Seven Years, Two Warnings

[dbarberic]

Re: I was expecting to hear "Flight of the Valkyries"

EJ - with the trading curbs that now are in place since 1987, I'm not sure how you can say that it will be an event worse than Black Monday. Woudn't the trading curbs prevent a run-away drop to the downside. The curbs would surely allow time for the PPT to jump in.

http://en.wikipedia.org/wiki/Trading_curb

Unless.... "they" know that this needs to occur for helicopter money to to begin its drops...

[DemonD]

Re: I was expecting to hear "Flight of the Valkyries"

Unless.... "they" know that this needs to occur for helicopter money to to begin its drops...

I'm not sure how to get volumes of put options out there, but there are a LOT of people buying puts hand over fist in expectation of a 10-20% drop in one day.

Also they can freeze the financial markets, but at some point they have to open them again. Gubmint can't force individuals to buy or sell something, and the PPT might have influence but it can't completely control the market.

Tet had mentioned before that short positions and short funds are at all time highs.

BTW I also don't remember "bear" funds being around in 1987 either.

[zoog]

Re: Seven Years, Two Warnings

Just some comparisons.



I used relative market bottoms as starting points prior to major tops. To keep an approximate five-year timeframe, the line for the 1929 crash doesn't go on to show the attempted rallies and then subsequent drop down to -62% by July 1932. Otherwise, the 1987 buildup and crash was similar.

[c1ue]

Re: Seven Years, Two Warnings

All I'm saying is that the signals for the US stock market seem much more similar to the Nikkei in 1990 as opposed to the DJIA in 1929.

DD, you may be right, but some key points to consider:

1) Japan was a mercantile economy in 1990 (and still is today). This meant that even with the collapse in prices, Japan and Japanese had liquid assets to live on and jobs were still extant as they were/are largely based on manufacturing export.

The US today is exactly the opposite: while there is plenty of money around, I would argue that it is far more concentrated and thus prone to flee as opposed to be deployed for general population survival. The money is also being generated via money supply growth as opposed to actual physical value creation.

Manufacturing in the US is in a very poor condition outside of airplanes, defense and medicine. Even semiconductors - only the semi equipment companies actually manufacture anything in the US, the rest are just design companies. And the semi equipment guys are starting on a major secular paradigm shift in new process technology deployment.

1929 is actually the only other time in US history with a similar gap of income and wealth as we have now - naturally excluding the feudal era where commoners simply did not use money.

I have also pointed out some time ago that Japan should be considered the '51st' state - they have committed themselves body and soul to be partners with the US. The recession in Japan was significantly ameliorated by the US allowing Japan to yen depreciate/mercantile export their way around general economic misery. This in addition to the US paying for Japan's national defense since 1945.

Several high level executive types in Japan say that Japan and China would reciprocate this (dollar depreciation/build factories in US) to the US, but I have my doubts both as to the ability and to the willingness.

2) The size of bubbles is an issue - Japan's total property values went from $18T in 1991 to $9T in 2006 although this was with deflation.

(from: http://bayarearealestatebubble.blogs...ng-bubble.html)

The US total housing value has gone from something like $22T to $33T from 2000 to 2007, with value being around $10T in 1991.

This is based on approx. 100M housing units in 1991 to the 124M now, with average prices around $100K in 1991, $200K in 2000, and $300K now.

The US housing bubble thus could be up to $23T depending on how you factor inflation and 'intrinsic growth'.

For comparison, the internet bubble was $1T to $2T

[EJ]

Re: I was expecting to hear "Flight of the Valkyries"

EJ - with the trading curbs that now are in place since 1987, I'm not sure how you can say that it will be an event worse than Black Monday. Woudn't the trading curbs prevent a run-away drop to the downside. The curbs would surely allow time for the PPT to jump in.

http://en.wikipedia.org/wiki/Trading_curb

Unless.... "they" know that this needs to occur for helicopter money to to begin its drops...

