Tuesday, September 28, 2010

What Does it All Mean?

Many investors are asking themselves this question these days.  The market continues to trade in a very dislocated fashion.  Today was a perfect example:

-  Gold Higher.
-  Bonds higher.
-  Stocks higher.
-  Dollar lower.

There are many questions to ask when you read this tape:

Why are bonds continuing to rally as the market has moved sharply higher over the last few weeks?

Why are stocks rallying as the economy continues to show signs of economic weakness?

Why are investors continuing to pile into bonds as the dollar moves sharply lower?

Inquiring minds would like to know!........

The more I look at this market the more I become convinced that it's been taken over by trading robots.

There is no such thing as investors anymore.  Wall St's participants have decided they would rather "front run" rather than "invest".

The fundamentals seem to no longer matter.  The individual investors have figured this out and have decided to bail into treasuries and other fixed income.  Some of the questions I asked above are fundemental questions.

The problem today is the fundementals no longer matter.  I used to think that in the end the fundemantals ALWAYS mattered.  Today I hope this is still the case, but I must admit, I am starting to question if they really matter anymore.

I now often find myself asking myself these two questions:

  1. Has the market has spiralled so far out of control that it cannot afford to let the fundementals matter? 
  2. Can this country fiscally afford to let the grandest Ponzi scheme ever seen in history to pop?
I keep looking for the "bond vigilantes" who have saved us from ourselves in the past by raising interest rates when government spending started to get out of control.

Sadly today,  they are nowhere to be found. 

Without the vigilantes I see no end to this mess.  We obviously don't have the political courage to clean up this disaster ourselves because the pain is simply too great for anyone to handle.

As a result, the market continues to sit here and ask "Now what?".

We can't sit here like this forever of course.  At some point something will give.  Unfortunately, it appears that it's going to take a crisis before we take the necessary steps that are needed to fix this country. 

I guess I shouldn't be surprised.  It always takes a severe arm twisting before America ever fixes anything. 

One thing continues to be clear as we sit here and wait:  The economy is not improving and things appear to be getting much worse.

I just saw the new August trucking data this afternoon and it wasn't pretty:



This was the largest drop in shipping tonnage since March of 2009 which is when the recent rally started.  This is a key economic indicator that should not be ignored.

The Bottom Line

Our financial "car" continues to sit here in neutral as we figure out the end game to this financial crisis. 

Because we continue to sit here on our hands and do nothing I am leaning towards an inflationary end to crisis.  It appears that we will go down kicking and screaming like a child in the middle of a temper tantrum when the end game finally arrives.

It will end this way because there is no leadership in Washington that's willing to step forward and do the dirty work.

This lack of leadership that's been seen in response to the second leg of our depression assures you that the US will let the crisis dictate the ending instead of us. 

This "lack of action" will likely lead to inflation or even hyperinflation because our currency will depreciate as we continue to spend more and more money that we don't have.

If we were willing to accept our medicine, take the losses that have been hidden by the Fed, and hold oursleves accountable then things would likely turn out differently.

I see no signs that we are heading in this direction.  The Fed will continue destroying our currency as we continue to play "hide the sausuge" via various bailouts and Quantitative Easing.

If you listen to Meredith below, it appears the next trillion dollar bailout will be spent on the states:




As usual Meredith hits another homerun.  The bailouts never seem to end and our dollar will continue to reflect this.

Disclosure:  No new positions taken at the time of publication.










12 comments:

Anonymous said...

Wow - tough day huh Jeffy?

For years I have come here and heard day after day (essentially) that the whole thing comes crashing down, and soon. Rarely do I see such open doubt from you.

I dont mean to catch you in a moment of weakness, but care to discuss the new Case Shiller data, especially Case Shiller values for DC?

As much as I know in my heart of hearts that you are dead wrong on DC, I dont want to trap you in a moment of capitulation if you dont really mean it. I have a perfect crow recipe ready if you are ready to eat it, but again, only if you really are truly ready to admit it.

So what say you Jeff? Care to discuss the Case Shiller data (and your prediction that DC gets to 125 20 months from now), or do you want to wait another month when you may have your wits about you.

Whatcha say my man?

Anonymous said...

Edit

For years I have come here and heard day after day AND HEAR (essentially) that the whole thing comes crashing down, and soon. Rarely do I see such open doubt from you.

Jeff said...

Case Shiller is a lagging indicator

Did you listen to Meredith Whitney tear it apart in the video below?

Talk to me when October numbers are in like Meeredith says.

More confident in that bet than ever my friend.

Anonymous said...

"Case Shiller is a lagging indicator"

Yep - just like it was when we started this bet 4 months ago.



"Did you listen to Meredith Whitney tear it apart in the video below?"

Yes - did you happen to catch which 2 states she thought were OK in govt spending, housing, etc?




"Talk to me when October numbers are in like Meeredith says."

No doubt it goes down some - remember, part of our bet is I said we can go as low as 160 (versus your call of 125 or below).





"More confident in that bet than ever my friend."


More confident than EVER??? Please tell me thats just bravado for the sake of your readers. When this bet started, Case Shiller in DC was at 175.44. In the last 4 months it has risen to 187.98. How does getting farther and farther away from your target of 125 in the next 20 months make you more confident than EVER???

