bear markets about once in a generation, with lesser corrections in between. Since we just had one such major bear within this decade, it's statistically unlikely that there would be another one this soon.
That's one reason.
Another reason is that there is still no recession, and no reason to think there's going to be one any time soon. (Also, it's a distinct possibility that Q1 2008 real GDP will be revised upwards, so remember to bookmark this post.)
Yet another reason is valuations. Using TTM peak as-reported SP500 EPS, stocks are at relatively modest valuations, about a 6.1% earnings yield, and that yield is about 228 bp higher than 10-Year Treasuries. So stocks are a good value on their own merit, and in comparison to bonds.
Another reason, modest inflation. Yes, oil and gasoline are screaming up but inflation is still pretty tame because not everything is going up in price.
Aheadofthecurve, you've been assimilated! You're a closet bull!
I take issue with your second point above:
2. Global growth is much, much stronger than it was in 2000. Much of Asia was still getting over the 1998 currency crisis.
It's not that I disagree that global growth has been much stronger of late. It's just that I don't see how that's a positive for the stock market going forward.
I suspect that much of the recent global growth came at the expense of future global growth. In fact, I suspect we have loads of overcapacity in the world. I'm betting that means US multi-nationals corps will see declining earnings as worldwide demand hits a wall.
Short-I'm really neither a bull nor a bear, honestly.
I really don't see the overcapacity, with shortages of food, oil, 5 million homes destroyed in the earthquake. Yes a US recession, if there were one would affect everywhere (the US is less important than it used to be, but still imnportant). Many of these countries have very large savings and people who have waited their whole life for a car or an apartment or what have you. They will dip into savings to have it, I think.
Now some say that may raise interest rates. That does worry me. I agree with Sebastian's point about stock yields being high relative to bonds and that supporting stocks. If rates rose a lot I would have to re-think. my po
Despite what Doug Kass says, markets do better under Dems; just to see Bush's backside leaving town will cheer some people up.
This is the most facile market analysis talking point I've seen.
Minor things like the Great Depression, WW2, the Vietnam Conflict, baby boomers settling down and having families, and the internet revolution far, far, outweighed the policy effects of the President.
This is not to say that policy doesn't matter, LBJ's Guns & Butter 10% Vietnam surtax, the trillion-dollar national debt that Reagan inherited and proceeded to run up to $3T, Clinton's holding the line on military spending growth in the 90s, etc. had and have effects to this day.
The trailing 12 month earnings of the S&P 500is ~21, -- way above its 60-year average of ~16.
From Bloomberg (by way of Big Picture):
Without the $70 billion that oil producers earned in the last two quarters, profits at companies in the Standard & Poor's 500 Index tumbled 26 percent and 30.2 percent, the biggest decreases for any quarter since Bloomberg started compiling data in 1998.
The SP500 goes through major bear markets about once in a generation, with lesser corrections in between. Since we just had one such major bear within this decade, it's statistically unlikely that there would be another one this soon.
Seb, Id hate to gamble my wealth on that statistic! There are lots of reasons to believe that the bear market was merely postponed for a few years. If you offer up money at negative real interest rates, and you encourage a RE bubble, and you gear up the war machine, youre gonna juice the economy, sure. Unfortunately, low rates eventually give you inflation, bubbles eventually pop, and wars negative effects start to show up in the economy, eventually. Then its time to pay the piper, and you get your (now angry) bear market right back at ya.
Another reason is that there is still no recession, and no reason to think there's going to be one any time soon. (Also, it's a distinct possibility that Q1 2008 real GDP will be revised upwards, so remember to bookmark this post.)
You just keep hanging onto that no recession mantra. But its really looking pretty ridiculous about now. It doesnt matter if were technically in one or not. The point is that it is pretty inescapable at this point, and its going to be a bad one.
Yet another reason is valuations. Using TTM peak as-reported SP500 EPS, stocks are at relatively modest valuations, about a 6.1% earnings yield, and that yield is about 228 bp higher than 10-Year Treasuries. So stocks are a good value on their own merit, and in comparison to bonds.
The WSJ Data Center shows the S&P500 PE ratio at close to 25. Thats historically an overvalued stock market. If youre going to compare stock earnings to treasury yields, you have to ask yourself a couple of questions. Is it reasonable to expect stock earnings to hold up going forward? And do you think that 10-Year Treasuries are priced rationally right now? Think maybe their yields might be more of a reflection of fear than anything else? And what happens when that fear turns to equities again?
Another reason, modest inflation. Yes, oil and gasoline are screaming up but inflation is still pretty tame because not everything is going up in price.
You forgot to mention food, education, airfares, and a number of other goods/services. Besides, its the trend that matters for inflation.
Just like its the trend that matters in company earnings. What trend do you see?
FACT: This is a consumer-driven economy.
FACT: J6P has no more real income, fewer savings, and a lot more debt than during the prior recession.
FACT: The "stimulus" of 1% FFR, REIC bubble, war, and $4T in federal deficit spending is all gone. What were once big positives are now huge negatives.
FACT: Energy, food & import prices are much higher and still headed north.
"Sebastian writes:
tj & the bear asked: "Could someone give me any reason why stocks wouldn't return to their 2002 lows?..."
The SP500 goes through major bear markets about once in a generation, with lesser corrections in between."
Some would argue that the rally from 2003-7 was the correction in the secular bear market...
"Another reason is that there is still no recession, and no reason to think there's going to be one any time soon. (Also, it's a distinct possibility that Q1 2008 real GDP will be revised upwards, so remember to bookmark this post.)"
Too bad the NBER recession dating committee doesn't use the real GDP to define a recession. And a great factoid: the preliminary GDP showed growth of +2% annualized in the first quarter of the previous recession. The numbers you see now will be revised heavily over the coming years...
"Another reason, modest inflation. Yes, oil and gasoline are screaming up but inflation is still pretty tame because not everything is going up in price."
That inflation is only expected to be modest because the economy is going into the tank. If the economy does not slow, the inflation outlook would be a big problem.
"FACT: The "stimulus" of 1% FFR, REIC bubble, war, and $4T in federal deficit spending is all gone."
Federal deficit spending is gone? Huh?
2% FFR is pretty stimulatory.
What simulus did the Iraq war provide? No new weapons procured-remember, "You go to war with the army you have". Much of the war cost is back-loaded, replacement of weapons and the biggie, care for returning vets. I believe weapons spending is supposed to rise in the next few years as the Air Force has a big wish list.
And taking energy out of the S&P is no more valid than taking out financials. You wouldn't let me get away with that and I won't let you.
As for the elections, yes Adminsitrations are less significant than historical trends. Nevertheless, a real serious push on energy and infrastructure would certainly help.