Risk homoeostasis (also called risk compensation) theory as applied to car safety features, such as airbags, predicts that as safety features are added drivers tend to increase their exposure to collision risk because they feel better protected.

Statistically, what airbags have done is cause drivers to increase their speed and take additional risks.

This same holds true of markets. As Mayer told us: "It's true that a degree of moral hazard has been created. That's the paradox, stability creates the foundation for greater risk taking and lays the foundation for the next crisis. Anything that works, you put greater reliance on it, the greater the risks are."

It is the very fact that so many people believe what you have just stated which, paradoxically, proves Mayers' point.

[unlucky]

Re: Seven Years, Two Warnings

Thanks for all you've written EJ, and for calling it as you see it - an honest voice pitted against the bullhorns of the world's most mendacious industry.

Today's movements (6 August) and the usual post-facto rationalizations made me smile. How long before we see the following headline on bloomberg, "Investors decide yesterday's rationalization were silly - prices rise/fall"...?

[DanielLCharts]

Re: Seven Years, Two Warnings

I believe this forum thread to be misleading. I'm pretty sure I recall at least two other occasions in the past 16 months that iTulip urged investors to leave the stock market, both times occurring at price levels lower than the S&P's current level. Itulip provides interesting insight, but the timing of the call and the subsequent correction were due more to coincidence than clairvoyance.

[FRED]

Re: Seven Years, Two Warnings

I believe this forum thread to be misleading. I'm pretty sure I recall at least two other occasions in the past 16 months that iTulip urged investors to leave the stock market, both times occurring at price levels lower than the S&P's current level. Itulip provides interesting insight, but the timing of the call and the subsequent correction were due more to coincidence than clairvoyance.

"Pretty sure I recall." Maybe you're right. How about a link?

[DemonD]

Re: Seven Years, Two Warnings

I disagree Daniel.

The previous thread that this one mentioned - I do not take that as a firm call to get out of stocks.

THIS thread, however, is what I consider to be the "one" firm call.

There have been many many articles that put very good macro bearish overtones to the economy. Many of them have turned out to be right.

I do recall other threads that were bearish in sentiment on stocks, but none have specifically called "top." And to be fair, in this and the previous post, I still don't see a "top" being called in stocks, more like "get the hell off the tracks before the train runs you over" kind of message.

I mean, the name of the thread is "7 years, 2 warnings." To me that's saying "Hey look at me, I'm making a firm call right now." Other postings were more suggestive and informative as opposed to issuing an out-and-out warning.

I do remember the one thread a few months ago where there was a statement "As the Dow goes through 12,000 the wrong way..." and then the market bounced right back up. Yeah, not a good call there, but possibly only a few months early. Also not a complete warning like this one.

[DanielLCharts]

Re: Seven Years, Two Warnings

"Pretty sure I recall." Maybe you're right. How about a link?

Here is one: http://www.itulip.com/quickcomment.htm#June_2006

scroll down to June 13

"It's time to call the official resumption of the bear market March 12, 2006, the day the updated Ka-Poom theory was published here. By resumption of the bear I mean that the bear market in equities that started April 5, 2000 as announced here in A Bear Market is Born April 5, 2000. It will run until the Fed cries "Uncle" and flushes The System with liquidity again. However, we're in a different part of the Bubble Cycle now than in April 2000. We are at the beginning the Ka phase of Ka-Poom. "

The S+P tacked on about 20% since iTulip declared that a bear market had started. If and when I have time I will try to find some others.

[DanielLCharts]

Re: Seven Years, Two Warnings

There is one very clear call that occurred after stocks had made a new high following the June '06 corection. I haven't been able to find it through google yet, but I'll continue to hunt in my spare time. It was something to the effective of, "you were crazy to hold stocks before the correction, you're even crazier now - get out now." Probably one of the reasons that that particular thread's alarm has not been trumpeted to the same extent as this thread's is that the prediction failed. It's impossible to predict the future.

I disagree Daniel.

The previous thread that this one mentioned - I do not take that as a firm call to get out of stocks.

