Is the Hindenburg Omen for Real?

The web is on fire with stories about the Hindenburg Omen that was triggered last week. The Hindenburg Omen is going to make things very bad, very soon, if technical analysts are correct. Never heard of it? You're not alone. It's a market anomaly that happens very rarely. However, when it does happen, it can mean we are heading over a cliff, and fast. The last time it happened? June 2008.

The Hindenburg Omen is created by a combination of factors, the primary being that a substantial number of NYSE stocks hit their 52-week highs and lows at the same time, and that the concentration of those stocks makes up at least 2.2% of the overall number of stocks listed on the NYSE. There are a number of other conditions that add to or detract from the severity of the predicted crash, but the only other mandatory condition is that the number of 52-week highs is less than double the number of 52-week lows.

All these conditions were met last Thursday.

Now, you may doubt that the Hindenburg Omen is a real harbinger of doom. It is, after all, a relatively new indicator postulated in the mid-90's. What there can be no doubt about, however, is how seriously it is being taken by traders. And it is lighting up the Internet.

The Street is on it (link above), CNBC is on it, Forbes is on it, and you can bet your ass Zero Hedge is on it. Hell, even the L.A. Times is on it. Those DXD calls of mine are looking better all the time.

In any case, it looks like we won't have to wait long to see if it's for real. The Hindenburg Omen triggered last week is indicating a back-to-school market crash in September. So what's the consensus, guys? Is it the real deal, or a bunch of chartist hooey?

 

Please not again, how many years will a graduate have to continue struggling after graduating.

Maybe I do not have quotes under my name on google, but I KEEP IT REAL
 

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 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/24sorkin.html?_r=1&scp=2&sq=…

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 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/2010/08/24/129397321/in-the-long-view-ho…

http://www.npr.org/blogs/money/2010/08/24/129399547/a-year-s-worth-of-u…

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 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.

 
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.

 

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
 

More good news- US consumers have less credit card debt than they've had since 2002:

http://finance.yahoo.com/news/Credit-card-debt-drops-to-apf-3078079176…

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.

 

Damn, what's with all the technical BS? Can't we just cuss at each other and point fingers?

I don't think the housing market is near the bottom. Rents are low and there is little incentive to buy a house. Mix in a little fear about potential unemployment due the a continued decline, health care changes, tax hikes, etc and you have the uncertainty that will kill us. I have heard stories from a number of people who haven't paid a dime on their mortgages for over a year and haven't even been contacted by the bank yet. There has been no foreclosure, no attempted sale...just a house sitting there, in some cases with the owner still living in it. What does that tell you? I don't think the bank's BS reflects the deflated values of a large percent of the inventory that is out there, which means there are possibly more houses to be sold in a market that is just stuffed to the gills with inventory. Obviously the next step is the start lowering prices to get these things sold which will only depress the market even further.

I think hyper inflation is a real threat in the near term and obviously any attempts for the US government to control that will have a negative impact on home sales which, coincidentally, happens to be the other major issue in the country right now. I think there is a catch 22 at this point and we won't be able to dig ourselves out of this hole until one side is taken care of.

I have said for quite some time now that the US will have to take a bath eventually, there is just no getting around it. I think the house of cards theory is right. While it is admirable that the savings rate has increased (its good people are being more responsible) but that just means even less consumer spending, which means less business which means fewer taxes collected, etc. The current administration is heading down a path that is breeding continued uncertainty...and that isn't good.

If the government tightened it's belt half as much as the American people have we would be in a much better place at this point than we are now mostly because we would be a road to recovery.

Regards

"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 votes. As long as you can demonize rich people and make it look like you can drain their pockets forever nothing will get better.

When times are good we spend more. When times are bad we borrow more. There is no such thing as paying down debt or savings. This is all rational since politicians are interested in being reelacted and people never want to pay more.

Housing market is going to suck for a long time

1) Over supply 2) People are disillusioned (homes are no longer an "investment"). A paradigm shift has occurred. 3) Lending standards have not only tightened to pre crisis levels, they have gotten more strict. 4) Credit is shot. People are over leveraged, incomes are down or stagnant, home equity has disappeared.

All this talk about doom and gloom is silly. It is like the person who goes to the gym for a week and complains that they will never get in shape.

We need to reduce tax credits, increase taxes for some, reduce benefits and start paying down some debt. This is not going to make you Mr Popular, but being a politician is about doing what is good for the nation, not being re-elected.

