Stock Market, 2010

Off Topic Politics & World Issues
81

[quote]John S. wrote:
As deflation happens the dollar is worth more, so those with savings will be able to purchase more, they will use their savings to create jobs. We want prices to go down, prices going down is a good thing. The only problem is America can’t go through deflation. If we do deflate we won’t be able to pay off our debt, when that happens the dollar will lose much of its purchasing power. The dollar is screwed either way here.[/quote]

“So sayeth Shiff, so let it be true.”
Just picking at you John. Most guys your age could give a shit about such things. You do, and I admire you for that.
I do think you should broaden you array of sources somewhat, however.
Shiff is a smart guy, but there are plenty smarter (and dumber). Again, the only time I am sure to be wrong is when I am 100% sure that I am right.

82

[quote]JEATON wrote:

[quote]John S. wrote:
As deflation happens the dollar is worth more, so those with savings will be able to purchase more, they will use their savings to create jobs. We want prices to go down, prices going down is a good thing. The only problem is America can’t go through deflation. If we do deflate we won’t be able to pay off our debt, when that happens the dollar will lose much of its purchasing power. The dollar is screwed either way here.[/quote]

“So sayeth Shiff, so let it be true.”
Just picking at you John. Most guys your age could give a shit about such things. You do, and I admire you for that.
I do think you should broaden you array of sources somewhat, however.
Shiff is a smart guy, but there are plenty smarter (and dumber). Again, the only time I am sure to be wrong is when I am 100% sure that I am right.
[/quote]

Schiff isn’t my only source.

83

[quote]orion wrote:

[quote]Bill Roberts wrote:

[quote]orion wrote:
Hyperinflation has little to do with the amount of money in the system put an extremely increased velocity.[/quote]
I know there was a discussion of this before, but unfortunately I can’t recall with whom.

Name a country that had hyperinflation where individuals did not, for the most part, each have on hand millions, billions, or even trillions of units of currency, whether as paper or electronically.

Or where – which so far as I know is every case – individuals in general did possess such vast numbers of units of currency, how can you say that the amount of money in the system isn’t drastically changed but rather it’s a velocity problem?[/quote]

Because its not that any government suddenly decides to print billion dollar bills.

People decide that they do not trust the currency any more and try to get rid of it as fast as possible and then those bills are printed.

But I assume it would work both ways.

The point I was trsing to make though that you do not necessarily need a central bank to create a hyperinflatrion, a total breakdown of peoples trust in the monetary system would work as well, no matter what causes it.

[/quote]

Actually no, people will not be carting millions, billions, or trillions of dollars to the grocery store every day – or using that much electronically – unless the government or the banking system DRASTICALLY increases the money supply.

84

[quote]JEATON wrote:
dhickey,
I will continue to make my point as clear as my abilities allow. In the end, we may have to agree to disagree, which is good. How boring would the world be if we all held the same opinions.

Part of the problem may lie here:
I think of deflation as a phenomenon encompassing a vast array of human actions, most of them stemming from a very large scale change in social mood, in this case the transition from a manic highs of the bubble years to the accompanying crash and the “depression” of social mood. We are in the down side of a massive “manic/depressive” mood swing.

You seem to think of deflation as a specific action defined by the shrinking of a fixed monetary pool.

I would loosely compare it to the AGW (global warming) debate. The hard core AGW supporters boil it all down to one and only one cause and variable, humans and their introduction of large scale amounts of CO2 to the atmosphere.
The other side believes that there is a natural cycle of global warming and cooling that is governed by such a massive amount of inputs that it is ludicrous to assume mankind could help or hinder the overall process to any appreciable degree.

Going back to the social mood issue. We have seen the results of the manic highs. People buying McMansions, driving BMW’s and taking pricey vacations on credit and servicing them with incomes that could scarcely afford it. They were so confident that the ride would continue that they spent every cent and then some.
I am concerned that we have not yet come full cycle to the pessimistic, miserly, live well beneath your means stage. Far from it.