THIS thread, however, is what I consider to be the "one" firm call.

There have been many many articles that put very good macro bearish overtones to the economy. Many of them have turned out to be right.

I do recall other threads that were bearish in sentiment on stocks, but none have specifically called "top." And to be fair, in this and the previous post, I still don't see a "top" being called in stocks, more like "get the hell off the tracks before the train runs you over" kind of message.

I mean, the name of the thread is "7 years, 2 warnings." To me that's saying "Hey look at me, I'm making a firm call right now." Other postings were more suggestive and informative as opposed to issuing an out-and-out warning.

I do remember the one thread a few months ago where there was a statement "As the Dow goes through 12,000 the wrong way..." and then the market bounced right back up. Yeah, not a good call there, but possibly only a few months early. Also not a complete warning like this one.

[metalman]

Re: Seven Years, Two Warnings

Here is one: http://www.itulip.com/quickcomment.htm#June_2006

scroll down to June 13

"It's time to call the official resumption of the bear market March 12, 2006, the day the updated Ka-Poom theory was published here. By resumption of the bear I mean that the bear market in equities that started April 5, 2000 as announced here in A Bear Market is Born April 5, 2000. It will run until the Fed cries "Uncle" and flushes The System with liquidity again. However, we're in a different part of the Bubble Cycle now than in April 2000. We are at the beginning the Ka phase of Ka-Poom. "

The S+P tacked on about 20% since iTulip declared that a bear market had started. If and when I have time I will try to find some others.

i dunno. there's a difference between saying the bear market has resumed and the shit's about to hit the fan. clearly ej missed the resumption of the debt driven m&a and lbo bubbles that have been driving stocks up since then until the credit bubble popped and killed the game. but i took his call july 25 to mean that game was over ala the march 2000 call that the tech bubble was over. it was a real warning that something ugly was about to happen, not a call on the direction of markets.

so do you think the july 25 call is wrong? does the market continue its rise from here?

[DanielLCharts]

Re: Seven Years, Two Warnings

so do you think the july 25 call is wrong? does the market continue its rise from here?

I think...

- Nobody knows what is going to happen. I have no idea whther the call is wrong or not, nor do I care.

- My opinion doesn't matter because the market is going to do what it wants to, regardless.

- EJ could get his "top calling" call right, but is more likely to get it wrong, because there is no magic formula to top or bottom calling.

- Threads that express concern over whether a top is in have more to do with dramatization than they do with trading plans or portfolio management. I'll admit that I used to be into those dramas. No more.

[Uncle Jack]

Re: Seven Years, Two Warnings

I think...

- EJ could get his "top calling" call right, but is more likely to get it wrong, because there is no magic formula to top or bottom calling.

Cool, EJ has a magic formula? I want to know what it is.

But seriously, I recall, though I will not expend the energy to find, EJ making a comment in either December or January that if anyone had stayed invested and enjoyed that runup from last June they should probably consider themselves lucky and get out. Obviously, not his exact words.

I think the important consideration is the time period in which you use to judge the accuracy of the call. If you judge any comments regarding selling last June, this January, or now, at what time do you look back and say, "good/bad call"? The game isn't over unless you are at this very moment at the cliff of your investment horizon.

Go out a few years and any and all of his remarks could be accurate, or not. It's too early to say.

I want to see that magic formula, EJ.

[DanielLCharts]

Re: Seven Years, Two Warnings

But seriously, I recall, though I will not expend the energy to find, EJ making a comment in either December or January that if anyone had stayed invested and enjoyed that runup from last June they should probably consider themselves lucky and get out. Obviously, not his exact words.

Thank you for backing me up on that bit.

BTW, I'm not trying to dis iTulip or EJ. I think they shine a wonderful light on shennanigans that go on during times when bubbles are created - a light that the media won't touch and most people don't want to see. That said, I just don't think they're anymore adept at calling exact turning points based on fundamentals than, dare I say his name? Jim Cramer.