Hindenburg Confirmed; Dow Heading to 5,000
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Don't shoot the messenger: the Dow might be in real trouble. The Hindenburg Omen has officially been confirmed, and the blind mathematician behind the theory has exited the market entirely, for what that's worth. Friday's market close was a successful confirmation of the Hindenburg Omen that was tripped for the first time a week earlier during the Thursday session.
“I’m taking it seriously and I’m fully out of the market now,” Miekka, a blind mathematician, said in a telephone interview from his home in Surry, Maine. “I would’ve probably stayed in until the beginning of September,” depending on how the indicators varied. “That was my basic plan, until the Hindenburg came along.”
Now analysts are calling for the Dow to face a choppy decline to 5,000 and claim that the U.S. is in a full-blown 1930's-style depression, and not just a recession. The good news is that the decline will come with many significant upward spikes - if you can catch them. Anyone remember when Peter Schiff famously called for the Dow to come to parity with Gold at 5,000? It was one year ago today.
Some of you probably think I'm a doom-and-gloomer because I report stuff like this and the vast majority of the trades I've done over the past two years for the benefit of WSO have been some combination of long gold/short the market. I promise you I'm not a doom-and-gloomer. I simply analyze valuations and make bets accordingly.
As a country, we had an opportunity to take some bitter medicine and right the ship of our economy. We chose (or, rather, Congress chose on our behalf and against the will of the people) to forgo the pain by enacting a stimulus plan identical to the one that has failed Japan for two decades. That stimulus addressed none of the underlying problems which led to the crisis, and only succeeded in inflating stock prices by over 70% at one point.
So it's not doom and gloom to bet against an obvious farce. In fact, it's financially irresponsible to do otherwise. Does that make me a pessimist? Certainly not. I'm optimistic that stocks will soon have the opportunity to reflect their true value. Because only when things have bottomed out can we rebuild a solid foundation.
It may (and most likely will) take decades. And that's something the majority of our instant gratification society hates to even contemplate. But we didn't get here overnight. It took decades of financial mismanagement, Keynesian folly, and government corruption. It won't be fixed overnight, either.
The smartest thing you can do is hope for the best but prepare for the worst. Look on the bright side: it has never in the history of the markets been easier to take a short position. It no longer requires borrowing stock on margin, waiting for upticks, working against anti-short selling regulations, or any of the other barriers that existed before ETF's exploded on the scene.
Now you can just buy a short ETF like you would any other stock. Or you can even play the options to get 100:1 leverage with a limited downside and no margin interest. There may be a psychological barrier to you making a short play, but there are no longer any market barriers to doing it.
This might sound like gloating because my DXD 25 calls finally paid off (handsomely, I might add). But the fact is, I wish I had more. LOTS more. I'm just waiting for a strong up day in the market to layer back into the trade. Here's hoping the bulls are foolish enough to give it to me.
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2012 world ends XD *edit* OP
2012 world ends XD
*edit* OP do you think the underlying problem is work visa's and illegal immigrants maybe even baby boomers 401k get blowed up contributing b/c if one thinks about it a lot of boomer should be retiring but can't :(
Can someone savvy and
Can someone savvy and experienced debunk this hindenburg theory? This makes me a little uneasy, and I'd like to get back to normal life where we're blissfully chugging along, unaware of the looming fundamental/structural drags on the American economy.
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Love how you fail to mention
Love how you fail to mention that the probability of a major market crash based on this technical analysis tool is well under a coin flip (~25%). Granted, since 1985 the indicator has been remarkably accurate.
What about some of the positive information?
- Corporate earnings have improved (of course a lot of this can be attributed to cost-cutting)
- M&A activity is picking up
- Housing has essentially bottomed. Say what you will about yesterday's housing number but is anyone surprised that sales plummeted the month after another government stimulus expired ($8,000 first-time home buyer tax credit)?
- Unemployment? How can we create jobs when we have a communist president who wants to raise corporate taxes and redistribute wealth. Its pathetic that even Canada realizes the importance of cutting the corp. tax rate (from 19% to 18%) while we site here at 35%. Who wants to run a business here?
- Continued increases in employee productivity
You want to increase the employment rate? Cut social welfare programs, force these lazy individuals to take up the jobs of illegal immigrants and deport illegal immigrants since they are ALL criminals.