As to John’s statement of what we need and want is deflation, nonsense. Deflation is horrible. Imagine the house that you own and owe $300,000.00 on depreciating to $50,000.00. Imagine loosing your job and, if your lucky, finding a new one at less than half of what you were making. Imagine a resurgence of home gardens, canning and freezing, making your own clothes and bartering for a great deal of your common services. Imagine your neighbor loosing their home and you being in fear as squatters take up residence as they no longer have any other place to live.

And as always, I am not calling for a depression/deflation. I sincerely hope we never see this. However, I do recognize certain warning signs and just want to make others a least aware. What can you do? Pay down debt and refuse to take on more. Save. Work hard and learn everything of value you can. The unfortunate thing is that if enough people do start doing this (as it appears many are) it is almost as though it becomes a self fulfilling prophecy.

I will come back to your other questions in a bit. [/quote]

I understand exactly what you are refering to. I just take a more traditional view of inflation or deflation. To inflate a currency is to create more of it. To deflate it is to destroy some of it.

If I start to put money into a savings account rather than spend it on a car, I have not deflated the money supply. This does not change when millions of people do it.

That savings is not sitting in a bank vault somewhere, it is working in the market in some fashion. We put far too much stock in consumer spending or even the stock market. If spending is down, then saving (investment)is up. There is no deflation.

Hording can put a wrench in this very simple equation, but has never been a long term phenomonon. People aren’t going to keep dollars under their matresses or in coffee cans for very long or in great numbers.

Current monetary policy has created horders, but not in the traditional sense. We do have large holders of dollars and dollar equiv that have been soaking up inflationary effects (not inflation) for years. These speculators are losing value as long as we continue inflationary policy. They will not hold our dollars or debt for long if this continues. The will liquidate and when they do:

We will not be able to issue new debt at favorable enough terms to compete with others liquidating the US debt they already hold. Just a quick example. If inflation is at 10% and I have borrowed you money at 5%, I am losing money (purchasing power) on this loan. This is even less attractive if I could be making a real 10% on other investments. At some point, I am going to liquidate this debt. Becuase I cannot calculate the actual rate of inflation or exactly how bad this investment is, I will probably take much less than the note value just to get cash to make other investments that are easier to measure.

Any new debt will have to compete with this discounted debt in the market. You will either have increased interest rates to compete with the discounted debt, or there will less new debt issued. Neither is good for US. We need new debt just to service our unfunded liabilities.

Any actual currency being held will bid up the price of goods at accelerating rates. This includes consumer goods, services, stocks, etc. Any money people do still have in savings will also hit the market to buy up these goods as prices soar. Both to hedge against further increases and as speculation/investment. This further increases inflationary effects and reduces the funds (savings) available for investment and loans. Again, either huge increases in interest rates or shortages of money available to loan.

All of this could happen at any point. The monetary bubble has already been inflated. They are not deflating it, nor do they need to. They just need to stop inflating it before it pops.

They/we need to quit borrowing and they need to let interest rates float. This will allow the market to set savings to consumption rates. Making loans will be profitable. Saving money will be profitable. Only those that can make most efficient use of this higher priced money will borrow. Goods, services, stocks, etc will return to natural values.

85

[quote]John S. wrote:
As deflation happens the dollar is worth more, so those with savings will be able to purchase more, they will use their savings to create jobs. We want prices to go down, prices going down is a good thing.

The only problem is America can’t go through deflation. If we do deflate we won’t be able to pay off our debt, when that happens the dollar will lose much of its purchasing power. The dollar is screwed either way here.[/quote]

There is the flaw in this line of thinking. First, it assumes that those with savings keep it in dollars in a vault or similar. They don’t. Most people’s “savings” have been converted from dollars into some other vehicle. One of the most common, if not the most common vehicles is real estate.

A person’s home is generally their biggest storage of wealth. That is why over the last decade that folks gradually slipped into a manic state. Their homes primarily, and to a lesser degree their IRA’s and 401K’s just kept going up in value. What helped drive this? An overall optimistic social mood.

Now remember, this “wealth” was not in dollars in their bank or vault, but they looked at it the same. It gave them a sense of security that allowed them to keep on spending. After all, their “net worth” was so apparently high. The whole system relied on the participants confidence that things would continue onward and upwards.
But it didn’t. The Dow corrected approximately 50%.

