We did NOT see the bottom, and we are heading MUCH further down people

So buy gold, right?

LOL, stevejhx, gonna try and nibble at the bait... Gold and Gold mining companies were the exceptions during the Great Depression which actually did very well.

We all know how Homestake Mining did during the Great Depression- here's a chart to refresh our memories:

http://www.gold-eagle.com/editorials_98/homedjia.gif

But that's not the point of this post.

The point is that we have not seen THE bottom yet, that this is merely a Bear Market Rally, and that many years will be required before the damage is fixed.

buy bs, sell fear

Maybe I'm missing something... but what exactly is the chart measuring? I don't see a description or a title on the Y axis.

that my friend, is what the DOW was worth back in the 1930s... before the Fed started printing money and inflating.

we still have a loooooong way to go. the damage was structural and will take years to correct.

and just wait till the global currency crisis hits at the end of 2009.

you will laugh at what happened with the lehman collapse as child's play when the real crisis hits.

Always good to see an optimistic post from MMAfia. Makes Roubini look like Santa Claus.

MMafia, did you sell everything?

Sure there is a decent case for 450 on the S&P.

You should consider changing your tag to something more convincing, like Guru-Of-All-Things-Financial.

MM, not to argue with you about where we're headed, whether Us or Vs, etc., but I wish you'd flesh out the "rhyme" part instead of only repeating the 29-32 bear market exactly.

An interesting group of charts I'm sure everyone already saw:

http://www.businessinsider.com/henry-blodget-how-bear-markets-bottom-2009-4

compared some 10 bear markets, not including the Mother Of All Disasters #1. The only thing it shows me for sure is that every time it rhymes it's just a little bit different. It's the ways that history rhymes that is subtle, intricate, difficult to understand, but I'll grant you, this is a catastrophe, and it could much worse. On the other hand, maybe it won't. Or maybe it will look a little hopeful for the top of a W period and then creep back up. Or maybe it will zoom up and recover miraculously. But it seems that your post may have a built-in assumption that this stock market crash is tracking the '29-'32 market and is absolutely predestined to duplicate it in every respect. Or are you just pointing out that bottom could be much worse than 6,500 for the Dow?

The most interesting thing about that graph is that our second only to '32 correction only took us to trend. The second most is that '82 troughed at the '66 high. But Lowery I agree with you.... We could form a 30% lower low, or not.

Right now this rally has to be considered a bear market rally but one that looks like it can run for several months. As a day trader I just try to develop a bullish or bearish bias for one day. Long term predictions are merely guesses. Anything can happen. I simply study the charts and the daily, weekly and monthly charts all point to a sustained rally. So enjoy it. Stock charts, sentiment and breadth indicators will tell me if and when the market will fall. I will change my bias in a heartbeat and go short if my research indicates it. Point is the "buy and hold" strategy is a losing game and the tired mantra, "you can't time the markets", a complete falsehood.

cfranch...Just curious what you think about hsgfx, which was profiled in wall st journal. He is not a buy and hold guy, but also not a day trader..... hussmanfunds.com

dear lowery, the information you link to is correct. and those are indeed facts.

however, due to the nature and magnitude of this crisis, many rules simply have not applied.

as far as the current market tracking the '29-'32 bear market, it won't 'track' it, but as it 'ryhmes', it will be 'generally' going down, and also last 'around' the same time.

keep in mind, this has never happened before, when the entire world went down together. the socio-political/economic implications are currently being discounted.

and thus, it also presents opportunities for those who can capitalize.

jim
read his market comments and they are not much different that most fund managers. he invests based on macroecomomic trends and fundamentals and with the amount of money under management could never day trade. as a "whale" he has to scale in and out of positions lest he cause dramatic price movements in a stock. that would hurt his performance. as a day trader i depend on technical analysis or pattern trading. buying or selling 1000 shares of cisco systems is not going to affect its price very much but can yield some dramatic daily gains (or losses if one is not focused). as i stated above i think this rally has legs and am letting my holdings run but taking partial profits on the way up. i welcome shallow pullbacks on the daily chart as a way to re-enter positions. trading this way shuts all the noise out. i rarely read the WSJ or watch Cnbc. i prefer to study stock charts and look at bull/bear ratios, put/call ratios, VIX and other sentiment indicators to time my buys and sells.

MMafia, I wish you would get "printing money" correct. The Fed is not "printing money" in the traditional, Latin American sense. Printing money is depositing money in banks, or otherwise putting it into circulation, without an offsetting accounting entry. The Fed still has a balance sheet that balances. The money they are putting into circulation is collateralized. It's not "printed"; it's recycled.

Can increasing the money supply like this cause inflation? Yes. But only if there is velocity, which there currently isn't.

I think your assessment of this vs. the Great Depression is grossly mistaken. We've learned a lot since then, even if conservative Republicans haven't, and insist on spouting Miltonian (Friedman) dogma. This turned into the disaster it did as quickly as it did by doing exactly what they did in the Great Depression - letting a bank (Lehman) go bankrupt, rather than winding it down in an orderly fashion, which they could have done. It caused far more damage than needed to be caused. Couple with that unregulated CDO's, no uptick rule, naked short-selling, etc., and you have a recipe for disaster.

Steve, I am glad you are here. Where do you stand on the financials (e.g. C, GS, WFC, JPM) six to twelve months out? Not to repeat history but I bought a bunch of financials in early March, dumped them all last Wednesday at the close and went short last Thursday at the open. Realized on Monday that that was not working so I sold on Monday and then bought some C, GS, UYG. As you know, I have had a tumultuous relationship with BAC, Bought at 27, rode to 9 and sold, bought back at 5 but sold at around 7.
It seems to me that the govt. is trying to make the banks look good so that they can go to market and get private captial (see Bllomberg today on GS).
Right now I am still over 90% in cash, but I did buy WMT at the open because I believe that they will be benefiting from the "new normal" for years to come. I still own all of my longs from October November, except for FCX whcih I sold at around 32 and FDX and V which I also sold when they made a big move, although I will be buying V back probably on Monday and just holding for a while.
My sense is that the market is now very overbought, but I could see momentum carrying us up to say 885 before an appreciable pull-back, what do you think?

mh23, I like financials for the medium-term. BAC, JPM, WFC are money machines. There will be more loan losses at higher than usual levels in the future, but in my opinion they have the cash-generation capacity to weather those write-downs. The change in FASB coupled with a new uptick rule and closer scrutiny of naked short-selling should relieve the downward pressure.