"Just like its the trend that matters in company earnings. What trend do you see?"
ShortCourage | 05.21.08 - 7:34 pm | #
I have seen some prelim numbers for volumes at my company. Lets just say I am a little suprised. We are looking to be up about 1.5% for the qtr. Oh,this also includes some pretty hefty fuel surcharges. Shit we got hit harder during the dot com disaster...
When they quit letting a dumb truck mechanic purchase any single expense under 1k and any full repair over 2.5k without any manager approval, then I will start to worry.
I will say I am glad I never took the construction route...
The Iraq war provided plenty of stimulus. Haliburton made billions of dollars in uncontested, illegal, no bid contracts. It would have been very beneficial for the employees and the citizens that benefit from Haliburton's success.
What? They took their war profits and moved to Dubai? Dubai, in the middle east? The same area we are spending billions to destroy. I hate republicans. Democrats might be the stupidest humans ever, but at least they are not backstabbing traitors.
P.S. Stop imprisoning our soldiers at the secret war trials at Camp Pendleton you traitor, Bush.
Yet another reason is valuations. Using TTM peak as-reported SP500 EPS, stocks are at relatively modest valuations, about a 6.1% earnings yield, and that yield is about 228 bp higher than 10-Year Treasuries. So stocks are a good value on their own merit, and in comparison to bonds.
Six-point-one percent? Really?
Trailing 12 months' earnings, as reported, from the S&P 500 total 60.41 as of today (this from S&P's own web site). 6% of the index has yet to report Q1 earnings, so let's be extra-generous and round this number up to an even 62.00.
$62 divided by 1,390 gives you a 4.46% earnings yield - or, put another way, a TTM P/E of 22.4.
High by recent standards.
High by historical standards.
High in comparison with most asset classes that aren't benefiting from an epic flight to safety (i.e. Treasuries).
High even when you discount the fact that a big contributor to that $62 are exceptionally high average profit margins, which over time have proven brutally mean-reverting.
That's reality.
Unlike some on this board, I don't see the S&P hitting 500, or even 900, at the bottom of this cycle.
But 1,100-1,200 is, IMO at least, more likely than not.
I'll believe that they are done when I see it. More likely, some "crisis" (such as Golden Slacks needing more free money to hand out bonuses) will cause yet another rate cut.
I still say ZIRP is the goal, and I hope I am wrong since that would devastate savers who are already being crushed and produce hyperinflation. Not that the Fed cares about any of that, of course. The only thing that will stop their rate cuts is if their fear of blow-back from inflationary policies outweighs their fear of not pleasing their Wall Street Masters. Doing the "right thing" does not enter into the equation.
Seb: Data is only as relevant as it is accurate. The current US data streams are inaccurate due to the gratuitous BLS over-exaggerations and the focus on "core" inflation, which has no actual meaning.
Moving the goalposts to declare victory is.. good!!
Calculate inflation today the same way they calculated it in Volcker's tenure and it's over 11%.
Sebastian wrote: The SP500 goes through major bear markets about once in a generation, with lesser corrections in between. Since we just had one such major bear within this decade, it's statistically unlikely that there would be another one this soon.
I'm not commenting other aspects of the post, but I'd like to point out that this conclusion is one of the classic errors amateurs make in statistics. If a bear market happens once in a generation, on average, the occurence of a bear market in a given year does not in any way change the probability of another bear market occurring in the following year. That is, if you'd have a bear market in 2001, the probability to have a bear market in 2008 is exactly the same - it does not depend on the year 2001 at all. This is because historical data has no effect to the present value of a truly random variable, which is a basic rule of statistics.
This feels like an inflection point.
I suspect things will get volatile for a while.
Although, should the wheels begin to come off again, I would caution that Bernanke has many more cards up his sleeves. I would urge everyone to go back and re-read Bernanke's 2002 deflation speech. He outlines all sorts of other options available to the fed, including buying long-term treasuries, corporate debt, announcing a fixed long term rate, etc.
His speech is here:
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm
Looks like the party is over!
Buy, puppets, buy!
At 2.00% on the FFR how much more could they cut anyway?
So attention turns to the ongoing term lending facility and other gyrations designed to keep the wheels from falling off.
Fed forecasting stagflatio
Fed will have to raise later this year if oil does not stop
There is a stark change in tone in the latest minutes. The good news on core inflation in Q1 is dismissed as probably transitory. The growth forecast is lowered, but easing finanical strains are seen lowering the risk that the economy will suffer unanticipated harm from the financial side. The central tendencies show core inflation remaining out of target through 2009, and headline inflation likely to run much higher than had been expected in January.
These guys are mad, in a calm, grey, central-banker way.
Ben is grounding the helicopter? It can't be!!!!
I'll believe that rate cuts are done when they hold rates the next meeting. Either way the dollar is finished as a reserve currency.
Not first but finally some green on the screen...
Reminds me of the science fiction movies where the protagonists expend most or all of their ammunition fighting the aliens in what they think is the main attack, but then find out they have just been fighting a scouting party.
But, But, But ... how can the Fed be done, when the economy needs More, More, More.
Ohh ... I forgot, the FF rate is presently at 2%. Maybe they can start paying me interest if I borrow money.
What says the WrightB ? I wonder if the Fed should be using that revolutionary forecasting device...
What say ye, sebastian?
Savage selloff. Hung uin there and fought the tape on TWMs SRS and SKF. Big moves today.
"Reminds me of the science fiction movies where the protagonists expend most or all of their ammunition fighting the aliens in what they think is the main attack, but then find out they have just been fighting a scouting party."
More like Custer's Last Stand. They chase the Indians and chase them and chase them.... until they find themselves led in a shallow bowl of land with all the Indians in the world looming up on the ridgelines.
What we get is the actions that are supposed to be reported by law or charter. Who's willing to bet the Fed (and the powers that control them) have done much more than is being reported???
Quick example: Who knew it extended a $13 b loan to BSC in the week of march 11th???
No one did until last week.....
Ny guess is that they have done far more 'operations' than they report.
Ciao
MS
Alright you pansies, any predictions for where the S&P closes today?
Below 1375 anyone?
U.S. trucking company Jevic Transportation Inc has filed for bankruptcy protection because of the tight credit market and high costs including the price of fuel, and has stopped its operations, according to its website
US trucker Jevic files for bankruptcy, shuts down
| Reuters
Another one bites the dust.
Watch these state pension funds. They all report on the 30th of November. With the losses in structured products and stocks the gov;t workers are for in a rough summer. Calpers in in real trouble.
Mr. Beach-lol if it does...Waiting for our favorite team to step in..
