A Stock Market Rebound Closely Linked with Economic Data Surprises

[doom&gloom]

A particularly good article around the current market run...

http://www.hussmanfunds.com/rsi/econsurprises.htm

A Stock Market Rebound Closely Linked with Economic Data SurprisesWilliam Hester, CFA
April, 2009
All rights reserved and actively enforced.
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There are several ways to interpret the economic data in March, most of which came in above what economists were expecting. Some analysts concluded that the worst is over for the economy, and a rebound is ahead. Others suggested that the economy is still contracting, but at a slower rate for now. In any case, economists have overestimated the economy's rate of contraction lately. The rebound in the stock market has been at least partially fueled by economic data that consistently came in better than expected last month. Some part of this rally is likely relying on the continuation of these “positive” surprises.

To track the trends in economic performance, we keep an ongoing tally of how data is announced relative to expectations – a method of analysis originally inspired by Bridgewater Advisors . Economic data that surpasses expectations gets added to a 3-month running total. Data that comes in weaker than expected gets subtracted. A rising line means that economic data is generally coming in above expectations, while a falling line means that the data has disappointed. A descending line could be the result of an economy that is not expanding as quickly as economists predict or – like in 2008 – it could be the result of an economy that is contracting at a faster rate than expected. In the first graph, and the others below, I've isolated only the data that measures the growth in the economy, leaving out measures that track the rate of inflation and sentiment. The first chart below shows the surprise line for growth-related economic data since last August, just prior to the passing of the Emergency Economic Stabilization Act, from which the first version of the TARP was born.

*snip*

[Supercilious]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

There may be other explanations too:
http://zerohedge.blogspot.com/2009/0...liquidity.html

So let's wait until Goldman is done with raising new money ....

[doom&gloom]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

There may be other explanations too:
http://zerohedge.blogspot.com/2009/0...liquidity.html

So let's wait until Goldman is done with raising new money ....

NICE blog! That is a new favorite!

[nero3]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

There may be other explanations too:
http://zerohedge.blogspot.com/2009/0...liquidity.html

So let's wait until Goldman is done with raising new money ....

All these different forms of trading, all the cheap money, everything, I think is just something that means this is a opportunity to buy before the tide goes back and things get expensive again. I don't think the post 1987, or post computer era is over, and I don't think valuations will be completely the same as in the era before 1987.

What I do think is dangerous is that some commentators say we are in a new era, relative to the post 1987 era. I think that is wrong.

[cobben]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

The managed (manufactured? nah . . .) "positive economic surprises" are used to motivate the free money overnight gaps up (i.e. markups that do not have to be actually bought up in the open market).

Just another house of cards being built over seismic fault lines?

[jtabeb]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

There may be other explanations too:
http://zerohedge.blogspot.com/2009/0...liquidity.html

So let's wait until Goldman is done with raising new money ....

The article implies that this rally is in a "terminal" state. New Crash does not equal new bull market so....

Which is it? (I'm referring to the "why only fools think the bottom is in" thread). There seems to be a disconnect from what you imply here vs what you imply there. (or I could be confused, also possible)

V/R
JT

[ThePythonicCow]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

I think is just something that means this is a opportunity to buy

Do you go shopping in exploding fireworks factories for stove matches? I hear you can get some great buys that way .

[Supercilious]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

The article implies that this rally is in a "terminal" state. New Crash does not equal new bull market so....

Which is it? (I'm referring to the "why only fools think the bottom is in" thread). There seems to be a disconnect from what you imply here vs what you imply there. (or I could be confused, also possible)

V/R
JT

What I was trying to say there is that there no direct link between the economic recovery and the stock market recovery. The stock market is determined mainly by manipulation, illusion and perception. Besides various lag effects there are these three factors that can make the stock market to move independently of the economic conditions (exactly as the spot price of oil as determined by the futures market can be quite disconnected from the real supply- demand conditions).

As I said on the other thread, the economy is primed for recovery by the Chosen One , but I believe we will get at least one more dip in order to fleece all the premature bulls and push the herd of investors firmly in the bear camp (for another session of fleecing by Goldman boys and company).

The pumping up by the quant gang is unsustainable and Zerohedge is saying that the next dip is supposed to come in the near future.

