A+: Why This Rally Is Not Sustainable & The Huge Role Goldman Has Had In Spurring It
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Yet he said 875 would be formidable resistance due to supply and here we are at 929. I don't understand this rally but I see that the last for 4 weeks of data of initial claims remained below the peak from beginning of April and yesterday's data, well below. Two to 4 more weeks like this -with no spikes above the peak- and they will declare the end of the recession, oficially... meaning the slow money is perhaps already sustaining this rally. But I am not predicting there won't be any corrections or crashes. Mostly everyone is expecting one and those left out of this rally are dying for one.
So, you expect a V shaped recovery not only in terms of employment levels, but wages, too?
I would take that counter-bet with you any day of the week and twice on Sabbath.
http://www.nytimes.com/2009/05/09/opinion/09herbert.html
Here's a liberal journalist who gets 'it,' though his prescription of a remedy is opposite of what I'd call for (he wants more government stimulus - I want targeted governmental support of critical industry and technology, with lower taxation, and a 'we'll do whatever you want' if you produce high value goods and high-wage jobs South Korea or China approach).
We are literally headed for another Great Depression in this country if something radically good and constructive doesn't happen soon.
Here's a liberal journalist who gets 'it,' though his prescription of a remedy is opposite of what I'd call for (he wants more government stimulus - I want targeted governmental support of critical industry and technology, with lower taxation, and a 'we'll do whatever you want' if you produce high value goods and high-wage jobs South Korea or China approach).
We are literally headed for another Great Depression in this country if something radically good and constructive doesn't happen soon.
I think the percentage of people who believe this rally is the beginning of a new bull is very very low. This makes it even more interesting. If you compare 2003 and this rally the similarities are striking. 2003 I heard the same arguments and people only discussed points to reopen short positions, no one was talking about opening new long positions and still the market kept rising.
There are a lot of aspects that make me believe we will see a 10% retrace shortly to get the sentiment negative again which is to optimistic right now and give new hope to the shorts but I think it will be a good opport. to add long positions.
For banks its free lunch right now. They ger rid of the toxic assets and will earn tons of money because they can borrow for free and the interest is still high on the long end. This is paradise for them. The next quarters will be great for them at least until the gouv. wants their money back.
There was a >50% run up on a lot of countries (Brasil, China, Vietnam, Russia etc.). All Emerging markets under fire. They will over the long run be much better than USA which is a place where I would hardly invest. I have only 5% of my assets invested in USA because the dept situation will favor other countries. But even USA stocks will perform much better than Cash or Bonds during the next 10 years because they are inflating their dept away and this will fuel an inflation based rally that will be even harder to understand for a lot of people who focus on the wrong things.
Only collecting articels that confirm your own opinion about the ending world is not a valid approach for success.
Happy weekend greetings from Germany !
Is this rally sustainable? Probably not at this pace, we're up what like 40% in 10 weeks. That's ~440% annualized 
That doesn't mean we have to go back to new lows in a big round trip. Sooner or later the rally will exhaust itself - at least temporarily, after all the underinvested and overshorted have made their moves.
What then? The most bullish cause would be 1-2 months of sideways action in the summer where profit taking is met with consistent buying by underinvested long-only managers and then a 12 month grind up on improving economic data (confirming the recent speculative move betting on a V-shaped recovery).
Bearish? An inability to break through 950/975 on the SP500 and then heading straight back down, maybe to the low 700s/650s for a retest? For that IMO we'd need (just some examples) a few sizable emerging market sovereign defaults, a government bond "crash" sending the yield on the 10y to >>5% overnight, nationalization of BAC/WFC/C wiping out bond & shareholders or hard confirmation the V shape economic recovery the market is betting on now is a mere fantasy. All within the realm of possibility, but the burden of proof has shifted back to the bears for the time being.
That doesn't mean we have to go back to new lows in a big round trip. Sooner or later the rally will exhaust itself - at least temporarily, after all the underinvested and overshorted have made their moves.
What then? The most bullish cause would be 1-2 months of sideways action in the summer where profit taking is met with consistent buying by underinvested long-only managers and then a 12 month grind up on improving economic data (confirming the recent speculative move betting on a V-shaped recovery).
Bearish? An inability to break through 950/975 on the SP500 and then heading straight back down, maybe to the low 700s/650s for a retest? For that IMO we'd need (just some examples) a few sizable emerging market sovereign defaults, a government bond "crash" sending the yield on the 10y to >>5% overnight, nationalization of BAC/WFC/C wiping out bond & shareholders or hard confirmation the V shape economic recovery the market is betting on now is a mere fantasy. All within the realm of possibility, but the burden of proof has shifted back to the bears for the time being.
Quote from makloda:
Is this rally sustainable? Probably not at this pace, we're up what like 40% in 10 weeks. That's ~440% annualized
That doesn't mean we have to go back to new lows in a big round trip. Sooner or later the rally will exhaust itself - at least temporarily, after all the underinvested and overshorted have made their moves.
