Bearish Information

[Jim Nickerson]

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

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.

From my post #166. I don't know if Hussman's "fact" is a fact or not, with regard to market's behavior with regard to recessions.

Originally Posted by Hussman
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.

f_j, I know EJ has "predicted" a recession for Q407, which is where we are by three days now. I certainly do not know if EJ will turn out to be correct.

It is my opinion, and I am not nearly so smart as a lot of people here, that if there is a recession, then a lot of things are going to get a lot cheaper in the equity markets, and I don't opine that lowering interest rates are going to stop that from happening.

I'm not arguing your opinion isn't correct. I just wondered what you personally thought.

[GRG55]

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).

When posting items I try to avoid being capricious, and often find myself debating if it should be under the Bullish Information or Bearish Information category. Invariably there is a certain degree of arbitrariness that enters the decision, because in almost every instance the news, or consequences of what is being reported in the news, is bullish for some and bearish for others.

Taking, for example, the news item that triggered your comment (a growing disquiet among European political elites, resulting in calls for depreciation of the Euro against the US$) there are many levels at which one can choose to process and interpret this information. Briefly:

• In the immediate it could be considered bearish for anyone holding savings in Euro's and anyone long precious metals. At the same time it's bullish for traders (or anyone else) long the US$.
• In the medium term (if the falling Euro trend is sustained) it's bearish for US based exporters (to Europe or competing with Euro zone exporters in Asia), and bullish for their counterparts in the EU, as well as anyone looking for confirmation that the iTulip "Poom" phase is underway (presuming your investments are positioned accordingly).
• Looking at longer term implications one might conclude from this little factoid that the journey to a new, less US$ centric, monetary order may be a painfully extended one. In the world outside the USA, politicians and Central Bankers clearly don't have the luxury of weaning themselves of the nourishment of the US$ system very quickly (if at all?). Once again this has both bullish and bearish implications depending on your perspective and frame of reference.

The Bullish Information and Bearish Information catagories that Jim set up serve a useful purpose to help organise the information and assist our debate and dialogue. But, alas, the real world is more complex, as we all recognise. Each of us will undoubtedly view the information and react to it in ways shaped by our individual experiences, mood, economic opinions, investment horizon, financial and other prejudices, and a myriad of other factors. And that's one of the things that makes the iTulip community so powerful.

[GRG55]

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 think you nailed it Jim. Insanity is the perfect description. As one financial asset category after another becomes erratic (condo prices, MBS paper, CLO's, ABCP, bonds, 300 point DJIA swings in a day, what's next?), the authorities and elites are, again, promoting worldwide competitive currency devaluation as one antidote to the contraction underway - itself (as we know) the result of the unrestrained mania in credit aided, abetted and promoted by these same interests.

In the current vernacular instability is being mascaraded as "volatility", and we are being asked, indeed conditioned, to accept this is a permanent, congenital feature of the financial landscape ("The Age of Turbulence", anyone?). Two ironies stand out:

1. "Volatility" itself has now become an asset class, to be traded like any other using levered option derivatives. Nobody with a shred of common sense could in any way consider this a productive or desirable allocation of risk capital in an economy (I can hear the speculators scream about "promoting market efficiency" already...); and
2. The entirely misplaced plaudits that are repeatedly showered upon policy makers every time it's announced they have "saved us" once again from the consequences of whatever monetary folly they've been diligently pursuing in the immediate past.

We've all watched the Bank of Japan, a serial currency manipulator if there ever was, try to devalue the nation to prosperity (Jim Roger's description). The results, to date, seem...um...rather disappointing. And Japanese citizens, apparently genetically predisposed to high saving rates, find themselves inadvertent carry trade speculators desperately trying to earn a positive nominal return. Gawd I hope we don't all end up that way... :p
GR.

