Originally posted by Shakka
The answer is: It really doesn't matter whether it's a bull market or a bear market rally if stocks are going higher. A rally=rally. It could go on for weeks or years and still be a "bear market rally" (i.e. 2003-2006).
So you wouldn't be cautious right now? What do you think of the valuations? Are they too high, too low?
The consequences of adopting a weak dollar and inflationary monetary policy to bail out the economy have begun to manifest themselves, although the real effects of the government's $12.8 trillion dollar recovery plan have only just started to show up. Investors should not be surprised to learn that the commitments, guarantees, and prodigal spending of the past two Administrations have come with harrowing consequences. Surprising or not, these painful consequences are just beginning to appear and are rather insidious in nature.
But the regular readers of my commentaries had been warned that massive money printing and government incursions into the free market would spark higher inflation and a falling dollar. To illustrate the point, the price of oil has increased 53% this year while gasoline has increased 26% in price since May 1st. That move alone should start to ring the alarm bells for everyone. [b]But commodity prices have risen across the board sending the CRB Index up 14% in May alone. In addition, copper is up over 60% this year while cotton is up 18% in 2009 and the US dollar has also lost about 10% of its value since early March. So much for the deflation argument!
The cause of steep rises in basic materials and energy is not so much a U.S. demand story. Asia seems to be faring better; (their economy expanded at a 6.1% annual rate in Q1, the slowest rate in 10 years) while our economy has shed over 6 million jobs since the recession began and GDP contracted at a 5.7% annual rate in the first quarter. But the real cause in the rise of commodities can be found in the weakness of the US dollar.
Even with all of this in mind, the biggest negative effect thus far from the Administration's profligacy has shown up in surging bond yields. After hitting a secular low of 2.5% on the 10 year note, yields jumped to 3.9%! Meanwhile, mortgage rates leapt from a low of 4.85% to 5.45% last week, following the move in Treasuries.
Therein lays the problem. The progenitor of this crisis was a collapse in real estate prices and it has shown only a few signs of stabilization in sales, but is still far from a marked recovery in prices. In fact, last month's report on existing home sales showed a drop of 15.4% Y.O.Y. Both mortgage delinquencies and foreclosures reached record levels in Q1 2009 while the months' supply of existing homes actually climbed to 10.2 from 9.6. So while mortgage rates are on the rise, housing fundamentals continue to exhibit weakness.
Those soaring bond yields and mortgage rates will wreak havoc on our debt-imbued economy. Already we saw a report by the Mortgage Bankers Association showing a drop of 16% in the Refinance and Purchase Index for the week ending May 29th. For an economy that has a total debt to GDP ratio of 370%, we can also expect dire repercussions in everything from credit card loans to municipal bonds.
This is why Mr. Bernanke's next move on quantitative easing is so critical. Wednesday's auction of $19 billion in 10 year notes and Thursday's auction of $11 billion in 30 year bonds will be viewed with great anticipation. If Banana Ben steps up his manipulation of bond prices, the current fall in the dollar along with the rise in commodity prices and interest rates will seem inconsequential by comparison in the not too distant future.
Our government risks morphing what would have been a severe deflationary recession into an inflationary recession/depression in the longer term. Their decision to choose the inflationary route is based on the fact that inflation bails out those in debt. Make no mistake, for a country with $11.4 trillion in debt and a 2009 deficit equal to 13% of GDP, inflation is perceived as the only way out. However, inflation can never bail out anything or anyone, it only helps the very rich maintain their purchasing power while robbing it from the rest of the country. It will also be at the great expense of those who have made the mistake of holding their savings in dollar denominated fixed income instruments and who have not protected themselves by owning hard assets.
Capitalizt
It's mindblowing just how unaccountable the fed is for their money printing..Start watching at 3:00 This is the inspector general of the fed. Her evasiveness is incredible.
The fed has a $2 trillion+ portfolio of assets with NO record of the losses they are taking. The person in charge doesn't even seem to be aware of what the portfolio contains..
When asked about the $9 trillion in "off book" loans they have made in the past 6 months...again..NO RECORD and no disclosure of their profit/loss on the loans..no straight answer to the question..pure evasion and smoke screens. I'm willing to bet the information on those loans will never be disclosed. The American people are gonna be raped by all this and we won't see just how badly until prices start rising 10% annually. Inflation is the preferred tax of the powers that be because politicians can always blame price hikes on "corporate greed" or other such nonsense, rather than the root cause which is dollar devaluation. Sadly, the public will probably buy that argument.
