Bearish Information

[Jim Nickerson]

Re: Bearish Information Re. John Hussman's weekly comments.

http://hussmanfunds.com/wmc/wmc071001.htm

In recent weeks, a relative quiet has emerged both in stocks and in the credit markets. In stocks, the major indices have recovered to levels close to their prior highs. As yet, however, market internals have been fairly sluggish, trading volume has been fairly dull, and we've observed continued dispersion across industry groups and leadership (e.g. new highs vs. new lows) rather than the sort of uniformity that is normally associated with a robust willingness of investors to accept risk.

The other difficulty is that we've now reestablished the overvalued, overbought, overbullish combination of conditions that has historically been associated with average returns below Treasury bill yields, even when market action has been otherwise favorable on the basis of price trends. Importantly, these instances are not usually associated with immediate and persistent losses. Rather, they tend to be associated with further incremental gains and marginal new highs, followed by sudden losses that abruptly erase weeks or months of upside progress within a handful of trading sessions.

One might argue that the view of stocks as richly valued must certainly be incorrect, with the S&P 500 at a price to forward operating earnings ratio of “only” about 15. However, even if we take current record profit margins as given, and assume they will persist indefinitely at levels about 50% above their historical norms, a multiple of 15 times forward operating earnings is still only low relative to levels of the late 1990's. Those levels, by the way, have been associated with total returns on the S&P 500 that have lagged Treasury bills for more than 8 years now, despite the rebound of recent years. The current price to forward operating earnings multiple is as high as it was at the 1987 peak, higher than it was before the 1990 bear market, and is in fact at the highest level that would have been observed in history except for the late 1990's. Most of the points prior to 1965 featured interest rates that were lower than they are presently. Again, current multiples also implicitly assume that profit margins will permanently remain at the highest levels in history. Current stock prices are at far higher multiples to normalized earnings.

Emphasis JN

Not caca, but perhaps Ka.

Another interesting observation by Hussman, that I presume is correct, unless someone brings in data (charts, Bart) to refute it.

As for the stock market, it's important to keep in mind that if you look at the 6-month periods before and after the start of a recession, you'll observe that the S&P 500 has almost invariably dropped by about 20% from highest point within 6 months before a recession starts to its lowest point within 6 months after the recession starts. The eventual market decline is often far worse, but it's very typical to observe a 20% plunge within that 6-month band around a recession's start-date. For that reason, speculators who wait until there is convincing evidence of recession typically discover that any reasonable selling opportunity is long gone.

Using these latter criteria by Hussman suggests that we are not in recession yet--unless perhaps one measures the equity markets in gold or Euros--but that would be outside of data from which Hussman draws his conclusions.

[Jim Nickerson]

Re: Bearish Information re. Gold correction?

Gold Market Update
by Clive Maund originally published September 30th, 2007
http://www.safehaven.com/article-8521.htm

One must access the link to see his charts and other explanation for his opinion.

There are 2 factors which taken together strongly suggest that gold is about to react. One is the RSI indicator shown at the top of the 2-year chart above, which remains at a critically overbought level. By itself this would not necessarily preclude further advance, as a commodity can remain very overbought for a lengthy period and yet continue higher. However, if we also take into account the fact that the Commercials' short positions in gold have risen to by far the highest level for a year, with a corresponding ballooning of the Large Specs' long positions, then a reaction would appear to be imminent. Before taking a closer look at the latest COT chart the point should be made that overall the gold chart looks strongly bullish, with a breakout to new highs, albeit still a marginal breakout, and moving averages in bullish alignment, suggesting that a major uptrend is still in its early stages. Thus, what we are concentrating on here is a probable significant near-term reaction to correct the current short-term overbought condition.

Emphasis JN

Maund's overall impression is that a pullback to the $700 area in gold is the "most likely scenario," that because of his very bullish interpretation of the equity markets (see bullish information thread dated 9/30/07) the mining stocks will not get hit so much and during gold/silver weakness he would be buying the mining stocks.

For a bit of a different opinion see West's remarks on gold above in post #165.

[GRG55]

Re: Bearish Information Re. UBS Latest Victim of Credit Turmoil

UBS latest victim of credit turmoil

From the FT:
By Peter Thal Larsen in London and David Wighton in New York
Published: September 30 2007 23:59 | Last updated: September 30 2007 23:59

UBS is on Monday expected to announce the departure of its investment bank head as it warns that it has written off billions of dollars on fixed-income assets, making the Swiss banking group the biggest casualty so far of the turmoil in the global financial markets.

According to people familiar with the matter, the bank is expected to say it has written down its fixed-income portfolio by more than SFr3bn ($2.6bn), triggering a third-quarter loss of at least SFr600m ($516m).

The losses, which far exceed those reported so far by other investment banks, are expected to trigger the departure of Huw Jenkins, who runs UBS’s investment banking business.