Home values anywhere from 20% to 50%. Now, if those people chose to convert their vehicles back into dollars, they found they now had considerably less. So, even though they were “savers” they did not necessarily have more to spend. Newly earned dollars could now buy more for the same, but saved dollars, being converted, could not.

We have had a hell of a run since the March '09 bottom. But what if it is just an echo of the previous mania? Should those that rode out the storm in the first correction start to see a repeat of the events that beat the hell out of them the first go around, what will they do?

I wonder if they would head towards the door in a stampede, trampling each other to get out. How many retired or nearly retired baby boomers would try to ride out a second storm in equities or real estate knowing they would soon need their dollars? I think they would start selling anything they were not currently living in and converting those “investments” back into dollars.

This is where dhickey and others are missing the point when they say dollars are not being destroyed or removed from the system. If something you paid $100,000.00 for in real dollars can only be re-converted into $50,000.00, have dollars been destroyed or removed from the system?

Also, if you have been whip lashed not once but twice, how eager are you going to be to reinvest your current dollars in endeavors that will create jobs?

If I were to offer you $1,000,000.00 dollars interest free, with the condition that you could only to use the money to buy houses in Las Vegas, Nevada, would you take it? At zero interest, how could you resist?

Very easily, if your confidence was low that the Las Vegas market was coming back anytime soon. After all, though the loan was “free” the taxes and upkeep certainly are not. And if the market took another hit, say 20%, who would take the loss, you or me?

In the GD we had a mid cycle recovery of approx. 50%, only to fall back off a cliff. From the bottom it took twenty odd years to work back to even. Yes, many conditions are different. But that assumes that exterior conditions are the sole determinants. Psychological makeup determines everything in an individual. I think it no less important in a society.

86

And in the Great Depression, there wasn’t $99 trillion of unfunded Federal liabilities (including if correcting for constant dollars), nor the vast amount of unfunded private pension and other liabilities.

Of course, in the Great Depression, recovery had to overcome FDR, which was a really hard thing to do, while today, recovery has to overcome…

87

[quote]JEATON wrote:

[quote]John S. wrote:
As deflation happens the dollar is worth more, so those with savings will be able to purchase more, they will use their savings to create jobs. We want prices to go down, prices going down is a good thing.

The only problem is America can’t go through deflation. If we do deflate we won’t be able to pay off our debt, when that happens the dollar will lose much of its purchasing power. The dollar is screwed either way here.[/quote]

There is the flaw in this line of thinking. First, it assumes that those with savings keep it in dollars in a vault or similar.
[/quote]
No. It assumes they are deposits in an interest bearing account. Deposits that are then lent at profitable interest rates. Not going to happen at current interest rates. Not profitable compared to other investments.

Social mood? More like our gov’t fucking with supply and demand of housing and credit to buy housing. This was start of housing prices rising faster than inflation. Enter speculators and commence bubble building, supported and encouraged by further gov’t fuckery.

This explains consumer spending reaching unsustainable rates. Unsustainable rates our gov’t is trying to sustain.

A house is not savings. It never has been. It is the opposite. A savings account is savings. Anything that deposits money in a bank is savings, not an action that takes money out of a bank. Artificial demand created by the gov’t started the speculative bubble in housing.

Artificially low interest rates insured demand for money would be high. Instead of deposits funding expansion of industry, they were being cycled into questionable mortgages that were gladly purchased by Fannie and Freddie.

What?

no.

If interest rates are allowed to float, there will be plenty of people that increase deposits. These are funds that create jobs, not dollars bidding up stocks or purchasing cheap foreign consumer goods.

Both of us. I would have made a risky investment because the money was free. You would lose the equivalent of the inflation rate of the term of the loan. This is why artificially low interest rates fuck us all. There is little incentive for you to loan at such a low rate and that same low rate encourages riskier investments.