[GRG55]

Re: Bearish Information Re: UK House Prices Fall

From this morning's Bloomberg:

U.K. House Prices Fall for First Time in Nine Months

By Jennifer Ryan
Oct. 4 (Bloomberg) -- U.K. house prices fell in September for the first time in nine months as mortgage rates rose and lenders grew more cautious, a report from HBOS Plc showed.
The average cost of a home in Britain declined 0.6 percent to 198,500 pounds ($403,000) from a month earlier, compared with a 0.3 percent gain in August, the U.K.'s biggest mortgage lender said in a statement on the Regulatory News Service.

Link to full article:
http://www.bloomberg.com/apps/news?p...efer=worldwide

[Jim Nickerson]

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

When posting items I try to avoid being capricious, and often find myself debating if it should be under the Bullish Information or Bearish Information category. Invariably there is a certain degree of arbitrariness that enters the decision, because in almost every instance the news, or consequences of what is being reported in the news, is bullish for some and bearish for others.

Taking, for example, the news item that triggered your comment (a growing disquiet among European political elites, resulting in calls for depreciation of the Euro against the US$) there are many levels at which one can choose to process and interpret this information. Briefly:

• In the immediate it could be considered bearish for anyone holding savings in Euro's and anyone long precious metals. At the same time it's bullish for traders (or anyone else) long the US$.
• In the medium term (if the falling Euro trend is sustained) it's bearish for US based exporters (to Europe or competing with Euro zone exporters in Asia), and bullish for their counterparts in the EU, as well as anyone looking for confirmation that the iTulip "Poom" phase is underway (presuming your investments are positioned accordingly).
• Looking at longer term implications one might conclude from this little factoid that the journey to a new, less US$ centric, monetary order may be a painfully extended one. In the world outside the USA, politicians and Central Bankers clearly don't have the luxury of weaning themselves of the nourishment of the US$ system very quickly (if at all?). Once again this has both bullish and bearish implications depending on your perspective and frame of reference.

The Bullish Information and Bearish Information catagories that Jim set up serve a useful purpose to help organise the information and assist our debate and dialogue. But, alas, the real world is more complex, as we all recognise. Each of us will undoubtedly view the information and react to it in ways shaped by our individual experiences, mood, economic opinions, investment horizon, financial and other prejudices, and a myriad of other factors. And that's one of the things that makes the iTulip community so powerful.

GR,

I am going to hate it when Ramadan is over and you have to go back to working at your day job. I, for one, really appreciate the things you are posting to these threads (actually all of them). It is good stuff.

[GRG55]

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

GR,

I am going to hate it when Ramadan is over and you have to go back to working at your day job. I, for one, really appreciate the things you are posting to these threads (actually all of them). It is good stuff.

Many thanks for the feedback Jim! I am enjoying this relatively quiet time, and not looking forward to the travel schedule starting later this month after Eid Al Fitr, the holiday that marks the end of Ramadan.

I truly wish I had discovered iTulip much earlier. I have recently been devoting time going back yet again through the incredibly rich archive of material on this site. You ask a great many of the questions to which I am seeking answers, and consequently studying the historical threads is helping me to better understand, and put in context, these crazy times.

I also belatedly concluded that EJ in particular will often make a subtle but important point only once or twice, ever, (pause here for forehead smack) so there's a serious reading comprehension exercise underway for this aging student (and latecomer).
GR

[GRG55]

Re: Bearish Information Re: FT's Martin Wolf on UK House Prices

From the FT:
Britain faces its own housing risk

By Martin Wolf

Published: October 4 2007 20:19 | Last updated: October 4 2007 20:19

Gordon Brown is thinking about calling an early election. Among the reasons to believe he should do so is the vulnerability of the UK to a housing meltdown similar to that in the US. Since the run on Northern Rock was merely an indirect consequence of US turmoil, what would happen if a crisis were home-grown? Nobody knows. However confident he is about the UK economy, the prime minister might be wise not to wait to find out.

Why might the UK go the way of the US? The answer is that it has very similar vulnerabilities: house prices are high by any standards; in the second quarter of 2007, household saving was only 3.1 per cent of disposable income; as house prices have soared, so has residential investment, which has reached 10 per cent of disposable income, up from just 5.5 per cent six years ago; and the overall household financial deficit is, in consequence, at the record level of 7 per cent of disposable income.