1390..
Barely-congrats-got stopped out of skf on monday..thinking of adding eev late today...thoughts?
Nahhh (although I hope it does) not enough time......
Too much at stake (technically speaking) to allow it to....
And if it does it won't stay for long
Ciao
MS
No chance. The Fud will keep cutting until they get back to 1%, middle class be damned. They know the economy will tank anyway. They also know they will likely be replaced by the next administration, so screw it, cut and make the hedge funds and bankers happy.
The Fed will cut, and it won't help.
"Slower growth, more inflation, no rate cuts ..."
WHOCUDDANODE?
More importantly, the beloved Dow INDU has given back the last 2 months of gains in 2 days. GFY Bulls.
A bit of truth????????
The Fed finished lowering rates? Are you kidding? Those guys are clueless.
MS: who knows what evil lurks in the heart of the Fed. Da Shadow do!
Ross
I guess they're saying: "From now on when you eat your cake it will start disappearing."
Sounds good, but I'll believe it when I see it.
The Fed can talk all they want.
Talk is meaningless.
rich,
Was it you who's been talking about the overvalued small caps?
Check out the volume off the top on IWM on an hourly. Beautiful.
IMO Ultimate bottom for S & P is about 1200 give or take 20 points. That is where the market last consolidated for a year. It could go lower but I wouldn't be near the market after that long or short. I like TIPS.
I meant the 30th of June. Sorry
"Below 1375 anyone?"
The S&P 500 still has 2 gaps to close:
- at around 1367
- at around 1335
The VIX is still in its down-trending channel (i.e. it doesn't look like panic). So it does seem like 1375 is in the cards today or soon.
cd - dunno about EEV. I have been sitting on a small position watching it get clobbered daily. Tough call. I like SRS & TWM better here and have been fighting the tape on it. SKF might have a big move as insolvent lenders go TU and the fed stands by...
The bears had it all wrong. They said the Fed was pushing on a string, when in fact, it was pushing on a lever, with oil on the other side of the fulcrum.
Hope you're happy, Prof. Bernanke.
There's no doubt. This rally is over.
anya,
this sell off has been rapid. Do you think we selling accelerate tomorrow. Friday is before 3 day holiday so I think that might be a rest day on light volume.
SRS has been beaten like a rented Ford. does anyone think it will be back around 120?
don't forget the bond market closes a few hours early on friday as well.
The move (which ever way it goes) will be largely over by tomorrow's close.
Ciao
MS
greenlander: Ben is grounding the helicopter? It can't be!!!!
It probably costs too much to keep it fueled.
"this sell off has been rapid. Do you think we selling accelerate tomorrow. Friday is before 3 day holiday so I think that might be a rest day on light volume."
Good point. But IMO, the risk is to the down side. And I certainly would not have a good night's rest being long at the close today. We'll see tomorrow...
It probably costs too much to keep it fueled.
Very nice.
IMO Ultimate bottom for S & P is about 1200 give or take 20 points. That is where the market last consolidated for a year. It could go lower but I wouldn't be near the market after that long or short.
Well extrapolating from history would suggest that a return to trend would take the S&P 500 closer to 900 and a good old fashioned "bottom of cycle" type correction could take it below 500. That's not counting inflation. Of course bears in 2002 thought these kinds of values would have been reached long ago, and they weren't.
But they're still consistent with historical trends.
barely, eev 52 wk low 58, I think fxp and eev markets sell off tonight..they will read into minutes much like here..my 2 cents...I'm sitting on twm, srs also..good luck..
ms-thanks for heads up!
Mp-your comment just made me feel great!
the fed may cut all the way to zero and it will probably delay the inevitable death of some of their wall street buddies. the fed is helpless against stagflation however. stagflation will kill The Consumer. this market is on the edge of a cliff now.
ac, I'm with you -- history suggests much lower levels. But I don't think the bulls are ready to give in just yet. I expect some optimists will go bargain hunting off of this severe drop.
In fact, Seb and O-Joe are probably running their stock screeners right now!
ice background on the oil runup:
from today's senate hearings
so much for the Chinese wall between an investment bank's trading desks and their "research" departments
cd - dunno about EEV. I have been sitting on a small position watching it get clobbered daily. Tough call. I like SRS & TWM better here and have been fighting the tape on it. SKF might have a big move as insolvent lenders go TU and the fed stands by...
With GMO warning of an emerging market bubble it makes me wary too. It seems like it's best not to be in the way if the hedgies keep going on a leveraging frenzy into emerging markets and commodities.
I think they will until they can't.
Of course timing the deleveraging of foreign stock markets is going to be one of the most profitable trades around.
I think Latin American markets fell like 30% in two weeks last August.
Next time we might see 50% in two weeks...
It appears that quite a bit of cash is being thrown at the SPY to not even let it touch 1390 let alone bounce......
This will end poorly IMO
Ciao
MS
SRS has been beaten like a rented Ford. does anyone think it will be back around 120?
I dunno, but it sure looks a lot prettier now than it did at 140.
Anon,
Thanks for posting this. The trucking industry is really hurting, and it will drive up corporate costs, because it makes just-in-time-inventory mgt. more difficult.
There was an interesting article in NY Times about nascent industry of air taxi, which was just taking off but now is grounded by lack of access to capital and higher fuel costs.
Air Taxis Fly Into Financial Turbulence - NY Times
Air-taxis also were called a cost-saver for corporations.
Does anybody really think oil is going back to $60 again any time soon? This is a game-changer for U.S. economy. And corp. profits area going down.
In addition to the Jevic Trans. story....
404 Page Not Found - Columbian.com
Bad to worse very quickly.....
Ciao
MS
Why when they are pegged to bogus numbers??? What is attractive about them to you??
Ciao
MS
Faster than you can say:
"How low will Harry Macklowe go?"
10 times in a row.
Maybe now I can break even on those ETF shorts I bought back in April. Oh, bear markets bite back!
Slower growth, more inflation, no rate cuts ...
I'm becoming a convert to the idea of limited decoupling. I have a feeling the Chinese will spend fairly freely in dealing with the earthquake. They have been very open about the situation and now their prestige will be behind rebuilding.
This is relevant because when it comes to keeping their $1.3T in treasuries to support the dollar and maintain their peg, or cashing them in and building schools that can stand up to earthquakes, I don't think there's any question how they'll choose.
Another point, both the delta region of Myanmar and Sichuan are big agricultural producers. I think food prices have bottomed for the mid-term.
"future reductions are unlikely even if the economy contracts."