I say allow more bankruptcies. Companies will lose money, but that will be partially offset by loss provisions. People will de-leverage very fast and their credit will be shot so they cannot make the same mistake for a while.

Look at the core problem. People have a shit load of debt. They are saving because they are afraid. You can't just wipe it out because people will not learn their lesson.

To everyone who complains about how this benefits the fools and not the people who lived within their means I say this, quit fucking bitching. That argument reminds me of grade school when someone got more snack then the other person. Trust me, heavily indebted consumers are not living high off the hog right now. Their life sucks 10x more than the thrifty person.

 

Anthony,

I appreciate your point of view and was hoping you'd weigh in. I didn't think I'd ever hear you call for higher taxes, though (not that it's a bad idea, at least not as bad as increased govt spending).

When was the last time you saw a politician make those kinds of changes, though? It's not a hypothetical question, because I know a few Presidents in history have put doing the right thing before re-election, I just can't think of any right now (might have something to do with the champagne I've consumed tonight). Eisenhower? That's sounds right.

I know you're a fan (or at least an apologist) of George W. Bush, but he really was the Herbert Hoover of our time. His economic policies were really stupid, and were only amplified by Obama. Do you see any politician on the horizon that can do the right thing and pull us out of this mess?

My generation let all of us down in 1992. We had an opportunity to elect H. Ross Perot and change American history forever. But how could you resist a dope-smoking, draft-dodging hillbilly who played the sax?

 
Edmundo Braverman:
...how could you resist a dope-smoking, draft-dodging hillbilly who played the sax?

Sounds dreamy, lol.

The fundamental issue with trying to raise peoples taxes is that the money being collected now is not being spent wisely. There is just too much shit the government subsidizes with our tax dollars that is just flat out inefficient and wasteful to justify needing more money.

This is like a drug addict begging his parents for money because he hasn't eaten in days, then using the money to buy drugs...then going back to his parents and asking for more money because he still hasn't eaten.

This is what the government does. They want to shovel fist fulls of cash into the hands of unemployed "poor" people, some who are 30 or 40 years old who've never worked a day in their lives...then come crying to the tax payers that the budget is fucked up and saying we need more money or Ms. Tanya Teacher and Mr. Paul Policeman are going to lose their jobs due to budget cuts, etc.

One thing we were taught in the Army is that, as leaders you won't always be liked. Unfortunately that isn't a mantra that is found in politics...somewhat understandably. That is why I harp so much about patriotism. I guess I feel that if our leaders cared more about the good of the country than about how others view us then we could get more shit done. Damn I'm living in a dream world.

Regards

"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
 

LOL

I totally agree that no politician in their right mind would do anything I outlined. I am also fundamentally pretty much anti tax. Problem is I am also a proponent of paying for what you use. We are moving more and more towards a European social welfare system, but we still hold to this anti tax sentiment. One or the other. We simply cannot provide hand to mouth for everyone without paying out the ass for it.

What I think will happen. I think we will stay the course until the day comes when something cataclysmic will happen. When things get so dire that it NEEDS to be addressed there will be a politician who will capitalize on this and use it as a way to either vastly increase government power or tax the living piss out of people.

People are so dumb man. I really do not think there is a true appreciation for history. People do not change.

It really saddens me. We have been at 10% unemployment for what, 3-4 years now and people are talking like the world is over. Americans are by and large lemmings with zero stomach to make real changes.

To everyone on this board, your only goal should be to make as much money as possible. Money = power. You can't change this countries path so all you can do is make sure you have some influence or assets.

We need a Caesar. Someone who would take charge, do what has to be done and then step down. George Washington was that kind of man. I don't think we could find someone like that nowadays.

 

Agree with Anthony. It ain't that bad yet:

http://miseryindex.us/customindexbymonth.asp

That said, despite the fact that things kept getting "worse and worse" from 1973 to 1980 (arguably 1983), the stock market bottomed in 1974- not 1980.

To everyone on this board, your only goal should be to make as much money as possible. Money = power. You can't change this countries path so all you can do is make sure you have some influence or assets.
In the long run, money, prestige, and even power in the traditional sense really aren't all that important to most peoples' life goals. But it doesn't hurt to make hay while the sun shines. And I still think we haven't had it worse than our parents yet (certainly not worse than our grandparents.)
We need a Caesar. Someone who would take charge, do what has to be done and then step down. George Washington was that kind of man. I don't think we could find someone like that nowadays.
You can always find someone like that. The real question is whether we need someone like that. Hopefully, we don't. But we might.