JBS, to tackle your M&A
JBS, to tackle your M&A response with a counter-argument from Andrew Ross Sorkin (I'm not his biggest fan but this article is exactly what everyone is feeling on WS)
http://www.nytimes.com/2010/08/24/business/24sorki...
Yet a chorus of senior deal makers, who ordinarily would be eager cheerleaders for a mergers revival, are saying: Not so fast.
If you ask them, they will suggest that all the recent merger hoopla may be a positive sign, but it is overdone.
“I’m as befuddled as anyone,” said Mark G. Shafir, head of global mergers and acquisitions at Citigroup. “This is a blow-away August. Yet I can’t call it a trend.”
As Roger C. Altman, chairman of Evercore Partners and a former deputy secretary of the Treasury, put it, “We’re not on the space shuttle.” Using another analogy, he added, “Has the dam just broken? No.”
Paul G. Parker, head of global mergers and acquisitions at Barclays Capital, concurred, saying, “I don’t expect a cork-popping explosion of M.& A.”
So while stock investors may take the recent spate of deals as a sign of confidence in the economy, they shouldn’t get too excited.
With unemployment hovering near 10 percent, the latest wave of deals is unlikely to bolster the job market any time soon.
Indeed, expect quite the opposite: Some of these deals are being driven by “savings,” an overused euphemism for layoffs.
Moreover, many of the deals are being driven by a slowing of organic growth as companies with cash look to pump up their bottom lines.
“If you can’t grow, how do you support your multiple?” Robert A. Profusek, head of mergers and acquisitions at the law firm Jones Day, asked rhetorically before answering his own question. “You do a deal.”
JBS, What happened to
JBS,
What happened to positive? lol
I'm afraid housing has a long way to go before we hit bottom. Here are a couple of excellent articles from Planet Money that make the case for further housing depreciation:
http://www.npr.org/blogs/money/2010/08/24/12939732...
http://www.npr.org/blogs/money/2010/08/24/12939954...
M&A is picking up, and hiring across the board is up on the Street. However, I'm more inclined to believe that the phenomenon is just a reaction to the slash-and-burn Wall Street layoffs of 2008-2009.
I didn't mention the 25% likelihood figure, because I don't believe it (the Hindenburg Omen) has anything to do with why the market will crash. The market must crash because it's a house of cards, not because the stars aligned on some chart. The Hindenburg might help us all time it right, though.
Doom and gloom- and any
Doom and gloom- and any excuse to get out of the market- is going to be the theme when it comes to sentiment for the next five years. This is a dream come true for your typical value investor. He doesn't know when the stock market's going to go up- he just knows that it's historically cheap at 14x earnings and it will probably be higher in 5-10 years.
And the country did change its course, Edmundo. Consumer credit has come down significantly since 2008. For instance, credit card debt is down 22%. Total consumer debt is down by less, but that includes mortgages and other large secured debts, as well. The consumer savings rate has gone from negative to north of 5%/year. It's not where it needs to get to- north of 10-15%, but it's a good start. And we're pulling all of this off with 10% unemployment.
The federal government does need to fix the fiscal situation. But that should mean a decrease in the value of the dollar, not international markets. China, Canada, Australia, Germany, and India don't have the same debt problems that we do- why are their stock markets- even consumer stocks- going down in dollar terms? Ultimately, what's happening here is that volatility is entering the picture and that's driving sentiment, but it's not driving the fundamentals. Ultimately, a basket of currencies and stocks is worth fundamentally more than it was a few years ago.
I've been putting my savings into cash for a long time, and now it's time to change course. When Chinese consumer micro-caps are trading at 2-4x earnings and 0.6x book value and US/Canadian railroads are selling for 10x forward earnings, it's starting to feel a bit like 1980- or at least like 1977.
Can someone savvy and experienced debunk this hindenburg theory? This makes me a little uneasy, and I'd like to get back to normal life where we're blissfully chugging along, unaware of the looming fundamental/structural drags on the American economy.
http://zealllc.com/2010/spxlives.htm
These guys might be from Minnesota, but they're pretty smart technicians and economic historians. In particular, they said that we were entering a 17-year secular bear market back in 2000. They say that if there's another panic- and that's pretty unlikely- it would be the buying opportunity of a lifetime. Better than 1987, better than 1980, better than 1974; possibly better than 1942 or 1933. Their view is that pushing 11 years, we're starting to hit the late stages of the secular bear market and continuing P/E contractions may be outweighed by earnings increases.