One more article. We can thank that wacky Ron Paul for pushing a fed audit bill through congress. Without that pressure we would never see stories like these..
Fed Would Be Shut Down If It Were Audited, Expert Says By: CNBC.com | 10 Jun 2009 | 09:55 AM ET
The Federal Reserve's balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit, Jim Grant, editor of Grant's Interest Rate Observer, told CNBC.
With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in a live interview.
"If the Fed examiners were set upon the Fed's own documents—unlabeled documents—to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down," he said. "The Fed is undercapitalized in a way that Citicorp is undercapitalized."
Grant said he would support legislation currently making its way through Congress calling for an audit of the Fed.
Moreover, he criticized the way the Fed has managed the financial crisis, saying the central bank's target rate should not be around zero.
"I think zero is the wrong rate for almost any economy," Grant said, adding the Fed has "embarked on a vast experiment in moral hazard. Interest rates are the traffic signals in a market economy, and everything's green. ... You have to wonder whether these interest rates are the right clearing rate or rather they are the imposition of a central bank."
Amid a disparity between analysts predicting there will be no rate hikes soon and the fed funds futures indicating tightening by the end of the year, Grant said he thinks the Fed indeed will begin raising rates as inflation creeps into the picture.
Fed funds futures have fully priced in as much as a half-point rise in the target rate from its current range of zero to 0.25 percent.
"If the hairs on the back of your neck stand up when there's too much unanimity of opinion, then one begins to worry about this," he said. "The Fed proverbially has been late."
atbell
quote:
Originally posted by Krypton
So you wouldn't be cautious right now? What do you think of the valuations? Are they too high, too low?
My call is a little of both.
What I've done the most work on recently is the 'value' of the US$.
I took a basket of commodities and currencies and tracked daily changes in the value of the US$ relative to these things from Jan 2, 2007 until a few weeks ago.
The general story is that US$ value went down until about June 2008 (inflation) and then when up quickly until about Nov. 2008 (deflation). At the low in Nov/Dec 2008 the US$ was actually worth more then in Jan. 2, 2007 by about 25-45%. Since Nov 2008 the US$ has lost value at a steady rate and was about par with Jan. 2007 by the end of the study.
What was disturbing was that the trend at the final point was to see the US$ rapidly loosing value (high inflation). Who knows how long that will last for or what would change it.
Send me a PM with an e-mail address if you want the complete study including the complete price data.
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Look at what this means for investors is that any gains made on investments will have to take inflation into account. If you make 10% gain in a stock but inflation is 25% over that same period then your real gains are negative and your standard of living will slide.
I'm also thinking that the companies in the US that will do the best are exporters (no ). Looking at the companies I know Caterpilar stands out as one with global reach and global pre-eminence that I think still manufactures in the US. If they have been doing well with an elevated US$ they will do way better as the US$ slides because thier relative labour costs will tumble. There might be other companies like this but I'm not sure which ones they are. I guess labour intensive domestic companies that have remained competative (without subsidies) and have large export networks already developed.
Krypton
Sold Microsoft (MSFT) today...it reached the $24 intrinsic value I placed on it. Bought in at $18.60 and sold at $24.07 for a 23% profit. I'm going to sit back and wait for the second quarter results to come out before going in again. Especially, at these valuations, the market may be just a tad bit too hot right now.
Shakka
quote:
Originally posted by Krypton
Sold Microsoft (MSFT) today...it reached the $24 intrinsic value I placed on it. Bought in at $18.60 and sold at $24.07 for a 23% profit. I'm going to sit back and wait for the second quarter results to come out before going in again. Especially, at these valuations, the market may be just a tad bit too hot right now.
Funny--it's a name I've been waiting to buy on a pullback and Goldman went and jacked up their price target today. It's one of the few tech names Fred Hickey likes and has several catalysts coming up, assuming Win7 isn't a flop. Of course they go and extend WinXP coverage today which may slow the upgrade cycle, but what can you do...still looking to buy a pullback.
Joss Weatherby
one of my financials announced they are expecting higher than expected losses on some of their debt this quarter...
Thank god for trailing stops... :p
I took that and put it in STLD, but thats going to be very short term while I see where that financial is heading cause I still believe they are a safe hold.
