Seven Years, Two Warnings

[bill]

Re: Seven Years, Two Warnings

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.

EJ may not get his timing dead on date correct but his cycle forecasting parameters are within a given time period I feel comfortable with. That’s my opinion because I am a 5-7 year investment cycle investor not a daily trader.

[EJ]

Re: Seven Years, Two Warnings

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.

What you say is generally true. However, insiders told me what was going to happen in April 2000 when I issued my last warning in March 2000. Conversations with fund managers and others led me to conclude in July 2007 what was going to happen soon.

The people I talk to do not mean to tell me what is going to happen, but I've learned to listen to what they mean versus what they say. Often they don't really know what they are saying. For example, hubris is an early indicator of a top. A change of body language from hubris to circumspection to fear over a period of months, well before the markets have moved, is one indicator. And if you talk to enough of them, your determinations become more certain.

We just got off a client conference call with Goldman Sachs.

Interpreting the Recent Market Moves
Monday, August 13, 2007
11:00am EDT

The main purpose of the call is to have a discussion regarding the current market volatility and tightening financial conditions with an aim to address the following key questions:

1. Will recent events derail the global economic growth outlook?

2. Has something changed in the underlying fundamentals for different asset classes that impacts their outlook.

Featured Guest Speakers:

Laurence H. Meyer, Former member of Fed Board of Governors; Vice Chairman, Macroeconomic Advisors

Jonathan Beinner, Chief Investment Officer; co-head of US and Global Fixed Income, GSAM

Richard A. Friedman, Head of Merchant Banking Division; Chairman of Investment Committee, Goldman Sachs

In the context of conversations I had with various people over the weekend, statements made on the call and our analysis are posted today in the iTulip Select section. If you are a paid-up subscriber, you can read it here.

[DemonD]

Re: Seven Years, Two Warnings

Daniel, I stand corrected.

I will say in how I take it, because itulip has had a very bearish slant on stocks since it re-started, I haven't taken any of the previous posts as a "boy who cried wolf" type deal.

To me this thread, right here, is ringing the bell. The previous thread on 7/25 I read as another bearish slant on stocks. It is this one that I am taking as the true "warning."

[DanielLCharts]

Re: Seven Years, Two Warnings

Well, I guess this warning turned out much like the rest. Naz and DJ hitting new 52 week highs just a couple months later. SPX a whisker away from fresh highs. Asian indices at new highs.

It definitely wasn't the time to get out of stocks generally (eg. no timeframe, no profit target).

[DemonD]

Re: Seven Years, Two Warnings

danny, i was just thinking about this thread earlier today. Let's revisit this thread in 6 months... for better or for worse. I think your criticisms are very valid tho (no timeframe or target). Hopefully if/when itulip rings another warning bell there will be more specifics.

[jk]

Re: Seven Years, Two Warnings

Well, I guess this warning turned out much like the rest. Naz and DJ hitting new 52 week highs just a couple months later. SPX a whisker away from fresh highs. Asian indices at new highs.

It definitely wasn't the time to get out of stocks generally (eg. no timeframe, no profit target).

i assume that calls here are for long term moves. read john hussman's column this week, over at hussmanfunds.com. he mentions that current market conditions historically have preceded small upmoves of a few percent followed by abrupt severe sell-offs. i have no crystal ball, and neither does hussman or ej, but we're in a probabilistic long-term game here. as demonD says, let's check back in 6 mos. but i think it's way too early to conclude "it definitely wasn't the time to get out of stocks generally" unless you expect calls to nail the exact tops and bottoms.

[EJ]

Re: Seven Years, Two Warnings

i assume that calls here are for long term moves. read john hussman's column this week, over at hussmanfunds.com. he mentions that current market conditions historically have preceded small upmoves of a few percent followed by abrupt severe sell-offs. i have no crystal ball, and neither does hussman or ej, but we're in a probabilistic long-term game here. as demonD says, let's check back in 6 mos. but i think it's way too early to conclude "it definitely wasn't the time to get out of stocks generally" unless you expect calls to nail the exact tops and bottoms.

