The Bear Case

B

BlueHorseshoe

I don't usually start threads like this but, I've been positioned bullish for almost a 1.5 years and experienced an epiphany of sorts this weekend.

Multiple indicators that I watch have been looking bearish but what wrapped it up was a grasp of the macro-economic dynamic right now.

Many here are complaining about extreme liquidity provided by the Fed and how it has to be unwound. This is true enough, and consumer spending is due for a hit within the next 12-18 months. Markets have only just begun discounting this now.

The real scary factor is China, which has just recently experienced a dramatic expansion, with bubble-like investment in multiple sectors. The scary part is the short-term drivers of this investment.

Get this - the US Fed jacked up liquidity to counter potential fallout from the launch of war, etc. etc.

In China, the catalyst for extreme liquidity about the same time was SARS. Yes, SARS. Recall that SARS all but shut down Hong Kong and the global community was furious at China for keeping the disease a secret. Domestic anger was at high pitch as well. This was potentially a grave threat to stabilty and CCP power in China. Think TianAnMen on an unprecented scale: Beijing, Shanghai, Guangzhou, Chengdu. Think tanks, CNN, trade restrictions, all kinds of nasty, ugly stuff. How did China counter this threat? With their tried and true formula - improved living conditions and a strong economy.

I'm not an economist and I don't have stats in front of me, but I'm certain the PRC flooded their economy with extreme liquidity and gave banks marching orders to lend, just as SARS was all but shutting down much of the country.

This is the real threat - much of the recovery over the past year, in the US, Europe, and, well everywhere, has been contingent on bubble-like investment in China.

Now that China is unwinding this liquidity flood and the US consumer is poised to step back, we vulnerable to a world of hurt.

I've aggressively unwound longs today and initiated shorts in NK, HSI and ES. Also buying some puts on the NK. Will be buying ES puts and selling rallies in the days and weeks ahead.

That is, of course, unless things change. :p
 
Quote from BlueHorseshoe:

I don't usually start threads like this but, I've been positioned bullish for almost a 1.5 years and experienced an epiphany of sorts this weekend.

Multiple indicators that I watch have been looking bearish but what wrapped it up was a grasp of the macro-economic dynamic right now.

Many here are complaining about extreme liquidity provided by the Fed and how it has to be unwound. This is true enough, and consumer spending is due for a hit within the next 12-18 months. Markets have only just begun discounting this now.

The real scary factor is China, which has just recently experienced a dramatic expansion, with bubble-like investment in multiple sectors. The scary part is the short-term drivers of this investment.

Get this - the US Fed jacked up liquidity to counter potential fallout from the launch of war, etc. etc.

In China, the catalyst for extreme liquidity about the same time was SARS. Yes, SARS. Recall that SARS all but shut down Hong Kong and the global community was furious at China for keeping the disease a secret. Domestic anger was at high pitch as well. This was potentially a grave threat to stabilty and CCP power in China. Think TianAnMen on an unprecented scale: Beijing, Shanghai, Guangzhou, Chengdu. Think tanks, CNN, trade restrictions, all kinds of nasty, ugly stuff. How did China counter this threat? With their tried and true formula - improved living conditions and a strong economy.

I'm not an economist and I don't have stats in front of me, but I'm certain the PRC flooded their economy with extreme liquidity and gave banks marching orders to lend, just as SARS was all but shutting down much of the country.

This is the real threat - much of the recovery over the past year, in the US, Europe, and, well everywhere, has been contingent on bubble-like investment in China.

Now that China is unwinding this liquidity flood and the US consumer is poised to step back, we vulnerable to a world of hurt.

I've aggressively unwound longs today and initiated shorts in NK, HSI and ES. Also buying some puts on the NK. Will be buying ES puts and selling rallies in the days and weeks ahead.

That is, of course, unless things change. :p
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Join the club. I have been bearish on this market ever since we had the dog pile in January.

I have started countless threads the past few months debating the bear case. At the end will end up in a market more similar to the 70's.. and thats the best case scenerio.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=30872&perpage=6&pagenumber=1

 
The ET nickname Permabear is still open. Why not post under that name? Isn't there a difference between being a smart trend fader, someone who is initially skeptical of claims vs someone wallowing in what is presented on internet conspiracy sites?
 
Quote from PuffyGums:

The ET nickname Permabear is still open. Why not post under that name? Isn't there a difference between being a smart trend fader, someone who is initially skeptical of claims vs someone wallowing in what is presented on internet conspiracy sites?
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You can call me whatever u want.. But based on my own research and my conviction in the coming years we will enter a serious bear market where we will see lows that none of us thought imaginable.

Atleast 6k on the dow.. and sub 500 on the S&P. You can call me perma anything I dont care.

There is only one thing that would change my analysis. And that is a devaluation of the Dollar. Where a price of coffee in the US would be $10. So the only thing that would hold the market up is pure inflation...which would mean our standard of living would deteriorate.

As far as consipracy.. please show me where I use those types of websites as a point of reference in my posts. If u re-read all of my analysis.. I believe its mostly based on pretty solid fundemental analysis.



--MIKE
 
Lets talk fundementals not hype or consiparicy.

The greatest risk factor to the US economy is the asset bubble in real estate. We all know there is an untold amount of leverage placed on US consumer and banks in this regard.

We also know that FNM and FRE are cooking their books and abusing the system. Greenspan hints this.. and many pros on Wall St. have written reports on how their needs to be more regulation and oversight.

We all know that ever since greenspan took office he has been printing money like a bandit flooding the US with fiat money... which was only possible after the elimination of the Gold Standard 1971.

