Declines in fed futures has been limited, my long XLF has helped offset some losses in short positions as a result I havent been signficiantly impacted by the resurgence in optimism. This green shoot rally makes John McClane looks like an aids patient, however I still firmly believe a period of pessimism is coming and I believe I'm well positioned to post a 20% gain in networth by year end, not a lot but it would be decent given my mistakes in overstaying the short financial trade, specially my badly timed put buying(the bulk of the drawdown, this is why my risk was already managed as my losses were limited by my options exposure)
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The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
The 'price action' folks says price is everything and news(and therefore fundamentals) dont matter, I bet some people scorn at my idea that a 1% GDP growth in 2010 along with 11% unemployment(Which I dont believe the evidence shows to be currently priced in by market participants) could lead stocks to decline.
Tudor Jones goes as far as saying price makes the news not the other way around. I strongly disagree with this, as evidence I just ask, why the stock market crashed in Oct 2008 and not Oct 2006?Because rapidly declining fundamentals(such as problems in the payment systems and widespread fear) as a result of the disruptive failure of Lehman Brothers, thats why
Tudor Jones goes as far as saying price makes the news not the other way around. I strongly disagree with this, as evidence I just ask, why the stock market crashed in Oct 2008 and not Oct 2006?Because rapidly declining fundamentals(such as problems in the payment systems and widespread fear) as a result of the disruptive failure of Lehman Brothers, thats why
Rosenberg is speculating the next US policy could be to weaken the USD. If you read bernanke's writings he says this is desirable as a way to counter deflation, the central bank would print money and buy foreign exchange till prices rose, he congratulated FDR for devaluing the dollar against gold in the 30's. However he also said that the central bank wouldn't be able to do this without consent of the treasury since its the treasury who sets US dollar policy
This move would be considered protectionist so perhaps the Treasury will only go there as a last resort, they could do this under the umbrella of "The Fed said its necessary". I bet the 'price action' folks will be 'surprised' by how long the downtrend in the USD will be IF(and its a big if) they announce this
This move would be considered protectionist so perhaps the Treasury will only go there as a last resort, they could do this under the umbrella of "The Fed said its necessary". I bet the 'price action' folks will be 'surprised' by how long the downtrend in the USD will be IF(and its a big if) they announce this
I find it more likely they wont buy foreign exchange to devalue the dollar, it should be a combination of treasuries, agency paper, muni bonds, etc. This however will depend on how strong the deflation on the core CPI and core PCE becomes.
It does looks likely the Fed purchase program will increase leading gold to rise/dollar fall on those days, we already had this happen in the past and as the green shoot fades it should happen again
It does looks likely the Fed purchase program will increase leading gold to rise/dollar fall on those days, we already had this happen in the past and as the green shoot fades it should happen again
I'm back from vacation and I see the SP500 reached 980. Somewhat surprising but I also see the S&P website shows that so far Q2 is on track to earn $14 in operating earnings($10 was earned in Q1), this might translate into $60(the keyword is might) for full 2009. $60 x 15 is 900
The S&P forecasts $74 in earnings for next year(1110 applying a 15 multiple), and this seems to be what the stock market is currently betting on: A ~20% rebound in earnings that would make current levels fairly priced if not a bit undervalued
Clearly the market is not betting in a weak recovery nor in a jobless recovery. Usually profits in recoveries translate into a 5-6 multiple of GDP(I got this from a Barrons article), so it seems that the market thinks a 3-4% GDP growth next year is possible. Seems a little silly to me but so far the stock market thinks I'm wrong
The S&P forecasts $74 in earnings for next year(1110 applying a 15 multiple), and this seems to be what the stock market is currently betting on: A ~20% rebound in earnings that would make current levels fairly priced if not a bit undervalued
Clearly the market is not betting in a weak recovery nor in a jobless recovery. Usually profits in recoveries translate into a 5-6 multiple of GDP(I got this from a Barrons article), so it seems that the market thinks a 3-4% GDP growth next year is possible. Seems a little silly to me but so far the stock market thinks I'm wrong
With regards to positive feedback loops(self-fulfilling prophecies or 'reflexive' situations), yes the market can create its own reality and the economy will perform better due the green shoots madness(I supposed its not madness anymore if everybody starts to do it), in early mar I stated in this forum that sentiment WAS the 'fundamentals' that people were trying to analyze, with fear the stock market fair value was lower, with optimism it was higher(the so called multiple equilibriums). We got the latter but only to some extend, bank credit standards is still being tightened, net credit growth is inexistent and the shadow system is severly hurt(securitization is still mostly government based and weak), although market based financing(namely bond and equity issuance) have been strong lately
As a bear I will fear a self-fulfilling reality once I see banks lending a lot and the shawdow banks coming back, so far the data looks consistent with a weak recovery and not a V shaped as it is currently embedded in equities
As a bear I will fear a self-fulfilling reality once I see banks lending a lot and the shawdow banks coming back, so far the data looks consistent with a weak recovery and not a V shaped as it is currently embedded in equities
There is also a feedback loop that I'm not seeing people talk about. Companies are beating earnings estimates but missing revenues estimates through cost cutting, layoffs, trimming down the corporate 'fat'.
