Debt Deflation Bear Market: First Bounce - Eric Janszen

[ThePythonicCow]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Looking at both sides. The bounce (in stocks) should be respected IMHO. Is it at least POSSIBLE that the global margin call compressed a cyclical bear (within a secular bear) in time?

A big time margin call, quite likely. See the article at http://zerohedge.blogspot.com/2009/0...for-banks.html, Zero Hedge: AIG Was Responsible For The Banks' January & February Profitability.

If I understand that article correctly, AIG was unraveling its CDS insurance contracts on terms favorable to its customers, some big banks, figuring that Uncle Sam would soon have to cover the resulting losses. This apparently causes AIG to have to close out the hedging shorts it had on the underlying asset, the entity referenced in the CDS "insurance" policy.

Marty Chenard, over at StockTiming.com ($$), has been reporting extremely high inflows to the stock market from "institutional investors" as a major driving engine of this rally over the last couple of weeks. I wonder if that is that relates to AIG's unwinding.

[pksubs]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

The secret is the graph, up to the turn of the century shows that the two sets of data track each other out of sequence by about a year. If you moved them , they would correlate but now, in this new phase, they are not out of sequence by a year but strongly running away from each other. One going through the roof the other through the floor, but in step, with the correlation no longer out of step by a year.

The cause of the run away divergence (which is what I think OO was referring to) may simply be the drop in equities. The drop being sharper due to higher weightage of FIRE stocks in the index(denominator), and quicker transmission of information in the internet based economy. CPI : which is based on actual buying of stuff, may just be a slower responding indicator. You can't sell zillions of TVs with a flick of a switch in internet time, but you can sell stock like that..

So I guess I don't know what the chart tells me about the bear market bounce and why/when it should fall back.

[jk]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

i think it is possible but unlikely that we are entering a multi-year cyclical bull, such as that from '03-'07, within a longer term, secular bear market. my portfolio attempts to nod to all the possibilities.

why do so many here try to attain certainty when it is impossible?

luke, i remember when you were equally insistent banging the drum for silver.

[metalman]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

I've been sounding the possibility of this theme for six months here. Saying that we'd see a market turn going into March / April that would steadily change the entire complexion of the "US Depression". These are just the glimmerings of the baby steps. Do a position check on this theme in late 2009 and a lot of people may already then have forgotten how "John Steinbeck-ish" this entire community was sounding in the winter of 2008-2009. We ain't there yet - but I'm sticking to that thesis. Nobody here is willing to countenance this idea - but perhaps the ridicule is just a little fainter now than it was six months ago. Not by any means saying the US can't have very depressed conditions, but it can unfold against a highly anomalous stock market action, as the stock markets do their usual squirrely and apparently irrational thing - acting as one of the earliest anticipators of the future.

debt deflation bear markets have rallies... sure. but the nikkei is trading off 80% from its bubble peak 19 years ago. if that happens to the usa that's djia 2600 in the year 2027. now... we all don't think the usa gets to play the deflation game so it's inflation ho! starting late 2009 or early 2010 as 'supply shock meets money supply boom meets dollar devaluation'. if you are playing inflation with stocks, you'd better time it carefully. the djia rallied strongly for a few months in 1975 and fell for years after, even in nominal terms... in real terms stocks were decimated.

[Guest]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Looks like our dollar devaluation is gonna kick in soon enough then, as I intuit a bull market in equities running all over again in our proximate future.

Seems clear to this reader, that this can unfold also with all the other world currencies acting real tame vs. the USD meanwhile. So people can see a soaring stock market along with no "apparent" devaluation in the USD. That's enough to make the mainstream financial media start to get positively giddy with their bullish calls! :rolleyes:

I'm sticking to this call. We are looking at the tiny and much doubted beginnings of DOW 30K to be achieved within 5 years from now. Nominal or real misses the point - if it's merely nominal, it will be acting as a very hefty hedge against inflation, as that is a 400% rise matey, vs. a likely 100% dollar inflation.

At that point all one needs to ask is whether equities gain a premium as an inflation hedge, when very high inflation comes along. If they gain a premium, then the market can even rise in real terms during the major inflexion point of the inflation. May rise for a while quite a bit more than the USD inflation.

You heard this false and foolish sounding call so many times it's now an automatic "don't believe it - it's rubbish" (especially in this environment!). How sweet it will be then to gaze upon iTuliper's stunned comments two years from now as this unfolds.

We do have another crash ahead - but the trick to actionable intelligence here is whether that is a tactical or a strategic insight.

debt deflation bear markets have rallies... sure. but the nikkei is trading off 80% from its bubble peak 19 years ago. if that happens to the usa that's djia 2600 in the year 2027. now... we all don't think the usa gets to play the deflation game so it's inflation ho! starting late 2009 or early 2010 as 'supply shock meets money supply boom meets dollar devaluation'. if you are playing inflation with stocks, you'd better time it carefully. the djia rallied strongly for a few months in 1975 and fell for years after, even in nominal terms... in real terms stocks were decimated.