Link to full article:
http://www.ft.com/cms/s/0/75399ada-6...0779fd2ac.html

[GRG55]

Re: Bearish Information Re. Barron's Interview Fixed Income Manager Jeffrey Gundlach

From Barron's online. Jeffrey Gunlach has a multi-year outlook on the US housing situation that will sound familiar to iTulip.

Best line: "This is what happens when the ocean of liquidity that everybody was talking about just a couple of months ago has turned into a swamp of troubled debt,"

MONDAY, OCTOBER 1, 2007
Getting Ready for the Roof to Fall

By JONATHAN R. LAING

FOR CELEBRATED BOND FUND MANAGER Jeffrey Gundlach, the intensifying meltdown in the U.S. housing market has all the inevitability of a Sophoclean tragedy.
The Chief Investment Officer of Santa Monica, Calif.-based TCW Group has been sounding warnings for more than a year that mortgage lenders had taken leave of their senses by spooning out mortgages without owner-equity cushions and with little or no verification of the borrowers' ability to pay back the debt.
By now, with mortgage defaults climbing and home sales falling, the plot line of this drama is becoming clear. But Gundlach says there are still several acts to come -- and that the curtain may not come down until the close of this decade.

Link to full article:
http://online.barrons.com/article/SB...463743349.html

[GRG55]

Re: Bearish Information Re: WSJ Goes Bearish!! What Next...

...Cramer announcing he can't find a bull market? Anywhere?

Dow Hits Record Despite Losses At Big Banks

By David Reilly and Robin Sidel in New York and Carrick Mollenkamp in London

From the Wall Street Journal - October 2, 2007

Stocks soared to a new all-time high....suggesting that investors already are shrugging off the problems that rocked global financial markets only weeks ago..... The scamper to new highs comes despite surging mortgage defaults, the collapse of big buyout deals, a plunge in the dollar and growing fears of a recession.

Just yesterday....Citigroup Inc. announced a $5.9 billion hit....UBS AG said it was taking $3.41 billion in write-downs....

Rather than disrupting financial markets, the revisions seemed to bolster investor confidence that banks are taking their lumps and losses are mainly in the rearview mirror. Both banks saw their shares rise.

The optimists' key assumption is that the Federal Reserve has the situation under control....

Yet housing, the source of the market's late-summer woes, remains unstable. Over the next 12 months, Americans holding home mortgages with a total value of nearly $480 billion will face revised interest rates, typically as the low "teaser" rates that drew them in are reset at higher, market rates, according to data from Moody's Economy.com. About 55% of these mortgages, or $260 billion, are loans given to subprime borrowers, generally people with poor credit, the data show.

Normally the stock market reflects expectations for the economy's direction, which is why housing skeptics are scratching their heads over the Dow's surge. One factor may be that, amid low interest rates and the freezing of credit markets, people with cash to invest feel little alternative but to put it in stocks.

It also may be that stocks are experiencing a false dawn. On several occasions during the collapse of the technology bubble early this decade, investors grasped at straws to argue the crisis had passed. Instead, the stock market's down trend lasted for 2½ years, and the real resolution came after tech and telecommunications companies had completed several painful rounds of shedding debt and refocusing their businesses....

If more mortgages go bad, that could force banks and other financial firms to take repeated write-downs of the value of securities backed by mortgages. That could further roil debt markets and affect the stock market, given that financial institutions comprise 30% of the profits of the companies in the Standard & Poor's 500 stock index.

"I think you're going to get this constant flow of hits going forward, spread out over multiple quarters," said Bill Laggner, a partner at hedge fund Bearing Fund LP, which has bet against financial institutions and other stocks involved in the housing market.

"A lot of people think that it doesn't matter what happens, that the Fed will rush in and find some way to save some of these larger institutions and the various assets that they own," Mr. Laggner said. "But I don't see how there's going to be a market for a lot of this paper for a long, long time."

[GRG55]

Re: Bearish Information Re: Housing Continues South...

U.S. Economy: Pending Home Sales Slide to Record

By Bob Willis
Oct. 2 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes dropped to the lowest level on record in August as the housing recession deepened.

"The existing homes market is now in freefall,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., in Valhalla, New York. ``The downside from here is still substantial.''

Link to full article:
http://www.bloomberg.com/apps/news?p...HOY&refer=home

[GRG55]

Re: Bearish Information Re: Fed Fails to Restore Creditor Confidence...

In case you didn't get your daily dose of gloom today...

Some excerpts from the Bloomberg link below:

Fed Fails to Restore Creditor Confidence, Pimco Says
By Caroline Salas
Oct. 2 (Bloomberg) -- As far as the world's biggest bond investors are concerned, the Federal Reserve is failing to restore confidence in the U.S. credit markets.

