2009 = 1939 : Then a 34% plunge

[Jim Nickerson]

Re: 2009 = 1939 : Then a 34% plunge

Simple reason is: rate of return relative to the general evaluation of market risk.

If you have $1 dollar, and you are a fund manager, you must seek out returns. WHY put that money in to UST (2 year note) and get 0.75% pa compared to stocks at 5% plus ( assume).

Follow the money for the true assessment of the risk vs return in the market. As of today the investing community say NO THANKS to potential higher returns in stocks, and are more concerned about JUST GETTING THEIR MONEY BACK so they place there monies in short term bonds.

If you read my link to post about 'EJ call etc', then you should conclude the market is NOT HEALTHY, sure it may trend up further, but this market is NOT yet a true BULL MARKET as the large players and NOT ONLY the FED induced banks are NOT LONG Stocks. NOTE: Bond market is many times the size of the stock market.

Question
Are short term bonds being skewed by the a single investor, an investor that may be WRONG, therefore the trend of short term money cant be considered as a true representation of the general market evaluation.

Which short term investor could possible be so dominate: hmmmm China, and maybe a few other just as nervous central banks. Maybe these type of investors know more about the likely hood of more Dubai's and UK's with possilbe sovereign debt issues...

Did this newsletter say BUY in mid march or latter on ? Any newsletter saying BUY stocks at the moment is call the FED each day and asking "Are you still fueling this market, please tell me when you will stop, I gotta make a living you know !!"

"Risk" is a part of being alive and is certainly a part of investing/playing/speculating in markets. I suppose one man's view of "risk" in another's view of "reward." You know for every seller, there is a buyer.

IIRC, Ian (I take that is your name, or please correct me) you began the other thread to support EJ's call of 500-600 on the SPX occurring somewhere in the current time frame, and I, for one, appreciate your perception of things in this vein.

It is exactly your statement that offers some support to the observable fact that the US markets (and others) have had such a run up. People are almost driven to get out of cash and seek returns; that being average people. It is the lack of widespread acceptance of the equity markets' run up that on a contrarian basis suggests that the run up is not done--but who actually knows? I sure as shit do not know.

Here is one economist's view on US debt that may tend to explain the current low interest rates. Brad DeLong http://www.project-syndicate.org/com...long96/English

Obama’s Republican opponents, who claim that fiscal stimulus cannot work, rely on arguments that are incoherent at best, and usually simply wrong, if not mendacious. Remember that back in 1993, when the Clinton administration’s analyses led it to seek to spend less and reduce the deficit, the Republicans said that that would destroy the economy, too.

Such claims were as wrong then as they are now. But how many media reports make even a cursory effort to evaluate them?

A stronger argument, though not by much, is that the fiscal stimulus is boosting employment and production, but at too great a long-run cost because it has produced too large a boost in America's national debt. If interest rates on US Treasury securities were high and rising rapidly as the debt grew, I would agree with this argument. But interest rates on US Treasury securities are very low and are not rising. Every single Treasury auction, at which the market gobbles up huge new tranches of US Treasury debt at high prices, belies the argument that the economy has too much debt.

Those who claim that America has a debt problem, and that a debt problem cannot be cured with more debt, ignore (sometimes deliberately) that private debt and US Treasury debt have been very different animals – moving in different directions and behaving in different ways – since the start of the financial crisis.

What the market is saying is not that the economy has too much debt, but that it has too much private debt, which is why prices of corporate bonds are low and firms find financing expensive. The market is also saying – clearly and repeatedly – that the economy has too little public US government debt, which is why everyone wants to hold it.

Whether or not anyone wishes to call the March '09 to last week's tops a "bull market" is non-productive discourse. The fact is the US markets have gone up 60% and anyone can call that whatever strikes his fancy.

