Why Only Fools Think the Bottom Is In

[rogermexico]

Re: Why Only Fools Think the Bottom Is In

Lots of fiery finger wagging from the pulpit there Rogermexico.

whose finger is wagging now?

My sense is that Nero's opinions are put forward a lot more calmly.

Perhaps, but I suspect you are only speculating on that because you disagree with me, rather than based on supernatural insight into my state of mind.

I read you and feel like someone is trying to cast me into a piece of plaster of paris, with the rigidity of your viewpoints.

I would suggest you don't have clue how rigid my viewpoints are. In fact my whole point was to be skeptical of the quite emphatic opinions and predictions I was reading. I am neither long nor short equities right now and am making no recommendations to you or anyone else. Your posts tend to be well-reasoned but among the most predictable on itulip. I am glad you are as certain about things as you are. I tend to be more cautious and am only urging caution now.

If it were me, I'd just advise you to P*ss off.

It sounds like you just did

Then this: "I also own real estate, including residential, commercial and Ag forest. I have also built and remodeled many properties as a general contractor."

That's wonderful. We look forward to your input on this sector with bated breath.

In your anger, you are ignoring my point. The point is that many of us own and have experience with real estate, yet do not claim that as a basis for declaring what will happen with RE in the future, especially with the certainty and reasoning which with Nero's views were put forth. I am merely expressing disagreement with his reasoning. You will likely not see me start a thread telling you what will happen with RE.

Then this: "You are free to completely ignore the whole itulip debt deflation thesis and its distinction between assets bought with credit and P/C economy goods".

Good, so if he's completely free to ignore whatever he wishes, why don't you pack up your tent and go heckle someone else?

Why don't you pack up your tent? Then I can just re-read your old posts and predict what you will say in response to others. I am sorry but telling me to pack up my tent is an over-the top response to someone who was not even addressing you directly. If your pet theses were more robust, you might be less sensitive.

[Thailandnotes]

Re: Why Only Fools Think the Bottom Is In

The last two bubbles had a very positive effect on the economy. It drove up wages and debt allowing more people to spend on the 70% consumer economy. This pushed up asset prices including stock prices. Now to believe that a new bubble is forming, there must be a new mechanism that drives up income and/or debt accumulation. Without those two spigots, you can't sustain or even grow this consumer economy. So what is this new mechanism that will form your new bubble? In essense, how do you see the US go about forming a new ponzi scheme whether it be in solar, conservation, etc. that makes up for the current 700k a month job losses? Will all the financing come from the US gov't? Will they come from foreign central banks?

You are argue that stagflation is the likely outcome. To me, stagflation means rising costs of living while wages remain stagnant. This leaves to more income diverted to costs of living rather than non-discretionary. Less computers, less cloth, less nifty gadgets. Again, my question is how will the shopping malls and centers survive such a shift? If they can't survive, who will eat up the fresh new batch of losses from commercial real estate? What will happen to the corporate bond defaults? Will the gov't eat up all the losses? If so, does the solvency of the US gov't become suspect?

Agree...

There has to be a story for Wall Street to soar. The story has to be part true and it has to be about the future. It can’t be all illusionary, or about the past, even with LSD and ‘shrooms. “Hey, the banks were broken, but we fixed ‘em.” Pick a point in the 90’s, go backwards 5 years: no one owned a PC or was on the internet. Go forward 5 years, everyone did and was. That was the true part. Did people order light bulbs and cat food on line or demand lower credit card rates en mass? Was Sun Micro worth 125 dollars a share?

What’s the story for a long term bull market now? Or to put it another way, “How many unemployed mortgage brokers does it take to screw in a compact fluorescent energy-saving lightbulb?”

Almost everyone I know is debt free. They have savings in small banks they trust. They have the deeds to their homes in safes. They’re in the 40’s or 50’s. They report real estate being down 40 % (not 75). There are deals on farm land, apartments near universities, and cottages at the beach. Quite a few are self employed or are business owners. They’ve taken risks before, but none are takers now, because they don’t believe the real economy is coming back. This is a tsunami. The tide’s is out, but you ain’t seen nothing.

[Supercilious]

Re: Why Only Fools Think the Bottom Is In

let's say the market perceive recovery, that will probably weaken the dollar, and that will affect the fundamentals of the market in a way that could further weaken the dollar.

