Monday, June 6, 2011
06/06/11 Stormy Monday
Here's a quote from Richard Russell guaranteed to induce a bad trip:
Russell concluded: “The whole current mess reminds me a lot of 1929-30. After the crash of ‘29, the stock market roared higher, even as the economy was simultaneously weakening. When the great post-crash rally died in April 1930, the market turned down with a vengeance, and the Great Depression began. …The market is probably now in the process of forming a complex top. If the market now turns down convincingly, we could see the beginning of Great Depression No. 2.”
http://www.marketwatch.com/story/five-down-weeks-stir-crash-whispers-2011-06-06
Yet that's the kind of just-real-enough-to-----you-up sentiment-reversing commentary we need right now. The tapes I play in my head to build immunity to stuff like that? I don't have time this evening to list them all. However, I can throw out a couple.
(a) If the market sells off -90% from here, I'm still OK on a relative basis. How so? I don't have time to create the entire sublist either, but I'll throw out one reason. I've been here before- not just in 2008, but even more so in 1973. Once you've done a tour in the Valley, it's no longer an unknown, and you know 'it sucks, but it's manageable.'
(b) The opportunities created by another Great Depression will more than offset the actual event.
You can safely drop acid here. Enjoy the rest of the evening, guys.
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"(b) The opportunities created by another Great Depression will more than offset the actual event."
ReplyDeleteThat's the beauty of being long large caps. You will be able to make a great lateral move into some more volatile companies when blood will be on the streets and make a killing on the way up, when the Fed announces QE3. :)
David- Sure. I'll just move into 3x leveraged longs ;)
ReplyDeleteWhich is what I did in March '09.
ReplyDeleteWhat I meant, though, is the empire-building kind of opportunities created by a global depression. All of us here are entrepreneurial/professional/managerial types. There will be a ---- load of ways to make serious money. I wouldn't even be thinking about the stock market at that point.
ReplyDeleteHi Guys,
ReplyDeleteAfter that intro I'm of a mind to safely drop something.....
Does it matter? We should all be better at playing the short side after our 2008-2009 experience. They slide faster than they glide.
There is a shipload of money to be made.
I hope you all are doing great!
FF
"There will be a ---- load of ways to make serious money. I wouldn't even be thinking about the stock market at that point. "
ReplyDelete2nd - I hear what you're saying but man, some people have made a KILLING from the market downturn in 2008. I personally have a long only account that was at $1,400 or $1,500 I believe on March 9, 2009. It's now at $88,000. I'd have to imagine there were people with far more money that are now buying islands because of the downturn.
Lot of hyperbole in the market these days and Richard Russell is not one to let a chance like this to slip by..
ReplyDeleteThe odds of another market crash so quickly after the last one are lower than seeing 2nd_ave wearing shorts and a tee-shirt! I wouldn't say Richard Russel has had a good read on the market the last few years and only begrudgingly agreed to call the 2003 - 2007 market a bull very late in the cycle.
I'll go back to Jeffrey Saut at Raymond James who has had a great call on the market for several years at http://www.raymondjames.com/inv_strat.htm
Definitely worth reading the entire article, but a key point:
Ever since the Japanese tragedy (Fukushima) I have been writing about how the subsequent supply chain interruptions were going to cause economic dislocations. Combine that with the weird weather (one of my better predictions), the latest Easter in 68 years, soaring fuel prices (back in April), and is it any wonder the economy has slowed?! But consider this, the sales-to-inventory ratio for U.S. businesses is below where it was during the depths of the 2008 recession, as can been seen in the first chart on page 3. To me, this suggests the stage is set for another inventory rebuild cycle, which should help strengthen the economic numbers going forward. That view is reinforced by another new all-time high in U.S. corporate profits (see second chart on page 3). Manifestly, the way the world works is that corporate profits expand, which drives an inventory rebuild cycle. That, in turn, fosters a capital expenditure cycle where companies spend money on plant and equipment. Subsequently, people get hired and consumption improves. I see no reason that sequence won’t play this time.
"David- Sure. I'll just move into 3x leveraged longs ;). Which is what I did in March '09."
ReplyDeleteYep. We got the timing down to a week, I think. Too bad I decided to catch the bottom by shorting 3X ultrashorts, got greedy on that, put on too large of a position, which exploded against me and resulted in a margin call on March 5, which forced me to close a large part of my shorts on March 6, a few hours before S&P printed the 666 intraday bottom. What a luck!
Now I'll be much smarter and know that the best way to catch the bottom is with 3X ultralongs, which went up SEVERAL TIMES since the bottom. With shorting ultrashorts I can at most hope to get a 90% return on my investment...
I have to admit, it seems like we all have a different take here. Right now, I suspect my 3 adds to BEXP will be in trouble tomorrow.
ReplyDeleteJust to confirm this is the same richard russell that said only a few months ago after seeing the strength in the markets that the 08-09 downturn was nothing more than a correction in a longer term bull mkt right? Talk about melodramatic...we're down 6% and its Great Depression 2.0!
ReplyDeleteWhen I looked at the FinViz news headlines just now I see the following posted headlines next to each other:
ReplyDelete1) "Togo, Nigeria Have the World’s Highest Rates of Deforestation, Study Shows"
2) "Microsoft Unveils New Games"
You can substitute Brazil for Africa and Apple for Microsoft at any time. Then ask yourself "What are the two worlds biggest software companies now contributing toward the plight of the Earth".
I own Softy and Cisco but wish otherwise sometimes when I see how much they have spent on frivolous stuff. Crap that does not even contribute to the Gates Foundation.
Philosophical rant off and good night.
ReplyDeleteNight Illini...Yeah, those are two sad lead articles. I'm glad you didn't see #3..,
ReplyDelete3) Trouble for Wiener as recently released photos show clearly deforested private areas with the caption...GAME ON!
Well I hate to say it, but I can't see any reason to remain net long this market anymore. I guess Bernanke gave up on the economy, haven't heard anything positive from him or Timmy in too long.
ReplyDeleteChicken don't forget profits...as in corporate profits
ReplyDeleteTOF - Nothing's been done to address the root causes of the housing crisis aside from throwing some money at banks, which is just going to be eaten away while homeowners were thrown to the wolves on their overpriced properties continue to walk away.
ReplyDeleteBanks are still accumulating foreclosures at a rate faster than they can sell them because the market simply cannot absorb the supply given the state of unemployment.
All the root problems that caused the collapse remain unaddressed, seems like we're headed right back to where we came from.
I hear ya chicken but corp and consumer balance sheets are significantly better than in the past
ReplyDeleteChickenpookie,
ReplyDeleteI think that housing is one of the big headfakes in today's market. Housing was a key driver for the economy last decade. For the upcoming one for the US, I believe it will be industrials, manufacturing, technology, resource development and exports.
The world has changed from being American-centric to Asia, so you need to invest accordingly. One of the weaknesses of the American Financial press is the lack of info on the rest of the world. I always get a chuckle when the press gets worked up because the price of WTI Oil goes up or down $2 based on some inventories in Oklahoma when (a) WTI is not really the benchmark for oil anymore, Brent is and (b) oil demand in the US is flat and fairly inelastic and what you really need to watch to understand global oil is what is going on in China (eg. car sales, electrical generation sources, etc.).
No that housing isn't important and you will be able to make money picking the bottom in this, but I just think there are a lot easier places to make money.
new post, dudes
ReplyDeleteBB- I suspect you will be right in the long run. I usually stay away from commenting on housing as it is a little too close to home for me to be objective.
ReplyDelete