[metalman]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Looks like our dollar devaluation is gonna kick in soon enough then, as I intuit a bull market in equities running all over again in our proximate future.

Seems clear to this reader, that this can unfold also with all the other world currencies acting real tame vs. the USD meanwhile. So people can see a soaring stock market along with no "apparent" devaluation in the USD. That's enough to make the mainstream financial media start to get positively giddy with their bullish calls! :rolleyes:

I'm sticking to this call. We are looking at the tiny and much doubted beginnings of DOW 30K to be achieved within 5 years from now. You heard this false and foolish sounding call so many times it's now an automatic "don't believe it - it's rubbish" (especially in this environment!). How sweet it will be then to gaze upon iTuliper's stunned comments two years from now as this unfolds.

We do have another crash ahead - but the trick to actionable intelligence here is whether that is a tactical or a strategic insight.

so you don't believe this is a debt deflation bear market then...

[Guest]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Metalman - maybe that read is a little inflexible - When all this latent inflation inflation really starts to rise - assets like equities traditionally react sharply, and IMO most certainly can exceed the inflation rate at various stages - maybe even a lot. If this were Zimbnabwe the currency would disintegrate as fast or faster than it's equity bourse. But it's not - it is the USD, fading global reserve currency.

The alternate read therefore is that the USD inflation is an event that gets "muffled" by dragging down all the major currencies with it. Just think of the scale of stresses a hyperinflating USD casts upon the rest of world GDP if those currencies remained at their original valuations. Not acceptable. What if the principal alternative currencies, even in a basket "new" hard(er) currency unit, just don't concede to the USD anything like it's real rate of collapse? If that happens, you've got very large "implied" inflation fanning out worldwide, with not a whole lot of action in any fiat currency vs. the dollar.

When the US equities (traditionally preferred less volatile markets) start to feel the hot levitating gas blowing of serious dollar units proliferation, IMO they most certainly have the room to outpace the USD inflation numbers, in the short and medium terms - and "medium term" can be *years*? We've maybe travelled from 1996 to 2007 or 2009, with a DOW that's gone nowhere inflation adjusted, but the inflation to date in the USD has been quite sedate still. Taking an inflationary event and mapping it from A to B to get an "averaged" net gain at the end, does not describe the full trajectory.

Seems to me the DOW or S&P can do some real acrobatics relative to the USD at various different times along the way, and several multiples of the 90% USD notional collapse would be an understatement of their reaction to the upside once this asset group regain even a scrap of acceptability as inflation hedge. If the USD cannot fully express it's inflating against other currencies because they are all tracking it down hard, it is going to have to show up in some other asset group and likely with suppressed force.

Look at gold and silver. They don't "track inflation" short or even medium term. Too linear. So we've got two things here. A large inflation in full bloom within five years, and a stock market which recently disintegrated. Regarding USD inflation - how large should the devaluation of the world's fading senior currency be? 1000% devaluation, let alone the trillions witnessed in Zimbabwe, are just numbers out of whack for the dollar - still occupies largest position among the global monetary units. I disbelieve 500% inflation for the USD. I disbelieve 250% inflation for the US. And so forth.

Maybe you even agree - USD inflation is going to be a "muffled hyperinflation" in fiat currency terms, because a unilateral USD 90% devaluation / inflation would clearly be unacceptable to all world trade as we attempt to get through the crisis. Or my imagination fails miserably and we are headed for the Mad Max scenario and trading in bottles of Vodka and Cigarettes here. Suppose instead, it's going to be a tamed hyperinflation - a supposedly runaway, but actually tamer, 90% devaluation against the next strongest currency in the worst scenario. That appears huge already. I think I am more partial to the notion the major currencies will track each other down and "muffle" the dollar's fall quite a bit.

I'm therefore suggesting that if the broad US indexes gained 400% from an inflation which has found no ready expression in the currencies, that would not be all that surprising. The stock market will more likely not lie inert as currencies accelerate their race to the bottom. I am in a minority here, but I don't expect a spectacular USD collapse against rival fiat currencies in the next five years. Or rather, make that "fall may be spectacular, but heavily muffled".

so you don't believe this is a debt deflation bear market then...

[cjppjc]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Wow! Dow 30,000 in 5 years. That's some call.

[Guest]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Yes and all you kind hearted guys and gals can roast me on a spit if I'm wrong. Rack of Lukester ribs, roasted on a spit. Tasty. Will I have an apple in my mouth too like the roasted pigs do? :rolleyes:

Wow! Dow 30,000 in 5 years. That's some call.

