http://www.marketwatch.com/story/real-gdp-now-at-pre-recession-levels-2010-12-24
...as Fosback points out, even though the economy is now back to pre-recession levels, the major stock-market averages are not even close.
There is a silver lining, however, according to Fosback: As a result of investors’ extraordinary pessimism, the bull market will likely last longer than it otherwise would have if investors had more quickly jumped on the bullish bandwagon.
How bullish is Fosback? His econometric models are forecasting a 22% return for stocks over the coming 12 months — and, over the coming five years, an annualized return of 11%.
Extraordinary take indeed. It seems a little 'off,' but then that's exactly how markets throw traders 'off.'
Re: 'Don't Believe Everything You Think' newSubmitted by 2nd_ave (5090 comments) on Fri, 12/24/2010 - 15:50 #76548
ReplyDeleteDaveM- I found a copy at the local library. Have yet to start reading, but the concept is real. Consider-
(a) The thin girl who 'thinks' she's fat.
(b) The many times we 'think' we made a bad impression (eg, sales presentation) when the reverse was true.
(c) We're pretty sure someone stole our wallet, until it turns up exactly where you left it while distracted.
(d) It has to be cancer, when there is in fact a benign explanation.
(e) There's no way the GDP is back to pre-recession levels...
Hey, where's our full mall report???
ReplyDelete(a1) The fat chick who thinks she's thin.
(b1) The many times we think we made a good impression ;)
ReplyDeleteColin Twiggs also has an optimistic outlook for 2011-
ReplyDeletehttp://www.incrediblecharts.com/tradingdiary/trading_diary.php
c1) I'm gonna kick someone's butt once I find my wallet.
ReplyDeleteRe: 'Don't Believe Everything You Think'/ Nostradamus newSubmitted by 2nd_ave (5091 comments) on Fri, 12/24/2010 - 20:11 #76550 (in reply to #76548)
ReplyDeleteThomas Kida's book includes a chapter titled 'Predicting The Unpredictable' where it's noted that 'CNN reported that the top three Web topics on September 20 [2001] were, in order, Osama bin Laden, Nostradamus, and Afghanistan. Nostradamus was number two!'
You know what? The same desire to predict the future was probably responsible for record numbers of hits on topics such as 'Prechter' in the aftermath of the '08 market crash.
Furthermore, Kida cites our amazing ability to read whatever we want into (ambiguous) 'prophecies.' He cites one research study that found 58% of people thought a random composite of different prophecies accurately predicted World War II.
The human mind- is it any wonder that aliens beam us up and then toss us back?
"The human mind- is it any wonder that aliens beam us up and then toss us back?"
ReplyDeletePerhaps aliens actually consider that activity to be a sport (catch and release).
Earth might also be a convenient place to refuel and replenish supplies on extended journeys?
G-nite, I'm done with poking around this evening. ;)
OK, cp- Merry Christmas!
ReplyDeleteI'm here. Snowed in. Not that much but enough to hinder an old guy with a new hip. One market observation: GLD has way under performed SPY and USO since DEC 7. Is the glitter off? Silver continues mostly unburnished. Hey, I am not a gold bug but am very cautious on stocks now.
ReplyDeleteCP- Sorry you left already. OK, my sample pool was biased, Sonoma and Marin County. Damn, it was packed. I did more than my fair share for the economy. Even picked up a few things for myself. Couple boxes of ammo, new tazer, half dozen smoke bombs. You know, standard stuff we all need...OK, it was a really nice orange/rust colored sweater. I'm told I look good in orange. Picture a big, blue eyed pumpkin :)
ReplyDeleteGood to see you again illini. How's the hip doing?
I'm a little nervous being as long as I am right now. Only saving grace is my positions are still pretty beat up.
Hip's doing better than average, I think, after 2 1/2 months. I too am long on a couple of underwater positions pre-bust: BCF (a CEF) and GXP (electric utility in Midwest). Please don't ask me why I picked a utility that tanked so badly or bought a basic materials ETF when oil was at a peak. GLD is a holding that holds, so far.
ReplyDeleteGood news on the hip my friend. Concrats. Those can be a bitch. Merry Christmas Illini...Go CAL!
ReplyDeleteThanks Mark. Amazingly my Fighting Illini are in a minor Bowl game next week on 29th, against Baylor in Houston. At least they get a break from the weather. I should not complain too much about snow because I was witness today to grandkids and their cousins with dads, moms, uncles, etc all going down a slope in their backyard. Great sledding fun.
ReplyDeleteEXC - I had thought about a position in this one if the market were to beat it up for no good reason.
ReplyDeleteillini - Great news 'bout the hip, I knew it'd work out!
