Real DOW Update: Still looking for a bottom? Eric Janszen

[jimmygu3]

Re: Real DOW Update: Still looking for a bottom?

Later today in the Select area we cover a one hour client call by a major investment bank yesterday on the subject of the corporate credit market. A few highlights:

• It's 1990 all over again, but worse. Like the 1998 - 2000 telco de-leveraging but writ large.
• The period of de-leveraging is over and a period of rising defaults has begun
• Credit can only be purchased selectively, there is no market investment opportunity
• GE's problems are symptomatic of increasing default risk
• At the same time default rates rise, recover rates will decline, valuations will decline
• The corp. credit markets are more accurately forecasting the economy and the equity markets are lagging
• Mortgage credit leads corp. credit leads equities -- all have further to go down
• Equity markets may decline another 35%, slowly as has happened so far or in a day
• Equities offer the only exit strategy, none for long term corp. debt investment. It's a trader's not an investor's market.
• Investment grade corp. default recoveries will price at 20 to 40 cents on the dollar, high yield at zero
• The corp. credit market will take many years to recover

Thanks for the info, Fred. Regarding my chart, a 35% Dow decline from yesterday would put it around 4600, a .37 trendline multiple, just like the 1932 and 1982 bottoms.

Thanks for helping me resist covering my shorts.

Jimmy

[goadam1]

Re: Real DOW Update: Still looking for a bottom?

Are we moving faster than the great depression in the market because of ultra-shorts and other short instruments? Are we entering a "shorting bubble."

[FRED]

FOX News vs Reality

These screen captures were both taken today at 4:30PM after the markets closed. The first is from Google News, the second from Yahoo! Finance.

FOX News Market Fantasy at 4:30PM EST March 5, 2009


Yahoo! Finance Reality at 4:30PM EST March 5, 2009

FOX News, where the stock market always goes up, even when it's tanking!

[ASH]

Re: FOX News vs Reality

FOX News, where the stock market always goes up, even when it's tanking.

Well, Fox News is one day behind everyone else, at least. The article did say Wednesday.

Look -- if we all just lived in the past, it could be the height of the tech bubble again with portfolios climbing effortlessly, during a period of unchallenged American power and security. I could be in my 20's again, and dreams of easy technology startup wealth could again seem tangible! Who's with me? Who wants back into the Matrix?

[jtabeb]

Re: FOX News vs Reality

Well, Fox News is one day behind everyone else, at least. The article did say Wednesday.

Look -- if we all just lived in the past, it could be the height of the tech bubble again with portfolios climbing effortlessly, during a period of unchallenged American power and security. I could be in my 20's again, and dreams of easy technology startup wealth could again seem tangible! Who's with me? Who wants back into the Matrix?

I like steak!

[orion]

Re: Real DOW Update: Still looking for a bottom?

LargoWinch, The site you used has another graph with shadowstat data and looks better (we have been in bear market since 2002). Thanks again for the site reference, very interesting .....

[rabot10]

Re: Real DOW Update: Still looking for a bottom?

Hey EJ

I asked a question, do you have no interest in it, or just no answer?

thanks for all the stuff u have done - love your work. cya

rick

[CanuckinTX]

Re: Real DOW Update: Still looking for a bottom?

The pig says it is going to 0!

Thats is good enough for me and probably true in real terms...

The double top pig ears? Isn't that like found money? Short! Short!!

[orion]

Re: Real DOW Update: Still looking for a bottom?

FRED,

I am looking forward to the post you mention. I see on Bloomberg the Japanese are already moving to support corporate bonds.

http://www.bloomberg.com/apps/news?p...5xU&refer=home

March 6 (Bloomberg) -- Bank of Japan Deputy Governor Hirohide Yamaguchi said the central bank may need to expand its purchases of corporate debt to prevent a credit shortage from worsening the recession.
“We can’t deny corporate financing will become even more difficult” toward the fiscal year end on March 31, Yamaguchi said in an interview in Tokyo yesterday, his first since joining the board in October. “If that happens, we’ll consider whether we can enhance operations already implemented and act if necessary.”

[goadam1]

Re: Real DOW Update: Still looking for a bottom?

It's getting weirder here.

[ER59]

Re: Real DOW Update: Still looking for a bottom?

Later today in the Select area we cover a one hour client call by a major investment bank yesterday on the subject of the corporate credit market. A few highlights:

• It's 1990 all over again, but worse. Like the 1998 - 2000 telco de-leveraging but writ large.
• The period of de-leveraging is over and a period of rising defaults has begun
• Credit can only be purchased selectively, there is no market investment opportunity
• GE's problems are symptomatic of increasing default risk
• At the same time default rates rise, recover rates will decline, valuations will decline
• The corp. credit markets are more accurately forecasting the economy and the equity markets are lagging
• Mortgage credit leads corp. credit leads equities -- all have further to go down
• Equity markets may decline another 35%, slowly as has happened so far or in a day
• Equities offer the only exit strategy, none for long term corp. debt investment. It's a trader's not an investor's market.
• Investment grade corp. default recoveries will price at 20 to 40 cents on the dollar, high yield at zero
• The corp. credit market will take many years to recover

Fred,
Could not find it. Where in Select area?