Anonymous said...

I hope Anon understands that his bet is wholly dependent on the continuation of fraud and the manipulation of the markets. Anon is betting that the banks will not pursue foreclosures on the huge number of seriously delinquent mortgages. That the banks huge shadow inventory stays in the shadows. Anon is betting that interest rates that cannot go any further down will not go up. The only thing that Jeff has to worry about is the timing. Case-Shiller values will definitely be taking a huge dive sometime in the future. It's not a matter of if - it's when.

flipdippy said...

Jeff, glad you've come around on the equity markets. They are an f'in joke. When everything looks like it is ripe to crash, we'll hit new multiyear highs on the indices. When earnings start to reflect improvement, the market will collapse.

To that point - yet even more friends in the software engineering field have quit their relatively high paying jobs to commute from DC and Baltimore up to NYC daily to work at hedge funds and at institutions, the pay is that high right now. One told me he is finally earning what he was back in 1999 in the heyday of the .com era.

Another guy went up for an engineering interview at JPM, spent a day being interrogated by a panel of senior engineers and mathematicians, and while he said it was the hardest interview of his life, again, he flat out told me with a grin it was worth it for the $500k salary + bonus (if a proposed trading algorithm makes it to production and generates profits) he left with in his hand the same day.

Also, I still see evidence everywhere of how bad fundamentals are...I got an email from Best Buy that any purchase of $699 or more can be financed at 0% for 3 years. If you're in the market to buy electronics and have cash, that's a hell of a deal...but good god. 0% financing for 3 years on $699??? What does that say about most consumers.

I wonder if we get a santa claus rally this year or not...if christmas is in fact terrible, I can see a fail into the new year...but then again maybe retailers roll out the 0% financing on everything and people manage one last xmas spending orgy.

Anonymous said...

Anon - you are mostly on the mark. I am depending on the banks to keep dribbling out the shadow inventory - just like they have been doing for the past 18 months or so.

I disagree with you somewhat with regard to interest rates, but thats a whole separate argument. The thing I want to quibble about with you is this...


"Anon said...The only thing that Jeff has to worry about is the timing. Case-Shiller values will definitely be taking a huge dive sometime in the future. It's not a matter of if - it's when."


Blah, blah, blah. I heard the same thing in 2005, 2006, 2007, 2008... its always vague projections that the boogeyman is coming to get you some time in the (never defined) future - and then when that far away future becomes the present, the doomer reappears to say "its coming soon, just you wait".

Look, you want to participate in this debate, do what Jeff and I did, regarding Case Shiller values for DC. The end date is May 2012. Give us a value that DC will hit on or before that May 2012 date. Jeff says it will get to 125 or below - I say it will never fall below 160.

My guess is you are embarrassed that I called you out on your "not if but when" timeline, and you dont have the stones to give us a projection for DC Case Shiller May 2012. Or if you do, its largely in line with my projections and you dont want to admit it.

Still, absent you just running away, or responding in some tangential way that does not include a case shiller value, why dont you man up and tell us what the true DC case shiller value will be on or before May 2012? Go ahead, put your (numerical value) prediction in writing and lets see how you do.

Jeff said...

"I hope Anon understands that his bet is wholly dependent on the continuation of fraud and the manipulation of the markets. Anon is betting that the banks will not pursue foreclosures on the huge number of seriously delinquent mortgages. That the banks huge shadow inventory stays in the shadows. Anon is betting that interest rates that cannot go any further down will not go up. The only thing that Jeff has to worry about is the timing."


Bingo

My sentiments exactly.

When housing drops it's going to pop like abubble.

The timing is the only question.

The same thing with interest rates. They will collapse once the market accepts our insolvency. We are BK and there is no way to get out unless we take drastic action right now.

I could be wrong on the timing where I am wrong on Case Shiller.

The outcome is inevtable though at this point.

Jeff said...

Flip

Intersting anecdotes on the engineering side. Thanks for sharing.

As HFT keeps growing I can see how that side of the biz would flourish.

The problem is it will come at the expense of human traders and other stafff as Meredith explained in that video.

Big layoffs coming on Wall St.

Sounds like this news is bullish for anyone involved on the tech side from what you are saying!

Anonymous said...

It is a risky bet to take because it completely relies on how long they can keep people believing the lie. The big banks were/are completely insolvent. How do you hide this? Suspend mark-to-market accounting, let them mark their assets to anything they want them to be. Second mortgages on homes that are in foreclosure valued at 100% but worth 0. All of the sudden these banks are doing great. It is obvious that our government will allow these institutions to do anything to keep this runaway train on the tracks. Problem is the longer they keep it on tracks the faster it goes and the more spectacular the crash.

Anonymous said...

Jeff - yesterday you said you were

"More confident in that bet than ever my friend."

Yet today you admitted:

"I could be wrong on the timing where I am wrong on Case Shiller."

Which one is it???


Anon - as I suspected, you refused to give any prognostications for Case Shiller values for DC - thanks for playin...

Jeff said...

I maintain my position. We have a ways to go and many Case Shillers before we get there.