Comments on: Getting bearish again

By: pwm

pwm — Mon, 24 Aug 2009 23:23:00 +0000

http://www.calculatedriskblog.com/2009/08/fitch-dramatic-decrease-in-cure-rates.html

I’m with you on the write-downs.

By: doctorx

doctorx — Mon, 24 Aug 2009 21:38:00 +0000

Agreed it’s hard for stocks to crash as the economy turns up.
Your comments are greatly appreciated.
Please keep up the truly fine work.?
The difference in objectivity and predictive accuracy between what you and the high-quality bloggers do vs. what comes out of the MSM (and forget the brokerages) is amazing.?

By: Edward Harrison

Edward Harrison — Mon, 24 Aug 2009 21:07:00 +0000

And by the way, being mildly bearish means I expect a pullback, not a crash. Whether the rally continues after a brief pullback depends on the fundamentals. Right now, the longer-term fundamentals don’t support much more upside from here. But, it’s not like we are partying like it’s 1999 here.

I saw the Rosenberg thing. He still seemed bearish, but if you were bearish all the way from March, you took a beating. Not what one terms outperformance.

By: doctorx

doctorx — Mon, 24 Aug 2009 20:49:00 +0000

Thanks, Ed, for the coments and the rapidity of the response.?

Regarding your (mild) turn to the bearish stock tilt, here’s some contrarian support.? I have a bearish stock broker who gave up fighting the tape about 2 weeks ago.? And I work with a bond broker who’s very astute, went long stocks at the bottom in his personal account and predicted about 2 weeks ago that the S&P would peak in the 1000-1100 range and then have a significant downward move.? And in case you didn’t see Afternoon Tea with Dave (Rosenberg), he’s sort of throwing in the bearish towel for the near-term stock trend as well because he is tired of fighting the tape.?

Gold is acting like quite the “flation” hedge these days.? Am I correct that the yen depreciated in gold terms throughout Japan’s deflationary ZIRP time?

Thanks for the link.? Am getting into a meeting and will look at it when relaxed.? In the meantime, I posted positively over the weekend on the long T-bond (specifally “TLT”), and would be honored if you would read it:

http://econblogreview.blogspot.com/2009/08/case-for-long-treasuries-gets-stronger.html

CHEERS

Larry

By: Edward Harrison

Edward Harrison — Mon, 24 Aug 2009 19:25:00 +0000

doctorx, I just posted a funny little SNL skit a friend sent me about a weak dollar that kind of puts my thoughts on this in perspective:

http://www.creditwritedowns.com/2009/08/the-u-s-dollar-circa-2005.html

I didn’t ad-lib any commentary on it because I’m not sure where the dollar is headed these days. But, it definitely is related to Barry’s thoughts about 1975.

I question whether the fed can create any inflation in this environment. I certainly think they want to. If they can, you’re looking at some serious problems down the line. What seems likely to me is that, at a minimum, the US currency loses value vis-a-vis hard assets like gold, oil or commodities. That would certainly put some cyclical inflation into the system, but from a secular perspective, we need to get rid of a lot of capacity before inflation comes back in a secular way.

So, I certainly like gold as a store of value i.e. as a hedge part of a larger portfolio. I know people like Buffett do not and physical demand for gold is declining right now. So, perhaps oil is a better ‘store’ of value.

By: doctorx

doctorx — Mon, 24 Aug 2009 19:03:00 +0000

Barry Ritholtz’ analogy of this market to 1975 “works” for me, with the twist that the trend then was to higher interest rates. a trend that was to last for about 40 years, from the early 1940s to 1982. The nominal Dow low of 574 in Dec. 1974 was not pierced, but of course 1982 undercut it in real terms.

If the ongoing secular trend remains deflation/lower Treasury rates, nominal stock prices may not have peaked, unlike in 1974.

I am interested in your thoughts on this analogy, as well as on gold as a store of value through ownership of an ETF.

By: Anonymous

Anonymous — Mon, 24 Aug 2009 10:15:00 +0000

Bulls vs Bears or is the S&P simply repricing itself to reflect the ongoing and perceived downward spiral of the US dollar as Obama and crew drop money from helicopters?

By: aitrader

aitrader — Mon, 24 Aug 2009 06:45:00 +0000

Link to Peter Drucker’s article from 1986:

“The Changed World Economy”

http://www.foreignaffairs.com/articles/40805/peter-f-drucker/the-changed-world-economy

By: aitrader

aitrader — Mon, 24 Aug 2009 05:41:00 +0000

To add a bit more evidence to your mildly bearish stance let’s not forget the CRE collapse hitting malls and shopping centers that were built at a frantic pace over the last decade in the US. The recent demise of CIT is just one symptom of this collapse. Add to this continued housing weakness and loan defaults eating into the Prime loan sector to the tune of 7.8% last I checked. One out of four loans in the US is in default or seriously delinquent. Even though the massaged housing numbers show a slight improvement in sales I find these figures highly dubious when surrounded by sky-high default levels and near 10% unemployment.

Add to the above shaky fundamentals a global trading market that is nearly frozen, if the Baltic Dry Index is any reliable indicator, and consumers around the world are simply not consuming. This also explains the record production capacity drop you mentioned.

So where does the recent record rally come from? The financial markets seem utterly decoupled from fundamentals. I remember a similar time in the mid-1980′s when economist Peter Drucker wrote a piece in Foreign Affairs magazine about a decoupling of real and financial markets. He opined that this was a new and sustainable trend. Then we had the crash of 1987 and folks discovered, yet again, that the rules of business and finance are age-old and flex from their traditional bounds only temporarily. Their snap-back return to historical norms catches many off-guard and can be violent and sudden.

Guess this view makes me “mildly” bearish too!