Market Crash - Shoddy fundamentals
-The market rally is built on shoddy fundamentals.
-25% of people on unemployment run out of benefits between Oct and Dec.
-Investors having growing concerns over short-term automated platforms (which account for a huge amount of volume).
-Savings rates are rising.
-Mid- to long-term, the foreign appetite for US debt is shrinking. Treasury auction yesterday poses some hope, but I don't see a long-term absorption - and the success of the auction hurt the dollar.
-Unemployment numbers released by the government are deceptive. When you take out unwarranted seasonal adjustments (eg - adding numbers to the auto sector in July) and consider utilization (33 hr work-week?), it's getting worse.
On some of my favorite sites (seekingalpha, zero hedge, realclearmarkets), I've seen more and more predictions of another imminent market crash (~35% decline or more, putting us in the high 5000 / low 6000 range, coupled with high volatility).
Do people think this rally is sustainable, and what position(s) would you take to express your short-, medium-, and long-term views?
No, Cramer and CNBC already called the bottom, so obviously a decline in stocks/financial markets, or economic activity, is not possible. Kidding...though I don't neccessarily think a crash is coming.
5000 to 6000? I just cant see that happening. Hopefully I am right...
5000-6000... I hope that happens, I invested in the initial dip in the beginning of the year, then continued to double down as financials continued falling precipitously... unfortunately I kept doubling down on margin, got slapped with margin calls and just cut my losses. I dont need anyone to tell me how insanely stupid this was... in any case... I could use a buying opportunity to recoup some of my losses.
That was very stupid.
But seriously, I've been in cash for close to the past 6 weeks... despite the idiot technicians out there sprinkling chicken blood on their charts, it's really tough to make a case to stay in the market. Ignoring the inevitable trade4size post about some horseshit chart pattern or some Market Wizards quote, you've got to be an idiot to believe this can continue to X support/resistance level.
yesman - A lot of authors on Seeking Alpha are full of shit. Zero Hedge is ok, and I've never read realclearmarkets... PM if you want more details.
I managed to take advantage of this run up with no margin calls, but I'd welcome another plunge to the 5,000-6,000 range. I'm definitely not excited about paying these prices.
Team Obama over the past 10 days or so have gotten really aggressive in the media declaring that the worst is over, and that their boss saved the world. My distaste for hubris is another reason I'd like to see a subsequent crash.
And I guess when it all comes down to it, I'm something of a moralist. I believe that when a market has been "saved" through wholesale moral hazard, it deserves to go back into the dumper.
The WSO Guide to Understanding TARP
Ideating why do you hate technical analysis so much? I have noticed that you repeatedly reference it whenever your bashing me and I was just wondering why you are so opposed to it. You do realize that in in pretty much any highly liquid asset class is traded extensively off technicals right?
I still see Dow 10k S&P 1100. The bottom line is people are still chasing the rally and since earnings season has kicked off they are doing so at an accelerated pace.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
Of course I'm not opposed to technicals - anyone who trades can't ignore them. But I get annoyed by people who use some bullshit charting techniques that have little basis in reality (i.e. moon cycles) or confuse luck with accuracy on other indicators (if it breaks the Bollinger it's going to trend unless it's a head fake in which case never mind). To be fair, that's a relatively small part of the trading population. But the much larger problem is people being either too stupid or lazy to evaluate fundamentals properly and end up relying on technicals as a crutch. Ultimately, you need both. The 100% fundamental guys are economists and the 100% technical guys are morons.
...no need for horse-blood to make a case to be long stocks or anything else, here is the #1 argument in my book:
The money supply has been doubled in the last year. For many months, that money supply increase was offset by banks not taking any risk. Now banks are taking risk again and that money supply is starting to move...MS missed earnings last quarter and the CFO flat out told the WSJ that they werent going to get caught being to conservative again....that is the current mentality of banks. Amazingly, not even a year out from the precipice of doom, we are already back to the age of "can you top this" in terms of risk appetite. Doubling of the money supply + risk appetite = rising prices somewhere. Consumer prices aren't going up since nobody has a job to pay for anything, but that money is finding its way into financial assets. In such an enviornment, valuations and fundamentals may be meaningless.
...keep in mind this is just a money printing-induced rally that will probably once again end in tears, but that dosent mean it cant go longer and farther then any bear could anticipate.
Damn you... I was sure this thing was going to burst in the next 1-2 months before I read your post. What's funny is I have the exact same theory about China (and commodities), I just didn't port it to our economy.
So how long do you see it lasting?
Ideating -
I think you have a good point about bank lending picking up and causing price ascension. But I think the low velocity of money will mitigate inflationary pressure. In short, money is not circulating through the econonmy as quickly. Bank lending is a significant part of the picture, but we must ultimately look to the US consumer - with rising savings rates and a pending drop in the unemployment benefits, I still see a bleak picture for GDP pickup.
As for what skin I have in the game, I think the technicals are wrong right now to start a short position. I see market peak 9700 - 10000, with the big decline end of Sept / early Oct, with a decline of at least 15% by year end, followed by a terrible January not unlike Jan 2008.
Pending developments, I will be buying VIX and SPXU mid-Sept...at least $15k of each, which would be a significant part of my portfolio (size of which I'd prefer not discuss).
Ideating I do rely primarily on technicals as far as my entry/exit but I get my ideas more off macro analysis. I limit my technicals to basic price action interpretation. For once I can say I agree that the 100% fundies/100% techicians are both bafoons. My trading is a hybrid of both. The problem with non professionals using fundmental analysis or information arb is that they have a much more limited access to timely information as to what is really driving the market. Its tough to know what the big players are driving the markets are looking for.
