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I say the next two trading days will tell us a lot. I feel like we are caught between a '87 and '29 scenario right now. Either we will get the V-bottom, but it won't hold up because of the fundamental issues; could be traded, or it just keeps declining slowly until the market resets to ~0 in two more years. The forced liquidations will continue for some time. Many margin calls have yet to be covered. (Or can't be because of collateral stock losses that will affect other stocks that get swallowed up by the margin clerk.) It will take several years to bring every back into the market. Once we breakthrough the credit seizure you will see some gains as the pressure eases up a little. I am going to try to nibble a bit on Monday; may not work.
Any one that bought on that Friday of '87 broke even, and those that did Monday made out a year later. What I am worried about is a longer term bull trap, say 6-12 months. Than the problem is back again. Even worse. That is what I think.
I say the next two trading days will tell us a lot. I feel like we are caught between a '87 and '29 scenario right now. Either we will get the V-bottom, but it won't hold up because of the fundamental issues; could be traded, or it just keeps declining slowly until the market resets to ~0 in two more years. The forced liquidations will continue for some time. Many margin calls have yet to be covered. (Or can't be because of collateral stock losses that will affect other stocks that get swallowed up by the margin clerk.) It will take several years to bring every back into the market. Once we breakthrough the credit seizure you will see some gains as the pressure eases up a little. I am going to try to nibble a bit on Monday; may not work.
Any one that bought on that Friday of '87 broke even, and those that did Monday made out a year later. What I am worried about is a longer term bull trap, say 6-12 months. Than the problem is back again. Even worse. That is what I think.
In 87 the banks were not in trouble as they are today, to me this is nothing like 87. If this does not bottom within 2 weeks were going to see some really bad things happen. If we have a slow burn like we did in 1929, 1930, 1931, 1932, it will be very very bad. Lets hope we bottom this week and go up from there. With a lot of the banks in trouble and a world wide problem, all bets are off.
I say the next two trading days will tell us a lot. I feel like we are caught between a '87 and '29 scenario right now. Either we will get the V-bottom, but it won't hold up because of the fundamental issues; could be traded, or it just keeps declining slowly until the market resets to ~0 in two more years. The forced liquidations will continue for some time. Many margin calls have yet to be covered. (Or can't be because of collateral stock losses that will affect other stocks that get swallowed up by the margin clerk.) It will take several years to bring every back into the market. Once we breakthrough the credit seizure you will see some gains as the pressure eases up a little. I am going to try to nibble a bit on Monday; may not work.
Any one that bought on that Friday of '87 broke even, and those that did Monday made out a year later. What I am worried about is a longer term bull trap, say 6-12 months. Than the problem is back again. Even worse. That is what I think.
In 87 the banks were not in trouble as they are today, to me this is nothing like 87. If this does not bottom within 2 weeks were going to see some really bad things happen. If we have a slow burn like we did in 1929, 1930, 1931, 1932, it will be very very bad. Lets hope we bottom this week and go up from there. With a lot of the banks in trouble and a world wide problem, all bets are off.
I agree this is nothing like the '87 crash.. the thing to look for that there has been massive selling after every rally..
I am not talking about a parabolic rise back to historic highs. We will see, in my view, some unprecedented whipsaw market weeks (much like the past two) in the very near future, but they will abate. I agree that a trading range period will ensue. I do believe that enough people have stepped off of the 1929 train at this point. All of the fundamental mechanisms that you speak of are in motion; however, if enough folks choose to ignore them because they believe otherwise, then otherwise will happen. Think of it as a sustained dead cat bounce type of thing.
I agree with your thinking (did I say that? ) about bonds.
Big Al
__________________ "Pedophiles must die" - Ted Nugent
If it bottoms as you say will it go up or skid for months or even years? At first I thought it would be tough for the markets to regain our trust but then reality set in and I reminded myself that people are pigs so if the markets start going up, showing a high rate of return people will jump back in faster than they pulled out.
I tend to agree with you. There is the greed factor, as well as the human nature tendency to want to recoup what was lost. It all depends on how quickly we can clear the constipation in the credit markets, and how much damage was done to the consumer.
The balance sheets of lending entities have to get cleaned up. The good thing is that as soon as the market turns around, their debt equity ratios will improve.
The right prescription would have been to suspend mark to market accounting in the beginning and put real restrictions on naked short selling. That would have addressed the lending constraints (which were far more impactful than the cash flow challenges of non-performing mortgages), and removed the gasoline from the fire.
Since I am somewhat in the conspiracy theory camp, naturally my position is they didn't do that because the run up and the crash were both planned for purposes of wealth creation of the few and wealth destruction of the many.
Big Al, I hope your predictions are right, as my cfa is on the same page. As I watch the portfolio value drop, I call or meet with him to see if I should cash out, and he always convinces me to not only stay in, but buy more. I'm 62, and I'm in deep. I hope he's right.
__________________ Capt Will, 2002 G/W 282 Sailfish, F225's
USCG Master, 50 Ton; Towing endorsement
Indian River, De
Big Al, I hope your predictions are right, as my cfa is on the same page. As I watch the portfolio value drop, I call or meet with him to see if I should cash out, and he always convinces me to not only stay in, but buy more. I'm 62, and I'm in deep. I hope he's right.
If you are 62, you need to be entirely OUT of this market!!! You need to be into a stable, secure, "shelter" that will not experience the rapid rise, falls, and loses of the stock market. Maybe you won't make money, but at this point in time you need to have not losing money as your priority. When things settle down you can move your money around with less risk attacked.
I wish I had the credential to back up the fact I think the statement here is gold. 2 cents? I'd consider that the valuation of your opinion in the current environment. Scoop this up now folks, when the pendulum swings we won't be able to afford gg's opinion.