I have no confidence in C - I have no idea what it does, what its business model is, why it even exists. The aforementioned 3, however, have clear, US-based strategies. GS will always find the right model. Morgan Stanley is reorienting itself toward a standard brokerage model, and will likely be bought.

There is a lot of talk about breaking up companies that are "too big to fail." People forget why the rules were changed in the 80's: because by not letting banks grow beyond state borders, it forced them a) to concentrate their risks; b) to expand into retail operations overseas; and c) prevented them from competing internationally, or from providing the finance needed by major corporations.

The near failure of Bank of America in the 80's - I worked there at the time - was due almost entirely to overexposure to California real estate, and expanding into retail branch banking in Latin America. The failure of S&L's was due to overinvestment in real estate, or in the case of MCorp overexposure to the oil industry. While greater regulation of these large institutions is inevitable, it would be foolhardy to go back to the old model, which was created by the Glass-Steagal Act, led to the breakup of the original TransAmerica Corp. (the original parent of TransAmerica Insurance and Bank of America), and the creation of the failed First Interstate to pick up the divested pieces of TransAmerica.

Walter Wriston was wrong.

Cfranch, career wise I have always been on the fundamental side. What I have seen in the last two years has me losing religion. I agree with your assessment that positive expectation set ups and tight stops is an actual value added career path. (I assume this is your assessment or you wouldn't be a day trader). Whereas investing seems to favor whomevers view of the world happens to turn out correct. My area has been energy. I though the bulls knew something I didn't. Then I saw them give back four years of performance in four months beginning July '08. Any advice on learning the technical approach? I think I would rather swing trade several day time frames. There is just so much information out there its hard to know what is credible.

Rhino:
I lost my religion and 50%+ of my portfolio in the 2000-2002 market meltdown. that's when i turned to technical analysis. i read many books but realized i needed training. i ended up taking seminars with www.pristine.com. learning technical patterns is the easy part. the hard part is controlling one's emotions. my first year, 2003, i paper traded and kept extensive spread sheets tracking my results. i tracked what stock sector i traded, days of the week, time of day, source of plays, short or long and time frame(micro to monthly). at the end of the year i had a pretty good idea of what type of trader i was. the next year i began to risk tiny capital per trade and of course lost money. funny what happens when real money is on the line and your emotions take over. the third year saw a very small profit. the subsequent 3 years returns were respectively, +87%, +18% and -22%. last year was very difficult as i was up 30% until august. trading became quite difficult after that. intraday swings were so violent as to render all my trading useless. will never make that mistake again. sometimes it's best to do nothing at all. this year i am up 27% year to date.

I am poking around this pristine site. Which of these routes did you take? Do you make your living this way now?

I'm up 100% but then again I only started with $2500 cash sitting in my ira. I bought and sold citi twice, met, bac and ge - still holding the last 2. Wish I had 50K but I also lost my shirt 2000-2001

stevejhx, come on now, of course I'm not referring to physical printing of money.

many people get confused by what inflation is. inflation is the expansion of the money supply, NOT rising prices. rising prices is merely a SYMPTOM or EFFECT of increasing the money supply, driven by the velocity of money. that is not happening just yet, as the "clutch" is still fully engaged and the "rubber hasn't met the road" yet.

so, do understand that inflation is NOT defined as increasing prices. inflation is defined by increasing the money supply. and the FED is increasing the money supply by expanding its balance sheet, not recycling as you mention.

here is an example:

http://www.newyorkfed.org/markets/gses_faq.html

specifically:

"Will these operations be reserve neutral?
No, these operations will be financed through the creation of additional bank reserves."

This is not the typical debt-swap, "recycling" you refer to. This is the Fed specifically saying they are creating additional reserves and that it is not a neutral activity (not recycling). As such, this is printing money (by the click of a button), and hence inflation.

When it will manifest into price increases is, as you say, dependent on many factors, one of which is the velocity of money. However, inflation is NOT the increase of prices. It is the increase of money supply, and as I've shown, the Fed has specifically stated that it has done so.

As far as comparisons to the Great Depressions is concerned, I has said that it is similar in one way: the extent and depth of financial and economic dislocation. The details, and policies are very different as I stated earlier (we were on the Gold standard back then so their hands were somewhat tied).

But understand this: such trauma to the system, to the extent that we are witnessing today, is what is similar to what happened back then. As such, the length of time to recover and fix the deep damage will take long, much longer than other recessions which did not have such severe structural dislocations.

Understanding that, one will see that the current rally is merely a bear market rally as there has not been enough time that has passed for the system to recover. It is not 'over' yet, and there is much, much more difficulty and work that needs to be done, more than we have seen so far.

Thanks Cfranch.

Interesting to hear these various arguments. I lost some money in 2000-2001 (which, unfortunately, kind of made reluctant to be RE in nyc, when I moved back to nyc in 2000...so I missed the bubble in re here), and I think the only thing I learned was to be wary of chasing trends, to cut losses, and that "buy and hold" is nuts. I still can't believe the number of commentators that favor "buy and hold", most prominently John Bogle of Vanguard fame, when that strategy has been a disaster for a decade or more now. People don't exist in "long term" 70 year cycles.

Ditch buy and hold and replace it with, buy above the 500-day and sell below and wait. You simply cannot average out of 50 or 60% losses. The stock market troughed in 1982 at the 1966 peak for Christ's sake!