Unless your very well connected in who you talk to its tough to trade off the short term fundamentals simply because your always going to be a step behind the big boys. In the longer term I think its a more level playing field.
The little guy doesnt necessarily need to have good information to make money trading though. I truly believe its more about psychology/discipline/risk management than it is idea generation.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
...i am very conflicted right now and change my mind frequently...i am not really sure how long its going to last. My point though is that in an enviornment where the money supply has doubled one must be respectful of the distorting effects that can have on prices and so even if u r right on the fundamentals the market could keep going higher. Fundamentals are really meaningless compared to the "technical" of supply of stocks vs. need for money to find returns in an enviornment of loose monetary policy. Friday notwithstanding, right now just about every asset that dosen't have a massive supply overhang (houses) is going up in price.
http://www.ft.com/cms/s/0/2559e768-88f0-11de-b50f-00144feabdc0.html
The WSO Guide to Understanding TARP
things would have to get markedly worse. While it's obviously possible, I think it's pretty unlikely.
I'm a dumbass and bought some PCS shares at $11.90 two weeks ago right before the approximate 30% decline of both PCS and LEAP. It's now around $8-$9 and I'm wondering if I should hold on to it or cut my losses before it goes down more. Any thoughts if you're familiar with the stock?
consider applying dollar cost averaging to those shares.
I'm making it up as I go along.
i love how this kid always hijacks threads to seek advice for his own personal shit. dude, why would you take stock advice from some random college kids who are probably all sophomores making such detailed predictions about the market that you would think they write for the economist or something.
yesman... how much of skin do you have in the game and have you put your money on this call of yours?
I pulled all my money out of the market in Sept. 2007 back when the market was in the mid-13,000s. This has been one of the best trading moves of my life. I've been waiting for more than a year now to get back in and I just can't do it. I truly believe that there will be another significant dip prior to the sustainable growth. All I have to do is look at the companies in our portfolio and it is quite obvious that there will still be challenges ahead of us. Unless the current rally remains artifically inflated while we fight through the tail of the recession, I don't foresee the DOW remaining at 9,000+.
~~~~~~~~~~~ CompBanker
Most would agree that the worst is behind us in terms of economic news, and that growth (albeit initially anemic growth) will be resuming.
So, why are we going to have a new low reached in US equity markets? Certainly there will be a pullback from this little rally we have experienced in recent weeks, but can anyone offer up a well thought out reason that we will reach new lows, instead of gradually clawing our way back? US stocks may be somewhat pricey right now, but it seems that the long term movement can only be upward now. I was heavily bearish from late 07 until four or five months ago, but now it seems that the worst has passed. Can anyone who knows what they are talking about offer up a legitimate reason why we will reach new lows?
PS Technical analysis is about as credible as astrology
Can you offer a "well thought out reason" why it seems the worst has passed? Because I don't think you can. And I doubt you have any money where your mouth is.
yes, growth is slowly resuming, as evidenced by countries slowly crawling out of recession. Time will tell that the recession in the US ended sometime this summer. I have my money where my mouth is. I would like to hear a reason why I am wrong, and I will rethink my position.
Congratulations you were able to perfectly time the peak in October '07 as well as perfectly time the trough in March. I bet you are a very rich man right now. Please share your knowledge with us on WSO and teach us your phenomenal market timing skills.
Not exactly perfect, I lost money from Oct through December in 07. I incorrectly closed out many of my shorts a little while before the Lehman crash, leaving my overall exposure only slightly short. I gradually became more bullish, losing more money when the market hit bottom since i was more long than short at that time. After the last major dip in march I went over 100% long and have reaped some benefits since. As I've said, I'm looking for a convincing reason to think something horrible will happen, I'd guess a pullback is coming, but the real question is how big it will be. If anyone can offer up something worthwhile I'm all ears.
I've outperformed the market, but overall all I'm not up much more than 15% in the last couple years. Considering that I'm in my mid 20s and in business school, a 15% gain leaves me far from rich.
The opinion of legends is divided so who knows...My personal view is that bottom may be retested but will not be significntly broken. I'm 90% long and 10% cash.
I agree that the markets will most likely head back lower due to the fundamentals in the economy. But I think it is going to be more difficult to make money trading from the short side going forward due to so much govt intervention and money printing. I think the better opportunities remain in gold and gold mining companies, especially some of the junior miners who are more highly leveraged to the gold price. Here is a good discussion on some of the macro issues related to the gold price, as well as news on numerous mining companies: http://www.goldalert.com
Yesman why SPXU and not SDS? How do you plan on buying VIX, are you going to create a synthetic long position using the options or just buying calls on it?
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
I'm going with SPXU because it uses more leverage and is even less diversified than SDS.
VIX will probably be with calls and I may establish a calender spread, pending the technicals at the time. I will probably establish the position before SPXU - maybe this week.
most people on this board don't have their money where their mouth is....
patrick, i recommend some kind of place on this site where you can make a call, define your play on that trade, and then be judged on that call as time passes. maybe a forum or a tracking system built into some sort of poll feature? i don't know how to run a web site, just a thought for those on here who are so bold with their after the fact predictions and i told you so's... (most coming from people who weren't old enough to vote when the mortgage crises first erupted)
This market is unbelievably strong. We got the big down day on Tuesday but by Friday we had managed to rally all the way back. We keep selling off on news in the morning and slowly spending the rest of the day climbing back. It has been difficult to hold shorts past 11am. Tuesday we got that follow through and you saw the amount of panic to the downside so I think both sides of the market are really nervous right now.
Tomorrow is basically back to school for the markets after a slow summer. I am hoping for a volatile fall but am unsure if we will get it or not.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
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