It would be interesting to see someone run for president on the Winston Churchill ticket and promise to pay down the deficit even if it meant letting children go without medical care and making unions angry.

 

All I will contribute to this thread is that value investors are going to get carried out on a stretcher. Value investing as a whole is a fundamentally mean reversionary strategy, which is great in a secular bull market (since the early 80s) or a credit bubble (all of 2000s). However you want to phrase it ("new normal", etc.), we are going to see a total secular shift in the market and this generation is going to learn the meaning of a secular bear market. People forget there have been decade-long stretches of exactly zero growth in equities. We are on the tail end of one of the greatest economic bull markets in history and people are ignoring the coincident rise in individual investing in the stock market.

Value investing is appealing to a lot of people because it seems to "make sense". Do your homework, find undervalued companies using this process vs. this multiple, do this this and this analysis and you will be rewarded. That kind of paint-by-numbers approach will get crushed - 14x may seem like a great multiple, but what will you say when you buy and hold and see the tape print a 11x? Or 8x?

A classic investment rule is that the fixed income markets always lead the equity markets - the 2 yr auction yesterday was ridiculous and the print this whole morning was not a good sign. 10 yrs busting 2.5 and JPY crushing it at 85 should tell you something. Even sell-side research guys are calling when not if govts will default - guys on the street probably saw that report passed around this morning.

ideating:
All I will contribute to this thread is that value investors are going to get carried out on a stretcher. Value investing as a whole is a fundamentally mean reversionary strategy, which is great in a secular bull market (since the early 80s) or a credit bubble (all of 2000s). However you want to phrase it ("new normal", etc.), we are going to see a total secular shift in the market and this generation is going to learn the meaning of a secular bear market. People forget there have been decade-long stretches of exactly zero growth in equities. We are on the tail end of one of the greatest economic bull markets in history and people are ignoring the coincident rise in individual investing in the stock market.
Yes. And that's exactly where a value investing strategy does best. Value investors don't get caught up in the hype of "growth". They pay for earnings and book value, and maybe add a slight bonus for dividends. When we have our 1983 moment and growth stocks are trading at 12x earnings, I'll think about switching, but until then, value just makes the most sense. Utilities, pipelines, infrastructure, and commodities producers are still pretty cheap. And manufacturers are cheap, too. It's boring and unsexy, but it's the only way to keep up with inflation.
Value investing is appealing to a lot of people because it seems to "make sense". Do your homework, find undervalued companies using this process vs. this multiple, do this this and this analysis and you will be rewarded. That kind of paint-by-numbers approach will get crushed - 14x may seem like a great multiple, but what will you say when you buy and hold and see the tape print a 11x? Or 8x?
Let me educate you on the strategy most value investors follow. You stick 1/3 of your money in at 14x earnings or whatever you think is a good value- ideally in a dividend payer, and then hope and pray it goes down to 11x or 8x. Going all-in all at once, no matter what your strategy is incredibly stupid. If it hits 6x earnings when a value investor gets his next paycheck or dividend check on no bad fundamental news, the value investor isn't sad- he's thrilled. Instead of buying something that will be worth $1.80 in ten years for $1, he's paying $.42. The longer the stock stays cheap, the higher your annualized returns in the long run. If the stock can afford a $0.50 dividend, you opt to reinvest, and it drops from $10 to $6.00 for two years, you make out a lot better for the same price in five years than you'd make out if it stays at $10 for two years- you've been given the opportunity to purchase more shares with those dividends while the stock stays cheap.

Keywords here are investor and fundamentals. If you're in for the short term, you don't have a 5-10 year time horizon to wait for the stocks to go back to their fundamental values. But it's more than just mean reversion in terms of technicals- it's the notion that eventually, stocks get back to their fundamental value.

In any case, we've been in a secular bear market for the past ten years. If this were a secular bull, we wouldn't have hovered at the same price on the DJIA for so long. If you buy into the 35-year secular market cycle, we should get out in about year 15-17.

A classic investment rule is that the fixed income markets always lead the equity markets - the 2 yr auction yesterday was ridiculous and the print this whole morning was not a good sign. 10 yrs busting 2.5 and JPY crushing it at 85 should tell you something. Even sell-side research guys are calling when not if govts will default - guys on the street probably saw that report passed around this morning.
Yes, and this is where value stocks really outperform their growth counterparts. With a growth stock, most of the present value is coming in from dividends and earnings way out in the future. With a non-financial value stock, you've essentially got a lower duration and therefore less sensitivity to rates. Simple stuff- not that complicated, but it's good to have a fundamental understanding of a process before you condemn it.