I am in the camp that does not believe we will see another bottom in the stock market. I think 666 on S&P500 is the bottom (agree with Doug Kass). We will trend upwards and then trade sidewards for a long time until the economy is back in full force. Having said that I don't see a recovery in Real Estate for a long time as we still have huge gaps in supply/demand and price/affordability ratios. Remember, history never repeats itself but it rhymes.

Doesn't 660 seem too expensive to be the bottom in a crisis this severe?

PS: Miller Samuels on the tube last night confirmed -25% in Manhattan. Shockingly, I think that is news to many sellers. Let the pile on begin.

"inflation is the expansion of the money supply"

That is a very good Austrian School definition of inflation, it shows your bias toward gold and Peter Schiff, but it's not a mainstream definition of inflation - "price inflation." Prices can inflate without an increase in the money supply by a mere shortage of goods, or a shift in the supply and demand curves.

Alas, the Austrian School is pretty much discredited, as is most supply-side economics.

"As such, this is printing money (by the click of a button), and hence inflation."

No more than any bank issuing a loan against collateral. A central bank is not needed for this to occur; the US didn't have a central bank for a long time, and in Scotland banks still print their own money, to the point where, originally at least, the English 1-pound coin was not acceptable currency in Scotland.

It is also quite possible to have deflation at a time when the money supply is increasing.

"we were on the Gold standard back then"

No, actually, we weren't. Roosevelt suspended the gold standard, and it wasn't reinstituted until Bretton Woods.

Based on the far-from-mainstream economic theories you espouse, it's no wonder you see things the way you do. Keynes, however, was much smarter than supply-siders give him credit for. Increasing the money supply alone cannot inflate an economy if no one spends the money, if banks don't lend it out. Unregulated financial markets are prone to booms and busts. Atlas may have shrugged, but he bore a heavy load.

Gold Gold Gold!
Is there another choice?
While the media jingled it's keys in front of a portly $165M AIG bonus the Fed blew 1.8 Trillion dollars into the atmosphere. Check you wallet, that dollar bill is getting smaller. It's going to get much much smaller. Americans will have to learn to live will 'RUNAWAY' inflation. I'm talking about the inflation that when you get money and run to the market to buy eggs because if you wait till morning you're gonna get less eggs for the same $$$. Got any friend that grew up in Turkey or Argentina? Ask them about their youth and what that was like...it's a preview. It's going to suck for years to come. The advice to clean out now is profetic.

Remember, history never repeats itself but it rhymes.

OK, here's the Rhyme, In ths early 1930's thing really sucked!
In the new millennium you are totally...

Protect what cash you have left. To leave it in dollars is the ultimate act of optomism.

I fear deflation more than inflation. Remember the lost decade in Japan.

"Alas, the Austrian School is pretty much discredited, as is most supply-side economics."

You have it backwards- it is the Keynesian School that got us to where we are today's current crisis and is now being discredited.

Just step back and think about it for a second. What does the word inflate mean? What happens when you inflate a balloon for example? It's the increase, expansion of the balloon by filling it up with air, just like the increase and expansion of the money supply.

"No, actually, we weren't. Roosevelt suspended the gold standard, and it wasn't reinstituted until Bretton Woods."

Yes we were on the Gold standard when the crisis hit back in '29. And their hands were tied. So they confiscated Gold, and started debasing currency, thank you Keynes.

stevejhx, what you may not believe in, is that the system that was created since then, GreatDepression/WWII/Bretton Woods, which has lasted for over 60 years now, is coming to an end. it's over.

there WILL be a 'run on confidence' of the fiat-based global financial setup that has been in place around the end of 2009. the existing system will in effect, have to be replaced, as it was after the Great Depression/WWII/Bretton Woods.

We shall see in 2010- I know you'll still be around these boards as shall I.

But back to the original topic- no, we have not seen THE bottom yet, and this is just a bear market rally, as not enough time has passed for correct the structural dislocations around the interconnected world.

It's a great "gift" for those who have not gotten out yet. Take it while you can.

Re: inflation - the act of expand volume, quantity, as in expanding the quantity of air in a balloon when it inflates.

inflation in economics is the expansion of volume, supply, quantity of the money supply.

I would add to MMafia's definition of inflation that it is an expansion of the money supply + expansion of credit.

Clearly we have big time credit contraction, and that is helping to prolong the deflationary symptoms we see out there.

It is quite amazing to me that 1 quarter of bank earnings, after all we witnessed, is causing such euphoria. I mean the fed engineered the system to be in place to make these banks be able to earn their way to rebuild capital. But this money is largely being stuck in excess reserves

http://research.stlouisfed.org/fred2/series/EXCRESNS?cid=123

Now if you look closely, there is a spike DOWN in the very latest update there. A ray of hope? Sure, maybe some money is getting into the system, but I would argue that reserves (which is electronic printing of money by New York Fed as they executed quantitative easing and purchase assets from primary dealers on account with NY fed) are still being hoarded because banks know they will still be melted away as banks absorb losses on delinquent loans and as marked down securities see their income streams actually collapse. In meantime, its a refi frenzy, ZIRP policy making banks earning power high, and perhaps rays of light of increased lending - BUT WILL IT LAST?

Ahhhh, the $64,000 question. In my opinion, NO, it will not as we see higher quality debt classes start to erode at a clip faster than subprime is now eroding at. Its a credit tsunami, it will come in waves. We have structural problems, and we have not seen the consumer delever to the extent that balance sheets are repaired and debt service is taken down to levels considered normal based on incomes (pre-boom days).

But forget all this, because Im sure the 'consumer is resilient' bit will take center stage. What amazes me most is that people do not anticipate the side effects of all this policy and future overegulation of the financial industry and how both will impact future economic growth prospects. I mean, where will the engine of growth be for the next five years? Where will steep recovery come from?