If the economy contracts and if price increases stop or even contract, the Fed will cut further, no matter what they say now.
rich,
Actually not unlikely if a global recession gets some real legs...though $60/bbl as a floor is as mindboggling as painting $133/bbl in its own way...
I think the Dow will end up below 12000 at some point during the next week. The PPT has its work cut out.
Rich-3 times was hard enough..I think I'll take some profit..That would be a great script to warm up some telesales people before they start dialing for dollars...
20% correction would mean 1200, Within the historical norms of a correction. It might go 30%. There was a lot of volume between S&P 800-1000 over years. If we get into those levels we are looking at a worldwide crash and nobody will be making money. 1200 is my number for now.
My conviction to fight the tape on the TWMs & SRS SKF was the light volume and steady drumbeat of dire economic news. It was too easy to keep the market up with low volumes. Little busier today. I am a little surprised in the 3P juice, heading into unemployment claims in the AM.
I will be dumping my shorts in the PM tomorrow. I think existing home sales shows an upside surprise. Plenty of time to reload. It's going to be a LONG tough summer, for equities...
Wow, tech, financials & IBs, homebuilders, retail and casinos... None of them are getting any love today.
Big smile.
mp,
Whither goest Conjure Bag and his C position?
There are too many bears here.
We need to break the 1390 nut for a continuation move. Otherwise, the 30-day SMA seems to be a good inflection point.
So the Fed is predicting stagflation. Obviously, the last time this occurred, the USA borrowed its way to prosperity for almost 3 decades. What monetary or fiscal policies are available? Or are we truly in the age of the "superclass" where nation-states are irrelevant? (BRIC are not true nation-states, but rather nationalized corporations.)
Oil is at $133.
Well well well. This cannot go on forever. Something's gotta give:
What is it going to be? A combination of all three?
the best thing about this plunge is that NOBODY even remotely expected it at this moment. fed's comments have absolutely NOTHING sensational in them. i agree with an earlier poster that this may very well be the crucial inflection point for stocks.
I think the Fed release pretty much guarantees GDP will be negative on the next revision, as the deflator gets revised.
Bear market rally in the Dollar coming to an end this year?
Notice, no mention of guaranteeing a stable Dollar.
Any idiot on the fiat monetary system can creat money out of thin air.....inflation.
Although, should the wheels begin to come off again, I would caution that Bernanke has many more cards up his sleeves. I would urge everyone to go back and re-read Bernanke's 2002 deflation speech. He outlines all sorts of other options available to the fed, including buying long-term treasuries, corporate debt, announcing a fixed long term rate, etc.
The problem is that market participants can read these speeches too, anticipate the use of these tools, and pro-actively devalue the dollar and drive up interest rates.
If the flight from the dollar becomes so extreme because of helicopter fears the situation could gain a 1930s style momentum where the Fed not only has to abandon any kind of easing policy, but is forced to aggressively raise rates and implement other draconian financial policies to stem a crisis of confidence in the dollar.
They already could be entering dangerous territory -- notice today that interest rates and commodities kept rising despite their threats and despite the decline in stocks.
This is quite a change from past sell offs and could point to a more aggressive move away from the buck.
anya
I agree I get worried when it seems like everyone is bearish or bullish but we are few and many I talk to think that like real estate markets go perpetually higher. i argue with my own family why stocks and housing will be in the dumps for years and flat at best.
ac, I saw the same and read it similarly.
Swiss Franc on the rise. PMs robust.
More like Custer's Last Stand. They chase the Indians and chase them and chase them.... until they find themselves led in a shallow bowl of land with all the Indians in the world looming up on the ridgelines.
Bob Dobbs | Homepage | 05.21.08 - 2:49 pm | #
As is the saying in my part of the world...
"Custer had it coming."
PM=?
precious metals
ac - "notice today that interest rates and commodities kept rising despite their threats and despite the decline in stocks."
good point about yields heading higher as equities get clobbered. Inflation can do that when faced with decline in growth. Could finally be time to put on the short TLT trade.
If the flight from the dollar becomes so extreme because of helicopter fears the situation could gain a 1930s style momentum where the Fed not only has to abandon any kind of easing policy, but is forced to aggressively raise rates and implement other draconian financial policies to stem a crisis of confidence in the dollar.
They already could be entering dangerous territory -- notice today that interest rates and commodities kept rising despite their threats and despite the decline in stocks.
Don't cry for Ben, Argentina ...
Anyone noticed that every five months we have a huge sell off? March 07, Aug 07, Jan 08, and the June 08'?
tim-
you mentioned TIPS up above......can you expand on why you like them??? They are tied to less than reliable data......
Ciao
MS
If the flight from the dollar becomes so extreme because of helicopter fears the situation could gain a 1930s style momentum where the Fed not only has to abandon any kind of easing policy, but is forced to aggressively raise rates and implement other draconian financial policies to stem a crisis of confidence in the dollar.
Only if SAFE & PBoC throw in the towel - they haven't, read Setser's latest (see link on CR's sidebar: <a href="http://blogs.cfr.org/setser/2008/05/20/steins-law-china-edition-what-can-not-go-on-forever/>Stein's Law China Edition
Point is the reserve growth & CAD can't go on forever... when the Chinese throw in the towel & stop trying to manipulate the dollar could fall like a freaking meteor.
But so far it really hasn't - not like it could - in spite of all the hand wringing & whining.
Can't wait to read Jay-Yello's next speech about this.
o rate cuts ...
Un Huh, I laugh at that.
Now below 1390.
1390 breach-can it hold..
stocks and bonds down today. what if commodities join the bear party too? i don't remember all these asset classes falling simultaneously ever. should that happen i think we'll enter some really scary times.
Tips are something that can play both sides of an economy. One can get the benefits of bonds that is they go up when stocks sell off. When inflation is high enough to depress equities TIPS rise as it did in March. In a low growth deflationary scenario Tips goes up with bonds though less so. Bad for Tips is low inflation high growth but I don't see that anytime soon. Also many tips funds pay a very small yeild. It is a conservative instrument that I recommend for those over 50+ who can't wait for economic cycles to turn their way.
Anyone who knows more about the bond market please correct me on TIPs or explain further.
This is taking the froth that was in the last couple of weeks out. If the Fed really means it (and I think they do) it's a long-term positive. The first reaction is often wrong.
Norah Jones - Cold Cold Heart
YouTube
- Norah Jones - Cold Cold Heart
atc - " If the Fed really means it (and I think they do) it's a long-term positive"
You mean inflation and unemployment UP and growth LOWER ?
I think they are a little late aknowledging what everyone in America already knew. It would be nice if they joined reality, a little sooner.
This summer ig going to be a killer for those long equities...
May be I am not asking this correctly as I know why people buy them ....