I didn't mention the 25% likelihood figure, because I don't believe it (the Hindenburg Omen) has anything to do with why the market will crash. The market must crash because it's a house of cards, not because the stars aligned on some chart. The Hindenburg might help us all time it right, though.
Take a step back from the tech ticker pundits and think about this. This is your typical bear market BS that tends to come in the wake of crash or near the end of a secular bear. It's the same stuff people bought into back at the bottom in 2009. The same stuff people bought into as the market was bottoming in the late '70s and early '80s, after the crash of '87, as well as the 1930s. You've fallen for the tech ticker/CNBC doomer crowd, too. It's easy to do when you're watching it all the time- that's why I try not to pay too much attention to the financial pundits and get caught up in the same sentiment as the herd of institutional investors.
While a panic is always a possibility, the market is not a house of cards. In fact, on a fundamental level, corporations and US consumers probably in better shape than they've been in at least 15 years.
-We have more proved/probable oil and other resource reserves than we did back in 2000.
-Consumer savings is higher than it's been in a decade. Consumers' balance sheets are better than they've been in 5 years and continue to improve by the quarter.
-P/Es are less than half what they were in 2000.
-Banks' balance sheets have improved markedly over the past 18 months.
-The federal government has to print cash at some point to pay down the debt. Do you really want to be short (really long cash on margin)? The US has never seen a reverse panic because it's always had a stable currency, but I can't imagine what it would be like to be short if/when folks lose faith in currency.
-Investors have more money on the sidelines than they've had in quite a while.
It might not be a house of bricks, but it's not a house of cards, either. Fundamentally, we're in better shape than we've been in 10-15 years, and with the dollar situation, there's more "risk" to the upside than downside.
The Hindenburg omen has often been caused by a model breakdown and hedge funds going bust. At least that was the case back in 2008 and 1987. Are you aware of large swaths of institutional investors going bust or getting margin calls? From a fundamental trading perspective, that's what I'd be looking for.
From a fundamental perspective, stocks are fairly valued or maybe even a little on the cheap side. However, in a secular bear market, the herd of sheep let negative sentiment make them think otherwise.
Work hard, play hard.
IlliniProgrammer
-Consumer savings is higher than it's been in a decade. Consumers' balance sheets are better than they've been in 5 years and continue to improve by the quarter.
-P/Es are less than half what they were in 2000.
-Banks' balance sheets have improved markedly over the past 18 months.
-The federal government has to print cash at some point to pay down the debt. Do you really want to be short (really long cash on margin)? The US has never seen a reverse panic because it's always had a stable currency, but I can't imagine what it would be like to be short if/when folks lose faith in currency.
-Investors have more money on the sidelines than they've had in quite a while.
IP,
1. A couple things. You mentioned some nice changes in consumer habits, and I applaud them. But the fundamental fiscal policy of our government hasn't changed a single iota, and that's why more of the same is virtually guaranteed.
2. Are we really going to use year-2000 PE multiples as a benchmark? Really??? If so, I've got some Pets.com to sell you.
3. Bank balance sheets have improved because they've colluded with the Federal Reserve in a massive shell game.
4. I don't imagine I'll be short U.S. equities when the Fed goes into hyper-inflation mode. For that matter, I doubt I'll have anything left to do with the United States at all.
5. Investors are heavy into Treasuries right now, which you might be confusing for cash. It's their funeral.
Sorry I cut off your initial point about oil reserves and other commodities. I'm actually cautiously bullish on the commodities markets, except gold and silver which I like quite a lot.
PANIC PANIC PANIC so I can
PANIC PANIC PANIC
so I can become rich.
Edmundo Braverman wrote: 2.
2. Are we really going to use year-2000 PE multiples as a benchmark? Really??? If so, I've got some Pets.com to sell you.