[quote]
In the GD we had a mid cycle recovery of approx. 50%, only to fall back off a cliff. From the bottom it took twenty odd years to work back to even. Yes, many conditions are different. But that assumes that exterior conditions are the sole determinants. Psychological makeup determines everything in an individual. I think it no less important in a society. [/quote]
Supply and demand explains everything. Speculation is predictable and oft repeated. Understanding the psychology of the consumer or investor is not that important.

88

dhickey,

I have posted ad nausem on the gov interference in free markets, especially real estate, in this forum.
I am simply trying to add another perspective, one that I think is often ignored. There is an intentional, behavioral, social and cultural component to every phenomenon. Ignore this at your own peril.

And you are correct in the minutia of the difference between savers and investors. My intent was to show that where most people think of savings, there is often instead some type of investment. Having spent nearly twenty years looking at credit bureaus and financial statements, I can assure you than very few people keep more than a month of expenses (if that) in an interest bearing savings account.

If you ask them their “savings”, they will most likely tally their checking account, IRA, 401K, existing stocks and bonds, etc. Then they will try to tell you the equity in their house if they think they have any (if not they will ignore them).

Replace my statement of “a vault or similar” with "in an interest bearing savings account accruing 2% or less and tell me if there is a material difference in the content of my post.

I enjoy the back and forth. It forces me to reexamine my views and preconceptions. I believe that you do not truly know anything until you can explain it to another in clear and simple language.

It does, at times, feel as though this turns into some kind of win/lose sporting event. If I address something in generalities, you counter with specifics, and vice verse.

I do not really have a need to convert you to my opinion. I just have to express it in a logical and understandable fashion. Then it is up to you as to what you do with it. There is respect among those of varying opinions as long as they are congruent. I welcome challenges. I just want them to be made in the same context that I presented my point.

89

I just saw the dividend yield for the S&P 500: 1.97%.

That yield is terrible! Either earnings and yield really take off (not likely) or this market is going to tank badly.

90

@JEATON & dhickey,

You both neglect the most obvious type of saving – not spending or delayed consumption. Actually, what you both describe is investing. Most savers today are by default investors because their money is sitting around in an account for someone else to borrow. We need more of that and less fractional lending.

Perhaps the action of saving would be more obvious if you looked at it in terms of consumption. When we ration food or fuel for example we are saving. Saving is merely the lack of consuming. What these savers do with their left over money will determine if they are investing it toward some future state that they deem more valuable.

Investing is not saving because there is never a guarantee that one will have what is invested to direct toward future consumption (especially under the scenario of inflation). In fact, under a commodity money standard non financially savvy people could save (i.e., stuff their money in a mattress) and have their money be worth more (purchasing power) because goods tend to get cheaper under a commodity money standard. Now, everyone has to take on risk in the financial market or else they will have the value of their savings wiped out. This alone should be enough of an argument to end the fed.

91

I haven’t bought into the recovery so during 2009 I was buying stocks & index funds on weakness and selling on strength. Generally holding for 2-3 months. As the market has climbed higher I’ve bought back on the dips less and less. Right now I’m sitting on tons of cash.

The money I have invested is invested in the following; a huge chunk in an energy mutual fund (VGENX), a good amount in a fund positioned for a falling dollar (PSAFX), a market neutral fund (HSGFX), gold miners (GDX), Singapore (EWS), and two stocks I got stuck in WTI & STSA.

On continued strength I will sale out of Singapore and be out of it for good until we have a MAJOR pull back. With Gold Miners I don’t know if I will continue trading it. In the near term I’m out if it hits 58 or 46 - those two numbers move up with time following its trading channel. My guess is this is probably the last time I will trade it for a while. My luck can’t possibly hold much longer on that one.

The energy fund is kind of my hedge against being wrong about a looming MAJOR pull back. I believe long term it’s a can’t miss so if the market continues to go up and I don’t have a reentry point for other investments, at least I make money on it. If the market does tank and drags the energy sector down with it, I’m sure it will be back in the future. Long term there’s only going to be greater demand for energy. If it does continue rising I will sell it probably around mid to late summer. We’ll see.