Regarding your question about the newsletter--The Chartist. Interestingly, Dan Sullivan, the writer and who has always said he invests his money exactly as he suggests to subscribers, made about the worst call imaginable back in October 2007[edit: to clarify this, Sullivan had been long 100% invested in US equities since April 2003,and as that run up progressed he periodically sold holdings and bought new high momentum stocks, which is what he did one last time in October 2007]. Not only did he recommend new high momemtum stocks then, he opened another account, which he follows in his newsletter, and called it Dan's Aggressive Account. Then in that account he bought all of his recommendations which included 25% leverage into the purchases. He did get his ass kicked as did anyone who followed that recommendation. That made him gunshy with regard to the move off the March lows, and he issued his first buy recommendations on 4/14/09, but that was a "stick your toe into the water before jumping in" recommendation, i.e. he bought and rec'd some index ETF's. On 6/1/09 he rec'd a 100% position in ~25 stocks, only to get stopped out at ~14% loss at the then lows of 6/22/09. That stop loss occurred just 14 SPX points above what turned out to be the low on 7/10/09.

He re-entered on 7/20/09, and through last night his stock are up ~27%, and he, based on his "indicators," is still long.

[Jim Nickerson]

Re: 2009 = 1939 : Then a 34% plunge

What is the "it" that has not existed since March?

As far as the psychology behind drawing in the mass-investor I would doubt that the influx of mass-investor in-and-of-itself is the reason it marks the top of a market.

In fighting technique, the feign is the best way to draw in an opponent, and against inexperienced opponents is probably the easiest way to throw them off rhythm and gain an easy victory.

So for the markets, assuming that the real gains to be had in terms of valuations and fundamentals have long-bitten the dust, there is only the feint/feign. So most feints would draw in any number of participants, and the longer that goes the more will be drawn in. Classically, the casual mass investor who only after months of a bull-run in something realize what's going on dive in at the end, drive it up one final time and that is the signal to the bigs to get out.

But, against a very defensive opponent (skilled or unskilled), the feign can be very dangerous, because even though it is only a feign there must be some "real exposure" to attempt to force a committment. There in lies the danger. If the opponent does not jump-in, the feigner is exposed (as a side-note, most feigners are rhythmic even after years of conditioning, and the mind inherently recognizes patterns and can time a feint). If, and that is the big IF, the silent majorities are truly fed up (right-wingers are a stubborn lot, and liberals are nervous nellies, fill in psychological reasoning here) then that classical market-calling technique will be ineffective.

My reasoning for why I don't think the mass investor will be easily lured in I'll leave for another posting.

I'm sorry, the "it" was the grossly negative sentiment that has existed and continues to exist, i.e. "wall of worry," throughout the 60% climb of US markets so far. Part of my assessment of bullishness or bearishness is based on some "pundits" whom I read, and those probably do not reflect the sentiment of the "average" investor.

Whatever it is that draws people into the markets and makes them express extreme percentages regarding being bullish, there is a rather clear relationship between extremes in bullish sentiment percentages and market tops, and extreme bearish sentiment percentages and market bottoms.

I know nothing about the finer points of actual fighting.

Whoever is actually the "mass investor," it seems many are highly reluctant to recognize and act upon market lows, and are highly likely to buy in near market tops. Even Sullivan, who is probably in his early 70's and is definitely an experienced investor got sucked in at the top in 2007 (with making new recommendation; he had been long US equities since April 2003), and was to my reckoning actually late into getting into the current run up, though I personally was even later and much less aggressive than being 100% long anything.

[cindykimlisa]

Re: 2009 = 1939 : Then a 34% plunge

Well said rjwjr.

"As for you fellow subscribers, and the entire iTulip administration, I wholeheartedly thank you for your contributions. As for you complaining parasites, the phrase penny wise and dollar foolish comes to mind. (So do a lot of other phrases.)"

I tried the subscription area for thirty days and did not find it beneficial. I saw one very informative article to me - Not written by Ej.

There are many sites that are free and I believe free means free. Therefore I do not consider myself a parasite to go to a free site.

However, one thing that really turns me off about this site is the few paid subscribers like you and a few others who impose your self imposed righteousness on other people. We are not parasites. We have been invited to participate in a free site that seem to generally honor free speech.



Cindy

[charliebrown]

Re: 2009 = 1939 : Then a 34% plunge

Could it be a generational issue? The great generation are leaving us in rapid number. The boomers are moving to retirement. It is the X'ers which are going to have to be the workers and savers. This generation has only seen decline in this country. They are pessimistic about our future. They are less likely to be fooled by shiny beads and a bright future.