[occdude]

Re: Real DOW Update: Still looking for a bottom?

From my point of view we're not really talking about economics anymore. What we're talking about REALLY is a break down in society. The economic problems did not come first, it is problems with a society that happen before economic ones.

When a society loses touch with a cause and effect mindset that man uses to guide himself throught the universe, he loses the one tool he needs most to survive, his brain. "You cant get something for nothing", "there aint no such thing as a free lunch", cause and effect, they all mean the same thing, things we do matter and we as human beings have the ability to choose. Lately our choices have been extremely poor and now the effects of that are going to be patently evident.

We, just as every other heightened civilization have lost our way. We aren't just monetarily bankrupt but MORALLY as well. I don't mean that in judgemental way, I'am no hypocrite I count myself as part of the collective to some degree and if this event touches you in any manner you'll be able to see how you are complicit.

When you have families disintergrating, communities out of touch with one another, dependence on government entities for even the most trivial concerns, distrust and foreboding of what's going to happen if your neighbor loses his toys, these are all signs of a human organization that is not NATURAL. Sure you can hide the ills of a society with financial trickery and credit but they are not sustainable. They don't manifest themselves anywhere in history or geography except for short periods of time, which become cautionary tales.
,
Traditional society has taken care of itself INSPITE of government, it will be that way again. You will get to know your neighbor, you will treat your family well and they will treat you well. You will be involved with your community, you will CARE about what happens outside your door stoop again and more importantly you will DO something about making your environment livable again. You will make real things, you will make innovations and discoveries , you will conserve, preserve and labor to make life that much better for you and yours, and in turn for them and theirs, just as our forefathers did for us in a time of considerably more optimism.

So get prepared mentally and to whatever you're able to physically. This is the opportunity of a millenium to tear down something and help rebuild it on a sustainable foundation again. To get back to that point of unbridled optimism and hope for a future that looks like it came out of the pages of a popular science or a popular mechanics magazine. One were human potentiality is nutured and all the components of that are fostered and revered. Then and only then can we take our rightful place among the stars in the universe and the bountiless imagination of the mind.

[BadJuju]

Re: Real DOW Update: Still looking for a bottom?

So get prepared mentally and to whatever you're able to physically. This is the opportunity of a millenium to tear down something and help rebuild it on a sustainable foundation again. To get back to that point of unbridled optimism and hope for a future that looks like it came out of the pages of a popular science or a popular mechanics magazine. One were human potentiality is nutured and all the components of that are fostered and revered. Then and only then can we take our rightful place among the stars in the universe and the bountiless imagination of the mind.

Great post, occdude!

[MarkL]

Re: Real DOW Update: Still looking for a bottom?

Why do you say that? If the DOW stays flat and inflation spikes the Real DOW will fall like a rock.

Fred: If PE Ratios/Earnings/Margins, etc all magically stayed the same, but "Poom" happened, wouldn't the Real Dow stay the same (because it's inflation adjusted) while the Dow itself went up... precisely to the percent Poom occurs?

Inflation causes the prices of things to go up... all else being equal. This includes the valuations of companies (in dollars) as reflected in the stock market. Now if you start factoring in the business-impact of inflation on specific industries it, of course, it could get much more complicated. But from a simple Macro perspective, inflation/Poom would cause the Dow (not the Inflation adjusted iTulip "Real Dow") to go up, right?

Bart/Orion: Your charts seems indicative of this and show that perhaps, after factoring in inflation, we are (somewhere) near a bottom. This is a huge paradigm difference from the original article! My gut tells me we have more to go, but I prefer to trust facts. Bart and Orion's charts with Shadowstats inflation included tells the story that we might not be that far from from a bottom... IF history is any indicator.

The next logical question then is, if Poom kicks in according to Eric's schedule, when does the Dow jump and by how much? Often the Dow prefaces these events by some number of months, right?...

[bart]

Re: Real DOW Update: Still looking for a bottom?

Bart/Orion: Your charts seems indicative of this and show that perhaps, after factoring in inflation, we are (somewhere) near a bottom. This is a huge paradigm difference from the original article! My gut tells me we have more to go, but I prefer to trust facts. Bart and Orion's charts with Shadowstats inflation included tells the story that we might not be that far from from a bottom... IF history is any indicator.

Sort of on being near a bottom, since a full return to the linear trend based on connecting the bottoms since the 1930s would have the shadowstats based Dow somewhere in the vicinity of 2000, and the CPI alone adjusted number in the 2500 general area, which would have the nominal Dow at 4-5000.

"It's tough to make predictions, especially about the future."
-- Yogi Berra