If we do get the major pull back I am expecting, I will start buying back in when the S&P 500 hits about 800. I won’t be too aggressive at that point because I think it could go as low as 400. If I continue seeing the world as I see it now, these are the positions I will be moving into; India (INP), China (PGJ), Singapore (EWS), Malasia (EWM), Indonesia (IDX), Thailand (THD), South Africa (EZA), Energy (XLE) and Oil in some form and some instruments of clean energy. I would also like to buy back into the banks that proved to be the strongest (JPM).

92

[quote]on edge wrote:
I haven’t bought into the recovery so during 2009 I was buying stocks & index funds on weakness and selling on strength. Generally holding for 2-3 months. As the market has climbed higher I’ve bought back on the dips less and less. Right now I’m sitting on tons of cash.

The money I have invested is invested in the following; a huge chunk in an energy mutual fund (VGENX), a good amount in a fund positioned for a falling dollar (PSAFX), a market neutral fund (HSGFX), gold miners (GDX), Singapore (EWS), and two stocks I got stuck in WTI & STSA.

On continued strength I will sale out of Singapore and be out of it for good until we have a MAJOR pull back. With Gold Miners I don’t know if I will continue trading it. In the near term I’m out if it hits 58 or 46 - those two numbers move up with time following its trading channel. My guess is this is probably the last time I will trade it for a while. My luck can’t possibly hold much longer on that one.

The energy fund is kind of my hedge against being wrong about a looming MAJOR pull back. I believe long term it’s a can’t miss so if the market continues to go up and I don’t have a reentry point for other investments, at least I make money on it. If the market does tank and drags the energy sector down with it, I’m sure it will be back in the future. Long term there’s only going to be greater demand for energy. If it does continue rising I will sell it probably around mid to late summer. We’ll see.

If we do get the major pull back I am expecting, I will start buying back in when the S&P 500 hits about 800. I won’t be too aggressive at that point because I think it could go as low as 400. If I continue seeing the world as I see it now, these are the positions I will be moving into; India (INP), China (PGJ), Singapore (EWS), Malasia (EWM), Indonesia (IDX), Thailand (THD), South Africa (EZA), Energy (XLE) and Oil in some form and some instruments of clean energy. I would also like to buy back into the banks that proved to be the strongest (JPM).

[/quote]
I have followed a similar plan, sticking with options on the QID and SPY. Gold hit within $8 of my predicted retracement point, so I am looking to start a short position there.
I started shorting the S&P 500 this morning at the high. It looked like an ending wedge pattern. Working so far. The dollar is the lynch pin. If it resumes its recovery I will stick with my plan. If it starts selling off again I will have to reevaluate.

93

[quote]JEATON wrote:

I started shorting the S&P 500 this morning at the high.
[/quote]

I agree SPX is at a high. The problem I’d have with shorting it is it’s had such low volatility since the March low. Unless you’re using leverage, it’s hard to make a good amount and if you are using leverage your risk goes up. Of course that’s assuming the pattern doesn’t break. I never bet against the pattern.

Speaking of low volatility, the best US sector has been technology (XLK) and the shits got no entry or exit points. It’s practically moving in a straight line. I’ve been watching charts for over ten years and I haven’t seen this before and don’t really know what to make of it.

Btw, Jeaton, I don’t use any advanced charting methods. I just wait for channels to develop in sectors I like for socio-economic reasons, then I go long when the price gets on the low end and sell at the high end. No shorting, no leverage.

94

[quote]on edge wrote:

[quote]JEATON wrote:

I started shorting the S&P 500 this morning at the high.
[/quote]

I agree SPX is at a high. The problem I’d have with shorting it is it’s had such low volatility since the March low. Unless you’re using leverage, it’s hard to make a good amount and if you are using leverage your risk goes up. Of course that’s assuming the pattern doesn’t break. I never bet against the pattern.

Speaking of low volatility, the best US sector has been technology (XLK) and the shits got no entry or exit points. It’s practically moving in a straight line. I’ve been watching charts for over ten years and I haven’t seen this before and don’t really know what to make of it.

Btw, Jeaton, I don’t use any advanced charting methods. I just wait for channels to develop in sectors I like for socio-economic reasons, then I go long when the price gets on the low end and sell at the high end. No shorting, no leverage.[/quote]

It takes steel balls to sell short. Never have done it but I would say to go as long as possible with the short. It may take investors a LOT longer to see the logic of your position than you do.