Mark, pumpkin! Some kind of disguise to confuse long enough for an escape if you're pulled over by the swat team?
They may be onto the strategy though, I witnessed some shady-looking characters dressed in orange around these parts yesterday.
You KNOW everybody thinks you are CHEAP when they ACCUSE you of cutting each chocolate chip in half to be able to make the chocolate chip cookies CHEAPER!
ReplyDeleteLOL, I about died laughing.
So they ate all the BUTTER TARTS I made FIRST!
CB - Don't tell them you used artificially flavored ingredients!
ReplyDeleteGood morning,
ReplyDeleteWanted to share the article I read this morning from Robert Kiyosaki:
http://finance.yahoo.com/banking-budgeting/article/111702/the-eye-of-the-recessions-storm
The part I found most interesting is the graph showing a spike in mortgage resets going into 2011 and the strategic default option becoming more and more mainstream.
Good morning and Merry Christmas to all of my truly great friends here. Without your eye's and help, 2010 wouldn't have been nearly as wonderful.
ReplyDeleteIgor- I've been reading about that for 3 years. Same as CR was supposed to be the "next shoe to drop in 2010." We'll see. Obviously I'm betting heavily against it. But as a trader, I'm sure I'll get in an out of that trade more than once over the next 12 months. Maybe more than once over the next few WEEKS :)
Strategic default - Interesting how the banking industry seems to have adjusted to their own medicine, I consider strategic default a part of the checks and balances of a properly functioning system.
ReplyDeleteBankers are extremists, won't loan unless the borrower doesn't need a loan, and will loan even if borrower doesn't have a snowball's chance of repaying.
Somebody's got to bring perspective to the market, I guess extreme limits, by definition, provide unique open gap opportunities.
Although timing is key, the trend is your friend.
Here's the big picture as I see it, in a nut shell:
ReplyDeleteWe had a big scare and the banking system nearly collapsed because everyone rushed to one side of the boat at the same time. Some actually fell overboard and drowned, others were fished out of the water and brought back on board, some of those have gotten sick, others have recovered.
The ship is no longer taking on water faster than it's being bailed.
I think for the most part, the black swan event is over and we're in recovery, it's important to remember prices don't move in a straight line.
How many strategically default on their car loans? Under water the day you drive off the lot. I don't know. I wouldn't do it if at all possible. That's not a moral statement, a practical one.
ReplyDeleteThen again, I'm a simpleton.
China raises rates again:
ReplyDeletehttp://www.bloomberg.com/news/2010-12-25/china-raises-interest-rates-by-25-basis-points-in-bid-to-curb-inflation.html
Could present another buying opportunity, last time the opportunity window was fairly short, if I remember correctly.
If you were to default on your car loan, you might have to walk a while. There's a price to pay for every choice one makes.
ReplyDeleteMoody's Investors Service said the charge-off rate for U.S. credit cards declined for a fourth consecutive month in November, while saying the early-stage delinquency rate in particular is now nearing an all-time low.
ReplyDeleteThe charge-off rate, based on credit card balances that are written off as uncollectible, fell to 8.58% in November from 8.79% in October and is now almost 19% below its year-ago level. The peak was at 11.5% in August 2009.
Among individual credit card trusts, performance was mixed in November, with three of the six largest trusts experiencing gains in charge-offs during the month.
Meanwhile, the delinquency rate, describing balances for which a monthly payment is more than 30 days late, eased for the 13th straight month to 4.38% in November from 4.51% in October. It was the lowest reading since December 2007, and almost 30% below its year-ago level.
"Early-stage" delinquency rate, based on balances up to 59 days late, fell to 1.14% from 1.19% in the prior month.
Earlier this month, Moody's said it expected the performance of U.S. credit-card loans bundled into securities is expected to improve further next year, with charge-offs seen falling and credit card asset-backed securities issuance expected to rise. The ratings agency said as the economy emerges from recession, stabilizing unemployment will support a continued improvement in credit-card performance.
-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com
It would seem to me this data would lead to default rates for loan's with greater balances, cars/homes, to be next in line. I'm sure some might say people are not paying their home loans so they are using the money to pay CC debit. Let me ask this though. If you knew you were going to default on your home loan, thus ruining your credit, WTH would you bother paying off your credit cards? I wouldn't. I'll try to find CC balance ratios. Increasing/decreasing, etc. This might be a negative if balances are increasing. Maybe people are jamming up their CC's for a future default.
Maybe there's a silver lining to all of this crap. Politicians will finally stop trying to get everyone into a Fing house. Only truly credit worthy people will get loans, like it was for, I don't know, the last 90 years? When we bought our first house we had to have my parents co-sign for the loan. After about 2 years we were able to refinance and get them off title. That was in 1998 I think. Everything started going to shit shortly there after.
