House of Cards ready to fall

[piezoe]

Drsteph responded to my post voicing concern that the Fed may be forced to raise interest rates with:

Sorry to disagree;

1. Fed can't raise rates without tanking the economy. Why is it necessary to support the dollar? Declining dollar at this point would equal improved competitiveness for the USA and support labor markets, tax revenues, and local prices in housing. Other central banks, however, may not want to lose their pricing advantage.

2. Seems more to me like a protracted period of no change in interest rates on the short end. As far as the back end, who knows.

I have to agree completely with your first point. However, my concern is that the Fed will be faced with a choice of tanking the economy or risking a downward spiral in the dollar. I think there is a distinct possibility that if those do turn out to be the choices, then tanking the economy is the least harmful choice, because without support for the dollar and higher interest rates we may not be able to finance the deficit. However, that said I won't be too surprised if the Fed and Treasury together find a less onerous way out of this dilemma. There are also politically unappealing options on the revenue side as well. It certainly is not in the central banks of Japan, Western Europe or China to see their dollar denominated holdings tank, so they may be willing to help us out one more time.

One thing is obvious to everyone, when the dollar is in trouble the rhetoric from Treasury and the Fed will always be just the opposite.

 

[volente_00]

If it is not meaningful then why did the record level in march of 2000 also predict the top of the last bull market ?


Using your argument then wealth is not created in the market because there is only more money invested now vs 75 years ago.

 

[myminitrading]

Quote from scriabinop23:

no matter what, you need a catalyst. I am calling this PPI # benign, because blamed high energy prices going forward are less of an issue, considering the mild winter we are about to encounter.

War with Iran or something like that would do it.

Until then, we are in a consolidation phase to the next round up. The market is cheap, and besides a few overpriced sectors (particularly exchanges, some overheated tech with unrealistic growth rates, and housing stocks which are priced to perfection), no reason for a bear market.

as far as I'm concerned, the US equities markets need to keep up with inflation, so they have a lot more upside than down.

One thing most folks are unaware of is the nice tax breaks the Bush administration has give to corporations, with out them their earnings would be less stellar sending their PE much higher should they get taken away by Democratic congress.

 

[drsteph]

Quote from myminitrading:

One thing most folks are unaware of is the nice tax breaks the Bush administration has give to corporations, with out them their earnings would be less stellar sending their PE much higher should they get taken away by Democratic congress.

point taken, thank you.

 

[whitster]

the conclusion about wealth not being created is false

of course, wealth is created. our economy, and our stock market, are the greatest wealth creation engines ever known to mankind. capitalism r00ls


note: i am not saying that the amount of margin is not significant

i am saying that no EVIDENCE has been presented that it is, and that RELEVANT evidence would reference RELATIVE #'s, not absolute #'s that don't take into account overall market capitalization and participation

 

[jficquette]

Quote from myminitrading:

One thing most folks are unaware of is the nice tax breaks the Bush administration has give to corporations, with out them their earnings would be less stellar sending their PE much higher should they get taken away by Democratic congress.

What are some the tax breaks you speak of?

John

 

[eagle488]

The meaningful part of the margin reading is obvious.

Its a trend indicator like anything else. The more margin that is used, the more comfort, confidence and complacency that the market is demonstrating. Comfort, complacency and confidence have demonstrated themselves to be contrarian indicators at times though.

The nature of margin is this. When you are on margin, you become an animal. The slightest twitch in the stock price causes you to go wild. Whereas if your just using cash, then you can wait out a twitch or two. More margin causes volatility.

A record high margin dollarswise is not a comfortable sign on the long side of the equation especially when we are heading into uncertain times.

 

[whitster]

again, what is the metric?

record high on an ABSOLUTE basis, or a relative basis.

 

[stock_trad3r]

Quote from eagle488:

The rest of 2006 will be flat to down. Then January will come and the real sell off begins. I dont need to rehash the reasoning, you can go to www.safehaven.com and you will find a list of articles with a lot of technical facts/opinion.

The one thing I have not read yet in any blogs is the margin interest. I have looked through the NYSE website and I am under the belief that more margin is being used now then at any other time in history. It appears very similiar to the year 2000. Even the slightest fear will bring down the market now and it will be worse then May. You will see folks running to sell out of their positions because they are overleveraged.

The only thing holding it up now is the fact that people are clinging on to gains into the new year and will sell once January hits.

I am currently short Apple and going to research some obvious shorts right now. I see a lot of plays in puts that would be good as well.

I say the S&P500 and DJIA issues will fall about 10-12% on average. The Nasdaq issues will probably go anywhere from 20-30%. The S&P100 will fair well, but will probably still have a loss of about 6%.

I can only find a few stocks that would probably be good longs. Only a very few. The large cap value issues do appear to be VERY overbought as well and trading above their normal P/Es.

Your gonna be wrong again egale. And please dont fall back on that 600K you pulled form thin air. From what I have read your predictions kinda suck and you have called the market wrong for the past few months. Short apple? I would cover unless you want to lose money.

 

[scriabinop23]

Quote from eagle488:

The meaningful part of the margin reading is obvious.

Its a trend indicator like anything else. The more margin that is used, the more comfort, confidence and complacency that the market is demonstrating. Comfort, complacency and confidence have demonstrated themselves to be contrarian indicators at times though.

The nature of margin is this. When you are on margin, you become an animal. The slightest twitch in the stock price causes you to go wild. Whereas if your just using cash, then you can wait out a twitch or two. More margin causes volatility.

A record high margin dollarswise is not a comfortable sign on the long side of the equation especially when we are heading into uncertain times.

I see your point, but do you have #s that suggest market capitalization to margin ratios?

thats a more meaningful metric.

If 1000 bil cash is employeed, and 100 bil is on margin, that 10:1 is the same as 2700 bil cash employed and 270 bil on margin.