I think this is a tricky issue and I'm not sure how it will play. The dollar has to become weaker compared to a basket of currencies ( especially with respect to the peg currencies), but a very weak dollar will hinder the recovery. My guess is that we are witnessing a coordinated effort of competitive devaluations of the dollar and the currencies of the friendly countries of the Coalition of the Zirping, so no blood will be spilled between friends (and what happens with the abundance of swap lines is quite a good indication of who the friendlies are: euro, yen, pound, swiss franc and canadian and aussie dollars)

It don't have to be that way. After 1980 the dynamic worked towards a stronger dollar. It depends on what is good for recovery. Now I think a weak dollar is what the US need.

That is another tricky aspect to analyse. A very strong dollar at this stage would be detrimental for the recovery of the real economy, although it may do great for triggering capital inflows in US that would help a lot with the recovery (remember what happened as a result of the Asian Crisis). I also believe we will see a weaker dollar (plus currencies of the coalition of the zirping) with respect to the currencies of the rest of the world.

If this move triggers a series of economic collapses in emerging economies the dollar can be kept down by moderate printing without fear of inflation if the fresh printed dollars are soaked as new emerging markets debt. Thefore if carefully managed the dollar can be kept lower without affecting the prospects of recovery.

The the determinism, or faith based method of investing that some uber bears have is doomed to fail.

No doubt about that. Any faith (or dellusion) based investment, regardless if it's bearish or bullish is doomed to fail. So all ubers will end up fleeced...

[grapejelly]

Re: Why Only Fools Think the Bottom Is In

As you may know, I sold my real estate in July, 2005. Not a bad time to sell.

Now I'm looking at the market, thinking, I may want to go back in. But it is a lousy time. The bottom isn't in yet.

Rents are still low compared to total costs of ownership in my market (Washington DC). In many other markets, ditto.

And there are huge overhangs by the lenders. I know this very well. The lenders are holding off on hundreds of thousands of houses, that they will dump on the market soon. Or these houses will be bought by the gubmint and held. Either way, they will hang over the market for years.

And the public builders, they keep a-building.

The bailouts perpetuate this problem and make it almost a sure thing that in many areas there will be a surplus of real estate to meet shrinking demand for years to come.

It isn't about to bottom out at the time when consumers real income is shrinking, savings rates are rising, and demand for goods and services is plummeting.

[snakela]

Re: Why Only Fools Think the Bottom Is In

T

It IS possible that 6700 was the nominal bottom on the Dow. The current rally is just blind optimism, but if the market starts pricing in massive inflation once the relief wears off, stocks could go sideways for a decade while inflation reduces real valuations. The excess could be worked off in a 1970's style inflationary bear market, with the acceptance of reality coming in 2017.

Thats what i was wondering about. The talking heads and websites are all saying the bottom has probably been put in but all the economic news and revisions are negative. The only positive has been some banks made some profit...which shouldn't be hard since they get it free from uncle sugar.

We have to refine this discussion: are the real values of stocks increasing? Just anticipating inflation (nominal increase but real decrease)? Or will nominal values go back below their early march levels?

[phirang]

Re: Why Only Fools Think the Bottom Is In

Banks are playing hide the sausage. It'll sucker scared money in once, then the secondaries come, and then by Q2 the whole sheebang will blow up.

Of course, u've .gov stimulus to reduce the pain, but we will NOT return to status quo ante Lehman: it's OVER.

SOROS said the same. Soros also went on the record about the oil bubble last year... fade him at your risk.

[FRED]

Re: Why Only Fools Think the Bottom Is In

Banks are playing hide the sausage. It'll sucker scared money in once, then the secondaries come, and then by Q2 the whole sheebang will blow up.

Of course, u've .gov stimulus to reduce the pain, but we will NOT return to status quo ante Lehman: it's OVER.

SOROS said the same. Soros also went on the record about the oil bubble last year... fade him at your risk.

Our position: the FIRE Economy is dead. Anyone betting on the government financed death throes as presaging a resurgence will regret it. When the President of the United States is pushing mortgage debtors to refinance mortgages, you can be sure that the game is over.

[rjwjr]

Re: Why Only Fools Think the Bottom Is In

Are you kidding? I think even the "Grand Puba" would agree that his thesis should be debated and intellectually challenged. Even the greatest minds are not always correct.

There is a distinct difference between intellectual debate and beating a dead horse.