[rjwjr]

Re: 2009 = 1939 : Then a 34% plunge

Good stuff.

I wonder, for the seasonal cycles, how much of that gain is based off consumer spending? In other words, has the US depended on consumption going all the way back to 1949 or is that a newer phenomenon? Or was it manufacturing before 1980, consumer spending afterwards? I'm just wondering if there is reason to believe that current events (lack of consumer spending, e.g.) have a chance of breaking long-standing evident cycles.

As for the presidential cycle, again, i wonder if Obama doesn't break the cycle. I know a lot of people who didn't like president Bush, but not too many with a lot of money that felt that if they could pull all their money out of investments and if that submarined the economy which would hurt president bush, etc, you get my thought. I know very wealthy individuals who would rather return to the old country than to have to watch this go on much longer. I'm not particularly for or against Obama, I'm just wondering if he will provide the "unite behind the concept of America" thing that I'm assuming the presidential cycle is somehow founded upon.

But I'm not ranting, just throwing in psycho-mumbo jumbo. Your content is good, keep it coming if you have time.

I'm with you Verdred; these cycle are interesting and enticing, but I'm not truly comfortable basing any investment decisions on them because, I don't see or understand the "Why" behind these cycles. I'm not comfortable with any explanation for their occurence; even though their repeated occurence does raise one's curiosity.

The only cycle that makes some sense to me (I don't believe it's been discussed yet in this thread) is the "January effect". It made sense to me that everyone got year-end bonuses and year-end 401k contributions, and much of that money found it's way into the stock market in January. Unfortunately, this cycle, the only one in which I kinda see and understand the cause, will likely get hit hard this year. The financial executives may still be getting big bonuses this year, but I don't see the real people getting much if anything. Bye, bye January effect.

The other issue that I haven't seen, and I wish he'd chime-in, is Finster's view that the market is being driven by the weakening dollar. I'll search for it and edit it in later if I find it again, but I'm quite certain he showed a chart of the inflation adjusted market performance that showed the stock market to be flat in terms of purchasing power of the US $.

Jim, your argument for a possible continued run in the current "bull" market is well presented, but I still can't get beyond the fact that the PE of the S&P is about 140! At some point, doesn't the market need to reflect fair value of the underlying businesses? And, if so, looking back historically, with a PE at 140 you should be shorting the crap out of this market level. However, the phrase "the market can remain irrational longer than you can remain solvent" comes to mind.

The bottom line for me...paralysis. So, don't look for me to chase this thing up and provide you your much anticipated retail investor blow-off. I don't see how it got this high, so I'm sure not expecting it to go higher.

[rjwjr]

Re: 2009 = 1939 : Then a 34% plunge

"As for you fellow subscribers, and the entire iTulip administration, I wholeheartedly thank you for your contributions. As for you complaining parasites, the phrase penny wise and dollar foolish comes to mind. (So do a lot of other phrases.)"

I tried the subscription area for thirty days and did not find it beneficial. I saw one very informative article to me - Not written by Ej.

There are many sites that are free and I believe free means free. Therefore I do not consider myself a parasite to go to a free site.

However, one thing that really turns me off about this site is the few paid subscribers like you and a few others who impose your self imposed righteousness on other people. We are not parasites. We have been invited to participate in a free site that seem to generally honor free speech.



Cindy

I'm sorry to have offended you Cindy. You have voiced a rational personal viewpoint, and although it surprises me that you did not find the subscriber content worth your investment, I respect your opinion and your quiet handling of your decision. It's the public whining and the "let's see how much of this I can get for free" attitude that rubbed me the wrong way.

[ThePythonicCow]

Re: 2009 = 1939 : Then a 34% plunge

However, one thing that really turns me off about this site is the few paid subscribers like you and a few others who impose your self imposed righteousness on other people. We are not parasites. We have been invited to participate in a free site that seem to generally honor free speech.

I enjoy your contributions here, Cindy. I would caution you against taking the above bickering personally.

Some people were irritated at various aspects of the division between the free and the subscription side. This is a rather common irritation when such a split exists; I've observed such many a time in various products, forums and services.