I want to know why you like them when the data that produces it's yield is bordering on crap (and getting worse)......
In a more realistic data environment they would be wonderful for that purpose....what we have is suppression of reality for that market....they do not reflect reality..
If that scenario plays out (as it has) it doesn't make much sense to tie up capital to an obviously rigged vehicle that has not produced very tangible results.
I need your opinion not a definition of what they are...I know what they are...
Ciao
MS
Sorry I like them for people who need to preserve capital and cannot stomach wild swings in the market. Commodities and currency will have wild swings and stocks will be depressed for years. Bond s will suffer with any signs of inflation. We all know about real estate and CD rates will be low for years. What other instrument is there for people who are retired or going to retire.
No, I mean holding rates. Some equities can do well as inflation hedges. Where else to put cash? Bonds? Oy-vey. Money Markets? Negative real interest rates. Commodities? A wee bit crowded. Stocks with pricing power and or big divvies, not the end of the world. If the divvies are 4-5% you can afford to wait till they come back. And in summer I like to be in the mountains where there is no cell service, no internet, so I don't pay much attention.
In a low growth deflationary scenario Tips goes up with bonds though less so.
But since most of the yield of TIPs is inflation, they could lose value.
I bought some WIP, world ex-US TIPS. Inflation and dollar hedge. Or do they cancel each other out? My head hurts...
WIP? What's the yield on that?
bob-in-ma
exactly my point above.....why invest in something that gets it's cue from a faulty indicator to start with. Even with the 'revision' upwards by .02% does that come close to reflecting the reality of close to 8-9% that we are seeing in reality....hardly...
Tim-
you are giving me a definition of what TIPS are and a historical reason for investing in them....you may understand what they are and why they are used but that does not factor in it's yield when reality is one thing and reported data is another.
Ciao
MS
Yal writes:
Fed will have to raise later this year if oil does not stop
Shouln't the government just add $1 tax to gas, since there's a good chance we're going to $5 anyway?
This way the deficit will improve, while helping cut consumption.
Close call is when more than ONE governor dissents. They're gonna cut and keep cutting, and make stuff up as they go too. Whether ruin by market dynamics or by the FED's dilatory manipulations, this economy is going to go through a very, very rough patch.
MS what are you invested to protect against inflation? What if we get deflation?
Duck,
Could you imagine what that would do to discretionary income overnight? The gov't primary job is to keep people in the dark spending until they have to raise their taxes to provide services people can no longer afford.
you are missing the point.....
it's not about what I do....you made the statement that you liked them but it is apparent to me that you don't know why. As bob_in_ma mentioned inflation in underreported so that means a potential loss on a bond.....that's not something I take lightly.
It doesn't matter where I hedge against inflation since I have several options...that should not change you're understanding of the original statement...which was:
Ciao
MS
Duck is right. Gas taxes should be raised, probably to $6. The money should be rebated so that there are no taxes on the first $ 50k income for families and $25k for singles. Should be done st the state level too.
Won't happen, but it should.
MS okay you got me put it all in gold yeah all of it. I give up. Seriously I like gold for someone under 50 but I think it has to come in first. Summer is usually a bad time for gold.
MS What are those several options to hedge against inflation? Can you answer your own questions? we can go round and round all day.
energyecon, Conjure bailed from C a about two weeks ago. I talked about it here, somewhere.
Sure we will if you keep ignoring the original topic..
You make a statement..you should be able to defend it without being pushed.
It wasn't a question Tim.....it was a statement. It was a response to your aversion of the original topic.
Sounds like you need some help with some hedging strategies.
Playing word games is not what I want to waste my time on.
Ciao
MS
Keeping interest rates level in a contraction would be a de facto rate hike if it wasn't for core 7 headline inflation being where it is.
You almost wish for a 25bp hike to try and take the wind out of commodities, but fat chance of that happening.
"I'll believe that rate cuts are done when they hold rates the next meeting."
You betcha, me too.
Indeed, it wouldn't surprise me a bit to see 'em cut rates even before the next meeting.
Dave Tice (Prudent Bear) says there's going to be a depression, but maybe not a 'great' one.
MS,
Are you my mother in Law? Cindy is that you? Very funny. Ha, Ha.
Finally we get some downturn to load up again. Should go soemwhat lower still.
O-Joe
MCO Moody's: Senator seeks probe of Moodys errors - FT (36.91 6.99) -Update-
FT reports Chuck Schumer, the powerful New York senator, has called for the SEC to investigate revelations that Moody's awarded incorrect ratings to billions of dollars of complex debt because of a bug in its computer models. Mr Schumer also said on Wednesday that, if an investigation proved mistakes had occurred, the US regulatory agency should impose "appropriate sanctions" in the form of fines for the credit rating agency's failure to disclose the errors to investors. "The ratings inaccuracies that were disclosed are deeply troubling," Mr Schumer wrote in a letter sent Wednesday. "However, the fact that Moody's only downgraded these incorrectly rated products in January of 2008, nearly a full year after they became aware of the problem, is much worse, and is indicative of a culture of shirking responsibility that must end." Another senior Democratic lawmaker, Paul Kanjorski, who chairs the House subcommittee on capital markets, said the error deserved "close scrutiny" and that he expected regulators to review the matter.
A lot of businesses and consumers are starting to head for the liferafts.
The problem is...there's never been a leaky ship as big as the U.S. economy.
The bigger the ship, the greater the chaos.
The banks are the ones who have to stay behind and play "nearer my God to Thee."
For the record, Foreign Central Banks bellying up to the bar hand over fist to load up on Treasuries, have to be amongst the stupidest lot out there. They get lied to, conned, defrauded and they're still to stupid to get it. They keep printing money like mad to buy our money at rates below inflation, real inflation. No, hands down they ARE the dumbest of the dumb. Thank God for the Forrest Gumps of this world.
I will watch Cramer on Bubblevision tonight to see if the veins in his head pop. Hmmm Fast Money is on now and Ratigans' hair oil looks like he changed it recently. A bit more curly too. They are using words like "reload" and are talking faster.
As the Fed has followed the market with near 100% correlation for years and years, their statemet is consistent with their stated objectives:
1) Create credit to fuel growth,
2) Prevent the fear of inflation from producing panic.
The market will tell the Fed what to do, and they will follow exactly as they have in the past.
The real question is: who cares what the impotent credit-price-fixers do, let alone say?
I guess it's funny that you "like TIPS" but have no idea what is happening to them.
reread Staurt's comment a few above..you might have a clue after that.
Losing money is funny????
Good luck with that.....
Ciao
MS
Oh great, now they understand that we have been in a stagflation period and they have poured too much petrol on the bonfire...retards!