Regardless of this incoming stock market dip engineered by the quant wizards (and possible few more other dips) the economy is set on the recovery path (through brutal/socialist intervention in the once free markets) and the longer term trend is bullish.

Well at least this is my opinion. If I'm right or wrong this remains to be seen.

Of course if the socialistic penetrations/manipulations perpetrated by Timmy and his gang will fail to produce the scripted effect, then everything goes according to the debt deflation scenario (and metaman will have a field day, ) but IMHO it seems that so far everyhting goes acording to the plan and the herd of investors is dumb and obedient as it was in the past

[LargoWinch]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

but IMHO it seems that so far everyhting goes acording to the plan and the herd of investors is dumb and obedient as it was in the past

Symbols, there is no more herd. Only the stong survived.

[Supercilious]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

Symbols, there is no more herd. Only the stong survived.

I'm not sure about that. There are still some pension funds and dumb investment/hedge funds left to fleece. Not all hedgefunds belong to smart money category. Plus there is a pressure effect of those experts called financial advisers
If J6P and Aunt Petunia are told by their trusted and competent financial advisor stocks are cheap, and they are presented with solid evidence like this....

http://www.time.com/time/business/ar...,00.html?imw=Y

More Quickly Than It Began, The Banking Crisis Is Over

By 24/7 Wall St. Friday, Apr. 10, 2009


A pedestrian walks by a sign outside of a Wells Fargo bank branch.
Justin Sullivan / Getty




Investors find it disconcerting to see the stocks in the huge financial institutions that are at the foundation of the global capital system trading up and down 25% a day, and, in some cases trading in the pennies. Banks became the visible and ugly wound that reminded Wall St. each day that it had torn down what it spent decades building, which was a money-making machine driven by leverage and the cleverest synthetic financial instruments the world has ever seen.


But, the great banking crisis of 2008 is over. It began last September 15 when Lehman Brothers filed for bankruptcy and bottomed when Citigroup (C) traded below $1 last month. Most analysts believe that mortgage-backed securities which included packages of subprime home loans failed when mortgage default rates went up and housing prices raced down. That is only partially true. Banks made a tremendous series of ill-advised loans to private equity firms, hedge funds, commercial real estate holders, and the average man with a credit card balance which he cannot pay. (See pictures of the top 10 scared traders.)

Yeah right, the banking crisis is over .... All major banks are insolvent zombies and they act just as vehicles for smart money hedgies (being possesed by the plutocratic capital). If it wasn't for the direct socialist government intervention, proping them up, they would all go belly up in no time.

[GRG55]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

I'm not sure about that. There are still some pension funds and dumb investment/hedge funds left to fleece. Not all hedgefunds belong to smart money category. Plus there is a pressure effect of those experts called financial advisers
If J6P and Aunt Petunia are told by their trusted and competent financial advisor stocks are cheap, and they are presented with solid evidence like this....

http://www.time.com/time/business/ar...,00.html?imw=Y

Yeah right, the banking crisis is over .... All major banks are insolvent zombies and they act just as vehicles for smart money hedgies (being possesed by the plutocratic capital). If it wasn't for the direct socialist government intervention, proping them up, they would all go belly up in no time.

Precisely.

And it's that illusion that "the bottom is in", the banking crisis is over, Ben and Hank and Timmy saved the day, that's being sold. And sold hard [Bernanke's green shoots, Obama's "glimmers of hope", we all know the drill]. The banks need more capital, and damned if they are going to take it from TARP [and risk those bonuses] or sell shares at $1.00.

They've thrown everything they have at this, and a bunch of things they didn't have [legally], and at the first sign of traction, voila, it's all sunshine and soda pop. There doesn't need to be a real economic recovery to game the market considerably higher...just the widespread belief, however temporary, that the economy is recovering.

[ThePythonicCow]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

There may be other explanations too:
http://zerohedge.blogspot.com/2009/0...liquidity.html

So let's wait until Goldman is done with raising new money ....

That's it, that's it!

A couple of times now in the last week, in a rather obscure fashion that no one noticed, I've stated here that Marty Chenard, over at http:///www.stocktiming.com ($$), has been warning of some unusual institutional trading patterns. I was reluctant to elaborate in a more engaging fashion because that's a pay site.