Link to full column:
http://www.ft.com/cms/s/0/0ecb34d0-7...0779fd2ac.html

[GRG55]

Re: Bearish Information Re: Merrill Takes Mammoth Hit

Merrill Takes Mammoth Hit

By Mark DeCambre
TheStreet.com Senior Writer
10/5/2007 9:24 AM EDT

Merrill Lynch said third-quarter profits will be wiped out by a huge writedown tied to this summer's credit crunch.

The New York-based brokerage firm said it expects to lose 50 cents a share for the quarter, reversing the year-ago $2-a-share profit and falling well short of analysts' $1.24-a-share profit forecast.


Merrill will take $4.5 billion in writedowns on its holdings of collateralized debt obligations and subprime mortgages. It will also write off $967 million worth of leveraged lending commitments. The charges mean that Merrill has taken the biggest hit on Wall Street from this summer's turmoil in the credit markets.

Link to full article:
http://www.thestreet.com/s/merrill-t.../10383014.html

[GRG55]

Re: Bearish Information Re: Homebuilders Liquidate Assets...

It's getting ugly out there folks...

Homebuilders Liquidate Assets as Threat to Survival Spurs Sales

By Bob Ivry

Oct. 5 (Bloomberg) -- When D.R. Horton Inc., the second- biggest U.S. homebuilder, couldn't sell the one-bedroom condominium in San Diego it listed for $349,800, the property was auctioned as a last resort for 37 percent less.

D.R. Horton, with annual revenue of about $11 billion, and Hovnanian Enterprises Inc. now face the worst choice in the worst residential real estate slump since the 1930s. They're selling homes at any price they can get.

``It's desperation time and some companies may not make it,'' said Alex Barron, an industry analyst at Agency Trading Group Inc. in Wayzata, Minnesota. ``At this point in the housing cycle, if you have too much debt, it's hard to get out from under it.''

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

This comment is included in the article linked above:

"...WCI will reduce its debt with the completion this year of a luxury condominium tower in Bal Harbour, Florida, said Chief Financial Officer Jim Dietz..."

Here's another link, directly related to the Bal Harbour development, for those curious about the level of desperation starting to surface in the homebuilding industry today...

http://www.treasure-coast.us/weeklyupdate08-25-07

[GRG55]

Re: Bearish Information Re: Marriot 3Q Profit Falls as Hotel Industry Slows

Isn't this supposed to be one of the more vibrant parts of the economy?

Marriott 3Q profit falls 7% as hotel industry slows

ASSOCIATED PRESS

2:17 p.m. October 4, 2007
BETHESDA, Md. – Marriott International Inc.'s third-quarter profit fell about 7 percent and the hotel operator trimmed the upper end of its 2007 earnings forecast Thursday as the lodging industry continued to slow from its once-robust pace....

...Analysts agreed that there are no signs of a serious recession ahead for hotels. But the company's 2008 outlook does provide fodder for those who fear the cycle is heading down, wrote Jeffrey Donnelly of Wachovia Securities in a research note.
While the company's forecast for growth remains solid, Donnelly said that Thursday's numbers likely would hurt Marriott stock “when the fear of a recession – at least as it pertains to the lodging industry – is so high.”


Link to full article:
http://www.signonsandiego.com/news/b...-marriott.html

[Jim Nickerson]

Re: Bearish Information Re. Equity Pullback?

http://www.decisionpoint.com/ChartSp..._pullback.html

Carl Swenlin 10/5/07

A Good Time for a Pullback
by Carl Swenlin
The market has had a good run since the August lows, but it is challenging all-time highs, and the technical support has been somewhat anemic. With many indicators reaching into overbought territory, and overhead resistance becoming an issue, it looks like a good time for a pullback or consolidation to digest recent gains.