The economy is in recession! That is why I' going short. I will tell you why:
http://theinvestingspeculator.typepad.com/investing/2008/05/bullish-on-the.html
At
the speculator real estate first at theinvestingspeculator.com
Though the Fed won't 'put a cork in it,' - they'll continue to pronounce their intentions as if they were the all powerful Oz of Credit, - this chart and explanation should help us to resist the inevitable propaganda.
http://www.optionsoutlet.com/market_outlook/the_fed_and_credit_crunch.html
precious metals are not overcrowded. Pick any 100 people off the street. Probably only 50 have any real savings, and of those 50 i would bet that at least 49 hold bonds and stocks, though most likely indirectly through some kind of retirement fund.
TIPS and other $ based bonds, along with most other bonds priced in fiat are absolutely risky investments that should only be held with a true understanding of the quality of the debt AND of the currency.
I have made great returns from precious metals for 4 years, and sold my first stock ever today, realizing a gain of nearly 10% from holding skf for a little over a week.
Hey speculator, if you liked Iron Man, you might like MVL. Nicely undervalued stock.
Aside: I don't know jack about technical analysis -- and I don't want to -- but isn't 1390 starting to look more like a magnet than like "support" or "resistance"?
Finally, (almost) on topic: Why did the market react so strongly to the release of the Fed minutes? Futures options already priced in a pause to the rate cuts: Federal Funds Rate Predictions: Current ::
Federal Reserve Bank of Cleveland
:: fed funds,federal funds rate,prediction
Several folks above have opined that:
Where to invest?
If you feel that way, why not short stocks (or buy long term PUTS), and hold some precious metals to hedge any cash that you hold?
If you use no leverage, and put in stop losses on the PUTS, you can keep the risk at a pretty tolerable level with good upside.
mp,
thx for recap, been busy ITRW (moving etc.) so missed alot of by play lately...will think of y'all over scotch and cigars this evening
ANd my burning question is the rise in TNX with a ~2% decline in indices the start of a trend....?
U.S. lawmakers on Wednesday urged the Securities and Exchange Commission to investigate a reported coding error that may have led Moody's Corp to incorrectly assign triple-A ratings to some complex European debt products.
Sen. Charles Schumer, a Democrat from New York, and Rep. Paul Kanjorski, a Pennsylvania Democrat, said the matter deserves close scrutiny, especially if U.S. investors were impacted.
UPDATE 2-US regulators urged to probe Moody's reported error
| Reuters
Speaking of dumb asses.
Dan Alpert is talking on Bloomberg now about the weak economy. He put up a chart on net home equity extraction credited to Calculated Risk.
stocks will suck
- commodites are potentially in a bubble
- RE is a deflating bubble
- cash is trash (thanks to the chance of raging inflation).
Where to invest?
I put a big chunk into municipal bonds at yields of 4.8-6%. First, they're relatively safe. Second, The yield spread between treasuries/safe corporates and munis is less than zero. Third, I believe the sunset on the 15% dividend rate will not be extended, and Federal tax rates for the wealthy are almost certain to go up, thus demanding an even higher yield spread than normal.
So it's not that I don't see an inflation risk, it's just that I feel that munis will hold their own. If T-bonds go to 6-7%, my munis will still be worth what I paid for them.
And I am hedged somewhat with gold, Ag and foreign currency.
But I don't buy the argument that inflation has been incredibly understated by the Feds. Barry R his really opportunistic about his complaints. Right now, he's whinging and whining about seasonal adjustments for gasoline. Did he make note when the seasonal adjustment exaggerated to the upside? Of course not. He's kind of from the Mark Hulbert school, using selective data mining to prove your preconceived notion...
Could someone give me any reason why stocks wouldn't return to their 2002 lows? IMHO they'll go below, and I've got plenty of reasons why.
I do own lots of puts too...
Congresscritter flipper!!!
Update: Congresswoman denies foreclosure report | L.A. Land | Los Angeles Times
This is just too rich!
I guess you too can walk away, after all a congresswoman just did!!!
Someday this war's gonna end...
Finally we get some downturn to load up again. Should go soemwhat lower still.
O-Joe
Me, it was a good thing I tightened up my trailing stops in financials.
Staying out of the way again, it sounds as if the one more bad quarter for banks is no longer Citi and smaller banks, but other big ones as well.
You would've made a little money and saved a lot if you listened between November & now, but that's not my cross to bear.
Hey best of all possible worlds: gas headed to $12 a gallon, interest rates ready to rise, food prices up, bankruptcies increasing, foreclosures still to come (lots). What more could one ask for? CR thinks this will be a mild recession. How many agree?
Could someone give me any reason why stocks wouldn't return to their 2002 lows?
One counterbalance I see is currently strong currency holders (I'm thinking EURO) looking to hedge in US assets.
If & when the dollar starts trending up against the EURO, them buying our equities will give them FX gains.
as an aside, I moved my SDS money that got stopped out at 57.20 (with a ~$5/share loss) back in at 53, ... in 3 days I've made +10%. Sheez.
energyecon-What's your guess on oil? Pickens says $150. You?
"CR thinks this will be a mild recession."
No he doesn't. He thinks it will not be severe( >= 8% unemployment ), he has not thought it will be mild for a long time.
Of course I do think that he is too optimistic, but we should be accurate about his position. I also think he tends to skirt around the issue of the accuracy and validity of the reported unemployment statistics.
"Could someone give me any reason why stocks wouldn't return to their 2002 lows?"
I have more, but I'll stop now.
3. Dems are likely to win the election. Despite what Doug Kass says, markets do better under Dems; just to see Bush's backside leaving town will cheer some people up.
Dems win what election? HOR, Senate, WH? I look for a split and more deadlock. I don't see that outcome being bullish at all.
"Bob_in_MA writes:
But I don't buy the argument that inflation has been incredibly understated by the Feds. Barry R his really opportunistic about his complaints. Right now, he's whinging and whining about seasonal adjustments for gasoline. Did he make note when the seasonal adjustment exaggerated to the upside? Of course not. He's kind of from the Mark Hulbert school, using selective data mining to prove your preconceived notion..."
As you point out, the whining about the seasonal adjustment is completely ridiculous. In the BLS report, the first number mentioned is the m-o-m rise in the non-seasonally adjusted (NSA) number. The NSA is the only "official" CPI index - it is what is used for TIPS, COLAs, etc. The seasonally adjusted (SA) number is only provided by the BLS as an aid to the private sector. The fact that PRIVATE SECTOR news organizations focus on the seasonally adjusted number is not the BLS' problem.
