Bearish Information

[bobola]

Re: Bearish Information

Jim,

This thread seems like a good place to post this.

A few months ago I mentioned that my wife and I had about 200k to invest (recently sold a small commercial building and the business) and asked advice on what we should do with it. A few folks here suggested buying metal, which we may do.

We use an AG Edwards broker suggested to us by our tax guy, a very shrewd tax lawyer.
The AG guy wants us to invest the lot in 50k chunks (tranches may be the correct term..??) by dollar cost averaging it through the next 12 months or so. We gave him the first 50 and he spread it out in 5 conservatively mutual funds, but now I am thinking on sitting on the rest and waiting. The term ‘cash is king’ resonates with me right now.

Every week brings more bad economic news and the markets scare me a bit.
My question is this (the AG guy sort of shrugged his shoulders when I asked him); with consumer spending accounting for about 60-70 percent of the GNP, and more and more bad news on how Joe average consumer is tapped out on credit cards, or rapidly getting there, how will consumer spending increase in the future and where will they get the money for it?

Am I correct to assume that consumer spending is the major driving force in our economy, and if it stalls, everything stalls?

A guy who sits next to me at work lives paycheck to paycheck, has a fair amount of credit card debt and his marriage has recently gone south, yet when I asked him what he will do with his 900$ share (they have 2 kids) of the upcoming rebate check, the last place he will put it is toward his credit card debt. With that attitude just maybe this stimulus package will make a big difference? After I cringe I congratulate him for spending.

[Jim Nickerson]

Re: Bearish Information

Jim,

This thread seems like a good place to post this.

A few months ago I mentioned that my wife and I had about 200k to invest (recently sold a small commercial building and the business) and asked advice on what we should do with it. A few folks here suggested buying metal, which we may do.

We use an AG Edwards broker suggested to us by our tax guy, a very shrewd tax lawyer.
The AG guy wants us to invest the lot in 50k chunks (tranches may be the correct term..??) by dollar cost averaging it through the next 12 months or so. We gave him the first 50 and he spread it out in 5 conservatively mutual funds, but now I am thinking on sitting on the rest and waiting. The term ‘cash is king’ resonates with me right now.

Every week brings more bad economic news and the markets scare me a bit.
My question is this (the AG guy sort of shrugged his shoulders when I asked him); with consumer spending accounting for about 60-70 percent of the GNP, and more and more bad news on how Joe average consumer is tapped out on credit cards, or rapidly getting there, how will consumer spending increase in the future and where will they get the money for it?

Am I correct to assume that consumer spending is the major driving force in our economy, and if it stalls, everything stalls?

bobola,

I am not one of the brightest lights here, but to your question above, your conclusion seems correct based on my probably having seen the same reports you've seen about the contribution of consuming spending to the economy.

Perhaps Jim Rogers, the investor, is the smartest guy of whom I know. If he's telling the truth, and no doubt he is smarter than the average non-professional investor, then his answer to what lies ahead as he apparently sees it unfolding is to have gotten the hell out of the US and the dollar.

I don't think that is an answer for most people realistically, but perhaps the best one can do if you think the facts as you can understand them suggest on-going inflation, then do those things with your money that willl hopefully preserve its purchasing power for necessities. Shit, no one knows exactly what lies ahead or at what speed some possible scenario will unfold, but if you believe the inflation arguments and if you believe that bear markets follow bull markets, then for myself I think being seriouosly long in the equity markets right now is not where I wish to be--and not infrequently am I wrong.

Probably no one wants to get into your private business, but if you wish serious opinions that may be in here somewhere from iTulipers, put up your "conservative mutual funds'" symbols for anyone willing to look and see how they are allocated, and then you might get some sort of decent opinion.