Two observations for what it's worth...

1] Those of you that think this is a bull market. You are still investors (maybe more accurately; traders) and are finding some like-minded people on this site. You are lucky. There is a growing number of unemployed, under water, huddled masses out in the real world that aren't about to stampede back into the market, even if they had any remaining money to invest. Retirement funds are being used as hardship withdrawls for mortgage payments or for loans. I see it first hand in my businesses 401k and the actual actions of my employees. This bear market rally looks like a wishful-thinking, FIRE-industry, circle jerk from my perspective. The sharks are now trying to screw each other.

2] Those of you that are looking to bottom-feed the real estate market, congratulations as you still have a job. Unemployment is expected to rise, this means additional downward pressure on home prices when those newly unemployed are forced down the same path as the currently unemployed. There are no buyers to drive prices back-up. You're going to get a great deal, in San Diego or wherever, but it's a great deal in the rearview mirror, not such a great deal looking ahead.

I have to take the iTulip party line on this one. These questions have been answered, debate is unecessary in my book. It's ironic that the thread is titled, why only fools think the bottom is in, yet there remain a handful of willing volunteers to accept that label.

[nero3]

Re: Why Only Fools Think the Bottom Is In

The last two bubbles had a very positive effect on the economy. It drove up wages and debt allowing more people to spend on the 70% consumer economy. This pushed up asset prices including stock prices. Now to believe that a new bubble is forming, there must be a new mechanism that drives up income and/or debt accumulation. Without those two spigots, you can't sustain or even grow this consumer economy. So what is this new mechanism that will form your new bubble? In essense, how do you see the US go about forming a new ponzi scheme whether it be in solar, conservation, etc. that makes up for the current 700k a month job losses? Will all the financing come from the US gov't? Will they come from foreign central banks?

You are argue that stagflation is the likely outcome. To me, stagflation means rising costs of living while wages remain stagnant. This leaves to more income diverted to costs of living rather than non-discretionary. Less computers, less cloth, less nifty gadgets. Again, my question is how will the shopping malls and centers survive such a shift? If they can't survive, who will eat up the fresh new batch of losses from commercial real estate? What will happen to the corporate bond defaults? Will the gov't eat up all the losses? If so, does the solvency of the US gov't become suspect?

I think you are making assumtions about falling house prices that might not be correct. I think nominal house prices will be rising quite significantly 2 years from now.

[Supercilious]

Re: Why Only Fools Think the Bottom Is In

The last 30 years was built on delusion, so a few more years of fantasy wouldn't be out of the question.

Yup. Actually I would say it was a little bit more than 30 years of illusion. And if the game masters succeed in leaving other economies holding the bag for the Wall Street losses then it can continue even longer (it can continue as long as they find fresh suckers to take the hit)

It IS possible that 6700 was the nominal bottom on the Dow. The current rally is just blind optimism, but if the market starts pricing in massive inflation once the relief wears off, stocks could go sideways for a decade while inflation reduces real valuations. The excess could be worked off in a 1970's style inflationary bear market, with the acceptance of reality coming in 2017.

Correct. But they will go sideways only if there is another competitive sector to attract the money. Since treasuries are now callable (the days of 15% interest 25 years treasuries are gone), that leaves only corporate bonds and convertibles as a good alternative (look what Warren Buffet is doing).

My best guess is that we are still months away from pricing in serious deflation, so I expect another leg down. But another 6 months of multi-trillion dollar money printing could create the expectation that this bear will look like the 1970's, so we could see a bottom in stocks later this year even though no economic recovery is in sight.

Remember that so far there has been only very little printing. The Circle Jerk Finance (TM) the Fed has done so far does not amount to significant printing. But I think you are right and I expect too another leg down.

Remember that the nominal low of the 1970's occurred in 1974. Stocks rose strongly in nominal terms between 1974 and 1982, even as they continued to decline in inflation-adjusted terms.

Correct. But in nominal terms we may be very close to the bottom. Plus don't forget that the average sheeple investor does not make any estimates of the value of his/hers portfolio adjusted for inflation. This is how the game works.

We are likely to see the same thing once inflationary expectations are created, it just a matter of when monetarization gains traction.

Probably you are right here too, but I'm not sure that is a given.

[tree]

Re: Why Only Fools Think the Bottom Is In

Regarding rents in (attractive) coastal California:
A friend in real estate says that renters there are doubling up to afford apartments, and that this situation is creating street parking problems in neighborhoods where there are mixtures of homes and apartment buildings.