If you're going to do any analysis on the CPI (projections, pricing inflation-linked securities...), you need to work with the trend rate of inflation, which is seasonally adjusted. You can then add back the seasonal pattern to get a forecast for the NSA number.
In fact there is no clear consensus as to how to seasonally adjust CPI - even amongst inflation traders. Thus the fact that the BLS provides the SA version saves a lot of effort for people who don't have the technical know-how to do the adjustment themselves.
tj & the bear asked: "Could someone give me any reason why stocks wouldn't return to their 2002 lows?..."
The SP500 goes through major bear markets about once in a generation, with lesser corrections in between. Since we just had one such major bear within this decade, it's statistically unlikely that there would be another one this soon.
That's one reason.
Another reason is that there is still no recession, and no reason to think there's going to be one any time soon. (Also, it's a distinct possibility that Q1 2008 real GDP will be revised upwards, so remember to bookmark this post.)
Yet another reason is valuations. Using TTM peak as-reported SP500 EPS, stocks are at relatively modest valuations, about a 6.1% earnings yield, and that yield is about 228 bp higher than 10-Year Treasuries. So stocks are a good value on their own merit, and in comparison to bonds.
Another reason, modest inflation. Yes, oil and gasoline are screaming up but inflation is still pretty tame because not everything is going up in price.
That's all I can think of off-hand.
Sebastian
Believe EEVs largest holding is Brazil, which, if I had to bet on one country in the world to go long...
Aheadofthecurve, you've been assimilated! You're a closet bull!
I take issue with your second point above:
2. Global growth is much, much stronger than it was in 2000. Much of Asia was still getting over the 1998 currency crisis.
It's not that I disagree that global growth has been much stronger of late. It's just that I don't see how that's a positive for the stock market going forward.
I suspect that much of the recent global growth came at the expense of future global growth. In fact, I suspect we have loads of overcapacity in the world. I'm betting that means US multi-nationals corps will see declining earnings as worldwide demand hits a wall.
Short-I'm really neither a bull nor a bear, honestly.
I really don't see the overcapacity, with shortages of food, oil, 5 million homes destroyed in the earthquake. Yes a US recession, if there were one would affect everywhere (the US is less important than it used to be, but still imnportant). Many of these countries have very large savings and people who have waited their whole life for a car or an apartment or what have you. They will dip into savings to have it, I think.
Now some say that may raise interest rates. That does worry me. I agree with Sebastian's point about stock yields being high relative to bonds and that supporting stocks. If rates rose a lot I would have to re-think. my po
To my last point, about earnings having been borrowed from the future (worldwide not just in the US)...
Here are the yearly EPS figures from Caterpillar's website since 1996:
1996 $1.75
1997 $2.19
1998 $2.06
1999 $1.32
2000 $1.51
2001 $1.16
2002 $1.15
2003 $1.56
2004 $2.88
2005 $4.04
2006 $5.17
2007 $5.37
Think that can continue? I guess if you believe the decoupling theory, maybe...
Can they grow like they did from 2003-06? I doubt it. But from 06 to 07 they went up 4%. Can they equal or beat that? I don't see why not.
One of the things that makes me crazy when people cite the S&P's valuation is that essentially, the last 5 years have been a bubble in value stocks.
The top 10 industries were almost exclusively deep, dirty cyclicals.
BigCharts - Charting a World of Investment Information
Steel, coal, several flavors of oil services. Plus Google.
Cyclicals behave counterintuitively. Buy them at an earnings trough - PE of 254 - and sell when they're at a peak - PE of 3.
If you go back to 1930s Dow, you can see lots of counterexamples to the "decade bear market" assertion.
Everything from 29 - 32 sucked. 1935 was a double on the upside. 1937 cut it back in half again. 1938 up 50%. 1940 - 42 gave it all back.
More recently - and I think this will apply more closely to the US experience - more 30% haircuts than you can shake a stick at.
AHOTC, I foresee their earnings shrinking, not growing. The only way they don't shrink would be due to currency gains.
Asia and the rest will be following the US into recession, IMHO.
I wonder how many earnings models in the S&P assume $130 oil?
Despite what Doug Kass says, markets do better under Dems; just to see Bush's backside leaving town will cheer some people up.
This is the most facile market analysis talking point I've seen.
Minor things like the Great Depression, WW2, the Vietnam Conflict, baby boomers settling down and having families, and the internet revolution far, far, outweighed the policy effects of the President.
This is not to say that policy doesn't matter, LBJ's Guns & Butter 10% Vietnam surtax, the trillion-dollar national debt that Reagan inherited and proceeded to run up to $3T, Clinton's holding the line on military spending growth in the 90s, etc. had and have effects to this day.
But from 06 to 07 they went up 4%. Can they equal or beat that? I don't see why not.
Three words:
Home.
ATM.
Broken.
S&P a good value? HAHAHAHAHA!!!
From The Big Picture:
The trailing 12 month earnings of the S&P 500is ~21, -- way above its 60-year average of ~16.
From Bloomberg (by way of Big Picture):
Without the $70 billion that oil producers earned in the last two quarters, profits at companies in the Standard & Poor's 500 Index tumbled 26 percent and 30.2 percent, the biggest decreases for any quarter since Bloomberg started compiling data in 1998.
They will dip into savings to have it, I think.
Savings are inflationary.
Sebastian said:
The SP500 goes through major bear markets about once in a generation, with lesser corrections in between. Since we just had one such major bear within this decade, it's statistically unlikely that there would be another one this soon.
Seb, Id hate to gamble my wealth on that statistic! There are lots of reasons to believe that the bear market was merely postponed for a few years. If you offer up money at negative real interest rates, and you encourage a RE bubble, and you gear up the war machine, youre gonna juice the economy, sure. Unfortunately, low rates eventually give you inflation, bubbles eventually pop, and wars negative effects start to show up in the economy, eventually. Then its time to pay the piper, and you get your (now angry) bear market right back at ya.
Another reason is that there is still no recession, and no reason to think there's going to be one any time soon. (Also, it's a distinct possibility that Q1 2008 real GDP will be revised upwards, so remember to bookmark this post.)
You just keep hanging onto that no recession mantra. But its really looking pretty ridiculous about now. It doesnt matter if were technically in one or not. The point is that it is pretty inescapable at this point, and its going to be a bad one.
Yet another reason is valuations. Using TTM peak as-reported SP500 EPS, stocks are at relatively modest valuations, about a 6.1% earnings yield, and that yield is about 228 bp higher than 10-Year Treasuries. So stocks are a good value on their own merit, and in comparison to bonds.