Currently I am short the equity indices via etf's (dXd, SDS, TWM, QID) and also real estate and financials (SRS, SKF). I am long FXF, FXY, MEAFX, and CNY (currency plays). I am long gold and silver and some Agricultural ETFs or N's DBA, RJA, and RJZ (metals: 2/3 base, 1/3 PM's), and short oil, but that position is about to reach $0.00 in value. I even bot 18K of physical PM's recently. I am long interest rates on 30-year Treasury bonds, and long equities via hedged mutual fund HSGFX, otherwise still ~30% in cash. I would like to have less cash and more in the short ETF's if I can figure out the indices are likely headed lower. Sorry I don't have my percentage allocations at hand.

If you don't like the information someone is giving you, then change information sources--ie, get another broker. As you know it is you who is ultimately responsible for managing your wealth--not your broker or your shrewd tax guy.

[bobola]

Re: Bearish Information

I agree with your comments on Jim Rogers and am aware of his recent move to Singapore. Wife and I are talking about moving out of the country within 2 years or so...that discussion is getting more serious as her business has been liquidated.

Am looking at the higher altitude northern region of Panama, with its favorable climate, , abundant water, good soil and numerous outdoor activities as a possibility. I think water and fertile soil will become like gold in the coming years.

That brings up another discussion; how many here see a very major depression in the USA happening within the next 5 years or so? Personally I think we are in for a shit storm of a bad economy similar to or worse than the 29 depression.

I just don’t see any easy way up and out of the problems.

USA Today had a front page article last Friday that said divided up evenly among households, our nations debt is 530k per family. I tend not to trust any government numbers, but that number is insanity. There’s just no way that can be paid back.

[Jim Nickerson]

Re: Bearish Information

http://www.marketwatch.com/news/stor...C5F0CBF9B1F%7D

Credit crunch to stretch into 2009: analyst
Pain is far from over for U.S. banks, Oppenheimer's Whitney says

BOSTON (MarketWatch) -- Shares of large-cap U.S. banking stocks traded lower Tuesday after analysts at Oppenheimer & Co. said they see the turmoil in credit markets lingering at least into next year.

"Our view is that the credit crisis will extend well into 2009 and perhaps beyond, and although the complexion will change, the net effect will be the same: three years of multibillion-dollar revenue reversals," the
Oppenheimer analysts wrote in a note, led by Meredith Whitney. Whitney has built up credibility for her bearish and prescient calls on Citigroup Inc. (C: Citigroup, Inc)and other Wall Street giants during the credit storm.
Oppenheimer warns of billions of dollars of additional asset write-downs and loan-loss reserves as a result of underwriting excesses. "We estimate that by the end of 2009, over $170 billion of reserve builds will flow through bank earnings on top of 'business as usual' loan-loss provisions," Whitney wrote. "Multitrillion dollars of loans were underwritten with the false assumption that home prices would go up in perpetuity on a national basis," the analyst said.

Other headwinds include "unprecedented leverage" and too much dependence on the securitization market for consumer liquidity.

As we see no near- or medium-term comeback in securitization volumes, we believe losses will only accelerate further and far worse than even the most draconian estimates," according to Whitney. "Due to continued deterioration in consumer liquidity, we are raising our loss expectations significantly for the group and lowering our earnings estimates significantly."

The firm's analysts said that their profit estimates for U.S. banks for 2008 and 2009 are now 72% and 37% below consensus Wall Street forecasts, respectively. Oppenheimer has underperform ratings on Citigroup, Merrill Lynch & Co. (MER: Merrill Lynch & Co., Inc and Wells Fargo % Co.WFC)

[Jim Nickerson]

Re: Bearish Information Re. David Tice of Prudent Bear Fund

http://www.bloomberg.com/apps/news?p...SGU&refer=home 5/21/08

Tice, founder of the Prudent Bear Fund, is in his element as short sellers savor a rare advantage in their tug of war with Wall Street's bulls. Tice, an economic history addict who lines his office bookshelves with volumes on the Great Depression, is the most bearish of bears. He's been preaching for almost a decade that runaway mortgage lending would blow up.