95

[quote]on edge wrote:

[quote]JEATON wrote:

I started shorting the S&P 500 this morning at the high.
[/quote]

I agree SPX is at a high. The problem I’d have with shorting it is it’s had such low volatility since the March low. Unless you’re using leverage, it’s hard to make a good amount and if you are using leverage your risk goes up. Of course that’s assuming the pattern doesn’t break. I never bet against the pattern.

Speaking of low volatility, the best US sector has been technology (XLK) and the shits got no entry or exit points. It’s practically moving in a straight line. I’ve been watching charts for over ten years and I haven’t seen this before and don’t really know what to make of it.

Btw, Jeaton, I don’t use any advanced charting methods. I just wait for channels to develop in sectors I like for socio-economic reasons, then I go long when the price gets on the low end and sell at the high end. No shorting, no leverage.[/quote]

The earnings estimates are way too high, IMO. $75, which is about what it was for 2007? No way. My guess is $60. That means a PE closing in on 20 – look out below! :wink:

96

Alcoa disappointed tonight. The are the lead off batter. CBOE VIX gave a sell signal today, closing more than two standard deviations below its 20 day avg. First time this has happened in 6 months. The only thing that gives me hesitation at the moment is options expiration.
Gold looks like it might have topped today. If not $1178-$1180 should do it.
As always, the dollar is the X factor. It looks near a retracment low. If it starts to rally from near hear, all the puzzle pieces will be in place.

97

[quote]JEATON wrote:
Alcoa disappointed tonight. The are the lead off batter. CBOE VIX gave a sell signal today, closing more than two standard deviations below its 20 day avg. First time this has happened in 6 months. The only thing that gives me hesitation at the moment is options expiration.
Gold looks like it is going to go through the roof. It should reach $5000-$5100 before it peaks.
As always, the dollar is the X factor. It looks like it is free falling.when it starts falling, all the puzzle pieces will be in place. [/quote]

Fixed it for you.

98

[quote]John S. wrote:

[quote]JEATON wrote:
Alcoa disappointed tonight. The are the lead off batter. CBOE VIX gave a sell signal today, closing more than two standard deviations below its 20 day avg. First time this has happened in 6 months. The only thing that gives me hesitation at the moment is options expiration.
Gold looks like it is going to go through the roof. It should reach $5000-$5100 before it peaks.
As always, the dollar is the X factor. It looks like it is free falling.when it starts falling, all the puzzle pieces will be in place. [/quote]

Fixed it for you.[/quote]

John, you know that I would never say anything that goofy.

99

So… the debt-inflation of the 1930:s. Is it returning?

100

California

The wild card in here is the coming collapse of California’s bonds:

"California Rating Cut Shows $20 Billion Gap Lifts Bond Costs Share Business By Michael B. Marois and William Selway

Jan. 14 (Bloomberg) – California bondholders got an early glimpse of what the stateâ??s budget-negotiation season may bring as a looming $20 billion deficit led Standard & Poorâ??s to cut its credit rating for the second time in less than year.

S&P yesterday lowered its assessment on $64 billion of the most-populous U.S. stateâ??s general obligation bonds one level to A-, four steps above speculative grade, saying a plan by Governor Arnold Schwarzenegger to erase the spending gap relies too much on proposals that may not succeed.

It was S&Pâ??s first downgrade of California since February, when it preceded Moodyâ??s Investors Service and Fitch Ratings in lowering the stateâ??s rating as lawmakers were locked in a stalemate over how to fill what was then a $46 billion gap.

â??This is déjà vu,â?? said Kenneth Naehu, who invests $2.5 billion in municipal bonds for Bel Air Investment Advisors in Los Angeles.

A taxable California bond maturing in 2039 traded yesterday for as little as 97.90 cents on the dollar, to yield 7.73 percent. Thatâ??s down from 98.67 cents a day earlier, when the yield was 7.66 percent."

The great collapse of debt-based economies is happening.