As is also quite common, the irritated people sought to justify their irritation with perhaps overly broad assertions of what is good and bad, right and wrong. Such self justifications, in the heat of irritation, are seldom a good guide to behaviour (their behaviour or yours.) I recommend you dismiss those you don't find amusing or suitable for your own purposes.

The ones bickering above are not really imposing any view on you or I; they are rather more rationalizing their own motives in overly broad terms.

[sunskyfan]

Re: 2009 = 1939 : Then a 34% plunge

I agree Cindy AND it is very frustrating when a thread is taken behind the "closed door" of the site after you have contributed to it. You have every right to keep something private but it is difficult to justify taking something from the public to the private and ultimately self-defeating. Why stay and contribute in the free space if your effort is taken private? I can't afford $30 a month. But, oh, that's right if you don't have the cash to be in the investment world you aren't relevant to the economy ;). No wonder there is a decoupling of our financial system from reality.

[icm63]

Re: 2009 = 1939 : Then a 34% plunge

Thats enough, start your own Itulip bagging thread ! Go away !

[Jim Nickerson]

Re: 2009 = 1939 : Then a 34% plunge

I'm with you Verdred; these cycle are interesting and enticing, but I'm not truly comfortable basing any investment decisions on them because, I don't see or understand the "Why" behind these cycles. I'm not comfortable with any explanation for their occurence; even though their repeated occurence does raise one's curiosity.

The only cycle that makes some sense to me (I don't believe it's been discussed yet in this thread) is the "January effect". It made sense to me that everyone got year-end bonuses and year-end 401k contributions, and much of that money found it's way into the stock market in January. Unfortunately, this cycle, the only one in which I kinda see and understand the cause, will likely get hit hard this year. The financial executives may still be getting big bonuses this year, but I don't see the real people getting much if anything. Bye, bye January effect.

The other issue that I haven't seen, and I wish he'd chime-in, is Finster's view that the market is being driven by the weakening dollar. I'll search for it and edit it in later if I find it again, but I'm quite certain he showed a chart of the inflation adjusted market performance that showed the stock market to be flat in terms of purchasing power of the US $.

rwjwr, if you wish you can search around for a guy Sy Harding ( http://www.streetsmartreport.com/ ) who I believe wrote a book on the seasonal effect--I've not read it--and he, in addition to Minton who I mentioned above, is a strong believer in playing the theme of seasonality. By and large nothing I've crossed in investing is a sure thing, or as I encounter here from time to time a "no-brainer."

FWIW, here is a 20 year chart of SPX and USD. Since 2003, there is a clear opposite movement between the two indices.



As you can see the dollar has not always performed inversely to SPX, and the question in my mind is what may be the $'s course over the next six months? I am not perceptive enough to put all this together and derive a likely conclusion. Here is Bill Gross suggesting a depegging of the US$ and yuan. http://www.pimco.com/LeftNav/Feature...ing+but+01.htm in which he also discusses the issue of low US interest rates driving investors out of zero-yielding money funds.

In addition, and importantly, China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland. With renewed upward appreciation of the yuan may come potentially volatile global asset price reactions to the downside – higher Treasury yields, and lower stock prices – which the Fed must surely be leery of before making any upward move, of its own, and before moving on, let me state the obvious, but often forgotten bold-face fact: The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks. Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until. To date that transition is incomplete, mainly because mortgage refinancing and the purchase of new homes is being thwarted by significant changes in down payment requirements. The Treasury as well, has a significant average life extension of its own debt to foist on investors before the Fed can raise short-term Fed Funds.

[his emphasis]

Then Albert Edwards, as referenced in a post above, in the scenario he suggested for 2010 postulates that the Chinese could devalue the yuan.

Imagine we are in the middle of 2010. Imagine the western economies (plus Japan) are sliding back into recession as the lack of additional fiscal stimulus reduces 2010 GDP growth back to its weak underlying rate (deficits need to widen to boost the economy). Imagine also that in 2010 the Chinese economy is beginning to roll over. China'?s vulnerability is perhaps far higher than the bulls suppose, having engaged in the same sort of recession defying stimulus as the US in 2003. The US authorities in no way thought gently tapping the monetary brakes in 2005/6 would end in the biggest economic and market crashes since the Great Depression. Personally, I see the Chinese conjuncture as little different ?- in particular, the market's? confidence that the authorities are in control of events opens the possibility of a rude shock.