Stocks Surge on Rate Cut Hopes

By JOE BEL BRUNO – 22 hours ago

NEW YORK (AP) — Wall Street shot higher Monday, sending the Dow Jones industrial average above 14,000 for the first time in 2 1/2 months as investors moved back into stocks at the start of the fourth quarter.


Wall Street, of course, wants retail investors to focus on the price of securities, not the underlying risk. Prices may be rising, but risk rising faster. The risk-adjusted return on stocks and bonds has been falling since iTulip re-started March 2006. The growing risks are: inflation and default. The Fed's bind is that all available tools to control one risk make the other risk worse. The credit crunch was a forcing function that caused the Fed to chose one over the other, thus tipping its hand.

This piece by PIMCO's McCully is illustrative. He makes the same case we do, but using different terms, that the Fed, in order to avoid a runaway debt deflation, will bail out the FIRE Economy at the risk of more serious inflation in the P/C Economy.

Looking at the stock market on a risk-adjusted basis is unintuitive. Price is apparent; underlying risk is not. You have to dig hard and analyze to determine risk, and even then two analysts are unlikely to reach the same conclusions. Bears look for the risk, bulls do not.

While it's always dangerous to try to assign a reason why a market is behaving a certain way short term in the absence of an obvious contributing event, our theory on the rise of the stock market recently is that US stocks look to foreign investors the way Las Vegas did to the thousands of visiting Europeans, Canadians, and Asians we saw there a few weeks back. Priced in euros, yen, Canadian dollars, and sterling, US stocks are fire sale cheap.

The rise of the DOW, gold, and other assets priced in dollars is tracking the decline in the dollar. Frankly, I don't understand why anyone who is paid a salary or earns interest in US$ is buying US stocks.

Finally, A Financial Market Crash is a Process, Not an Event. I don't understand the impatience for The Big One. Relax and enjoy the illusion while you can.

[dbarberic]

Re: Seven Years, Two Warnings

This reminds me of the post I wrote a two-three months ago:

Coming Ka Event: Real or Nominal?
http://itulip.com/forums/showthread.php?t=1624

I'm a betting man and I believe that Ben has shown his cards. This sucker (the Ka) is going to be in real values and minimal in nominal values.

Is there an update out there of the Dow priced in various commodities (gold, oil, etc)? I'd wager that it shows the Dow crashing right now.

[GRG55]

Re: Seven Years, Two Warnings

Well, I guess this warning turned out much like the rest. Naz and DJ hitting new 52 week highs just a couple months later. SPX a whisker away from fresh highs. Asian indices at new highs.

It definitely wasn't the time to get out of stocks generally (eg. no timeframe, no profit target).

Speculative fever is high, as evidenced by yesterday's run in the financials on the assumption that the worst is over now that UBS and Citi have allegedly "paid their debt to society".

The US averages won't advance if the financials can't continue to advance. For the financials to advance you have to believe they won't need to keep increasing loan loss provisions in coming quarters. Or you have to believe that yesterday the market decided ALL future loan loss provisions are priced in. I don't believe either of those.

The banks are a speculation, not an investment at this moment in history. And so are the markets.

[Rajiv]

Stock Volatility

People rarely take stock volatility into consideration, or only pay it cursory respect - even though it is a centerpiece to the Black-Scholes model. For example, I am in the midst of a company audit -- and the auditors want a volatility number -- the typical volatility figure for the pharmaceutical industry is pegged at 65-75%. We have had the darndest time trying to convince them that the figure that should be used is much higher given that we are currently a small private company, and not even public yet.

This practice can also be seen when we look at the 10Ks of existing private companies -- an example in point ISTA pharmaceuticals (ISTA) - IPOd in 2000 at $106 -- went to a high of around $146 per share - currently trading ~$7. Yet in all its 10K filings from 2001-2005, it gives a volatility figure of 73% -- only changing in 2006 to 95.5% Their stock price history can be seen below



I fail to see how the volatility figures supplied to the SEC have any validity at all!