The WSJ Data Center shows the S&P500 PE ratio at close to 25. Thats historically an overvalued stock market. If youre going to compare stock earnings to treasury yields, you have to ask yourself a couple of questions. Is it reasonable to expect stock earnings to hold up going forward? And do you think that 10-Year Treasuries are priced rationally right now? Think maybe their yields might be more of a reflection of fear than anything else? And what happens when that fear turns to equities again?
Another reason, modest inflation. Yes, oil and gasoline are screaming up but inflation is still pretty tame because not everything is going up in price.
You forgot to mention food, education, airfares, and a number of other goods/services. Besides, its the trend that matters for inflation.
Just like its the trend that matters in company earnings. What trend do you see?
FACT: This is a consumer-driven economy.
FACT: J6P has no more real income, fewer savings, and a lot more debt than during the prior recession.
FACT: The "stimulus" of 1% FFR, REIC bubble, war, and $4T in federal deficit spending is all gone. What were once big positives are now huge negatives.
FACT: Energy, food & import prices are much higher and still headed north.
[Lots more where those came from.]
IMHO the 2002 lows are the best we can hope for.
"Sebastian writes:
tj & the bear asked: "Could someone give me any reason why stocks wouldn't return to their 2002 lows?..."
The SP500 goes through major bear markets about once in a generation, with lesser corrections in between."
Some would argue that the rally from 2003-7 was the correction in the secular bear market...
"Another reason is that there is still no recession, and no reason to think there's going to be one any time soon. (Also, it's a distinct possibility that Q1 2008 real GDP will be revised upwards, so remember to bookmark this post.)"
Too bad the NBER recession dating committee doesn't use the real GDP to define a recession. And a great factoid: the preliminary GDP showed growth of +2% annualized in the first quarter of the previous recession. The numbers you see now will be revised heavily over the coming years...
"Another reason, modest inflation. Yes, oil and gasoline are screaming up but inflation is still pretty tame because not everything is going up in price."
That inflation is only expected to be modest because the economy is going into the tank. If the economy does not slow, the inflation outlook would be a big problem.
You forgot to mention food, education, airfares, and a number of other goods/services
not to mention health care.
Basically we will see price inflation in everything we need to live. Everything else (including, I hope, rents) will come under price pressure.
"FACT: The "stimulus" of 1% FFR, REIC bubble, war, and $4T in federal deficit spending is all gone."
Federal deficit spending is gone? Huh?
2% FFR is pretty stimulatory.
What simulus did the Iraq war provide? No new weapons procured-remember, "You go to war with the army you have". Much of the war cost is back-loaded, replacement of weapons and the biggie, care for returning vets. I believe weapons spending is supposed to rise in the next few years as the Air Force has a big wish list.
And taking energy out of the S&P is no more valid than taking out financials. You wouldn't let me get away with that and I won't let you.
As for the elections, yes Adminsitrations are less significant than historical trends. Nevertheless, a real serious push on energy and infrastructure would certainly help.
"Just like its the trend that matters in company earnings. What trend do you see?"
ShortCourage | 05.21.08 - 7:34 pm | #
I have seen some prelim numbers for volumes at my company. Lets just say I am a little suprised. We are looking to be up about 1.5% for the qtr. Oh,this also includes some pretty hefty fuel surcharges. Shit we got hit harder during the dot com disaster...
When they quit letting a dumb truck mechanic purchase any single expense under 1k and any full repair over 2.5k without any manager approval, then I will start to worry.
I will say I am glad I never took the construction route...
Chris
What simulus did the Iraq war provide?
$535,982,887,420 of sweet, sweet deficit spending.
wait, the counter is $535,982,972,373 now.
hold on, $535,983,036,187.
The Iraq war provided plenty of stimulus. Haliburton made billions of dollars in uncontested, illegal, no bid contracts. It would have been very beneficial for the employees and the citizens that benefit from Haliburton's success.
What? They took their war profits and moved to Dubai? Dubai, in the middle east? The same area we are spending billions to destroy. I hate republicans. Democrats might be the stupidest humans ever, but at least they are not backstabbing traitors.
P.S. Stop imprisoning our soldiers at the secret war trials at Camp Pendleton you traitor, Bush.
Oops, make that $135 oil...
Yet another reason is valuations. Using TTM peak as-reported SP500 EPS, stocks are at relatively modest valuations, about a 6.1% earnings yield, and that yield is about 228 bp higher than 10-Year Treasuries. So stocks are a good value on their own merit, and in comparison to bonds.
Six-point-one percent? Really?
Trailing 12 months' earnings, as reported, from the S&P 500 total 60.41 as of today (this from S&P's own web site). 6% of the index has yet to report Q1 earnings, so let's be extra-generous and round this number up to an even 62.00.
$62 divided by 1,390 gives you a 4.46% earnings yield - or, put another way, a TTM P/E of 22.4.
High by recent standards.
High by historical standards.
High in comparison with most asset classes that aren't benefiting from an epic flight to safety (i.e. Treasuries).
High even when you discount the fact that a big contributor to that $62 are exceptionally high average profit margins, which over time have proven brutally mean-reverting.
That's reality.
Unlike some on this board, I don't see the S&P hitting 500, or even 900, at the bottom of this cycle.
But 1,100-1,200 is, IMO at least, more likely than not.
I'll believe that they are done when I see it. More likely, some "crisis" (such as Golden Slacks needing more free money to hand out bonuses) will cause yet another rate cut.
I still say ZIRP is the goal, and I hope I am wrong since that would devastate savers who are already being crushed and produce hyperinflation. Not that the Fed cares about any of that, of course. The only thing that will stop their rate cuts is if their fear of blow-back from inflationary policies outweighs their fear of not pleasing their Wall Street Masters. Doing the "right thing" does not enter into the equation.
Seb: Data is only as relevant as it is accurate. The current US data streams are inaccurate due to the gratuitous BLS over-exaggerations and the focus on "core" inflation, which has no actual meaning.
Moving the goalposts to declare victory is.. good!!
Calculate inflation today the same way they calculated it in Volcker's tenure and it's over 11%.
Sebastian wrote: The SP500 goes through major bear markets about once in a generation, with lesser corrections in between. Since we just had one such major bear within this decade, it's statistically unlikely that there would be another one this soon.
I'm not commenting other aspects of the post, but I'd like to point out that this conclusion is one of the classic errors amateurs make in statistics. If a bear market happens once in a generation, on average, the occurence of a bear market in a given year does not in any way change the probability of another bear market occurring in the following year. That is, if you'd have a bear market in 2001, the probability to have a bear market in 2008 is exactly the same - it does not depend on the year 2001 at all. This is because historical data has no effect to the present value of a truly random variable, which is a basic rule of statistics.