[Chris Coles]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Yes and all you kind hearted guys and gals can roast me on a spit if I'm wrong. Rack of Lukester ribs, roasted on a spit. Tasty. Will I have an apple in my mouth too like the roasted pigs do? :rolleyes:

I will expect the Fiver before you get carved up....

[Guest]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

"Fiver? What Fiver would that be? I don't remember any Fiver".

No but on a more responsible note Chris, a guy about to get roasted would doubtless be eager to pay all his worldly obligations, if only to appease the angry goddess called "Finding Virtue in Prudence While Eschewing All Equities". Therefore I am bound to honor our wager on the EURO/USD price in 2015. I'll gladly repay you the Fiv0r I so imprudently wagered back in early 2009. I remember those handsome British currency notes. Stately looking Crown Treasury notes with a portrait of Lizzy and Five P0unds" written on them? Much more sophisticated looking than our pedestrian Greenb0cks. I have found a little meagre consolation in the thought that the P0und and the Greenb0ck will likely be both in the dumpster in five years time in terms of today's currency unit. After which, you and I will have a pint of ale, which will cost us a princely Tw0nty P0und note in 2015? .

I will expect the Fiver before you get carved up....

[stockman]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

"the djia rallied strongly for a few months in 1975 and fell for years after, even in nominal terms... in real terms stocks were decimated"

spx 040309.jpg


This is the S&P, small caps did much better than the S&P from 1974 forward. Rising inflation is not toxic to all companies. Most of my experience relates to investing in small caps over the past 30 years - a return to the 70's would not be as worrisome as some suggest.


I don't have ready access to data but this article http://rareinvest.blogspot.com/2007/...-in-1970s.html gives an idea how big the moves were in small caps following the 1974 lows-

Year /Small Stocks /Large Stocks /Long Bonds /Short Bonds
1970 /835 /1,041 /1,127 /1,065
1971 /989 /1,189 /1,324 /1,111
1972 /982 /1,416 /1,397 /1,154
1973 /584/1,207 /1,417 /1,233
1974 /410 /888/1,495 /1,331
1975 /696 /1,219 /1,622 /1,408
1976 /1,077 /1,512 /1,802 /1,480
1977 /1,314 /1,402 /1,818 /1,555
1978 /1,607 /1,493 /1,742 /1,666
1979 /2,314 /1,774 /1,900 /1,840

[FRED]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

"the djia rallied strongly for a few months in 1975 and fell for years after, even in nominal terms... in real terms stocks were decimated"

[ATTACH]1373[/ATTACH]


This is the S&P, small caps did much better than the S&P from 1974 forward. Rising inflation is not toxic to all companies. Most of my experience relates to investing in small caps over the past 30 years - a return to the 70's would not be as worrisome as some suggest.


I don't have ready access to data but this article http://rareinvest.blogspot.com/2007/...-in-1970s.html gives an idea how big the moves were in small caps following the 1974 lows-

Year /Small Stocks /Large Stocks /Long Bonds /Short Bonds
1970 /835 /1,041 /1,127 /1,065
1971 /989 /1,189 /1,324 /1,111
1972 /982 /1,416 /1,397 /1,154
1973 /584/1,207 /1,417 /1,233
1974 /410 /888/1,495 /1,331
1975 /696 /1,219 /1,622 /1,408
1976 /1,077 /1,512 /1,802 /1,480
1977 /1,314 /1,402 /1,818 /1,555
1978 /1,607 /1,493 /1,742 /1,666
1979 /2,314 /1,774 /1,900 /1,840

Period CR2 is ending (collapse of FIRE Economy V2.0) and period X2 is beginning. It will not be like X1 but will have elements of D1.

[stockman]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Does ITULIP have a position on small caps?

We were about 1/2 way through that D1 (valuation contraction) period by the end of 1974... about 8 years... comparable to current secular valuation contraction. A pretty serious 50% clip to large cap equities... comparable to current dip. From that point in 1974 the nominal price of small caps AND commodities took off. Not JUST gold.

US Markets 1926 to 1991.gif

[FRED]

Re: Debt Deflation Bear Market: First Bounce - Eric Janszen

Does ITULIP have a position on small caps?

We were about 1/2 way through that D1 (valuation contraction) period by the end of 1974... about 8 years... comparable to current secular valuation contraction. A pretty serious 50% clip to large cap equities... comparable to current dip. From that point in 1974 the nominal price of small caps AND commodities took off. Not JUST gold.

[ATTACH]1374[/ATTACH]

We are looking into this as part of reallocating our large Treasury bond position. The difference this time from the 1975 to 1980 inflation is that household and business debt levels are much higher and the credit crunch much more severe, and hitting smaller cap businesses even harder than large caps.