In 2000, DJI P/Es ultimately contracted by about 35% to the bottom. Between September 2008 and the March bottom, we saw a contraction of about 45% and then a bounce to the point where it was really a 20% contraction with a lot of volatility over nine months where people who were still short in March when the world was supposed to end in a few months got ruined.
We're running out of room to contract, Ed. Assuming most of the world stays relatively peaceful, I don't see a drop of more than 15-20% from where we are right now all that sustainable from a fundamental standpoint. Sure, P/Es could hit 10 in a couple of years. Maybe we could even hit 7-8 at the end of the secular bear market in 7-8 years. But in the meantime, these companies with a P/E of 14 can be expected to grow their earnings organically at 7%/year unless they pay dividends, and that's before we factor in inflation and the fact that if assets get cheaper, growth rates will increase.
3. Bank balance sheets have improved because they've colluded with the Federal Reserve in a massive shell game.
Your point? Are you saying they're going bankrupt or are you saying the feds will have to print money? Also, most of the TARP money has been repaid.
4. I don't imagine I'll be short U.S. equities when the Fed goes into hyper-inflation mode. For that matter, I doubt I'll have anything left to do with the United States at all.
That's too bad, because the US is going to become the new China when $7.25/hour is cheaper than hiring a Chinese employee and those industrial companies that are currently trading with a P/E of 8 and have been out of favor for decades will be exporting inexpensive quality cars, steel, and kitchen appliances again.
In any case, if I'm right- that the feds will have to print money, I win on my Chinese consumer stocks/US exporters. If you're right, the feds will revisit the socialist 1970s, raise taxes on your short-term gains on the short positions, and you'll lose. You can always leave the US or even Western Europe and Japan and rescind your permanent residency, but your expatriation tax will go a long way to helping pay down the debt. :D Yup, the IRS now charges you a fee to leave the country if you make enough money.
There's sort of an asymmetrical outcome here that favors people who place a bet on the market going up, and from a fundamental perspective that takes contrarian views, I think this is a buying opportunity- at least for any stock that exports the results of US labor (which is going to get a bit cheaper in a year or two.)
5. Investors are heavy into Treasuries right now, which you might be confusing for cash. It's their funeral.
Edmundo, being short USD-denominated equities is ultimately the same as taking a leveraged long position on the USD in the currency markets. Instead of putting the Euro up on margin, you're putting some industrial company.
Worse, when the dollar tanks, that company's going to gain fundamental value in real terms. Its exports are still worth the same in real terms, but its costs just shrunk. Sure, shorting US consumer stocks might be a good strategy, but shorting the industrials doesn't make a lot of sense given the current balance of trade situation and likely direction of the dollar. Contrary to Peter Schiff's assertions, a cheap dollar means more exports and therefore profits for US manufacturers, not less.
Personally, I think long-term CDs are a great deal right now. Get paid an FDIC-insured 3% to sit out some of the volatility in the markets, and if/when inflation heats up, take your 0.5%-1.5% penalty and stick the money in stock.
Sorry I cut off your initial point about oil reserves and other commodities. I'm actually cautiously bullish on the commodities markets, except gold and silver which I like quite a lot.
Actually, I'm a little bit bearish on the oil markets. I own some commodities producers because they're cheap and because commodities typically peak at the end of the secular bear cycle, but when you look at the fundamentals, the picture is a lot less scary than it looked to me back in 2004 and 2005.
I'm guessing you're probably some kind of a peak oiler in addition to the other doom and gloom, but given plug-in technology and the increasing popularity and decreasing cost of HEVs and PHEVs with consumers, it looks like we'll be able to start switching over to nuclear and/or the Thorium cycle before oil production peaks. (Hence my long-term bet on U-235 producers). Decreasing energy intensity in the economy should be able to offset the higher fundamental cost of getting our energy from a mix of nuclear and wind.
Work hard, play hard.
IP, All excellent points.
IP,
All excellent points. Honestly, I'd be happy with a 20% contraction from here (truthfully, I'd be far more comfortable with 30%, but I'd take 20%). My history is a little longer than yours. In my mind, historical industrial PE multiples belong around 7-8. You've grown up in an era of accelerated growth. I go all the way back to CANSLIM.