The fed usually raises rates to quell an overheated economy and protect against inflation, to cool tings down. Well, what if the fed has to do this to protect against inflation (expansion of money/credit) when the economy is NOT overheating? Stagflation? is this entirely not a possible outcome here? I can see the market react positively when all fed facilities are removed, because markets will think 'yay, all is great again, we dont need fed loan facilities', but will that actually be the case?

stevejhx, you mentioned inflation can also result from "shortage of goods"

But honestly, given overinvestment and overcapacity everywhere, do we really even consider this to be a threat?

Steve, thank you for your detailed response.

UD, I tried to post a comment on your site, but it wasn't posted. Am I banned or something. Anyway, based upon Marc Faber's analysis that Gold is dead money for six months I sold my GDX position, but I am watching it closely. It did well for me, and I bought it a while back based upon your analysis in one of your posts, so thanks.

Steve - you bring up some good points. The only thing I am not sure on is that Morgan Stanley will be bought, for 2 main reasons. First, I am not sure who has the scratch right now and second, I am not hearing anything remotely like that from the people I know at the firm. They have made some adjustments, but seem focused on moving forward "as is". You could be right, I just don;t agree at this moment.

"You have it backwards- it is the Keynesian School that got us to where we are today's current crisis and is now being discredited."

No, no and no. I am somewhat busy at work right now, so I'll let Steve deal with this statement. I am strongly in the Keynesian camp and believe this statement to be utter rubbish. Steve, go get 'em...

well if you believe the FED had any role in this credit/housing crisis, the statement makes at least some sense. Clearly it wasnt from the fiscal side that caused the mess, but I think the statement has both correct and incorrect items in it.

I think it is correct to say the FED played a role in this crisis. I think it is incorrect to say that fed/fiscal measures were the only causes of this crisis. In fact, it gets way more complex than that. Deregulation, fractional reserve system, fee based securitization model (package/slice/dice/resell), ratings agencies had seriously flawed models and conflicts of interests, exotic loan products to make anybody buy more home with less down, no lending standards, low low rates, excess leverage up to 40:1 for banks/ib's, gov't subsidizing and enacting policies to make home ownership for everybody, and on and on. There is no single cause of this crisis, rather a concerted effort of a bunch of dynamics that all played the game together.

well if you believe the FED had any role in this credit/housing crisis, the statement makes at least some sense. Clearly it wasnt from the fiscal side that caused the mess, but I think the statement has both correct and incorrect items in it.

I think it is correct to say the FED played a role in this crisis. I think it is incorrect to say that fed/fiscal measures were the only causes of this crisis. In fact, it gets way more complex than that. Deregulation, fractional reserve system, fee based securitization model (package/slice/dice/resell), ratings agencies had seriously flawed models and conflicts of interests, exotic loan products to make anybody buy more home with less down, no lending standards, low low rates, excess leverage up to 40:1 for banks/ib's, gov't subsidizing and enacting policies to make home ownership for everybody, and on and on. There is no single cause of this crisis, rather a concerted effort of a bunch of dynamics that all played the game together.

"future overegulation of the financial industry and how both will impact future economic growth prospects"
agree, remember Sarbanes Oxley was such a waste of money and resources in my opinion

"I mean, where will the engine of growth be for the next five years? Where will steep recovery come from?"
It has to be a new industry and definitely not Real Estate

UD, when money is not directly printed a la Latin America, it is generated by an increase in credit. That is what the Fed is doing. Issuing credit against collateral. It is simply monetizing assets.

A shortage of goods is not related to overcapacity if that capacity is not producing. That seems to be the case, as inventories are shinking.

MMA, I don't know if this is a bear-market rally or not. I'm not that prescient. I'm just happy that things are somewhat better than they were in September.

"it is the Keynesian School that got us to where we are today's current crisis and is now being discredited"

If you're telling me that Allan Greenspan was a Keynesian, or Ronald Reagan was a Keynesian, or Phil Gramm was a Keynesian, then I'll have to laugh. They are all firmly in the grip of Ayn Rand and the Austrian School - even Greenspan, who had to admit that there was a "defect" in his theory that companies always act in their own good.

They always act in what they think to be their short-term good. He took his models from the boring days from 1945-1980, when banks were regulated and finance was boring. Read Paul Krugman today.

And the pegging of interest rates - a Greenspan policy - is, perversely, a supply-side theory. It is the Keynesians - Volcker - who advocated and implemented controlling the money supply to control inflation. Greenspan switched it.

"What does the word inflate mean?"

The original meaning of "inflation" was "monetary inflation," as you say. Most mainstream economists, however, see "price inflation" as a separate entity, sometimes resulting from monetary inflation, sometimes not. All agree that some amount of inflation is necessary, and that deflation is bad.

The current expansion of the money supply need not lead to inflation. The supply-side deregulation of finance achieved nothing but ruin as it always has since the beginning of time. Flat taxes do not cause growth, there is, in fact, no correlation between taxation and wealth EXCEPT, as posited by I can't remember who, the wealthier people get the more they tax themselves, and the wealthiest places in the world, with a few (all small) exceptions, are the most heavily taxed. Alabama and Mississippi have low taxes; California and Vermont don't.

The truth is that the last 10 years of financial deregulation and supply-side policies have brought us to where we are. Where was Keynes during that time? It was the dismantling of the postwar system that brought us to where we are today. Keynes had nothing to do with it.

"Yes we were on the Gold standard when the crisis hit back in '29. And their hands were tied."

Exactly why the gold standard does NOT work.

"started debasing currency, thank you Keynes."

They "debased" the currency? Please! Check the inflation figures for the period from 1929-1942 (excluding WWII). There was massive DEFLATION after the 1929 deleveraging of the deregulated 1920's.

"stevejhx, what you may not believe in, is that the system that was created since then, GreatDepression/WWII/Bretton Woods, which has lasted for over 60 years now, is coming to an end. it's over."

Quite the opposite. It is being put back together. Unless you'd like to tell me which piece is being torn asunder?

"there WILL be a 'run on confidence' of the fiat-based global financial setup"

How can you say that, yet say "their hands were tied" with the gold standard in 1929? It makes no sense.

