Stocks up, gold down - time for a change in thesis?

[fliped42]

Re: Stocks up, gold down - time for a change in thesis?

Good luck on natural gas. I am focused on oil, but maybe it's with gas relative to oil, as it is with nickel relative to copper, quite a discount.

My thinking is at Nat Gas at 3.60 and a floor of about 2.00 the downside might be limited but upside is higher then oil. I also like silver. I have noticed that copper has had a substantial run from its low as well which could be a short term bull sign.

[nero3]

Re: Stocks up, gold down - time for a change in thesis?

I'm reading The Black Swan right now, and one of the points that Taleb makes is that you should always be skeptical and true skeptics, instead of seeking to validate their own positions, seek contrary evidence to disprove them. I value the “apostates” here because they present contrary points of view. @#$%, bka “Symbols”, was certainly right on his call on crude last summer, the pettifogging over the definition of “bubble” notwithstanding.

That being said, I don’t see any grounds for a new bull market taking hold. A strong, snap-back rally perhaps, but, imo, Humpty-Dumpty is broken and all the Messiah’s men are not going to put him back together. Hell, they’re the ones who pushed him off the wall in the first place.

As to the comment about Bernanke’s intellect saving the day, remember that it was the Best and Brightest who got us into Vietnam. Taleb, also, has nothing but derision for cloistered academics, like Bernanke, in the social sciences, especially economics, who try to apply mathematical models to subjects that cannot adequately be modeled mathematically.:p:p:p:p

How practical he is remains to be seen. I'm not to hopeful about that. But I do think he have some merit, and he have a good team. Some of the work on bubbles of that German guy in his team, at Princeton is just excellent. He probably knew oil was a bubble, because of that. I think maybe he is not as lost as some seems to think, he is certainly brighter than most other central bankers.

[c1ue]

Re: Stocks up, gold down - time for a change in thesis?

I know all what you write, the arguments, the foreign creditor vs external debtor argument is of course one of the treasons the US will take a totally different path than japan, but I think the US to eventually break out of it, print enough and it cracks up, in the sense that yields on treasuries will start to move upwards, like in some of the PIGS countries in Europe, and that will cause an inflationary boom, sooner rather than later, maybe similar to the mid, late seventies. The US stock market compared to GDP was at the same level as the debt in 1974, I think during the lows in march. I really don't see the stock market as that expensive.

Again you refer to the 70s as the example.

In the 70s, the stock market was the province of the few. The US was a net creditor. Housing was cheap. This meant rises and falls in the stock market had little effect on the overall economy - it was the commodity prices that were the issue.

Today the stock market is less of an elite province, but participation is orders of magnitude greater than before. The recent falls in market valuations have cut like a knife across all of US net worths - as iTulip's posts have clearly shown. If you think stocks are cheap, then clearly you discount GAAP proceeds vs. 'declared' numbers. The difference is quite astounding and will continue to be so even without 'mark to market'.

Secondly housing absolutely is something almost everyone participates in - 64% homeownership. The fall in net worth and subsequent consumption effects are also clearly postulated by iTulip.

As for the 70s inflationary boom - a falling dollar is not a big issue if you don't ultimately have to borrow from abroad.

But apparently you think that the US being a net debtor means that the above point is still in force.

Again I read 'yes I understand you', but what I hear is 'I believe stocks are cheap and we'll pull out just like we did before'.

Good luck!

[nero3]

Re: Stocks up, gold down - time for a change in thesis?

Again you refer to the 70s as the example.

In the 70s, the stock market was the province of the few. The US was a net creditor. Housing was cheap. This meant rises and falls in the stock market had little effect on the overall economy - it was the commodity prices that were the issue.

Today the stock market is less of an elite province, but participation is orders of magnitude greater than before. The recent falls in market valuations have cut like a knife across all of US net worths - as iTulip's posts have clearly shown. If you think stocks are cheap, then clearly you discount GAAP proceeds vs. 'declared' numbers. The difference is quite astounding and will continue to be so even without 'mark to market'.

Secondly housing absolutely is something almost everyone participates in - 64% homeownership. The fall in net worth and subsequent consumption effects are also clearly postulated by iTulip.

As for the 70s inflationary boom - a falling dollar is not a big issue if you don't ultimately have to borrow from abroad.