We know that almost everything coming from this country is from China, India, Japan.. who not only give is the goods but they finance our debt too.. allowing us to buy most of their crap.

We also know that the US today has the worst savings rate in the history of modern civilazation.. and are recklessly spending money. I attribute this to the brilliant US marketing campaign which brainwashes the US into buying everything in the world they dont really need.

The list goes on and on.
 
Explain to me why the most powerfull country in the world has the lowest fed fund rates. Compared to EZ %2, England %4.25 and Aussi %5.25. US a whopping %1.

US economy is growing over %4... every single piece of eco data coming out is booming and off the charts... even the jobs are really hot.. yet the US FEd is sitting idle making bullshit excuses why they cant raise rates.

Hell we are still stuck in rates post emergency 9/11... wouldnt u agree that things are a little bit better now?

We have to think outside the box as to why this is going on. It just showing u how bad things really are. They are so bad that the Fed is capitulating.. this is their last stand and attempt to save the US before we head into a complete depression. They are giving it every single thing they got. This will be the peak in earnings for most banks stocks probably in the next 5 yrs atleast.

Now look at the future children of America. India, China will produce more skilled workers.. their labor force will be smarter and better equiped, cheaper, to handle the jobs of the future.

What about the old folks.. their medicare, social security will be gone. Only thing that will save that is more cheap money in the US economy.. which would only mean $10 for a cup of coffee.

What will be the new growth engine in the US? Nanotechnology.. yea right. The best industry of the decade will probably companies that specialize in bankruptcy and consumer debt default.


--MIKE
 
What you wrote was not an analysis fundamental or otherwise. It is simply a list of all the gold bugs talking points: a collection of all negative facts without any context.

So after all those years of preaching the end of the world, Jim Puplava gets a two bagger. He and you both would have done better investing in the NASDAQ over the past year.

Oh I forgot. You weren't long that Naz over the past year, because the end of the world is coming and the recent rally in tech was a 'sucker's rally' and wasn't a real rally.

When you say you were bearish the recent rally, I hope you weren't actually trying to short it.

Real economic thinking and analysis is not to be found on the gold bug sites- those sites give advice under a conflict of interest: they are selling an investment.

The past 100 years was one of the best periods for equities ever, yet there were fairly horrendous and scary periods as well. How does our time compare with some of the worst decades of those 100 years? Pretty good actually. Our time really doesn't resemble what the doomers are calling for when you compare it with past times.

The bears (Sornette and Fleckenstein) were flat out promising the big crash in the fall of 2003. Well that didn't happen. What's the next predicted date for all hell to break loose?

Sornette said the trading regime changed in Jan 2004. Maybe he's preparing to dump his big crash hypothesis.

The doomers do not have a good track record. I hope you really don't trade off the junk they write.
 
( Posted from another forum http://elitetrader.com/vb/showthread.php?s=&threadid=32168&highlight=trend+fader+china)

My answers..

1. I dont mind if their economy cools down but there are 2 major problems. One is that the gov. issues the loans its not so much of a supply demand type market. Which means corrupt officials are allocating money in the wrong places through bribes. In turn this means that a lot of money went to really stupid projects and pointless places that will not pan out.. which will lead to massive debt default.

Also most of the money thats building up China is coming from the USA.. and the Americans think that the Chinese people spend money like Americans. They want to flood China with mega shopping Malls and restaurants similar to that of NYC.. the problem is that all of these places will be empty because Chinese people do not have spending habits similar to those of Americans. Its a huge mistake by the American business men. Read this article http://news.yahoo.com/news?tmpl=sto...tboomwillgobust

" In Beijing, local officials looked at a neighborhood south of Tiananmen Square and saw what they thought was a bright future: a street where gleaming glass shopping centers should stand on a newly widened boulevard. They leveled a mile-long neighborhood, casting out thousands of residents and two years ago built a new shopping center that nobody seems to need. Of 14 retail projects, 12 are empty. "
 
Quote from PuffyGums:

What you wrote was not an analysis fundamental or otherwise. It is simply a list of all the gold bugs talking points: a collection of all negative facts without any context.

So after all those years of preaching the end of the world, Jim Puplava gets a two bagger. He and you both would have done better investing in the NASDAQ over the past year.

Oh I forgot. You weren't long that Naz over the past year, because the end of the world is coming and the recent rally in tech was a 'sucker's rally' and wasn't a real rally.

When you say you were bearish the recent rally, I hope you weren't actually trying to short it.

Real economic thinking and analysis is not to be found on the gold bug sites- those sites give advice under a conflict of interest: they are selling an investment.

The past 100 years was one of the best periods for equities ever, yet there were fairly horrendous and scary periods as well. How does our time compare with some of the worst decades of those 100 years? Pretty good actually. Our time really doesn't resemble what the doomers are calling for when you compare it with past times.

The bears (Sornette and Fleckenstein) were flat out promising the big crash in the fall of 2003. Well that didn't happen. What's the next predicted date for all hell to break loose?

Sornette said the trading regime changed in Jan 2004. Maybe he's preparing to dump his big crash hypothesis.

The doomers do not have a good track record. I hope you really don't trade off the junk they write.
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I am not talking about trading or making money off the markets. You can make millions going long certain stocks or sectors in a bear market. You can even making millions going long the ES if you have amazing timing and can nail the snap back rallies in a bear market.

Lets talk maro economics.. lets talk hard cold facts. Lets debate the fundementals at hand. Lets not talk about gold bugs, Fleck, Sornette, or others.

So far u didnt make one smart point... or one fact. You just are saying that a bunch of people called a top and were wrong.. and that in the past 100 years equities have been great.


---MIKE
 
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