Now the irrepressible Karl Denninger, over at http://market-ticker.denninger.net/archives/P1.html, has assembled the pieces of this puzzle, in clearer terms than I could muster:

Do Not Be Stupid

We're almost to Tax Day.

And the "New Bull Market" callers are out in force.

Just as they were last year.

Let's look at reality here folks:

1. There is a major liquidity disruption under way right now in the markets. Zerohedge put forward a rather esoteric diagram of this; I don't need one, as it is trivial to observe this in the form of real-time time-and-sales data. Volume has been thin and declining while machine-driven ("quant") trading as a percentage of total volume has been flying higher.
2. There have been a series of overnight 'gap higher' moves in sequence followed by days that fail to follow through strongly (that is, larger than the overnight gaps.) This is abnormal and points to "at the margin" price changes. The key point here is that this is unsupportable over the longer term as the actual base of equity trading; "long-term" owners such as individuals and pension funds are NOT following through during market hours and those holders are not trading /ES futures overnight on Globex!

The effect of (1) and (2) is what is known in the investing marketplace as "distribution" - that is, you, the retail bag-holder, wind up with the shares at the end of the day, and the institutional and quant-driven "fast money" departs with your cash. When they stop their high-frequency "pass across the table" game, and they will, you find yourself with some very expensive shares as the floor disappears.

Distribution marks tops, usually very significant ones.

A month or so back I was warning of a potential credit-market dislocation and imminent collapse in the stock market. It was "saved" to a large degree by these quants and other "high frequency" guys, all of whom have a vested interest in seeing that happen (think of the name of any big investment bank; there you will find one of those parties.)

But their firepower and willingness to play this role is not unlimited. Buying and selling between these firms is a nice way to book some profits, but these folks understand the rubber-band problem when markets get stretched, and exactly when their liquidity disappears is a matter of time, not supposition.

The imbalance that is presented here has led to the recent rally, but do not be deceived -
this is not a new bull market.

Bull markets don't feature this sort of distorted move. Rather, they are measured, reasonable advances with most of the buying being real and taking place during market hours.

If you got "stuck" in positions either last fall or over the winter months, you've been given a gift. Exactly how far this gift will extend your ability to recover some part of your losses is unknown, but the fact that so long as this pattern persists one must keep a wary finger on the "sell" button is not at issue.

Ignore this warning at your peril.

[vanvaley1]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

Nothing wrong with buying 'hope'. Of course, if ya don't believe in hope...ya don't have to buy. Wonder which is the smartest strategy?

[GRG55]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

...The pumping up by the quant gang is unsustainable and Zerohedge is saying that the next dip is supposed to come in the near future...

Wanna bet they get this away first?

[And maybe a few others just like it]

Goldman Seeks New Stock Sale

Goldman Sachs Group Inc., riding a rising market, is considering making a multibillion-dollar offering of its shares to investors as part of an effort to repay a $10 billion government loan, according to people familiar with the matter.

The move, which could be announced as early as next week, comes as the firm prepares to report solid first-quarter earnings Tuesday...

[ThePythonicCow]

Re: A Stock Market Rebound Closely Linked with Economic Data Surprises

Wanna bet they get this away first?

[And maybe a few others just like it]

Goldman Seeks New Stock Sale

Yes - I want that bet. Will you take the other side? :rolleyes:

What I'd like to know is whether the buyer for these new GS shares is already lined up -- you, me, our children and grandchildren, and all loyal tax paying Americans unto the N-th generation ... oh ... as well as all holders of our almighty Dollars and Treasuries, world wide, as their paper treasure is being diluted.

Zero Hedge at http://zerohedge.blogspot.com/2009/0...for-banks.html has already speculated, with some evidence, that the AIG unwinds of its credit default swaps (CDSs) generated substantial profit to major banks. If I understand this all correctly (?:rolleyes:?) then AIG would also have to be unwinding some short positions on these banks that it would have held to hedge those swaps. AIG's side of a swap is a bet that some bank will remain healthy, so it's corresponding hedge would short that bank. To unwind that hedge, AIG would have to buy the banks stock.

So perhaps AIG has had to buy up so much Goldman Sachs stock in this unwind that now GS is having to print more such stock.