Wow, we must be all bored on this Good Friday.

they did debase the currency. they made Gold illegal to hold, and once they did that, they repriced the dollar to buy much less gold, about half (lowering its purchasing power), and then finally, in '33, they went off the Gold standard altogether, following great britain and japan which went off it in '31.

"Quite the opposite. It is being put back together. Unless you'd like to tell me which piece is being torn asunder?"

that's the crux of the matter- it can't be put back together. try putting back together a cookie that has crumbled into millions of crumbs. only recourse is to bake a new one. this cookie has lasted since GreatDepression/WWII/brettonwoods. and it started crumbling, and will really fall apart around the end of this year.

We'll come back to this thread around the beginning of 2010 to see where we are at.

If I'm wrong, I'll be grateful to God and buy you a drink stevejhx. Truthfully, I wish I would be wrong.

mh23 - hmm, i dont see it junk or reg..did you type 'nyc'?

can you try again please

"they did debase the currency. they made Gold illegal to hold, and once they did that, they repriced the dollar to buy much less gold, about half (lowering its purchasing power)"

That assumes that gold was the money, and it was the money that was "debased," and not the price of gold.

If "money" had been debased, then there would by definition have been inflation. But there wasn't. There was deflation. Proving the point.

You've yet to tell me which part of the post-WWII system caused the current financial crisis. I agree that not all the pieces of the postwar regime will be re-instituted, but financial re-regulation is inevitable, as are higher taxes (and a single-payor healthcare system, but that's a different thread).

I wish I saw what Peter Schiff and you see. The problem is, though the Austrian School had very many good lessons to teach in 1980, it doesn't teach anything to deal with today's problems, because it caused them. Remember "deficits don't matter"? Spoken by a true supply-sider: RR.

great post Mafia, suppose you also know Bob Chapman right?

I have been, but I will try again next time I post...I just read in the journal that GS is probably going to dilute to raise 10 bil. This can go one of two ways, shareholders get spooked and dump, or the offering is a big success and sends the stock higher. I will probably just hold on for a while, but it does make one wonder. It seems that Meredith was right again, she said that the banks would make money, which would drive up the stocks which would lead to the opportunity to raise private money. She also said that she would go short once again after earnings season as she is bearish on the stress tests. However, won't the govt just rig the tests or keep them under wraps if they are bad. They can't possibly be stupid enough to start another panic if they don't have to, right?

mmafia, i share the concern although I am not obssessive over it. I think if we keep real tuned in, we will be able to see if that outcome becomes more and more likely - at which time we adjust lifestyle/portfolios a bit perhaps.

I think its dumb if you don't at least consider a bad outcome as you are describing (true fiat currency crisis). Its all relative right? So while general inflows to gold is to be expected if it happens, what currency gets creamed? And relative to what?

I think the US dollar will be the last to fall, if it happens. And I totally agree, I wish this 'concern' Ill call it, never pans out!

OK.... Weekend bootcamp people....
youtube the following and get REAL advice:

Bob Chapman, Gerald Celente, Peter Schiff, Jim Rogers and Marc Faber.

your world will make a lot more sense then.

The problem with Schiff is he lost people more money in emerging market stocks, non-US currencies and commodity driven stocks then he made them in gold.

well said UD, well said.

bob chapman- actually, no i did not know who he was until i Googled him and read some of his articles. interesting analogies we have.

Happy Easter folks!

foreign stocks are doing phenomenally better than US's. they WERE down, but going a LOT higher than US, and most of the losses have been re-gained.

hence, NO problem with Sciff. who do you listen to Rhino? Jim Cramer??!

try this then mmafia:
http://theinternationalforecaster.com/International_Forecaster_Weekly/An_Asset_Bubble_for_the_History_Books

I think she will be proven spot on. Banks are having great quarter, and Im sure all will big time beat expectations. But they would be wise not to raise future guidance too much, because that will change sentiment, rally shares more, and it could backfire in two ways:

a) share dilution, like you mention to raise capital
b) earnings dissapoint because of unforseen dropoff in economic activity, HIGHLY likely

From a momentum trading viewpoint, it all depends where we are. Bank shares rallied huge in this latest rally! GS is up 54% in 1 month.

Its very likely the effect will be negative, because of where we came from. In the chance it goes the other way, I think that would be a big time shorting opp after the initial move. Just a hunch and everything can change in a moments notice, especially in this market. But I would put my money on downside due to dilution, and the need to lock in gains after a 54% move in 4 weeks.

still dont see it mh23! sorry, please let me know if this continues. thanks!

I want to buy...look at a chart of the EEM, FXI... I am not sure what you are seeing in terms of most of the losses being regained. Do the math of -70% followed by +30%...It ain't near most.

Rhino,
he doesn't just invest in Emergin markets. he also invests in HK/SG/CA/AU/NZ etc (and not just indicies).
he picks stocks that are well paying dividends and have growth prospects.
to me, somebody who called the meltdown of 2008 back in 2002, deserves a little credit (ok, a LOT of credit)

Is there a way to track the performance of his portfolio? I don't think there is. As such, its not clear to me how much credit he deserves. I am not sure dividend paying stocks held up any better through this. And he was basically dead wrong in supporting the premise of de-coupling.

MMA - waiting for your response!

I guess time will tell if he was wrong or not, but remember, time HAS been to his favor in the last decade and will be.
just wait till the Autumn and when the collapse happens and everybody fleeing $ and going for gold, let's revisit this thread and find out which one of us two will say 'I told you so'... deal?

No deal. I am only talking about what he has said in the past and how much credit he deserves. I don't give anyone credit who doesn't given an entry point and an exit point. Clearly Schiff drove emerging markets and commodity stocks off the road. It is simply not feasible to absorb those kinds of losses in the real world.

I will let you know next time I post something.

stevejhx, which response? sorry...

All the stuff I wrote up there!

"Point is the "buy and hold" strategy is a losing game and the tired mantra, "you can't time the markets", a complete falsehood."