[c1ue]

Re: Seven Years, Two Warnings

Well, I guess this warning turned out much like the rest. Naz and DJ hitting new 52 week highs just a couple months later. SPX a whisker away from fresh highs. Asian indices at new highs.

It definitely wasn't the time to get out of stocks generally (eg. no timeframe, no profit target).

Hmm, interesting, an ex post facto critique of sentiment.

Where in turn is your time frame and profit target call?

It is very easy to disparage other people's lines in the sand - but your credibility is worthless if you don't have one yourself.

Contribute your wisdom to the community.

[metalman]

Re: Seven Years, Two Warnings

Hmm, interesting, an ex post facto critique of sentiment.

Where in turn is your time frame and profit target call?

It is very easy to disparage other people's lines in the sand - but your credibility is worthless if you don't have one yourself.

Contribute your wisdom to the community.

"forum pigeon" flies in, poops, flies out. fred, what do you say?

[Guest]

Re: Seven Years, Two Warnings

DanielLCharts, from what I've read of his posts from an earlier time around here, is a pretty smart guy. Whatever his issue is on this thread, it should certainly not be dismissed too cavalierly, as it may well have some relevance in coming months.

[lobodelmar]

Re: Seven Years, Two Warnings

Well, I guess this warning turned out much like the rest. Naz and DJ hitting new 52 week highs just a couple months later. SPX a whisker away from fresh highs. Asian indices at new highs.

It definitely wasn't the time to get out of stocks generally (eg. no timeframe, no profit target).

Daniel, you are entirely correct. The market is going to do what it is going to do, and even very smart people often get it wrong. If iTulip has taught me anything, it is that trying to time the market is a fool's errand.

When I first started reading iTulip, I could sense that there was a financial crisis waiting to happen, and hoped this would be a forum to learn how to ride out the storm. I quickly realized I wouldn't find that answer.

But I have learned more about financial markets and the way the real world works from these discussions than I learned in business school. Risk, inflation, what is valuable and what is not. How I respond to negative swings in the market. There's a lot of relevant data no one bothers to talk about in finance and investment classes.

On a recent dip, sure things were headed towards 1929, I pulled a chunk of my retirement funds out of the stock fund they were in, and stuck them in a money market account. Am I sad that had I left them where they were, I'd be several thousand dollars richer? For today, yeah, but ask again tomorrow. Or the next day. Never know what might happen. Despite the ups and downs of every news cycle, putting 100% of my 401k in high volatility stock funds made no sense. Is it the best strategy? I don't know...but I am more comfortable with the decision, in case Mr. Bernanke grabs his hat again and the rabbit doesn't pop out.

[FRED]

Re: Seven Years, Two Warnings

Daniel, you are entirely correct. The market is going to do what it is going to do, and even very smart people often get it wrong. If iTulip has taught me anything, it is that trying to time the market is a fool's errand.

When I first started reading iTulip, I could sense that there was a financial crisis waiting to happen, and hoped this would be a forum to learn how to ride out the storm. I quickly realized I wouldn't find that answer.

But I have learned more about financial markets and the way the real world works from these discussions than I learned in business school. Risk, inflation, what is valuable and what is not. How I respond to negative swings in the market. There's a lot of relevant data no one bothers to talk about in finance and investment classes.

On a recent dip, sure things were headed towards 1929, I pulled a chunk of my retirement funds out of the stock fund they were in, and stuck them in a money market account. Am I sad that had I left them where they were, I'd be several thousand dollars richer? For today, yeah, but ask again tomorrow. Or the next day. Never know what might happen. Despite the ups and downs of every news cycle, putting 100% of my 401k in high volatility stock funds made no sense. Is it the best strategy? I don't know...but I am more comfortable with the decision, in case Mr. Bernanke grabs his hat again and the rabbit doesn't pop out.

To make sure you're taking away the right lesson, see:

Ka-Poom Theory Revisited (4/13/05)

A Financial Market Crash is a Process, Not an Event (8/16/07)

Ronald C. Ward, President FutureSelect Porfolio Management (10/8/07)