If your market is discounting a V-shaped recovery? Or the test, this is still a bear market rally similar to those from 1930 and 1970?
Ah, the V-shaped recovery, as I doubt. We count the ways ...
But first, we notice something about how to make money in the markets. (Because, really, this is what it is here, is not it?)
Just as many business models that follow the successful enterprise, there are many ways profitable market of the hill. Butevidence of a reliable way to do well in markets over time is a great site (often after testing the waters with small positions) ... Challenge this position in significant benefits ... and then to protect those profits when the market turns.
Easy, right? It 'easier said than done, of course. It is a fair amount that goes into it. But this is essential.
And as GIST, one could say that the trader or investor job description is divided into fourCategories:
or minimize losses on positions that do not work.
or maximize profits on profitable open positions to know (when to add the position).
o The protection of profits for a significant number of profit earned.
or Keep an eye out for the next great investment or trade.
This list of responsibilities highlights why we are in a critical phase.
For those who run rally in 2009, to have huge profits, the dilemma is whether to protect the openingProfits with a hedge (like fire insurance on a portfolio) ... if "some off the table" and the cash can be ... or entirely in cash. (Despite the fourth option of simply "you can 'go.")
For those who are not part of the long side of profits (and even for those) to come is a crucial issue in the next series of great opportunities. E 'on my head ... or disadvantage? E 'in "risk-loving" assets (most of) ...or "anti-risk (a change in the status quo) and how fast the change could take?
From a practical point of view, highlight the importance of these questions, "What's" next issue. So now, without further ado, let's take a closer look at some reasons to doubt the wisdom of "V".
reason to doubt, # 1: Parallels to 1930
"There's a lot of money on the sidelines waiting for investment opportunities, this should be felt in the market because" the mood is happierfirmly [sic]. "Economists point out that banks and insurance companies" Never before had so much money lying idle. "
Sounds familiar? The title above feels like 2009, but actually was born in 1930 (courtesy of "News from the" 1930 Web site).
Those who forget the current use as conclusive evidence of a manifestation of a V-shaped recovery, something important. Investors in 1930 condemned a similar confidence brim.
Comparing today's post-crash approach ofAt that time, fund manager John Hussman points out that "the recovery of the market to an extent almost identical after the crash of 1929, reaching a peak in April 1930 after he suffered a fall next to fresh lows."
The point is not to say, now looks exactly like 1930, continues to add Hussman, but rather to emphasize that when it comes to economic recovery, prospects for a major event does not prove much.
reason to question # 2: The Greatest Bear Market RallyRally
From Monday's Wall Street Journal:
The stock market has rarely seen a rally of six months as it is only 46% increase in. The Dow Jones Industrial Average is on was one of only six on this scale in the last 100 years. And that's exactly what many analysts worried.
All the previous gatherings of this magnitude was in 1930 and 1970, according to Ned Davis Research. They were turbulent times for both the economy and markets, and none ofGains were sustained.
Many analysts believe that stocks again like a turbulent phase, and that the rally could lead to another break-in. Stocks enjoyed a rally of 40% in 1982, the beginning of a long term stock market wealth. This event was not of the same order of magnitude of others. E 'come as economic problems, particularly inflation, have been permanently excluded from the market.
reason to doubt # 3 is: not yet 1982
In a piece Taipan DailySome months ago, with the title "This is not 1982," we have noted, many reasons why the current situation seems nothing that the beginning of the 1980s.
In short, 1982 was the year of departure for a boom in 25 years of leverage and credit cards. Fed Chairman Paul Volcker had just "broken the back of inflation" (it was at a cost of great economic hardship) and binge America on the tip of the longest debt (for consumers, businesses and government) throughout history.
At the same time,Consumer savings rates went into a steady decline from double digits to below zero, as America bought and purchased. Meanwhile, decades of aggressive financial innovation (in the context of a smug Alan Greenspan) has led to the founding of the shadow banking system ", half semi-official pumping the economy full benefit more credit in the form of investment banks, swimming pools private investment, and so further.
Now we are the end of the tail of it. After a quarter century ofbuild-up, a great "deleveraging" is at hand. The consumer is flat on his back, the shadow banking system is in ruins, and the consumer has access to credit has increased from a deluge to a trickle.
reason to doubt, # 4 Mega Banks: Rotten as ever
Each year the World Economic Forum (WEF) publishes its annual "Global Competitiveness Report." Among the factors to be considered by the WEF, the soundness of banks in a country. By that measure America in 108th place, a placebehind Tanzania. It is probably the more confidence you make a deposit at the Bank of Burundi, like many institutions in the U.S. or the UK
And despite hundreds of millions (billions?) Paid more arrests, guarantees and liquidity injections, some of the big banks still look like bombs. For example: Dick Bove, banking analyst observed along with decades of experience on the road, now the Wells Fargo described as a "volcano, with a series of strokes,This could be about to blow up. "
The new Wells Fargo Wachovia merger traces back to great concern (a defect bank Wells ingestion). In taking over Wachovia, it turns out, can also down Wells Fargo has a series of live hand grenades in the form of scattered and not guaranteed for the ingestion of derivatives trading. Surprise Surprise, Wells Fargo management has become less open on this show of concern.
This is just the tip of the iceberg. The real problem isbanks have not changed much ... the only significant difference at all, in fact, is that large have become larger. Tens of billions of dollars of derivative contracts are still concentrated in the hands of unstable unreliable. And to show how the latest Wells Fargo on the mega banks have been anything but open.
With the blessing of the Federal Reserve and the Treasury, the strategy of the mega banks' has been used in any accounting period trick in the book to present the appearance of large profits- The created most of those gains as funds to rescue the state - while the remaining toxic time bombs buried so deep in the balance sheet as possible.