I am reassured that my views are not totally bananas when two of the deepest thinkers in the markets are also concerned about a Chinese economic crash. Edward Chancellor thinks China is a bubble waiting to burst (link - he is one of the worlds? leading thinkers on bubbles and the author of the seminal book on the history of bubbles ? The Devil Take the Hindmost). I was also reading a news report on the views of Jim Chanos at Kynikos Associates -? link. Amid all the bullish hype on China, it is well worth taking some time to read these men'?s views.

Any synchronized end in Chinese and US recovery will undoubtedly heighten geo-political tensions and accelerate the inevitable trend towards protectionism. The trend towards competitive devaluation will also increase. And in the case of China, if its economy founders unexpectedly and unemployment soars, no lever to restore growth should be ruled out, including devaluation. With the potential for the dollar to soar, in the same way the yen did in 2008 as risk carry trades unwound, this may be all too much for a beleaguered Chinese economy. With a Chinese trade deficit and a loss of confidence in the growth miracle, China?'s reserves will in all probability be in decline. What better way of meeting the American?s call for greater flexibility than to give them what they want? The Chinese may yet respond to the new market pressures and devalue. 2010 could be a very lively year indeed.

zerohedge added the following comment to what Edwards wrote above.

"A devaluation in the renminbi relative to the dollar will likely short-circuit all the millions of FX algos that expect a perpetual peg if not outright Chinese currency appreciation. This solidifies our view that the US Dollar is poised to become the next iteration of the Volkswagen short squeeze in the near-to-medium term."

What was the Volkswagen short squeeze? Here's a chart, the spike up was the "short squeeze."



Such a similar event in the US$ I suppose is possible, but currently I have not the least ability to anticipate it and play it.

Jim, your argument for a possible continued run in the current "bull" market is well presented, but I still can't get beyond the fact that the PE of the S&P is about 140! At some point, doesn't the market need to reflect fair value of the underlying businesses? And, if so, looking back historically, with a PE at 140 you should be shorting the crap out of this market level. However, the phrase "the market can remain irrational longer than you can remain solvent" comes to mind.

The bottom line for me...paralysis. So, don't look for me to chase this thing up and provide you your much anticipated retail investor blow-off. I don't see how it got this high, so I'm sure not expecting it to go higher.

rjwjr, I don't think I have made any arguments at all about the value of US equities. Their overvaluation is and has been widely appreciated. FYI, according to Barron's the PE for SPX has dropped from 145.60 weekending 11/13 to 85.07 now. Better jump in.:rolleyes:

Extremely poor valuations are what have kept a lot of smart people out of this run up. You are correct that if only valuations moved markets, then shorting it would have been wise at least since 5/5/09 when SPX PE ratio moved from 62 to 122 and the SPX then at 882, but that would have ended in losses if not tears if one stuck with such a trade.

I take your statements above to reflect the thinking of a lot of people perhaps even the majority of iTulip readers (which is a small percentage of all investors); however, your comments probably represent that of those who have stayed out of the current run up, and in no way am I suggesting you have been wrong in your reasoning.

Let me be clear, my thinking is the markets could continue to go up in here--gold, PM's, stocks, China, EM's. Just as well they could totally reverse (or go sideways and that about covers the possibilities). I do not know. All I have tried to do is present an alternative perspective.

I believe I have written I am long some things, but certainly not 100% long any group of US stocks, as I mentioned as an example Sullivan currently is invested.

I'm long 4 stocks, recommended along the way by Sullivan. That is 10%.

I'm long some international ETF's 7.6%, Comm. ETFs which include some US stocks 10.5%, PM's metal and ETF's including miners 7%, Currencies and Bonds 26.3% mostly in TLT and less in IEF and less in FXC, and 20% in HSGFX. That leaves about 13% in zero-yielding cash.

[Jim Nickerson]

Re: 2009 = 1939 : Then a 34% plunge

Another thing regarding sentiment polls, and even a bit for all those discussing something beside this thread's topic.