Pacific Investment Management Co., TIAA-CREF and Insight Investment Management say the central bank's decision to lower the overnight lending rate between banks by half a percentage point last month won't prevent the economy from slowing or corporate defaults from increasing. Lehman Brothers Holdings Inc. strategists say last month's rally in high-yield corporate bonds, the biggest since 2003, may fizzle by year-end...

...``The reality is the fundamentals haven't gotten any better, and, if anything, they've gotten worse,'' said Mark Kiesel, an executive vice president at Newport Beach, California-based Pimco who oversees $85 billion in corporate bonds.

About three-quarters of 30 fund managers who oversee $1.25 trillion expect a hedge fund or credit market blowup in the ``near future,'' according to a survey by Jersey City, New Jersey-based research firm Ried, Thunberg & Co. dated Oct. 1...

...``I'm still bearish,'' said Alex Moss, a senior credit analyst at Insight, a London-based money manager with $94 billion of fixed-income assets. ``I can't see any real excuse to get involved in this market.''...

...This rally will be ``pretty short-lived,'' said Richard Cheng, who co-manages $45 billion in investment-grade corporate bonds at TIAA-CREF in New York. ``The economy might be slowing down and third quarter earnings releases may be a little bit difficult. We see spreads widening a little bit more.''...

...``People said this subprime liquidity issue was going to go away after Labor Day,'' said Tom Quindlen, CEO of corporate lending at GE Commercial Finance in Norwalk, Connecticut, a unit of General Electric Co. that has $14 billion of assets.
``The bankers were going to return from vacation and just jump right back in,'' said Quindlen. ``That's what I heard in August. Well, they get back from vacation and they're saying it's the first half of 2008. I think it's going to be longer rather than shorter.''

Link to full article:
http://www.bloomberg.com/apps/news?p...lds&refer=news

[GRG55]

Re: Bearish Information Re: Competitive Currency Devaluation...

From the FT.

Looks like the most blatantly manipulated markets in the world (currencies) are about to get another (over)dose of central planning medicine...

Calls grow for ECB intervention to stem rise of euro

By Peter Garnham
Published: October 2 2007 03:18 | Last updated: October 2 2007 03:18

The recent rise of the euro has sparked a chorus of disapproval from the region’s exporters and politicians, but analysts say it may now be approaching levels that could even push central banks into action.

The euro has hit a fresh high against the dollar for the last nine trading sessions, touching $1.4281 on Monday. This took the euro’s gains against the dollar so far this year to 7.8 per cent...


...Eurozone politicians have been quick to voice concern over the euro’s rise. Joaquin Almunia, the EU’s commissioner for economic and monetary affairs, said Europe could not stand by passively if the dollar continued to weaken.

Meanwhile, Jean-Claude Juncker, the prime minister and minister of finance of Luxembourg, said Europe could no longer accept footing the bill for global imbalances and that the matter would be discussed at the upcoming Group of Seven meeting of finance ministers and central bankers in Washington on October 20...

Link to full article:
http://www.ft.com/cms/s/0/e7ab931c-7...0779fd2ac.html

[GRG55]

Re: Bearish Information Re: Talk about "fleeing" Dollars...

Iran slashes oil transactions in dollars

October 2, 2007. TEHRAN (AFP) — Iran has slashed the use of the dollar in payment for its oil exports to 15 percent, an official said on Tuesday, amid growing pressure from arch-foe the United States on its financial system.

The vast majority of transactions for oil from OPEC's number two producer are now being carried out in euros, said Mohammad-Ali Khatibi, deputy head of the National Iranian Oil Company in charge of marketing.
"Iran is selling about 85 percent of its oil in the non-dollar currencies," Khatibi was quoted as saying by state television.
"Currently, about 65 percent of the oil sale income is in euros and 20 percent in yen," Khatibi added.

Japan, which purchases 20 percent of Iran's crude oil, has recently agreed to pay for the crude oil in yen, he said.
He also said that the remaining sums being paid in dollars, about 15 percent, are going to shift to "other creditworthy currencies".
Khatibi also cited the United Arab Emirates dirham as one other possible currency for use in oil transactions.

He said the main reason for the move was fluctuations of the dollar on the currency markets and the depreciation of its value since 2004.
Iran had previously announced that 60 percent of its oil transactions for export had been switched into euros.

Iran, the world's fourth largest oil exporter, has massively cut down its dependence on the dollar in the face of US pressures.
The United States has been seeking to make international banking transactions harder for Iran, as another tool to pressure Tehran into backing down over its controversial nuclear programme.
Several European banks have drastically cut business with Iran as a result of US pressure.

However despite problems with inflation and unemployment at home, Iran's economy is being helped by revenue windfalls from current high crude oil prices.
Iran's foreign currency reserves held in banks abroad have risen by 37 percent over the past year to the equivalent of 65 billion dollars as of the end of June 2007, the central bank said in September.