As for technical weakness, the first thing that strikes me is the failure of volume to confirm recent price gains. Note on our first chart that most of the volume bars supporting the recent rally are well below the moving average line.
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The next chart shows the failure of new 52-week highs to confirm new price highs, and we can observe an uncomfortable level of expanding new lows that accompanied minor pullbacks during the rally.
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Finally, we have the Rel-to-52 chart, one of our more unusual indicators. The Relative to 52-Week Hi/Lo (Rel to 52) chart tracks each stock in a given market index and determines the location of its current price in relation to the 52-week high and 52-week low. We express this relationship using a scale of zero (at the 52-week low) to 100 (at the 52-week high). A stock in the middle of its 52-week range would get a "Rel-to-52" value of 50.

This chart shows the average "Rel-to-52" value for all the stocks in the S&P 500 Index. Not only is there a negative divergence between the indicator and the price index, but the indicator value is only 60. So while the Rel-to-52 value for the S&P 500 is 100 (it is making new 52-week price highs), the indicator value of 60 shows that the number of stocks participating in making the new price highs is unusually low, probably indicating that prices are being supported by larger-cap stocks.
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Bottom Line: While the market is making new highs, technical support is fading and a corrective pullback should be expected within the next week or so.

See link for charts.

It will be interesting to see what happens from here. The problem with the advance off the 8/16/07 lows as I see it has been the poor volume.

[GRG55]

Re: Bearish Information Re. Bear Chief Economist David Malpass

Columnist and financial media raconteur Doug Kass covers Bear Stearns Chief Economist David Malpass' flip from bull to bear.

We seem to be having more success finding bear items over bull items on these two strings. Wonder what that implies...

Six Reasons a Noted Economist Is Less Bullish
By Doug Kass
RealMoney Silver Contributor
10/4/2007 12:38 PM EDT
As we all know, contrary (bearish) thinking has its limitations, as the crowd usually outsmarts the remnants. What is significant, though, is when a previously bullish observer turns more cautious -- or vice versa.


Such was the case this week, as Bear Stearns Chief Economist David Malpass grew less bullish on the economy. Malpass has been with the brokerage house for almost 15 years. Prior to his association with the firm, he held a number of economic roles in the Reagan and Bush administrations.

I have always found Malpass to be a force of reason.
Malpass believes that the August credit seizure "marked a major downward inflation point in growth prospects," and, after being a steadfast economic bull, he has lowered both his domestic and non-U.S. economic outlooks.

Link to full article:
http://www.thestreet.com/s/six-reaso.../10382748.html?

[Jim Nickerson]

Re: Bearish Information Re. Equity Markets Top?

Last week (edit:1/8/08--last week refers to post made on 10/1/07), Mike Burk, on http://www.safehaven.com/article-8527.htm wrote:

Short Term
I think we are in a developing top that is in its final stages. In the next week or two there is likely to be an all time high in the Dow Jones Industrial Average (DJIA) and the S&P 500 (SPX), and a multi year high in the NASDAQ composite (OTC). If my interpretation is correct there will not be a new high in the Russell 2000 (R2K).

Intermediate Term
The typical pattern for developing tops is for all of the major indices to reach new highs at the same time followed by a decline and return to new highs for the blue chips but, not the small caps. The time between the first high and the final high in the blue chips is usually around 6 weeks but, it can vary by quite a bit. In 1998 there was a high in all of the major indices on April 22 followed by a dip that bottomed in June and a return to new highs in the blue chip indices and OTC 60 trading days later on July 17.

He goes on with commentary and supportive charting and concluded:

If the market was rising from a bottom in August [16,2007] the secondaries would be leading and the breadth indicators would be strong, they are not. The patterns we are seeing are consistent with a developing top.

He then put forth analyses of how October's behave in the 3rd year of the presidential cycle with graphs for all years from '63-2007, '28-2007, 1885-2007 [I think the last date should have been 2006.] All these graphs show a rise in the first week of October, then a decline with the month ending lower than it began, the least losses were depicted in the charts with data '28-2007.

10/6/07, Burk http://www.safehaven.com/article-8558.htm writes:

Short Term
The market is overbought.