WRONG WRONG WRONG - nobody has ever made consistent money "timing" the market and nobody ever will [unless they (A) cheat [trade on inside information] or (b) are big enough that they can actually control market action or influence management [large hedge funds]). All this "strategy" does is increase your transaction costs and decrease your investment returns.

Buy and hold does work...IF YOU BUY QUALITY HIGH COMPANIES AT ATTRACTIVE PRICES. Would buy and hold have worked if you had bought AAPL in 2003? XOM in 1998? Boeing in 1989? Of course. Hell, even if you had bought Wells Fargo in 1992 - you would still be WAY UP EVEN BEFORE YESTERDAY'S EXPLOSION. Obviously, if you bought MSFT at 50X earnings in 1999, you will not make money no matter how long you hold it.

If you don't know how to value companies and judge whether they have durable competitive advantages, you are better off just buying an index fund. Day trading is the surest way to NOT beat the market IMO.

make that "HIGH QUALITY COMPANIES" - too much editing!

> IF YOU BUY QUALITY HIGH COMPANIES AT ATTRACTIVE PRICES

Yes, a perfect strategy, up there with "buy low and sell high".

Problem is, the stats show nobody can do it consistently, while 10 million have tried.

(and don't say Buffett, he's not buying "stocks", he's buying ownership stakes in companies and actually changing the companies themselves)

BSexposer you are just wrong. If you buy at 'attractive prices', you are timing. Attractive prices don't come along every day. You are also cherry picking. C was once considered high quality too. Also, there is no more evidence that people can distinguish between good and bad then there is that following a trading discipline people can generate returns.

Sorry but I am still not sure why people can't accept that refusing to add equities to their 401k above 15x EPS is any more impossible that not buying real estate when its cheaper to rent.

"he's not buying "stocks", he's buying ownership stakes in companies and actually changing the companies themselves"

I disagree. Did he change Coke after he bought in the late 1980s? Did he change Wells Fargo after he bought in the early 1990s? Did he change The Washington Post after he bought in the early 1970s? Did he change PetroChina after he bought in the early 2000s? The answer is no - for the most part he buys and leaves his investments alone - and watches them grow over time. The point is, a stock is not a chart or a number, it's a share of a business. If the business prospers, your investment will do well (assuming you didn't pay an exorbitant price). If the business fails, so will your investment. The key is identifying which businesses will prosper in the long run and buying those at attractive prices - if you can't find any, you should keep your money in fixed income securities until you do.

Look at a railroad like BNI - it's up 10,000% since 1980 - if you had bought $1,000 worth of stock then and forgotten about your investment, today you would have 100 times what you originally invested (including dividends).

"BSexposer you are just wrong. If you buy at 'attractive prices', you are timing."

How is buying something at an attractive price "timing" - by "timing" most people mean trying to buy when a stock it about to go up and selling when it's about to go down. If I buy a great company at a good valuation, I couldn't care less what the stock price does for the next 6 months or a year, because I know eventually it will go up.

"Attractive prices don't come along every day."

You can usually find attractive prices unless you are at the height of a bull market (and even then sometimes) - there are always stocks "out of favor" for whatever ridiculous reason. You just have to look harder during some periods than others.

"You are also cherry picking. C was once considered high quality too. Also, there is no more evidence that people can distinguish between good and bad then there is that following a trading discipline people can generate returns."

Banking is a commodity business - and commodity businesses are much more dependent on the quality of their management than other types of businesses (as we have seen over the past 2 years). Maybe C was considered "high quality" by the masses, but that doesn't mean that people who really understood banking considered them "high quality". If you don't know how to discern what's "quality" and what's not in an industry, then you should simply avoid that industry.

BTW, this article below proves that Buffett's investing approach (which he got from Graham) works. I've never seen ANY proof that ANY trading strategy employed by average retail investors consistently outperforms the market.

http://www.tilsonfunds.com/superinvestors.html

Value investing works, and trading with a discipline can work as well. That doesn't mean the average person can do either. However, the average person can avoid putting new money into stock over the average historical multiple of 15x.

Interesting definition of "prove".... even the article notes that statistically a few monkeys will look smart.

Also, if you think Buffett isn't involved in the management of the companies he buys, then you don't know Buffett.

"The key is identifying which businesses will prosper in the long run and buying those at attractive prices - if you can't find any,"

Again, millions have tried, millions have failed. The number that get it right pretty much matches the number of those that statistically would by throwing darts.

And its not saying you can't be 50.001% right... its just that the work and $$$ it takes to get that extra value is outweighed by the cost of doing so.

Asking individuals to pick stocks is crazy. So is leaving your 401k allocation the same all the time. I read a simplification once that I thought was could be helpful to average people. Invest under 15x EPS, and sell out over 19x.

"Value investing works, and trading with a discipline can work as well."

Well, all I can say is that I've never seen ANY proof that ANY method of trading by retail investors can consistently beat the S&P 500. If you have some, I would love to see it.

"However, the average person can avoid putting new money into stock over the average historical multiple of 15x."

I'm not really talking about the "average" person - I'm talking about somebody who is committed to beating the market and is actively involved and interested in investing.

BTW, I love the last paragraph in the article: "In conclusion, some of the more commercially minded among you may wonder why I am writing this article. Adding many converts to the value approach will perforce narrow the spreads between price and value. I can only tell you that the secret has been out for 50 years, ever since Ben Graham and Dave Dodd wrote Security Analysis, yet I have seen no trend toward value investing in the 35 years that I've practiced it. There seems to be some perverse human characteristic that likes to make easy things difficult. The academic world, if anything, has actually backed away from the teaching of value investing over the last 30 years. It's likely to continue that way. Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper."

"Interesting definition of "prove".... even the article notes that statistically a few monkeys will look smart."

Obviously, you haven't read the whole article - you've completely missed the point of it (he DISPROVES the statistical anomaly argument if you read on).

"Also, if you think Buffett isn't involved in the management of the companies he buys, then you don't know Buffett."