What then? The most bullish cause would be 1-2 months of sideways action in the summer where profit taking is met with consistent buying by underinvested long-only managers and then a 12 month grind up on improving economic data (confirming the recent speculative move betting on a V-shaped recovery).
Bearish? An inability to break through 950/975 on the SP500 and then heading straight back down, maybe to the low 700s/650s for a retest? For that IMO we'd need (just some examples) a few sizable emerging market sovereign defaults, a government bond "crash" sending the yield on the 10y to >>5% overnight, nationalization of BAC/WFC/C wiping out bond & shareholders or hard confirmation the V shape economic recovery the market is betting on now is a mere fantasy. All within the realm of possibility, but the burden of proof has shifted back to the bears for the time being.
Two major bear points in future, that the market is not currently pricing in, are a further 30%-ish fall in real estate prices, and the total collapse of the economies of Eastern Europe. W Europe also has a lot more pain to go e.g. Ireland, UK, Spain etc.
Basically to buy the bull case you need to think that the real estate crash is finished. No prior real estate crash from such overvalued levels has fallen such a small amount. That is what keeps me long-term bearish. And now that we have had a 40% rally, and are getting close to the obvious short/bear capitulation point (950-1000 S&P i.e. new 2009 highs + a psychological level), we're only 25-75 points from the time to get medium-term bearish too. Throw in a couple of spike up days and bullish media palaver and it'll be shorting time on all 3 timeframes.
Terrible fundamentals, bullish sentiment, bear capitulation, an obvious price level, and ideal timing on all 3 timeframes - that is a rare combination. We could be near to the best shorting opportunity since October 2007.
Just like in 2007, the market could be blind to the likely consequences of a giant real estate bust. Major bear markets historically have had big trading rallies, that did not stop them going lower, and gave no information whatsoever for the future of the economy or the market. Examples - the 50% rally from 1929 to early 1930; numerous 40%+ rallies in Japan after 1990. The major rally from late 1997 to early 1998 in Asian stockmarkets and currencies etc.
If we are in a secular bear market, it is quite possible that we fall to valuation levels consistent with prior secular bear market lows. This usually happens at <8 on the cyclically-adjust Schiller/Graham PE, which would require the S&P to go down to around 400. At 1000 this makes the cyclically-adjusted PE 20, which is high in historical terms. Should we have a high adjusted PE during terrible economic conditions? IMO no. I would say it's much more likely that a massive worldwide recession and bubble collapse results in historically low PEs than historically expensive PEs.
I've got makloda and Cutten, two people I respect out of the throngs, going toe to toe in a vigorous debate here.
Now, all I need is for Landis, Mav and RM to weigh in (and a select few others that I can't think of at 3 in the morning).
Now, all I need is for Landis, Mav and RM to weigh in (and a select few others that I can't think of at 3 in the morning).
Just for the record, I'm probably as bearish as anyone. Just laying out both cases. I personally don't buy the V-Shape pipedreams because they were built by economists fed with data of cyclical (inventory/manufacturing) post WW2 recessions, not with the little data we have on banking and credit busts. At best, I think we'll see a jobless recovery with years of below potential GDP growth, lots of junk-debt defaults, sub-par corporate margins, relatively high unemployment, low inflation and Rosenberg's "frugal consumer". Unfortunately, that doesn't translate into a dead-sure prediction for stocks. I am now net short but I will reserve my bets once I see evidence to the contrary.
For stocks, what I see in my trading is that the lowest quality, most shorted, most leveraged balance sheet garbage stocks were rallying the most. The $BKX is up 150%, the MS cyclical index is up 100% in 10 weeks. Hysteric short squeezes in casinos, REITs, cruise ships, banks, insurers. A rotation out of junk into better balance sheet stocks during an overall sideways consolidation (we had that end of 2003/early 2004) would be bullish IMO. But so far, trash is king.
One indicator that bears watching is HY bonds, which rallied back to mid-September Lehman levels. http://www.bloomberg.com/apps/quote?ticker=NBBHYL:IND -- this should tick up instantly on any deteriorating in economic expectations.
For stocks, what I see in my trading is that the lowest quality, most shorted, most leveraged balance sheet garbage stocks were rallying the most. The $BKX is up 150%, the MS cyclical index is up 100% in 10 weeks. Hysteric short squeezes in casinos, REITs, cruise ships, banks, insurers. A rotation out of junk into better balance sheet stocks during an overall sideways consolidation (we had that end of 2003/early 2004) would be bullish IMO. But so far, trash is king.
One indicator that bears watching is HY bonds, which rallied back to mid-September Lehman levels. http://www.bloomberg.com/apps/quote?ticker=NBBHYL:IND -- this should tick up instantly on any deteriorating in economic expectations.