According to Bespoke, last week’s sentiment survey from Investors Intelligence showed bullish sentiment among newsletter writers was near its highest levels since the March lows (50.6%), while bearish sentiment is at a five-year low (17.6%). This puts the spread between bulls and bears at 33, which is the highest level since December 2007. “High levels of bullish sentiment are typically considered contrarian, but we would note that sentiment can remain bullish for extended periods of time with little impact on the market. While it is true that markets typically peak when bullish sentiment is high, however, high levels of bullish sentiment don’t necessarily mean an imminent decline,” said Bespoke.



Currently the extreme in the bulls minus bears ratio does not preclude US equities going even higher.

I took the above from http://www.investmentpostcards.com/2...%80%9329-2009/ I have no idea how many people read du Plessis' post, but for my money--which is no money--his usual Sunday morning posts covering a lot of commentary interspersed with his own would be the the only thing I would read each week were I limited to reading just one thing.

I don't suggest it is a "must read," but I think it is definitely worth reading if one believes in seeking more than one source for information given the time constraints that affect us all.

[Jim Nickerson]

Re: 2009 = 1939 : Then a 34% plunge

Here's some brief commentary on "bull markets" and PE ratios, etc.
Ritholtz might have posted it here were he reading here.

http://www.ritholtz.com/blog/2009/11...quity-markets/

[sunskyfan]

Re: 2009 = 1939 : Then a 34% plunge

Nobody is insulting itulip here ... relax.

[0tr]

Re: 2009 = 1939 : Then a 34% plunge

"As for you fellow subscribers, and the entire iTulip administration, I wholeheartedly thank you for your contributions. As for you complaining parasites, the phrase penny wise and dollar foolish comes to mind. (So do a lot of other phrases.)"

I tried the subscription area for thirty days and did not find it beneficial. I saw one very informative article to me - Not written by Ej.

There are many sites that are free and I believe free means free. Therefore I do not consider myself a parasite to go to a free site.

However, one thing that really turns me off about this site is the few paid subscribers like you and a few others who impose your self imposed righteousness on other people. We are not parasites. We have been invited to participate in a free site that seem to generally honor free speech.



Cindy

HI, Cindy; you are contributing to the discussion, no? That looks to me like adding value. Some thing for others to value too. I value what you have to say.

When I see the self righteousness, I just hold my nose and pass by.

[jimmygu3]

Re: 2009 = 1939 : Then a 34% plunge

Here, here Chomsky. Thanks for checking the facts.

LOL, first of all, it's unfair that icm63's thread has been hijacked. Secondly, it's unbelievable that it has been hijacked by such a foolish discussion. Consider these points...
1] EJ reads these posts. Do you think you are inspiring and motivating him by airing your negative opinions in public? If you have a problem either; a] show some class and communicate it to him more privately, b] don't subscribe, then show some class and keep your f$%king mouth shut about it. Is it any surprise that a classless parasite that refuses to cough-up only $250/year would compain about the cost, then brag about searching the subscriber section headlines and conducting a Google search for the free stuff? What is it Mula, is there value in the content or not?

I was with you up until this point.

Let me phrase the argument in your typical context...you are being typical cheap ass, entitlement-expecting, it's-all-about-me liberal.

But no, rjwjr has to turn it into a liberal-vs-conservative thing. Apparently Mula's pro-pot, anti-corporatism talk in other threads has been working you into a neoconservative tizzy. Well, let me be the one to break it to you, pal. I know a lot of liberals and conservatives and "cheap ass" cuts across the political spectrum, while "it's-all-about-me" is largely the domain of the right wing.

But Mula wasn't being political in the first place and you had to go there. I have found that people like you need to be confronted at every turn or you will mistake silence for acquiescence.

And for anyone who couldn't figure it out, Mula was talking about "select" news items that simply link to another site's article. He is not seeing any of the original iTulip Select content, nor the analysis and comments from EJ, FRED and iTulip Select subscribers, which is usually much more useful than the original linked article, IMO.

Sorry icm63 for furthering the hijack. "Can't we all just get along?" -R. King

Jimmy