But apparently you think that the US being a net debtor means that the above point is still in force.

Again I read 'yes I understand you', but what I hear is 'I believe stocks are cheap and we'll pull out just like we did before'.

Good luck!

I think this is the correct graph, or almost, maybe overstating inflation quite a bit, but it's much better than the official CPI adjusted one, that misrepresents the picture I think, the shadowstats is much closer to reality:
http://www.dshort.com/charts/SP-Comp...-trend-alt-cpi

This one is good:
http://www.itulip.com/forums/attachm...8&d=1238835864

And this one from Bill Gross is good:
http://www.pimco.com/LeftNav/Feature...oss+Dec+08.htm

I think we are going to find ourselves in a new liquidity bubble, and I think we was in the same situation as now, as around 2003, there is also a strong resemblance to the 98-99 debacle. (this time using my reading of charts gold should be where the nasdaq was back then, ready to explode into a bubble, if it goes that way, the economy will totally tank in a 1930-1932 like fashion, in a sense that is logical because back then the nasdaq was the only thing that held up well (during the 98 correction), now it have been gold, in a 1930-1932 like scenario, gold should go to the moon) You had the deflation crowd in 1998, some even in 99, in around 2002-2003, and now again. gary schilling and his deflation book certainly made a horrible call both on predicting deflation and lower commodity prices somewhere in late 98 and early 99. He did it again earlier this year. The environment is quite similar. Maybe this is the time it's finally going to come through.

The comparison of barrick gold, ABX from the 90-s to now (making this around 1930), and from the 1920-s thought the 1930, to homestake mining http://longwavegroup.com/downloads/Homestake.doc Is very interesting. these things mirrors each other. If it holds true, barrick should go from 30 to around 150 dollar from now to around 2011.

Anyway, I think that won't happen, and that gold will retrace while stocks recover in a 75-76 like fashion, upon weakness in treasuries, the dollar, and a steeper yield curve. However I am certainly paying attention to the 30-32 scenario.

another phenomena, is that the dollar and treasuries, in a way resemble the NASDAQ during the 2000 bull run. These papers are totally worthless, and people cling to them. In a sense the fear waves in the market like today, are like death cramps in the dollar.

For my own company profits so far is unchanged, income before expenses are down around 10 %, but at the same time interest rates expenses are lower, so it does not matter. The problem will be if a lot of those renting from me goes out of business, but from what I have seen they are doing well. I think some of the earnings will surprise on the upside.

[metalman]

stocks down, gold up... news of the death of the dow/stocks trade exaggerated?

today's market action sez... don't throw out a successful 8+ yr old thesis on account of a few days' noise.

sticking with a sound thesis is much, much, much harder than flip flopping from one to another, but it's the only way to make $$$. flip flopping eats up all your gains in transaction costs/taxes, etc.

change your thesis only if conditions change.

there's a fine line between stubbornness and conviction. threads like this are useful... the test us to see if we're being stubborn (stupid) or staying with a sound strategy (smart).

[stockman]

Re: Stocks up, gold down - time for a change in thesis?

Bull or bear... if you are trading for the upside or allocating some money to stocks it might be worth considering the relative possibilities.

IF you believe the secular trend in commodities reversed in 2002 as the Modern Depression began (and therefore the current decline is only cyclical)

CRB 040509.jpg

Then it is worth noting that the relative performance of a broader group of stocks represented by the NYA (New York Composite) also began looking better than the Dow Jones Industrial Average (and the Standard and Poors 500) coincident with that turn (and may also be reflecting the cyclical decline in the secular trend which began in 2002)

NYA 040509.JPG

I'd be interested in thoughts on reasons for this as well as ideas on implications for stock selection going forward- as I can't help but believe there are better opportunities even in the New Depression than 2% treasuries.

My initial take on this is that the beneficiaries of a long secular trend (disinflation of stuff- CRB) were in their sweet spot for an extended period- and consequently increasingly dominated. With the turn in the secular trend (inflation of stuff- CRB) the companies which benefit will be those in industries which generally contracted during the disinflation period. Those sectors which fell as a percentage of the market from 1980 to 2000 are a good place to look for possible beneficiaries of the cycle back the other way. Almost by definition this should benefit companies that are relatively smaller on average it would seem to me.