This "time" strategy game depends entirely on the hope that nothing will blow up the air before the patchwork of solutions can quickly find the time to work. It is, in other words, one hundred percent ", as usual.
reason to doubt, # 5: Hundreds more banks will fail
As I write this, 94 banks have failed2009 Meredith Whitney, banking analyst has won (the credit for calling the collapse of Citigroup in advance), he said, expects at least 300 banks to fail. Institutional Risk Analytics, a top analyst of bank services in that country, which is expected no more than 1,000 banks throughout the cycle.
The banks lend to consumers and businesses through the form of mortgages, auto loans, credit cards, loans and the like. If banks fail, credit agreements,making it difficult for consumers to spend and businesses to stay afloat. Reduced costs due to the reduction of credit leads to more layoffs and job losses in a vicious circle. The vicious circle closes, as banks pull back even more difficult economy.
Not only are they made hundreds more banks to fail, the FDIC (Federal Deposit Insurance Corporation) is on the brink of a public relations disaster, as is the money. There is no way the FDIC can handle all of these areBankruptcy. Based on their projections, Institutional Risk Analytics, thinks the FDIC on the hook for $ 400 billion to 500 billion $, if not more. (And no account was taken of a recent mega banking debacle, Wells Fargo as a blow-up).
Where in the world, the FDIC is going to get $ 500,000,000,000? John Mauldin writes,
The FDIC may borrow 100 billion U.S. dollars in an emergency credit line, and by 2010 you can get another 500 billion dollars. But if and when the money borrowed ismust be repaid. Remember, the money that was years ago, lost in the savings and loan crisis of the 20? The FDIC had to borrow a mere $ 15000000000. We continue to pay this loan back 30 years.
If the FDIC is forced to borrow from Treasury, the Congress (and America creditors) will scream bloody murder. Alternatively, as Mauldin notes is to use the FDIC more "special allowance" against banks.
But you know what? If the FDIC has tried to squeeze blood from aStein has done with regard to banks, means that the surviving banks will pull in their horns even more ... to give even less. This is another heart attack waiting to happen for the consumer credit and credit support for small businesses - in an economy where 70% of private consumption, and managed largely by small businesses.
reason to doubt, # 6 The housing bubble is not yet fully Burst
U.S. mortgage losses set a new record in July with 7.58% of the loan (about one out of 13)at least 30 days late on payments. According to Reuters and Equifax, losses from subprime mortgages hit a huge 41%.
And now the banks have a new problem to worry about: "strategic non-payer." While the Los Angeles Times
Who is more likely to walk by a house and a mortgage - a person with super-prime credit scores or someone with a lower score?
Research has found a representative sample of 24 million individual credit files that homeowners with the highest scoresif you want to borrow, 50% more "strategic default" - suddenly and deliberately pull the plug, leaving the mortgage - compared with lower-borrower score.
The Los Angeles Times reported that there were more than half a million (588,000) "strategic non-payer" national in 2008.
These are people with high credit ratings that are technically on the financial resources to continue payments on your mortgage, but not the logic of the pumpsMoney in a more or less permanent capital head.
The argument is something like: "Why throw money after Bad regard to residence, a house worth $ 200,000 less than I paid, if the punishment is to walk away (damaged credit) less disposable income a future court violated committed for 10 or 20 years. "
Meanwhile, the Iowa Attorney General Tom Miller] has recently gone on record saying "weapons payment option mortgages [variable rate is about to explode ...This is the next wave of potential foreclosures in the country. "
Homeowners and the banks have just begun to fight with the mortgage problem "reset where the monthly payments due to suddenly double or triple (or worse) based on small print deadlines. Since the option ARM is a serious problem , find the number of non-strategic agency "to shoot even higher.
This is a most terrible news for banks already weak ... And no wonder Meredith Whitney previously mentioned Forecasterthink house prices could fall another 25% before hitting bottom.
reason to doubt, # 7: Uncle Sam is borrowing a Fiend
If you thought that America was a "borrow money and for the nation," is not seen nothing yet. Last four quarters have all the recent efforts by the U.S. government loaned the shadows, and this is a trend that is worth.
What probably will not continue, but the ability of the Federal Reserve, worth several hundred billion of Treasury bonds to buy directly- Effective "monetization" of debt - without having to either 1) a possible collapse of the dollar, or 2) a possible collapse in bond prices and the resulting net increase in interest rates. We are headed to an area of heavier regulations, taxes and more government control than the economy at a time when we can least afford it, and plunged headlong into the abyss of debt to pay for everything.
reason to doubt, # 8: black boxes and punk band
Finally, an important reasonDoubts about this rally is the alarming lack of volume. Bull markets are generally healthy and increasing trend in volume, most investors choose to participate in the market. But is not what we see here.
Instead, trade in shares has been dominated by quants, clothing high frequency trading (HFT) transactions, and other "black box" type to buy more as legitimate sources. Not only that, but the volume is concentrated in a handful of scarySuper-speculative shares. Reuters recently reported that several weeks worth of trade, a full 40% of the trade came from only four (!) Traded Name: Bank of America (BAC), Citigroup (C), Fannie Mae (FNM) and Freddie Mac (FRE).
trading systems so we see not only the low-volume suspects whether the names of super-speculative will be performed (Citigroup - 491 million shares a day average volume!) eliminated, we see hard work of quants and other "black box" type,with most activities in most corners of the casino market-oriented focus.
These are some (but not all) of the reasons why your humble editor tips a hat to many, but remains doubtful.
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