And value investing isn't the silver bullet of finance. It's just that it tends to work better in a secular bear- particularly with the potential for higher interest rates and inflation- than growth does.

Oh and btw, anyway seriously touting unemployment at "only 10%" is either financially uneducated or has an agenda.
I cited that because it's the official measure, but even if you factor in underemployment and people who aren't in the labor market, the misery index is significantly lower than it was in 1980.

Stop whining- things really aren't that bad. In the early '80s, my Mom and Dad, who turned out to be pretty successful, were growing their own vegetables to save a few bucks a month on food. They claimed they were living pretty well knowing that their parents sometimes had trouble getting their next meal during the Great Depression and that much of the world lived under brutal dictatorships or on less than $1/day and people back then were getting kicked out of mental hospitals and formerly middle-class people were living under the bridge behind our house. Today, most people on these forums are being thrifty if they commute more than 30 minutes to work to save several hundred bucks a month and most of the homeless have been that way since the '80s. (Although it is still sad.)

 

I think business is scared of Obama. Once mid term elections are done and the Republicans even out the power balance I think they will feel more comfortable moving forward. News Flash, you want unemployment to go down you need the private sector to hire. Companies are not going to hire if they see uncertainty in the future. Not saying that is the only reason, but it sure as hell doesn't help. In times like this the government needs to partner with business (big and small) and work it out together. It doesn't help anyone that the govt has been continually demonizing banks, F500, rich people, etc.

 
Anthony .:
I think business is scared of Obama. Once mid term elections are done and the Republicans even out the power balance I think they will feel more comfortable moving forward. News Flash, you want unemployment to go down you need the private sector to hire. Companies are not going to hire if they see uncertainty in the future. Not saying that is the only reason, but it sure as hell doesn't help. In times like this the government needs to partner with business (big and small) and work it out together. It doesn't help anyone that the govt has been continually demonizing banks, F500, rich people, etc.

Anthony, I agree that Obama has not laid out any business agenda but Americans simply are not spending. Prior to the recession, 70% of our GDP was consumption and Americans were saving -4% of their income per annum; this has seen at 10% swing to 6.4% as of the beginning of August. In the end, companies will only go back to the hay days of 2002-2006 when Americans start acting as irresponsible as they were before. It would be good if these increased savings were plowed into investment in infrastructure and capital goods, but at the end of the day, these increased savings will just prop company equity and inflate the stock prices.

I am not cocky, I am confident, and when you tell me I am the best it is a compliment. -Styles P
 
Edmundo Braverman:

That'll work too, but TVIX is 2x levered. Leverage is delicious.

Something about Turbo Leverage = Capital Explosion or something...

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 
MonkeyMath:
Yes, the Hindenburg Omen is real, but a better technical indicator of impending market collapse is when I am searching for a position in finance.

How do you know its real? This is total bullshit. I'm going to have to agree with Taleb on this one. Humans will do anything to show that they can prove why something happens. So some people in the 90's come up with a set of parameters that meet the conditions of an economic collapse...so what??? I'm sure that could be done countless times, and it has. The sad thing is, is that people on here are right. Even if this has no correlation what so ever, which I highly doubt it does, this could likely turn into a self-fulfilling prophecy. Efficient markets my ass. What a joke.

 

The guy who found it said that the mere presence of the omen is no guarantee for a crash at all (but that every crash will be preceded by this anomaly). that being said, i'd probably be a bit worried too if i had any open positions at the moment

 
TrippinBilly:
it needs to happen twice in a rolling 36 day period... someone set the deathclock. and if you need me... ill be over here - in cash.

It already did..8/12 and 8/16

 

One thing to keep in mind was the cause behind the Hindenburg omen last time- a bunch of hedge funds blowing up. Same with the crash of '87 (Caveat- I was getting my news from Sesame Street- which mostly covered Broccoli and crayons- when that happened and just noticed that a lot of my Dad's clients were calling him at home all night long.)

One way of looking at it is the Hindenburg phenomenon is a sympton of a set of faults in the models. The question is how bad is it and how prepared are we for it? Back in 1970, for instance, the market was still being run by folks who survived the Great Depression- and it was unleveraged enough that it could handle the Penn Central default without flinching. IMHO, 2008 wasn't a bigger shock to the markets than Penn Central was, but there was more leverage in the system.

There's less leverage today than there was in 2008. And the fundamental economy is on a little more solid footing. Consumers are less leveraged, oil is cheaper, and there's now an obvious- if long- path to a more sustainable economy for the US.