Blaming Greenspan

Tice blames former Federal Reserve Chairman Alan Greenspan, who led the central bank as it ratcheted down the benchmark U.S. interest rate to 1 percent in June 2003 from 5 percent in March 2001 and held it there for a year. Borrowers rushed in and mortgage debt soared to $1.4 trillion in 2006, double the $708 billion in 2001, according to Fed data.

Now, Tice says the Standard & Poor's 500 Index may tumble 40 percent during the next 12-24 months as the credit crisis undermines the economy, bankrupts households and companies and whacks profits. The drop would be worse than the 37 percent plunge in the index from 2000 through 2002.

Tice predicts U.S. equities will enter a bear market that may exceed the 15-year slump from 1965 to 1980. Moreover, he says if the Fed and Wall Street don't break their addiction to easy credit, the economy will eventually crash in a depression -- a condition marked by reduced purchasing power, unemployment and corporate failures.
The U.S. can't continue to inflate bubbles in stocks, real estate and other assets without crippling the financial system, Tice says.

Lots more in the link.

Here's a bullish opinion in the same article.

Tice and fellow bears had better savor their moment because the bulls are poised to take back the market, says Robert Olstein, a money manager in Purchase, New York, who runs the $1.2 billion Olstein All Cap Value Fund. The S&P 500 has rallied 11 percent since Fed Chairman Ben S. Bernanke's unprecedented moves to stabilize the U.S. financial system began in March.

In addition to backing JPMorgan Chase & Co.'s takeover of Bear Stearns, the Fed for the first time since the Great Depression allowed securities firms to borrow cash at the same rate as commercial banks.

By March 20, Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., among others, tapped $28.8 billion in cheap Fed loans, bolstering confidence that Wall Street would overcome the crisis.

`Butt Kicking'

``Don't bet against the Fed,'' says Olstein, 66, whose fund is down 6 percent this year. ``The worst is over, and the market is looking to turn; and when it takes off, the bears are going to be in for a good butt kicking.''

Richard Yamarone, chief economist at New York-based equity analysis firm Argus Research Co., says the $152 billion package of tax rebates and incentives that lawmakers passed this year will set off a shopping spree.

Another silver lining: Companies in the S&P 500 have almost doubled the average level of cash and equivalents in their coffers since 2001, to $2.05 billion from $1.08 billion, according to data compiled by Bloomberg. After gross domestic product inched ahead 0.6 percent in the first quarter, Yamarone is forecasting the economy will eke out a 1.7 percent increase by year's end.

More bear stuff.

End of Golden Age

The credit meltdown runs so deep that the prosperous years on Wall Street that began in 1982 are probably drawing to a close, says Barton Biggs, 75, managing partner at Traxis Partners LLC, a New York- based hedge fund.

``We had a spectacular era of financial success that was extended by the subprime mortgage mania to 2007,'' says Biggs, who was chief global strategist at Morgan Stanley until 2003. ``But I think the golden age of Wall Street is over.''

Some of you may read Doug Noland's comments often published on safehaven.com. Noland works with Tice.

[Jim Nickerson]

Re: Bearish Information Re. David Fuller &b Bill King

http://www.investmentpostcards.com/2...008/#more-1207

Via du Plessis:

David Fuller (Fullermoney): Surge in oil prices bearish for stock markets

“Rising oil prices are usually a headwind for most stock markets, although less so when the advance is gradual. However crude oil has risen more rapidly recently and today’s move represents trend acceleration. We know from past experience that such moves are unsustainable beyond the short term. They are climactic and therefore followed by sharp reactions. However there is still no evidence that oil has peaked.

“As the world’s most important commodity by far, this surge in price is bearish for the majority of stock markets. Consequently I would assume that rallies seen since March have either been capped or are unlikely to make much upward progress until investors see evidence that crude oil has commenced a medium-term correction.”

Source: David Fuller, Fullermoney, May 21, 2008.

And then there is the other side that suggests some pull back in oil.