ReplyDeleteMerry Christmas, everybody! I hope it will be filled for you with love and enlightening thoughts, just as Jesus had taught.
ReplyDelete"Let me ask this though. If you knew you were going to default on your home loan, thus ruining your credit, WTH would you bother paying off your credit cards?"
ReplyDeleteMark, I think people are hoping for some modifications of their bank loans and are in lengthy negotiation processes, during which they are paying their CCs but not their home loans.
Re: The Fosback Forecast> +22% in '11
ReplyDeleteSubmitted by DavidV (54 comments) on Sat, 12/25/2010 - 17:33 #76554 (in reply to #76547)
"as Fosback points out, even though the economy is now back to pre-recession levels, the major stock-market averages are not even close."
The reason for this is that the stock market is forward-looking. In 2007, the economy has been expanding at 3-5% annual GDP for several years, and traders were pricing stocks as if this trend will continue for a while. Right now, traders understand that the positive GDP numbers we saw for the past year are just a gift from Uncle Ben. Without that gift, we would have zero or negative GDP growth (and that gift is going to end in 6 months!). So naturally, stocks are not back to their previous highs since the economy is not nearly as strong as it had been in 2007.
2nd_ave, I think the article cited by Igor clearly shows that we are not in the same economy as we had in 2007. In fact, the article reminds us to stop extrapolating the past one year into the future and instead consider the NEW EVENTS that WILL happen during the next year (a second wave of mortgage defaults) and think whether those events are priced into stocks (the answer is NO!).
ReplyDelete"Mark, I think people are hoping for some modifications of their bank loans and are in lengthy negotiation processes, during which they are paying their CCs but not their home loans."
ReplyDeleteDavid- I thought modifications had petered out. I know a few are still happening, but believe it to be statistically insignificant. Am I wrong?
It is also my understanding that almost all sub-prime loans have cleared the system. I say this knowing full well the amount of homes still on the books. But the banks seem to have done a good job letting these trickle back on the market. This will obviously keep the supply high for a while to come, but as long as it's managed well I think it can play out OK.
Yes, a lot of people are calling for the next wave to hit as stated in the article Igor posted.
Re: The Futility of Forecasting newSubmitted by 2nd_ave (5092 comments) on Sat, 12/25/2010 - 19:10 #76557 (in reply to #76555)
ReplyDeleteDavid- How can anyone know for certain what will transpire in 2011, or what effect any event will have on stock prices? If we knew, it would be priced in already. We're playing the odds.
How accurately do stock prices reflect 'reality' to begin with? Very little, IMO. They're more like barometers of investors' emotions about the stock.
Fosback is entitled to make 'forecasts.' I don't think anyone (including himself) takes them too 'seriously.' I publish my own 'forecasts' in order to keep track of my takes on the market. Obviously, my take can shift in the blink of an eye, and then back again- for that very reason, I would be unwise to think I'm interpreting anything more than the moods of crowds and/or my own emotional responses.
Anything can happen tomorrow. And anything does. We just don't know what, who, when, why, or where.
Re: The Futility of Forecasting
ReplyDeleteSubmitted by DavidV (56 comments) on Sat, 12/25/2010 - 19:21 #76558 (in reply to #76557)
"How accurately do stock prices reflect 'reality' to begin with? Very little, IMO. They're more like barometers of investors' emotions about the stock."
Yes, my experience seems to confirm this observation. :)
"David- How can anyone know for certain what will transpire in 2011, or what effect any event will have on stock prices? If we knew, it would be priced in already. We're playing the odds."
This statement, I think, runs counter to the first one. The current market prices reflect the current mood of investors, which is that of extreme elation coupled with a strong desire to not think about any hard-to-model events that can potentially disturb the markets (second wave of mortgage defaults, collapse of the state and local budgets, etc).
The spreading of the subprime crisis was pretty obvious in 2007 but it was VERY hard to model (in fact, there were NO models that could predict the effect of such a spreading), and hence the majority of investors (those who determine the market price) chose to simply ignore the problem. When the problem started becoming obvious, they were pricing it in to the degree to which they could SEE it AT THE TIME, but they still could not model the future and so the majority was not pricing in the future (such as a bankruptcy of all subprime lenders, even though a friend of mine on Wall Street was saying in 2007 that such lenders are always the first ones to "go" in a recession and this time it will be no different) until it actually happened. I believe the same thing is happening right now -- investors are pricing in only the disturbing events that are happening NOW, which is to say NOTHING.
New post.
ReplyDelete