[GRG55]

Re: Bearish Information Re: Natural Selection in the World of Hedge Funds?

From the WSJ "Heard on the Street" column:
Why Smaller Hedge Funds
May Be Looking to Sell Out

By GREGORY ZUCKERMAN and KAREN RICHARDSON
October 2, 2007; Page C1

Hedge funds are in play.

On the heels of a rocky summer for many funds, and as money continues to flow to the industry, more hedge funds are examining the possibility of selling out to larger rivals or big securities firms. Such moves probably will put even more pressure on smaller funds.

Link to full article:
http://online.wsj.com/article/SB1191..._and_investing

[GRG55]

Re: Bearish Information Re: Morgan cuts 600 Mortgage Jobs...

From the FT.
Morgan Stanley cuts 600 mortgage jobs
By Ben White in New York
Published: October 3 2007 00:01 | Last updated: October 3 2007 00:53

Morgan Stanley on Tuesday said it would cut 600 jobs as it restructured its mortgage business to reflect lower loan origination levels.
The bank said 500 of the cuts would come in the US and 100 from Europe, including 90 in Advantage, Morgan Stanley’s UK mortgage subsidiary. It is not cutting any New York-based trading or securitisation staff.

Link to full article:
http://www.ft.com/cms/s/0/a7d232f8-7...0779fd2ac.html

[GRG55]

Re: Bearish Information Re: Interesting Housing Chart from Lehman...

An interesting chart from Lehman Brothers on the link. From the WSJ
October 2, 2007, 11:53 am
Where Is the Bottom?

It’s official: the index of pending home sales hit an all-time low in August, the National Association of Realtors reported today. The index has been published since January 2001 and its previous record low was registered in September of that year, in the wake of the 9/11 terrorist attacks.

Link to article:
http://blogs.wsj.com/economics/2007/...is-the-bottom/

[friendly_jacek]

Re: Bearish Information Re: Competitive Currency Devaluation...

From the FT.

Looks like the most blatantly manipulated markets in the world (currencies) are about to get another (over)dose of central planning medicine...

Calls grow for ECB intervention to stem rise of euro

By Peter Garnham
Published: October 2 2007 03:18 | Last updated: October 2 2007 03:18

The recent rise of the euro has sparked a chorus of disapproval from the region’s exporters and politicians, but analysts say it may now be approaching levels that could even push central banks into action.

The euro has hit a fresh high against the dollar for the last nine trading sessions, touching $1.4281 on Monday. This took the euro’s gains against the dollar so far this year to 7.8 per cent...


...Eurozone politicians have been quick to voice concern over the euro’s rise. Joaquin Almunia, the EU’s commissioner for economic and monetary affairs, said Europe could not stand by passively if the dollar continued to weaken.

Meanwhile, Jean-Claude Juncker, the prime minister and minister of finance of Luxembourg, said Europe could no longer accept footing the bill for global imbalances and that the matter would be discussed at the upcoming Group of Seven meeting of finance ministers and central bankers in Washington on October 20...

Link to full article:
http://www.ft.com/cms/s/0/e7ab931c-7...0779fd2ac.html

To me, this sounds like a bulish story, more liquidity to hit the markets (poom phase in the Itulip terminology).

[Jim Nickerson]

Re: Bearish Information Re: Competitive Currency Devaluation...

To me, this sounds like a bulish story, more liquidity to hit the markets (poom phase in the Itulip terminology).

I can see your point, f_j, but perhaps GR confused insanity (amongst the central banks) with bearishness. Do we have inflation now or not? I say YES. If that is true, then how much sense does it make to be lowering interest rates, and the same applies to what the FOMC just did.

Do you personally, f_j, think we have seen all the disinflation/deflation that is going to occur, and that we are now in the Poom?

I think we shall yet see these equity markets undergo a correction of more than what happened down to August 16th and that we will experience some measureable disinflation.

[friendly_jacek]

Re: Bearish Information Re: Competitive Currency Devaluation...

I can see your point, f_j, but perhaps GR confused insanity (amongst the central banks) with bearishness. Do we have inflation now or not? I say YES. If that is true, then how much sense does it make to be lowering interest rates, and the same applies to what the FOMC just did.

Do you personally, f_j, think we have seen all the disinflation/deflation that is going to occur, and that we are now in the Poom?

I think we shall yet see these equity markets undergo a correction of more than what happened down to August 16th and that we will experience some measureable disinflation.

I thought Itulip's position was that we entered poom with the rate cuts. This would agree with the COT positions that are still long (except for NDX that makes no sense or is a short term strategy). My market sentiment indicators don't show excessive bullish sentiment, so we have a room to go up.
However, we probably will have a short consolidation now.