As a hint of where I think things are going, the MLP sector is setting record highs. MLPs require massive, massive tax work for anyone who owns them. Pipelines and oil trusts are also pretty simple to model. Hence, they typically have a higher institutional ownership and tend to be more driven by models.

MLPs starting taking a big hit back in June of 2008, but this time around, they're doing pretty well, and in fact, following the old rule of thumb of 10-year-treasury yield +4% for a fair price. This time around, it's possible that the model-driven funds are recovering and the stuff that fell out of favor as the models broke- like MLPs- are now coming back.

I'm more heavily into cash than I've ever been since 2008 (when my firm capitulated and I was worried about having to live on unemployment)- putting my assets at a mix of 45% CDs, shorter-term TIPS, stable value and cash accounts, and 55% stock. That said, I'm not going to beat a panicked run for the exits because some technician says "There might be a crash this year, but I really don't know. It only happens 25% of the time." Likewise, I'm not going to cancel my Saturday on the Honda CBR down Hwy 9-W because the weatherman comes on and says, "There's a chance of rain, but I'm not really sure." Instead, I'm going to pack my rain gear under the seat and stay within 30 minutes of home in case it starts lightning.

If you've got ten months of emergency savings and the money you've saved up for purchases you intend to make in the next five years in cash, you've got your rain gear and you're within 30 minutes of home.

 
noway:
this is so fucking retarded

why do we keep inventing bullshit measures that the media can forcefeed down the public's throats in order to form a self-fulfilling prophecy?

Because bad news sells better than good news.

I am inventing the IlliniProgrammer coefficient. It's the percentage of non-negative news that makes the AP vs. the percentage of bearish interviewees that show up on tech ticker.

 

I feel like trends/omens like this get pumped up big time by sensationalist reporting at media outlets like CNBC. It's no fun for them to report "another average day in the markets".

 

I went into Taleb's book thinking I would hate it but its really fascinating. Humans WILL come up with measurements to show that they can predict/prove why things happen AND the media is one of those most destructive forces ever. Most of the U.S. population doesn't know anything about finance/economics in the first place. The last thing they need is some bullshit journalist, who probably doesn't know anything about finance/economics as well, typing up a story to sell papers/magazines. Journalists don't give a shit about writing meaningful pieces, they care about writing stories that attract attention.

 
dumbyoungbum:
I went into Taleb's book thinking I would hate it but its really fascinating. Humans WILL come up with measurements to show that they can predict/prove why things happen AND the media is one of those most destructive forces ever. Most of the U.S. population doesn't know anything about finance/economics in the first place. The last thing they need is some bullshit journalist, who probably doesn't know anything about finance/economics as well, typing up a story to sell papers/magazines. Journalists don't give a shit about writing meaningful pieces, they care about writing stories that attract attention.

I almost think these Squawk Box or Smart Money style shows should should be banned from the airwaves. They border on pump and dump schemes and just create misinformation in the marketplace.

I'd go as far to say that the majority of what they report isn't even factually accurate. My dad is an addict to this stuff and every time i see him he wants to know if some bullshit story is true. Journalists have less integrity than the crooks they report on.

 
dumbyoungbum:
I went into Taleb's book thinking I would hate it but its really fascinating. Humans WILL come up with measurements to show that they can predict/prove why things happen AND the media is one of those most destructive forces ever. Most of the U.S. population doesn't know anything about finance/economics in the first place. The last thing they need is some bullshit journalist, who probably doesn't know anything about finance/economics as well, typing up a story to sell papers/magazines. Journalists don't give a shit about writing meaningful pieces, they care about writing stories that attract attention.

Couldn't have said it better myself and I'm a part of that shitstorm of a succubus they call the media ... !

 

[quote=arbitRAGE.]Fox news finally got it:

]

Probably the most rational Glenn Beck rant I've ever seen. It may be fearmongering but it raises interesting discourse. I don't know about his quasi-religous solution but I definitely do agree that Republicans/Tea Party advocates in congress isn't going to change shit. Policy needs to be adapted on a much greater scale.

‎"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to become the means by which men deal with one another, then men become the tools of other men. Blood, whips and guns or dollars."
 