Bill King (The King Report): Top could be forming in oil price

“A very significant top in oil and energy could be forming and fundamentals appear to be changing. Crude oil and gasoline are rallying now on the strong seasonal tendency to rally into the start of ‘drive season’, which is Memorial Day Weekend. Then there is usually a retrenchment and another rally.


“The past few years, gasoline has topped after the 4th of July. In 2006 Goldman sharply cut the weighting of gasoline in its commodity indices, which forced funds to sell.

“Last year, gasoline soared after the Labor Day weekend, which is the end of drive season and the strong seasonal gasoline bullishness. This was short covering and reacquisition of long positions because of the underlying fundamental strength in energy. But the global economy is much softer this year.

“Media accounts have Iran and China stockpiling crude oil in tankers and elsewhere. Iran fears that either Bush or Israel might strike before Obama takes over.

“China is stockpiling energy and food for the Olympics. At some point during the Olympics in August, China should know if it has surplus inventory above Olympic demand and possibly earthquake-induced demand. Then China might start dumping surplus commodities – not only to lessen inventories but to push commodities lower to generate better buying opportunities later.

“China has been very adroit in hammering copper and key commodities when prices get too exuberant. Then they buy after the collapse and enter into long-term contracts with producers at the better prices.

“Ergo, there could be short-term tops in oil and gasoline next week and near the 4th of July and then a more significant peak near the Olympics and/or Labor Day.”

Source: Bill King, The King Report, May 20, 2008.

[Jim Nickerson]

Re: Bearish Information Re. John Hussman

5/26/08

May 27, 2008 A Clue from Contango
John P. Hussman, Ph.D.
All rights reserved and actively enforced.
Reprint Policy

I noted last week that “if the consolidation to clear the current overbought condition is fairly shallow, it will suggest that speculation might begin to feed on itself for a while. A sharp selloff from current levels, particularly on lopsided negative breadth, would suggest that the second round of negative financial and economic news is somewhat nearer.” With the Dow down over 500 points last week, and declining issues among NYSE common stocks (not composite breadth, which includes preferreds) outpacing advancing issues by 2, 3, and 5-to-1 on Tuesday, Wednesday, and Friday, respectively, we should probably brace for a second round of negative developments.

In an interview published on Saturday, Warren Buffett said the U.S. economy is “already in recession.” He suggested that however a recession might be defined by various economists, “people are already feeling the effects. It will be deeper and last longer than many think."

Meanwhile, credit default swaps blew out last week in a manner that we haven't seen since the week before the Bear Stearns debacle. I included some of these charts a few weeks ago. The steep rise in swap spreads this week was ominous. The apparent internal deterioration of credit conditions is a stark contrast to what investors have come to believe (hope) during the relief rally since March. The stocks of many investment banks have now plunged to the same or lower levels than they were at prior to the Fed's intervention with Bear Stearns.

Lehman Brothers Credit Default Swap Spread


Adding some color to the picture about Lehman Brothers, Steven Einhorn of Greenlight Capital noted last week that during the first quarter, Lehman took writedowns of just $200 million on a $6.5 billion portfolio of collateralized debt obligations. Yet Lehman's quarterly filing acknowledged, in a footnote, that about 25% of those CDOs were junk rated.

While some investment banks have taken much larger writedowns to-date, my impression continues to be that round-two is approaching fast.
Lest it appear that I'm singling out Lehman Brothers, I should emphasize that credit default swaps blew out very broadly last week, but the largest spikes were at the institutions with the highest gross leverage ratios (total assets to capital).

Merrill Lynch Credit Default Swap Spread


I continue to believe that liquidity problems, delinquencies, foreclosures, writedowns, and credit defaults are still in the early innings. Martin Feldstein's recent comments should not be missed – the Fed has already committed half of its balance sheet to questionable credits, and there is little more the Fed can do to help this situation.