At the same time, another friend in CA real estate--who owns an apartment building in a working-class neighborhood east of Long Beach--is battered by vacancies and having to lower rents.

[FRED]

Re: Why Only Fools Think the Bottom Is In

I think you are making assumtions about falling house prices that might not be correct. I think nominal house prices will be rising quite significantly 2 years from now.

You can find more than ten years of analysis here that suggests that outcome is very unlikely. Can you provide research to back up your assertion?

[c1ue]

Re: Why Only Fools Think the Bottom Is In

Yes, I'll chime in as well.

Nero believes that the Fed can magically wave its wand and make everything well.

What's happened with the banks is that their bad debts have partly been neutralized.

But the problem is that the toxic assets were only a portion of the difficulty.

The other part is that new debt must be added in order to continue the charade.

The public can't do it: they're still stuck with negative equity homes and depleted 401Ks and IRAs as well as high unemployment

The corporations can't do it: they're equally stuck with huge LBO- and stock buyback fueled debt not to mention secular falls in earnings and revenues

The government might be able to do it by basically buying everything.

The first dozen trillion (12T) hasn't succeeded though. As each successive 12T rolls through, the possibility of hyperinflation increases an order of magnitude.

iTulip has spoken to this via the mechanism of debt vs. GDP growth over the past 30 years - another item Nero again fails to recognize: the $1 in debt in the 70s yielding $1 in GDP is now at least $7, and more likely $9 or $11 in debt to yield $1 in GDP. If we're talking ultimate falls in GDP of 10%, then the 12T spend so far basically has just broken us even. To add additional growth of 3% a year for the rest of Obama's term, we're looking at a minimum of a second 12T.

Examining the actual record - the present 2 stimulus packages only represent less than $2T of 'replaced' spending. The bank bailouts don't do squat since they are entirely backward looking in effect. Even the alphabet soup facilities don't enable much new debt - Fannie and Freddie and the FHA will add perhaps $300B or $400B.

So of the first 12T - only maybe $2.5T of government debt has been added. This means we're looking at actually a pair of 12Ts needed to "kick start" the economy via government means.

Do you think the 2nd and 3rd dozen trillion dollars will not have a reaction?

If so, by all means continue to believe the hype.

I don't.

[stockman]

Re: Why Only Fools Think the Bottom Is In

The news is not ALL bad-



"With Weekly Leading Index growth recovering to a 24-week high, we are fast approaching an upturn in U.S. economic growth when the pace of recession will begin to slow" said Lakshman Achuthan, managing director at ECRI."



Considering long term data we were quite oversold. If the rally doesn't get derailed this bottom will look simlar to that 1938 low. Pretty clear that we fell to an extreme level in a short period of time... so a more enduring bounce is clearly possible. Cash levels are at extreme highs as sentiment got so extreme- now you get a few positive data points strung together and the crowd will have to begin to question their bearish views. Nothing like the train leaving the station to get people moving.


DJIA 16 Month ROC 040809.jpg

Up to this point looks like a 'recovery year' IMHO

DJIA Recovery Years 040809.jpg


In addition small caps are breaking out relative to large caps- exactly what you want to see.

[nero3]

Re: Why Only Fools Think the Bottom Is In

You can find more than ten years of analysis here that suggests that outcome is very unlikely. Can you provide research to back up your assertion?

Think of countries such as Italy, Spain, Ireland, Greece, and their long term interest rates. Right now the differential to the short term rates, is in some cases, in some cases the difference is excessive. I think this is what will happen in the US as well, it's just that yields are suppressed due to the flight to "safety and quality", in reality, I don't see the big difference between the fundamentals of the US and those other countries, it's rather a mini bubble in treasuries, causing the yields on the 10 year to be at least 1-2 % below where it should be. That could go away, as there might be a positive momentum building in the market's and the perceptions about the economy now.

http://www.clevelandfed.org/research...9/01monpol.cfm

This is some of the better research I have seen from the fed

When you add that to where we are now, I'm almost sure house prices will "break out" from their deflationary path, together with other inflation hedges (that seems to already have happened in the markets). House prices have been rising for 3 months in a row in Norway, rose in the UK in march. I think it's most the inventory, that is a pressure on the US market. Not deflationary forces.