That thing is total crap, if technical analysis was so powerful then the entire forbes richest person list would be nothing but chartists. Tudor used technical analysis to reinforce his market view, bascially used the chart as a crutch to prove his theory right. The issue is right now, no one has a clue about the economy some people in the slow growth camp, some people in deflation camp, etc. Long term fundamentals will rule which is why people like Buffett and Klarman exist. The problem is the economy is starting to sputter out from the monetary stimulus and the obama presidency is more anti business than FDR; so unless the elections change the balance of power or obama finally gets it that he needs the private sector to drive growth, we are not going to be growing at sub 1% until we get a pro business legislature.

By the way deflation is a very scary prospect, not many businesses can survive in their current form in a deflationary enviroment for very long in their current form (layoffs, consolidation, ch 11s)

 
buycredz:
That thing is total crap, if technical analysis was so powerful then the entire forbes richest person list would be nothing but chartists. Tudor used technical analysis to reinforce his market view, bascially used the chart as a crutch to prove his theory right. The issue is right now, no one has a clue about the economy some people in the slow growth camp, some people in deflation camp, etc. Long term fundamentals will rule which is why people like Buffett and Klarman exist. The problem is the economy is starting to sputter out from the monetary stimulus and the obama presidency is more anti business than FDR; so unless the elections change the balance of power or obama finally gets it that he needs the private sector to drive growth, we are not going to be growing at sub 1% until we get a pro business legislature.

By the way deflation is a very scary prospect, not many businesses can survive in their current form in a deflationary enviroment for very long in their current form (layoffs, consolidation, ch 11s)

First sentence is complete garbage. That's like saying if I follow how successful traders traded in the past, I'll reproduce the same results. Trading isn't physics, it is a social science where you can run an experiment with the same parameters and have two completely different results. No single technical or fundamental indicator will be right in absolute terms beause everything is relative in markets. However, since enough people subscribe to TA, in some securities, it is enough to move prices. Buffett thinks charting is useless, Tudor said he made well over half of his money from TA. What does this tell us? If it's profitable, who cares?

 

All I am saying is that its not that profitable; you might want to revisit your source on Tudor. TA is a complete joke, its like statistics you can make it saying anything you want.

From the man himself- see used TA to support his fundamental analysis, not the other way around.

Paul Tudor Jones: Certainly. The one on a percentage basis that's been the most profitable for me was the crash of 1987. There was a tremendous embedded derivatives accident waiting to happen in the crash of '87 because there was something in the market that time called portfolio insurance that essentially meant that when stocks started to go down it was going to create more selling because the people who had written these derivatives would be forced to sell on every down-tick. So it was a situation where you knew that if you ever got to a point where the market started to go down that the selling would actually cascade instead of dry up because of the measure of these derivative instruments that had been written. And in the crash of '87 you had an overvalued market and you also finally had a situation where every down-tick would create more selling and I think I understood the dynamics of that. The crash was something that was imminently forecastable to somebody that understood the measure of derivatives and how large they had grown in such a relatively short period of time and the impact that it would have on a relatively unknowing and na'e market. And the same exact thing happened in 1990 in Japan

 

I remember reading a post a few weeks ago that talked about how the general population sees CNBC as the financial bible of information, and they'll believe anything they hear on that to be the "be-all, end-all." It would be a travesty to see media coverage of this spark so much fear that these people bail out of the markets.

 

My father uses fundamentals. I use technicals.

I'm outperforming.

Having said that - this sounds like someone just found similar characteristics between all the crashes and determined that they MIGHT be legit.

I hope you all realize that if volume comes back into the market we'll go up 1000 points on the Dow in a heartbeat.

 
Edmundo Braverman:
Less than nothing. Guess they need to change the Hindenburg indicator when Bernanke's the pilot. The explosion is 10 times worse (as we'll soon see), but the timing of it is less predictable.
Eddie, in order for the explosion to be ten times worse, the DJIA would have to go negative. I've never heard of a stock with no recourse against the owner becoming a liability- wonder if that could happen to gold, too.
 
IlliniProgrammer:
Edmundo Braverman:
Less than nothing. Guess they need to change the Hindenburg indicator when Bernanke's the pilot. The explosion is 10 times worse (as we'll soon see), but the timing of it is less predictable.
Eddie, in order for the explosion to be ten times worse, the DJIA would have to go negative. I've never heard of a stock with no recourse against the owner becoming a liability- wonder if that could happen to gold, too.

I think I've earned the right to a little hyperbole every now and then (as have you). I've simply moved on to greener (and more predictable, in my opinion) pastures with my investing dollars. I'd rather deploy my money to start-ups and other private placements than throw it at a clearly overvalued public market binging on the inflationary excesses of a Fed who can't afford to be wrong.

 

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