The chart below covers the past year showing the OTC in blue and a 30 day oscillator of the OTC in black. There are dashed vertical lines drawn on the 1st trading day of each month. [see chart in article]

The oscillator is at its highest level since January of 2004. From the index and oscillator high on January 26, 2004 the index fell 6.5% in the next 7 trading days.

It is likely the market is at or near a short term top.

Intermediate Term
The patterns that define a cycle top are a high in all of the major indices confirmed by the breadth indicators then a decline, followed by a return to new highs in the blue chip indices unconfirmed by the breadth indicators and the small cap indices.

The chart below covers the past year showing the SPX in red and the NYSE advance-decline line (NYSE ADL) in green. The NYSE ADL and SPX hit their all time highs around June 1. The SPX hit another all time high on July 19 but the NYSE ADL did not. Last Friday the SPX hit another all time high while the NYSE ADL was well off its old highs. [chart in article]
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Conclusion

As of Friday's close everything is in place to indicate a market cycle high. If this scenario is correct there could be another move to modestly higher highs before a decline into a cycle low begins. If the R2K makes a new high this interpretation is wrong. [empahsis JN

For reference, the high for the RUT, Russell 2000, was 856.48. 10/5/07 the RUT closed at 844.88 just 11.60 points off its high or 1.35% off the high.

Looking at my own data, back on July 13, 2007 the SPX, DJI, Nasdaq, NDX, RUT, and VGY (Value Line Geometric) hit new highs, then 4 market days later, 7/19, they all hit new highs again except for the RUT and VGY, both of the latter failed new highs by less than 4 points; however, 7/19/07 rather much nailed the highs before the correction into 8/16/07.

[Jim Nickerson]

Re: Bearish Information RE: Chartist sells most positions.

Friday, 10/5/07, in its "hotline" message without any accompanying explanation, The Chartist http://www.thechartist.com, who is actually a guy, Dan Sullivan, issued a note for subscribers acting in sync with its Actual Cash Account to sell AMT, BAX, CBS, CTSH, CMCSA, DFS, GM, KFT, MS, and SWY, SGP and to sell 50% of T, 25% of GOOG, and 60% of NVDA (as of 9/20/07 his profits in NVDA were 174.6%.

From what I can piece together from the last newsletter dated 9/20/07, he retained DTV and MRK.

Since the current bull market began Sullivan made his initial buy recommendations about a month after the March 2003 lows, and since then has later at least twice sold most of what were his last recommendations while as I recollect making simultaneous new buy recommendations. Normally, in this Actual Cash Account, in which he buys for his own account the same stocks he recommends to subscribers, his technique is to place mental stops on a position, and if that stop is hit on a closing basis, on the opening of the next market day the position is sold. His notion is to sell the losers and let the winners run.

I don't know whether on Monday he will issue a list of new buys for his Actual Cash Account, or if he has "picked a top" and is liquidating. He writes that his buy and sell signals are generated by proprietary indicators, so since he made no comment about these sells, one cannot now know if his indicators gave him a sell signal for most everything, or whether he is getting ready to buy a new batch of momentum stocks.

On 9/25 he wrote that with his models in a positive mode he remains bullish. Same on 9/27. 10/1 "with momentum on the upside the odds continue higher prices ahead." On 10/3 he again said his models were in positive mode and for investors following the Actual Cash Account to maintain current positions. From recollection in years past, when his indicators were approaching negative states, he would usually warn of such.

Also, he makes recommendations for "traders." In this last holine message he did not recommend that traders liquidate any positons.

I guess if I had to bet I would wager on the side of his making some new buy recommendations on Monday or Tuesday, and on that basis these sells to be made on the opening of Monday's markets are probably a prelude to new buys being recommended, thus perhaps I should have put this in the bullish thread.

No doubt I will follow up on this Monday or Tuesday.

[dewa]

Re: Bearish Information

Option traders purchase of puts have exceeded calls for the first time since 2001.Then, the market fell 34%.This is a signal that the Dow has reached its peak.