OK, please give me ONE EXAMPLE where he "changed" Coke, The Washington Post, Wells Fargo or Petrochina - and tell me how he changed the company. Just one, I'm begging you...

"its just that the work and $$$ it takes to get that extra value is outweighed by the cost of doing so"

What about the work and the $$$ it takes to get the extra value out of day trading????? Every time you execute a trade you hand money over to your broker. You spend all day tracking market movements and watching charts. Is this really less time consuming and less expensive than simply buying shares of Coke and checking in 20 years later?????

"Asking individuals to pick stocks is crazy."

I'm not talking about average people - I'm talking about people who are active investors and have a choice between (A) trying to "time" the markets and "time" individual stocks and (B) evaluating which stocks are the most attractively priced for an investment over the long haul.

"that my friend, is what the DOW was worth back in the 1930s... before the Fed started printing money and inflating.
we still have a loooooong way to go. the damage was structural and will take years to correct.
and just wait till the global currency crisis hits at the end of 2009.
you will laugh at what happened with the lehman collapse as child's play when the real crisis hits."

Problem with comparing this chart to the current is that.... we had folks yelling "great depression" from shortly after Lehman. We had folks calling for the worst. We've now seen what that looks like.

So, anticipating that we're going to follow the path of what was a completely unanticipated event, now that it is anticipated, doesn't seem very logical to me.

Not saying things can't/won't get worse.

But using the GD as a model has a *lot* of flaws.

Well, I guess that proves the adage - you can lead a horse to water, but you can't make him drink. LOL. I tried...

MMafia - I guess I'm not getting the meat and bones of your reasoning for this catastrophe matching the '29-'32 catastrophe. Yes, I agree with you this is really very bad, but I get the feeling you're saying that since this is really, really, really, really bad and the '29-'32 was relly, really, really, really bad, then they will have the same shape, trend pattern and length of time. But I'm not getting the whys, what exactly is similar or the same per 29-32 and now. And rhyming is something much less precise, I think is what Mark Twain was saying. IOW, crashes always DO repeat themselves, the booms and busts. But those 10 charts all rhyme with each other, yet no two of them are alike. So is it just the degree of catastrophe in this case that makes you say we will relive the '29-'32 market? Or is your point that those 10 charts that sort of rhyme aren't as apt here for comparison to this mess because they come from times that didn't have as many disastrous factors going on at once, whereas here in 2009 we have all asset classes pointing down at the same time?

Haven't studied all the rest of these posts, because I'm actually looking for you to develop your own case in more detail; I've read your posts in other places, so I'm interested in what you have to say. If this is something unlike what's ever happened before, then why would it track '29-'32?

None of you know what you're talking about.

NOBODY KNOWS WHAT'S GOING TO HAPPEN. How many times do these "experts" have to be proven wrong for you knuckleheads to get it through your brain that there is no Nostradamus...and you certainly aren't one. None of you have a fucking clue what you're talking about. None of you are geniuses.

Just shut the fuck up. UGH.

just check how many of the original 30 Dow stocks are still in that index....

there was a report out that bonds have beaten stocks over the longer term...

"If this is something unlike what's ever happened before, then why would it track '29-'32?"

This is NOT a repeat of 29-32. The govt's response this time around has been RADICALLY DIFFERENT (and VASTLY BETTER, I might add) than what the Hoover admin did after the stock market crash of 29. Are there some general similarities? Yes. Is it going to be a repeat? Definitely not. It COULD have been a repeat had the govt not stepped into the breach last fall - but they did.

The economic indicators are already improving across the board - we will get out of this gradually - there will NOT be a further crash in economy similar to what happened after the initial recovery of early 1930. THAT I can guarantee. Whether the market goes up or down in the near term cannot be predicted with any degree of certainty, however.

"there was a report out that bonds have beaten stocks over the longer term..."

Do you have a link? That's pretty general statement. During the 20th century, the DOW went up 5% a year on average - not including dividends. If you include dividends, it would be around 8% per year on average. I highly doubt that any category of bonds averaged 8% per year over any similar time span. Also, long term cap gains have historically had a more favorable tax treament than interest on bonds, so that would further disprove the theory.

No offense to "chartists", but charts are MEANINGLESS - they tell you ZERO about the current economic situation. People who lack an understanding of economic fundamentals substitute charts for real analysis IMO. Why? Because it's easier.

BS - I saw that talk as well. Here's a link to the Bloomberg article:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aR8JREWPNUyQ&refer=home

"People who lack an understanding of economic fundamentals substitute charts for real analysis IMO. Why? Because it's easier."

It's interesting, isn't it, that people point to charts as "evidence" of unavoidable future patterns and trends, but the more charts you look at and compare to each other, the more variations between them you find than similarities.

Umm, so now we are starting a fight against charts? Charts CAN be very useful. I say CAN because it is up to the user to draw conclusions and make interpretations and quality of data can be a very big problem if it affects a chart that ultimately changes someone's mind on an investment decision.

Ill prove to you that charts are very useful. Take a look at this:

http://woody.typepad.com/.a/6a00e554ad492488330112791462fb28a4-600wi

If I were a homeowner, and looked at this chart in 2006 showing the boom in home prices from 1998 - 2005, I would have seen prices rise 73% from 110 to 190. I would have probably started to consider that maybe, just maybe, this home price boom was unsustainable and strongly considered selling.

In fact, I did. And I sold in July 2006. I thank this chart when it came out at the time.

that is why when I hear things like "...charts are MEANINGLESS - they tell you ZERO about the current economic situation" - I just have to disagree. They tell you the bigger picture. You just have to question the source of data, the interpretation of data, and ask yourself if the data is in fact telling you something about the current environment, and more importantly, WHERE we came from.

Noah, great Shiller chart. I'm sure I've seen the numbers somewhere, but they didn't register as they do seeing them charted. It does bring home how petite the previous boom was relative to this one.

Larry Kudlow was the master of showing charts..............and he was dead wrong on everything for a whole year during the economic tsunami that hit him upside the head.....he even admitted charts were meaningless.
Surprised CNBC still let's him host.