Joss Weatherby
Also those little wheels on WAMUQ are moving up again... :p
Monday might be a good day to dump and buy back when it drops again. I swear that thing is just a little scam to make money for penny stocks :p
Krypton
quote:
Originally posted by Shakka
Funny--it's a name I've been waiting to buy on a pullback and Goldman went and jacked up their price target today. It's one of the few tech names Fred Hickey likes and has several catalysts coming up, assuming Win7 isn't a flop. Of course they go and extend WinXP coverage today which may slow the upgrade cycle, but what can you do...still looking to buy a pullback.
Well, I'm staying loyal to my algorithms which have my target price at $24. So I pulled the trigger. It's made the run I expected. Now, I'm looking for the next bargain to jump on. And just repeat the process.
Since March, I have profited a little over 60%, by buying US Steel and Microsoft, using my algorithms. Now, I'm sitting back on a pile of cash taking my time to make my next move. Calmly, purposefully, I bide my time.
I really do hope this is a bear market rally. 9000 is the ceiling for the Dow and I don't think it's going to break it any time soon. If the Dow breaks 9000, that would really surprise me and I'd probably have to buy on that. But I expect the market to fall at least back to 8000 at some point. In the meantime, I'm waiting to see what happens, with a pre-planned action to whatever happens.
saluyamo
Anyone get hurt this monday?
quote:
TOKYO (MarketWatch) -- The global economy will shrink 2.9% this year, the World Bank said Monday, a steeper decline than the 1.7% contraction it predicted in March. The recovery is expected to be weak, with global growth of just 2% in 2010 and 3.2% in 2011. Economies in Europe and Central Asia are expected to recover more slowly than China or the United States, the new forecast said. "The timing and strength of the eventual recovery in the global economy remain highly uncertain." Read more on the World Bank's Web site.
The grim forecast helped weaken markets, traders said.
Stocks and commodities were trading lower Monday. See Market Snapshot. However, one analyst said blaming the World Bank report was just an excuse. "I have never talked to an institution that has made a sale on stocks based upon the World Bank's opinion of what the global economy is going to look like," Tony Dwyer, equity market strategist at FTN Equity Capital Markets, told MarketWatch.
Listen to the interview. The world has entered an era of slower growth that will require tighter and more effective oversight of the financial system, the World Bank said in a statement. "Unemployment is on the rise, and poverty is set to increase in developing economies, bringing with it a substantial deterioration in conditions for the world's poor and most vulnerable."
Global trade volumes are projected to shrink 9.7% this year, putting many developing countries at risk of a balance-of-payments crisis. It also warned that international capital to developing nations will continue to slow, with flows projected to fall to $363 billion in 2009 from their peak of $1.2 trillion in 2007.
Developing countries will grow by 1.2% in 2009, the World Bank indicated, down from 5.9% in 2008 and 8.1% in 2007. Excluding China and India, gross domestic product in developing countries is expected to contract 1.6%.
The developed economies will contract 4.2% this year, including 6.8% in Japan, 4.5% in the euro zone and 3% in the United States. Both businesses and consumers have grown more cautious. Investment spending fell at a 16.5% annual rate in the fourth quarter in high-income economies, and at a 25% annual rate in developing economies.
In March, the World Bank said the slowdown represents "nothing less than an emergency" for economic and social development in low-income countries. Last November, the bank said the global economy would probably grow 0.9% in 2009 and 3% in 2010.
Joss Weatherby
quote:
Originally posted by saluyamo
Anyone get hurt this monday?
Yea, I got beat down pretty bad across my portfolio, but WAMUQ actually put me in the black today! :wtf:
Groundhog Boy
quote:
Originally posted by saluyamo
Anyone get hurt this monday?
I actually did quite well. I had a FAZ position that I got into under $5, but got out of about 30 minutes too early today after I figured a 13% move was enough. The last time we got into the 5.30s, it trailed off at close and gapped down below $5 the next AM, so I wanted to lock profits. My SPG short also did well.
This sort of correction has been more than coming and I wouldn't be surprised to see us continue downward over the next week or two now that a bunch of technical trendlines have been taken out over the past few days.
The ridiculous upward velocity that we've seen since March has been pretty unwarranted, in my humble opinion, so this is probably the healthiest thing for recovery anyhow. At least this will give the mutual funds chance to buy back into this market now that there are more fundamentals available to assess since they were hesitant during the freefall.
