Black Monday

It's human nature to want to hold onto losing stocks and fall into wishing and hoping for a chance to at least get out at breakeven. Taking a loss means admitting that you were wrong, and people generally don't like to admit that they were wrong. Experienced traders, of course, don't have a problem with admitting a mistake, taking a small loss, and moving on to the next trade (at least, successful experienced traders don't have a problem with doing this), but I think most of the Saudis who got burned recently were not experienced traders. I think stock trading was pretty new to most Saudis.


This weekend headline doesn't bode well for Monday:
Iran to Reject Any Offer Seeking Nuclear Suspension

http://quote.bloomberg.com/apps/news?pid=10000087&sid=a8TCJzOyym8k&refer=home

And this article raises a good point:
http://www.bloomberg.com/apps/news?pid=10000087&sid=ajt.NvqAchqU&refer=top_world_news

There's a collective head being scratched on Wall Street, looking to see where exactly this Fed is going, where we're going to have the next catalyst to drive the market higher,'' said Jack Bouroudjian, principal at Brewer Investment Group in Chicago.
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Could someone point to some positive catalysts for stocks? What's the argument for the bull side? First quarter earnings were good, but that's mostly behind us now, and the market has finished reacting to that news. Second quarter earnings might be good too (though, probably not as good as first quarter's earnings), but we'll need to wait a few months for that - in the meantime, it looks like the focus will be on economic data and Iran. And the economic data is likely to continue the inflation story.
 
Quote from moo:

Nice theory, let's see how it turns out.

Just want to add that the reason for low bond yields is the same as for high share & real estate prices: too much money. Just as there's a housing bubble, there is also a stock bubble, bond bubble and a bubble even in some commodities.

Instead of showing up in the CPI, the extra money has gone to asset prices. The solution (by helicopter-Ben) will be a bear market in assets and a bull market in wages and non-asset prices.
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I agree that easy money has led to multiple asset bubbles. Fed (from Greenspan) has stated that they do wish to target asset bubbles, specifically housing. However, I doubt they would want to target the equity markets - that would simply end the economy of the US and allow our trading partners to have an even greater edge. Not going to happen.

Inflation is likely, but how that (& the dollar's devaluation) ends up in higher wages without asset appreciation (outside of housing) I can't fathom.

Care to explain HOW you can have inflation and deflate asset prices, and WHY you might want to do that?
 
I realize your reply drsteph is in response to moo but he makes some provocative assertions worth commenting upon.

As inflation is followed by the predictable upturn in rates, asset values tend to fall. Why? Wages lag inflation thus an uptick in mortgage rates simply prices out buyers at higher valuations. At the end of the day it's not so much the purchase price but the monthly payment that titillates buyers. In equities it's a bit different. Stocks compete for a rate of return. If an investor chooses to purchase stocks instead of a fixed return he's in fact betting whether his equity portfolio will out-perform bonds. As rates move higher, stocks must broaden their forward outlook if they are to attract aggressive buyers rather than profit taking sellers who slap bids on the way down. Case in point: Many investors bought stocks throughout this series of rate increases were rewarded because earnings expanded even though P/E's did not move higher. But are investors bullish enough at these levels to forsake certain 5% appreciation vis a vis Treasuries knowing that their "break-even" on an equity for debt swap is a 2300 S&P in ten years?

Moo appears to be favoring a 1970's stagflation event. That's where my money is also. Just look to charts of FX, metals, soybeans, bonds and indices for clues.
Quote from drsteph:

I agree that easy money has led to multiple asset bubbles. Fed (from Greenspan) has stated that they do wish to target asset bubbles, specifically housing. However, I doubt they would want to target the equity markets - that would simply end the economy of the US and allow our trading partners to have an even greater edge. Not going to happen.

Inflation is likely, but how that (& the dollar's devaluation) ends up in higher wages without asset appreciation (outside of housing) I can't fathom.

Care to explain HOW you can have inflation and deflate asset prices, and WHY you might want to do that?
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Pabst, yes, stagflation indeed seems to be the most likely outcome. From Ben's speeches I believe that is what the Fed is aiming for. They want to soften the blow from the bursting asset bubbles. Perhaps they even hope to prevent a recession altogether, but that is impossible.

Quote from drsteph:

Inflation is likely, but how that (& the dollar's devaluation) ends up in higher wages without asset appreciation (outside of housing) I can't fathom.

Care to explain HOW you can have inflation and deflate asset prices, and WHY you might want to do that?
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Asset bubbles burst under their own weight, especially if they are as big as the housing bubble. That is asset deflation.

But you can still have general inflation if the Fed prints more money, i.e. does not let the money supply fall. And that is exactly what the Fed will do to ease the pain inflicted by the bursting bubbles. Of course the excess money will show up then in the general level of prices (CPI) and eventually in wages too.
 
Quote from moo:

Pabst, yes, stagflation indeed seems to be the most likely outcome. From Ben's speeches I believe that is what the Fed is aiming for. They want to soften the blow from the bursting asset bubbles. Perhaps they even hope to prevent a recession altogether, but that is impossible.



Asset bubbles burst under their own weight, especially if they are as big as the housing bubble. That is asset deflation.

But you can still have general inflation if the Fed prints more money, i.e. does not let the money supply fall. And that is exactly what the Fed will do to ease the pain inflicted by the bursting bubbles. Of course the excess money will show up then in the general level of prices (CPI) and eventually in wages too.
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so how can the Fed continually deny there is even the remote possibility of run away inflation?

Whats with the "inflation well contained" statement every meeting?
 
Some of you guys are speaking about a housing bubble. I don't know US facts as well as residents of course but if we were speaking about Italy, where I live, I'd say there is probably no bubble at all. Houses prices went to the stars here in the last years, but then what would you have expected after that Euro just cut in half people's buying power (thank you Europe, thank you Prodi)?

In Italy "the brick" has always been perceived as the ultimate salvage asset, so much more now.

Now given that the dollar is losing value, couldn't it be you have no housing bubble, just that money is going where more value is perceived?

Just a thought.

GS
 
Quote from EqtTrdr:

so how can the Fed continually deny there is even the remote possibility of run away inflation?

Whats with the "inflation well contained" statement every meeting?
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Of course they are lying. The Fed's number one priority after all is to maintain its credibility. That's even more important than their official mission to have "stable prices and full employment".
 
I'd hardly say that longs were rewarded for the risk of being positioned over the weekend.

I still find it telling that ER2 and NQ, the two indices that led the three year plus rally, are both weak to the general list. Not a bullish divergence.
Quote from vhehn:

looks like the elite black monday thread did its majic once again.
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Looks like a wait and see so far to me. Neither team has moved the needle too much yet. Since it's expiry week I'd expect more volatility to kick in at some point.

However, I must admit to being directionally challenged right now. :)
 
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