Read on to see comments on oil and contango. http://www.hussman.net/wmc/wmc080527.htm

[Jim Nickerson]

Re: Bearish Information Re. Also Hussman

http://www.hussman.net/wmc/wmc080527.htm

5/27/08

In the Strategic Growth Fund, we finally closed out our oil stock positions on the price strength of recent weeks. In the Strategic Total Return Fund, we reduced our exposure to precious metals shares to just about 2% of Fund assets a few weeks ago as well. Investors wishing to maintain commodity exposure can easily establish it elsewhere. My intent here is not to open an argument with speculators about the prospects for oil and other commodities, but to communicate that we no longer hold them, and that I believe the downside risks have increased significantly in those markets.

Hussman Total Return Fund was recently allocated about 15% to gold shares.

Edit: According to the semi-annual report from Hussman's funds on 12/31/2007, the larger Strategic Growth Fund had a 12.27% allocation in "Oil & Gas." That was divided between Chevron,
ConocoPhillips, ENSCO International, Exxon Mobil, Marathon Oil, Royal Dutch Shell, Tesoro, and Valero.

[Slimprofits]

Re: Bearish Information

Check out the May 2008 Credit Quality Report from Wells Fargo (.pdf)

Consumer credit outstanding rose $15.3 billion in March (chart 1). Revolving debt, which includes credit cards, rose $6.3 billion, more than the $3.9 billion increase in February. Non-revolving debt, which includes auto loans, jumped $9.0 billion following a $2.6 billion increase in February. Falling home prices and slowing job growth are squeezing household wealth (chart 2). Thus, consumers are increasingly turning to credit cards and other forms of debt to finance their purchases.

Real consumer spending growth had been trending down for two years before credit card use ramped up and saved the day, at least for awhile (chart 3). However, over the last six months, spending growth has slowed even further, suggesting credit card use has not been able to fully compensate for slowing home equity withdrawal and job growth. The jump in credit card use amidst a slowing economy has led to rising delinquency rates on credit cards (chart 4).

[ax]

Re: Bearish Information

Check out the May 2008 Credit Quality Report from Wells Fargo (.pdf)

Capital One's 3 main businesses are credit cards, auto loans, and home-equity lines of credit. Guess which direction I think it's going in? My only regret is not having shorted it each time it's ridden the coattails of Visa and Mastercard above $50, completely different businesses.

[GRG55]

Canada and USA 1st Q GDP trends...

Well, well. The commodity producing, oil exporting country to the north experiences economic contraction...

Canada's Economy Unexpectedly Shrank in First Quarter

By Greg Quinn
May 30 (Bloomberg) -- Canada's economy unexpectedly shrank between January and March for the first quarterly drop in almost five years, giving the Bank of Canada more reason to cut borrowing costs again next month.

Gross domestic product contracted at a 0.3 percent annualized rate in the first quarter to C$1.33 trillion ($1.34 trillion), Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg anticipated the growth rate would slow to 0.4 percent from 0.8 percent in the fourth quarter, according to the median of 22 estimates...

...The currency weakened 0.8 percent to 99.55 cents per U.S. dollar at 8:42 a.m. in Toronto, from yesterday's 98.77 cents...

...Exporters have been hurt by weaker U.S. consumer demand after the subprime mortgage market collapsed last year, and by the Canadian dollar's appreciation to a record...
http://www.bloomberg.com/apps/news?p...w&refer=canada

...while in stark contrast Reuters reported the following yesterday for the neighbour to the south. Go figure...:p

U.S. GDP growth revised higher, jobless claims up

(Updates with market close)
* U.S. Q1 GDP growth revised to 0.9 pct from 0.6 pct
* Imports fall, commercial building improves
* Inventory drop sets stage for growth in future quarters
* Jobless claims rise more than expected

By David Lawder

WASHINGTON, May 29 (Reuters)- The U.S. economy grew a bit faster than first thought in the first quarter as demand for foreign goods fell and commercial building picked up, adding to evidence that the United States may stave off recession.

The Commerce Department said on Thursday that gross domestic product grew at a 0.9 percent annual rate in the first quarter. While sluggish, that marked an upward revision from the anemic 0.6 percent rate estimated a month ago and an acceleration from the fourth quarter's 0.6 percent gain.