But this is a net losers game when it happens in a macro level, your 'cost saving' is somebody else's revenue, so the more companies do that the more revenues will fall either directly(an struggling retailer stops paying for corporate consulting) or indirectly(your laid off worker cuts back on shopping, defaults on a credit card).
This suggests companies are playing a rat race where they try to trim down fat by taking poisonous diet pills, so the theme 'profit margins will mean revert to a resonable level' seems to be still on. If revenues persitently keep falling or stay flat due fat cutting, the corporate profit growth that equity investors seem to be antecipating might prove to be unresonable
But this is a net losers game when it happens in a macro level, your 'cost saving' is somebody else's revenue, so the more companies do that the more revenues will fall either directly(an struggling retailer stops paying for corporate consulting) or indirectly(your laid off worker cuts back on shopping, defaults on a credit card).
This suggests companies are playing a rat race where they try to trim down fat by taking poisonous diet pills, so the theme 'profit margins will mean revert to a resonable level' seems to be still on. If revenues persitently keep falling or stay flat due fat cutting, the corporate profit growth that equity investors seem to be antecipating might prove to be unresonable
To show some degree of irrationality currently priced in the financial markets, take a look at the Feb ZQ(fed funds futures) contract, it closed at 99.5950, the fronts are expiring at 99.84. If the fed does nothing, that contract will expire at 99.84, this is almost 25bps in profit, so one hike is priced by then. Yet the fed already said(through am explicit commitment) they wont unwind their emergency programs till Feb 1 2010 http://www.federalreserve.gov/newsevents/press/monetary/20090625a.htm
As you recall they can only use those authorities under 'unusual and exigent circumstances', the fed would likely to breach legal boundries if they were to HIKE rates(and therefore tighten US credit) and still claim the financial system is in 'unusual and exigent circumstances' as a result those contracts are offering an almost risk free profit as the odds that the fed will destroy their credibility not keeping their word and unwind those programs in a disruptive manner(a lehman type event) before feb 1 is certainly well lower than 1%
As you recall they can only use those authorities under 'unusual and exigent circumstances', the fed would likely to breach legal boundries if they were to HIKE rates(and therefore tighten US credit) and still claim the financial system is in 'unusual and exigent circumstances' as a result those contracts are offering an almost risk free profit as the odds that the fed will destroy their credibility not keeping their word and unwind those programs in a disruptive manner(a lehman type event) before feb 1 is certainly well lower than 1%
Quote from Daal:
I'm back from vacation and I see the SP500 reached 980. Somewhat surprising but I also see the S&P website shows that so far Q2 is on track to earn $14 in operating earnings($10 was earned in Q1), this might translate into $60(the keyword is might) for full 2009. $60 x 15 is 900
The S&P forecasts $74 in earnings for next year(1110 applying a 15 multiple), and this seems to be what the stock market is currently betting on: A ~20% rebound in earnings that would make current levels fairly priced if not a bit undervalued
Roserberg is looking at a 40-50% figure. I suppose some of the difference comes from my 2009 number, I assumed $60 for 2009(Although I dont claim this will be accurate, I'm simply trying to think like the greenshooters). Maybe he is considering Q1 at $10 and Q2 at $14, a $14 in Q3 and $15 in Q4 gets operating earnings for 2009 at $51 plus rosenberg 40% is $71 * 15 = 1071
So the market would be fairly valued in a V shape recovery. He gives odds of 50-1 against it, I believe this is too low, V shaped have happened many times, the world is very uncertain and complex, its not easy to be on top of all variables, confidence can make you blind.
For that reason I'd say there is a bit less than 10% chance of V shape. So my working assumption if 9-1 odds against it
Is suine flu a big deal and will it affect the world most than its currently priced in financial markets?Its possible, the largest university in Sao Paulo(the largest brazilian city, where I live), just announced a 3 week extention in the vacation period due concerns about suine flu, children schools are doing this by the leaps and bounds and the city mayor has spoken in this subject a few times. More than 50 brazilians are reported to have died from this