Some interesting sectors... IMHO of course for those that believe the secular trend in commodities turned in 2000.

S&P500 weightings	1980	2000	2009
Basic Materials	14.4	3.6	3.1
Energy	25	6	13.4
Industrials	6	3.3	10.6

Whether you are investing now or putting togther a 'shopping list' for the day when 'reflation' takes hold the biggest winners may not be the favorites form 1980-2000 period.

[nero3]

Re: Stocks up, gold down - time for a change in thesis?

I am bullish on commodities, the first leg leg in the double bottom on the CRB hit in 1998 during the debt of the LTCM, Russia default, and post asian crisis demand destruction, the second leg in 2001 (from the exact date Japan started quantitative easing), Since then it's been trending up. Let's say more and more western countries move towards quantitative easing, I doubt the outcome now will be any different from when Japan started it. My guess is that it will be very good for emerging economies, that will still expand debt through the money multiplier in a far more efficient way, than the more mature western economies. When we print money, it's almost the same as transferring our living standards to them.

Also note that the commodities trend, match the trend for the Nikkei 225 index and the trend for Japanese Yen.

[charliebrown]

Re: Stocks up, gold down - time for a change in thesis?

agreed, that is why i didnt back up the truck when i bought sds.
i hope i can sell my otm calls to recover losses. i only buy when we're close to the last top that we saw. bought sds at s&p 830.

suppose our silly gvt and fed decide to start buying stocks at the next QE event?? Might produce a 25% rally. Can you stand to lose 50%??
tests your nerves doesn't it??

[ThePythonicCow]

Re: Stocks up, gold down - time for a change in thesis?

agreed, that is why i didnt back up the truck when i bought sds.
i hope i can sell my otm calls to recover losses. i only buy when we're close to the last top that we saw. bought sds at s&p 830.

suppose our silly gvt and fed decide to start buying stocks at the next QE event?? Might produce a 25% rally. Can you stand to lose 50%??
tests your nerves doesn't it??

Perhaps our silly gvt and fed have not waited for the next QE event.

When an insurance company writes a policy, say on your health or life, they are taking a "long" position on that matter. They hope you live a long and healthy life. You are taking a short position, in that your policy is to your economic advantage the sicker your are, or the sooner you die.

AIG affectively wrote insurance, with its CDS, on the financial health of some major banks or other major credit providers. Most likely they hedged these swaps, with balancing short positions on those banks.

Now it seems that AIG is unraveling these swaps, which would suggest they are also unwinding their shorts. They do so with money that comes from the Fed or Treasury, by less than public channels, as part of the AIG bailout. In other words, the Fed or Treasury is indirectly funding a purchase of the stocks of major banks and other major credit providers.

A couple of my earlier posts over the last week have given specific references for the less obvious claims above.

[stockman]

Re: Stocks up, gold down - time for a change in thesis?

Many energy names appear to now be trading as options off very large percentages. While most options expire worthless, I doubt that will hold true of the single digit energy names.

Interesting that the secular global play that reached near total acceptance has now been declared dead by most. Energy popularity as measured by Rydex now back to 2004 levels...

Energy Rydex 040509.jpg

What will it take to get the crowd to come back in? Higher prices of course.

[charliebrown]

Re: Stocks up, gold down - time for a change in thesis?

agreed again, i've been slowly and cautiously building a postion in DBC at around 20. I'm almost ready to buy big, a purchase at this point at this price however will be kept on a short leash. with another bout of doom, we could see oil head back down to 40.

[stockman]

Re: Stocks up, gold down - time for a change in thesis?

In this kind of market I am devoted to a stop less discipline on ALL positions. So I agree on the 'short leash'.

My stops are based on the moving averages on the broad indices- 20 and 50 for now. Once the trend is better established I'll switch to a crayon.

In the 1st year of recovery off major lows- such as 1933, 1975 and 2003 the market tends to trend pretty strong as those cash hoards are pulled in. If we fail to hold the trend- whether you use a ruler or moving average- that's where I would have to retreat. Bears tend to forget that when their case is widely accepted there is a risks that things don't turn out quite as bad as expected - which turns into a positive surprise for the stocks- and the psychology can turn.

Of course the bear case may turn out to be right, but that's for another day IMHO.