The revision reflected a narrower trade deficit as more domestic spending went to U.S.-made goods, which helped offset a reduction in business inventories. Nonresidential building activity was stronger than first reported as well...
http://www.reuters.com/article/econo...45434020080529

[Jim Nickerson]

Re: Canada and USA 1st Q GDP trends...

Well, well. The commodity producing, oil exporting country to the north experiences economic contraction...

Canada's Economy Unexpectedly Shrank in First Quarter

By Greg Quinn
May 30 (Bloomberg) -- Canada's economy unexpectedly shrank between January and March for the first quarterly drop in almost five years, giving the Bank of Canada more reason to cut borrowing costs again next month.

Gross domestic product contracted at a 0.3 percent annualized rate in the first quarter to C$1.33 trillion ($1.34 trillion), Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg anticipated the growth rate would slow to 0.4 percent from 0.8 percent in the fourth quarter, according to the median of 22 estimates...

...The currency weakened 0.8 percent to 99.55 cents per U.S. dollar at 8:42 a.m. in Toronto, from yesterday's 98.77 cents...

...Exporters have been hurt by weaker U.S. consumer demand after the subprime mortgage market collapsed last year, and by the Canadian dollar's appreciation to a record...
http://www.bloomberg.com/apps/news?p...w&refer=canada

...while in stark contrast Reuters reported the following yesterday for the neighbour to the south. Go figure...:p

U.S. GDP growth revised higher, jobless claims up

(Updates with market close)
* U.S. Q1 GDP growth revised to 0.9 pct from 0.6 pct
* Imports fall, commercial building improves
* Inventory drop sets stage for growth in future quarters
* Jobless claims rise more than expected

By David Lawder

WASHINGTON, May 29 (Reuters)- The U.S. economy grew a bit faster than first thought in the first quarter as demand for foreign goods fell and commercial building picked up, adding to evidence that the United States may stave off recession.

The Commerce Department said on Thursday that gross domestic product grew at a 0.9 percent annual rate in the first quarter. While sluggish, that marked an upward revision from the anemic 0.6 percent rate estimated a month ago and an acceleration from the fourth quarter's 0.6 percent gain.

The revision reflected a narrower trade deficit as more domestic spending went to U.S.-made goods, which helped offset a reduction in business inventories. Nonresidential building activity was stronger than first reported as well...
http://www.reuters.com/article/econo...45434020080529

I figure there is more lying going on with US data than with Canadian, but then I am not that familiar with Canadian politicians and statistic monitors.

[GRG55]

US Chicago PMI for April '08

An improvement, but still below 50...

Chicago PMI index 48.3 in April vs 48.2 in March

Wed Apr 30, 2008 9:48am EDT
April 30 (Reuters) - The National Association of Purchasing
Management-Chicago said on Wednesday its index of Midwest
business activity rose in April to 48.3 from a seasonally
adjusted 48.2 in March.

Economists polled by Reuters had forecast a April figure of47.5...
http://www.reuters.com/article/econo...50057020080430

[Jay]

Re: Bearish Information

I really detest not knowing anything about some of the jay-birds who post here. (Jay-birds = mild contempt) (goddammed idiots = serious contempt).

Hey, you hurt my feelings Jim!;)

ER Doc, rent, sold a condo 2006, one daughter, boy on the way in October, sagittarius...

I am a bit bummed about the two or three other Jay's that have since registered, but oh well. Maybe if I could figure out that avatar it might help things.

[FRED]

Re: Bearish Information

Hey, you hurt my feelings Jim!;)

ER Doc, rent, sold a condo 2006, one daughter, boy on the way in October, sagittarius...

I am a bit bummed about the two or three other Jay's that have since registered, but oh well. Maybe if I could figure out that avatar it might help things.

We have created a custom avatar for you. Hope you like it. Feel free to change it if you wish.