I'm not a peak oil guy, but I might be if I gave oil more thought. I probably should; crude oil is what helped me reach escape velocity in the late 90's. But I want to see us get completely off oil just so I can witness the destruction of the Middle East before I die. (did I say that out loud? lol)
Edmundo Braverman
IP,
All excellent points. Honestly, I'd be happy with a 20% contraction from here (truthfully, I'd be far more comfortable with 30%, but I'd take 20%). My history is a little longer than yours. In my mind, historical industrial PE multiples belong around 7-8. You've grown up in an era of accelerated growth. I go all the way back to CANSLIM.
True. That said, P/Es really haven't seen the single digits since inflation was hitting the double digits. In 1982, my Dad went down the list of every company in the S&P 500 that was trading with a P/E of less than 7 and invested. This move ultimately allowed him to pay cash for our house in the suburbs when he was 38. That said, USD inflation was north of 15% at the time. If your company with a P/E of 7 was paying out half its net income as dividend each year, you needed nominal earnings growth of 8% just to break even, assuming constant payout ratios and P/Es. It's not just growth rates, but expected nominal growth rates relative to inflation that dictate P/E, and there was a low expectation the last time P/Es got cheap.
Assuming earnings of $80 for the S&P this year, we currently stand at a P/E of 13. That's a little below average for the S&P 500 over the 35 year economic cycle. It prices in a little more pessimism than optimism about earnings growth. We could conceivably achieve your 20% drop in earnings multiples over the next three years just by corps reinvesting profits and a modest decline in the dollar with no drop in stock prices. This would put the PE around 10. Factor in 7%/year inflation- and earnings keeping up, and we're already down to 8 without needing a drop in stock prices. Of course, 8 is ridiculously cheap- only hit at years' end in two of the last 50 years. (three counting numbers that would round to 8) In fact, not since 1984 have earnings multiples even ended the year in the single digits on the S&P 500, though I think we touched the single digits at the bottom in 2009. One of the reasons for this may be the long-term bear/bull secular cycle, but another reason might also be lower inflation rates (discussed above.)
I'm not a peak oil guy, but I might be if I gave oil more thought. I probably should; crude oil is what helped me reach escape velocity in the late 90's. But I want to see us get completely off oil just so I can witness the destruction of the Middle East before I die.
Unlikely at this point given the situation in Abu Dhabi or Kuwait, but we can definitely see some of them get forced to modernize. Weren't you betting on higher food prices? If that's the case, I suggest we try to accelerate the process by getting together with South America and forming OGEC, the G standing for Grain. Maybe it's time for Iran to start sending some of those oil profits back... :D
Work hard, play hard.
http://www.cnbc.com/id/158402
http://www.cnbc.com/id/15840232?video=1573819915&p...
I win here, I win there...
More good news- US consumers
More good news- US consumers have less credit card debt than they've had since 2002:
http://finance.yahoo.com/news/Credit-card-debt-dro...
At 15% interest, an $800 reduction in credit card debt means $120/year more going into savings for the average consumer. All other things being equal, the consumer savings rate is going to be 0.2-0.3% higher this year than it was last year because of this.
The US consumer isn't in as good of a shape as he was in 1965, but it looks like we've at least paid down the "Get out and spend money so we can defeat the terrorists" consumer debt before we even adjust for inflation.
Here's to the US reclaiming its historical status as a creditor nation.
Work hard, play hard.
arbitRAGE.
http://www.cnbc.com/id/15840232?video=1573819915&play=1
Thanks, bro. I replaced the video on the post with the link you provided.
i felt like i learned a lot
i felt like i learned a lot after skimming this thread...
---
man made the money, money never made the man
Damn, what's with all the
"The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
- Ronald Reagan
Tightening belts doesn't get
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Anthony, I appreciate your
LOL I totally agree that no
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Edmundo Braverman
"The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
- Ronald Reagan
Agree with Anthony. It ain't
Work hard, play hard.
I doubt it.
All I will contribute to this
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Oh and btw, anyway seriously
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ideating wrote: All I will
Work hard, play hard.
Edmundo, Are you still gonna
Absolutely. Nothing
I think business is scared of
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Anthony . wrote: I think
I am not cocky, I am confident, and when you tell me I am the best it is a compliment.
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Anyone want to confirm? I'm