For a great look at charting pro and con, see Tufte's _The Visual Display of Quantitative Information_.

Well, UD, a better question I suppose is how does studying past data predict the future? No matter how much data we have about the past, we still have catastrophes. So whether it's because people don't have the right data available, don't interpret it properly, don't care, don't believe it, or because Mars is in the 7th House when Lassie's puppies are born, the fact is, people do foolish things, and people are caught short in real estate, in stocks, etc.

I agree with you that the past boom was unsustainable. But it happened. I agree with you a big downturn was inevitable. It happened. Is that because no one looked at charts?

shiller's chart, as UD posted above, was a major turning point- it started discussions about past bubbles, fostered many blogs and got people thinking about if the real estate boom was really a bubble ready to burst.

it's easy to argue the subjectively back and forth about why/why not real estate was in a bubble (not building any more land, etc. etc.), but a simple chart like Shiller's that shows empirical evidence of price action in the context of centuries provides a clear insight that has little room for debate.

bubbles, like the most recent one in real estate are driven by mass psychology and manias. people may have looked at charts, but dismissed them as their manic psychology altered their logic and reasoning. people viewed data in the context of the belief that prices would continue rising forever. once their minds are configured to filter data that way, the bias has set in.

charts are an important component in analysis. they provide empirical data structure that enables people to understand the context in which their analysis operates within. that being said, there are many other components one must include along with charts to formulate an analysis, including fundamental analysis.

sometimes, charts don't match with fundamental analysis. other times, they do. when many different tools point to the same conclusion, then there is a high likelihood that the analysis is correct. in the case of the recent real estate bubble, the charts did concur with the fundamental analysis, and that's why some of us here, including myself, warned people a couple years ago of the coming real estate bust.

think of it this way:

when you have different witnesses saying different things, the verdict can be difficult to arrive at. however, if you have a situation where all witnesses state and provide information that is consistent with one analysis, then the verdict can be reached easily.

in the case of our current situation, charts show that a large rally was necessary as the crash was so severe that we pierced through multiple moving averages as if they were hot butter. nothing goes straight down or up. there needed to be a rebound back to the moving averages and fibonacci integers. and this is what we saw.

however, the trend is still downwards, as we are in a secular bear market right now. as such, once the retracements complete back to the moving averages and fibonacci integers, the bias and expected price action would be to go lower and retest the prior lows.

that's what the charts are telling us.

from a fundamental perspective, nothing has really changed. the global financial system is still broken and still on life support. the mark to market modifications is simply a game of smoke and mirrors without correcting the underlying problems. the economic indicators which show some signs of deceleration in the pace of decline (mustard seeds as we hear all the time) are overshadowed by the ongoing labor market collapse.

the last stimulus package that Bush put into place achieved a temporary lull before the downward spiral continued. while the new stimulus package is even larger, the same result can be anticipated as the underlying issues have not been resolved. we keep giving the addicted drug user larger and larger hits to keep him going, but the drug user is still sick and not healed, and will need larger and larger hits to be happy. and what is USA's drug? DEBT. and all we're doing is giving bigger and bigger hits of that drug to sustain ourselves.

eventually, the drug user will collapse as the cycle cannot continue forever.

the global scale and nature of the current crisis is unprecedented, and complicated. international politics are now baked into the cake, altering economic decisions. this is the danger we are facing. inefficient economic actions and policies due to political complications around the world. the impact to the global financial system will be severe, as sovereign nations will try to change the rules of the game, much like the US is doing internally as evidenced by the mark to market rule changes.

the forex regime in place since bretton woods is at stake here, and we have new players since bretton woods like China who play significant creditor roles to the debtor nations like the US. it is not possible to know what the trigger will be, just like there was no way anyone knew that Lehman would spark the crisis late last year.

however, understand that while we may not know exactly what the trigger will be, we do realize that the environment is primed. as such, one should be prepared accordingly.

UD - my main point was that looking at a chart from 1930-32 or 1973-74 tells you NOTHING about today's situation, b/c things today are very different than those eras. So what that a chart from the 1929-30 looks superficially like the chart of the DOW over the past year - it's IRRELEVANT. You have to make a judgement on today's economic fundamentals, govt response, systemic protections, etc., which are quite different than what existed in the 30s.

FWIW -- here's a chart showing the magnitude of the price gain in the "west-west village" -- hoboken. The bars show median price/square foot from the 1st quarter 2000 through the first quarter of 2009. Something is happening but I don't know what it is...

http://hobokenrealestatenews.com/category/market-analysis/

MMAfia - A thoughtful piece. Thanls

MMAfia, not saying you are right or wrong, as I do not claim to be clairvoyant. However, I would love to know about your educational/professional background as you seem to feel that you can in fact predict the future.

MMAfia's argument is certainly compelling and very plausible. However, I think it will take another 30-40 years if it plays out at all. First off, China has spent the last several years converting the accumulation of their "wealth" into US debt (Treasuries). At this moment in time, there is absolutely no incentive for them to light a match to all of that debt. Over time they will become a less rapacious consumer of our debt, while at the same time pushing for a new global reserve currency as a way of moving the global center of power away from the west and toward the east where they will continue to have greater and greater influence.
Second, at this moment in time China does not have a mature enough domestic consumer base to replace the US. As such, it would be catastrophic for China were they to somehow bust out the US by making us default on our debt. Their would be massive riots throughout China, and it would set them back several centuries. However, over time, as they, India, Singapore, Thailand, Viet Nam and to a lesser extent Japan develop more and more robust domestic consumers who actually have true wealth, and not not just debt, they will be more comfortable bullying the US and ultimately aggressive in attempting to bring about our demise.
Make no mistake, there is a real desire to replace the dollar as the global reserve currency, and if we do not act to make that an unappealing option, it will most likely occur in the next 50 years or less. However, at this moment in time, no one wins if the US defaults or has their currency massively devalued.