Are you a 'pro' gg? I'm a heavy investor but merely an armchair broker. I did the E*Trade thing for a while, but could never better a top tier investment dept. with true fidiciary responsibility with regard to 'returns'. I have NO ear to the rail, they do, 24/7. Their 'fees' are not that self indulgent in the grand scheme (% of portfolio). It got to the point, I just kept thinking of the old adage " An attorney who represents himself in court, has a fool for a client."
It begs the question, toward "Faith" in a market with regard to the current volitility; What's up? Are there that many "on-line" players at the helm who are screwing with the mechanics with pure emotion'? Where is the response to the 'sound advice' you are offering here? I don't see it. The market doesn't scare me, the average Joe with his finger on the left click does.
Nope, not a pro -- but I manage my own investments to avoid paying 1% to a supposed "expert". No matter what view one believes, there is some "pro" who holds the opposite. So I merely look at the PAST and rebalance for the most part rather than try and predict the future. The past is documented, printed, unchangeable. The future is unknown. If something I have goes up, I sell some, and buy something of what I have that went down. At the moment, the latter camp is chock full!!
Seriously, the "fed model" always compares the possible returns of bonds (interest rates) versus the dividend returns of the market (such as the S&P500, which I think returns 2% or so in dividends -- when it was going for 1200). The dollar value of dividends tends to say constant. Therefore, if the S&P500 decreases to 600, it will be returning perhaps 4% in dividends (twice the PERCENT return in dividends). I may be off a bit on the actual numbers, but you get the idea.
The entire FED is determined to keep interest rates low at the moment (and everything that is happening in the credit market is going to oppose that, and tend to RAISE interest rates -- particularly if Congress allows "rewriting" of supposedly sacrosanct contracts known as mortgages.... lenders will demand much higher interest rates to protect themselves against this sort of thievery).....I am not sure which way that will go, but I doubt very far up. With consumer demand tanking, we are unlikely to see very high inflation.... so I'm going to bet on middle-of-the-road interest rates.
With all that, it is likely that in the "fed model" a tanking S&P500 will begin to have dividend yields (when expressed as a percentage) that begin to look much better than bonds (and corporate bonds right now are toast anyway)....and that will act as a nother reason to buy stocks.
I've heard a strong argument that all the credit-default-swaps on Lehman Brothers are going to have to be settled by Oct 21 (Wall Street Journal reporting) and that much of the selling going on is companies defensively increasing their cash position because they don't know what, or who, will have to pay the big bugs to settle out those swaps. Jim Jumbak thinks that come a day or two after that fateful day, those still "standing" will look around, and say, "Why did I ever sell those wonderful companies for such pitiful prices? I'm still solvent -- let me go buy them back!" I do not know if those things are true or not. Margin calls are also forcing many (including some very red-faced corporate CEO's!!!) to liquidate positions, even in their own companies (WSJ reporting again). All of this is causing incredible SELLING that is unrelated to the value of othe companies involved.
That is the key part -- selling that is unrelated to the value of the companies involved.
My "rebalancing" model tells me that my bond percentage is higher than desired at the moment, so I am going to (continue) to cautiously buy into the stock market as I have been for some time now....suspended during last week's storms....but now probably planning to fix that out-of-kilter bond-stock ratio, perhaps over the next 4-6 months....
There may still be yet another downturn to this market. Can't tell. AGain -- can't predict the future. But the past is perfectly documented, and my stock percentage is lower than wanted right now....
The times in my investing life that I've made the WORST mistakes were when I CHANGED STRATEGIES rather than sticking to a strategy. So I'll stick to my strategy, which comes right out of Ecclesiastes, by the way!
It will happen before the end of next week, about midday. Valuation of the Dow will hit 7440-ish and that will be it.
Prepare to buy.
And PM me for a numbered account where you can send a portion of yer profits, this time next year.
Big Al
Dow Theory? Exactly, my son, exactly.
You said this meltdown would never happen and the sky would never fall
No, you are incorrect.
I said that I did not believe the sky would fall. It hasn't. Tough times for the markets? Absolutely. End of the world? Hardly.
You should be comfortable sleeping on that pile of gold, so go ahead and venture forth with your view on where the markets are heading.
I will repeat here - doomsayers share equal weight with pollyannas. Either extreme is bound to happen sooner or later. It is what a person does in between that matters.
Go ahead nat, make a call.
Big Al
Big Al
__________________ "Pedophiles must die" - Ted Nugent
Some years ago a friend of mine bought silver bars. I don't know how many he had, but while he was away one weekend, his teenage daughter had a party. The next time he went to stash some silver, yep, it was gone and he never got it back.
Be careful where you hide your riches
I think the market bottomed Friday, or will tomorrow. I bought some ETF's and calls on QQQQ and SPY. I was probably early, as I usually am. I see a 20% pop from this low in the next few months. That sounds like a lot, but it actually is not, considering how much we have lost. After this pop it will be a slow multi-year grind, and it will not be pretty at all. Save your acorns people and live frugally.
So much wealth has been destroyed. America MUST reinvent itsef (it will...). We must innovate and create meaningfully for the world. America under the Clintons and Bushes has been bastardized. Our manufacturing base has been sold off to China in exchange for cheap overnight stays in the Lincoln bedroom. Deregulation and a blind eye turned has resulted in an economy built on matchsticks and appearances. The American economy has to mean more than providing spoiled consumers addicted to credit cheap crappy goods. America has to be about making something meaningful. Being something meaningful. We have to stand for something other than buying cars, Asian goods, and Starbucks. The success of America has always been, and must be in the future, directly tied to a thriving middle class. A thriving middle class is tolerant, hard working, and possesses values of goodness and ingenuity. A dead middle class means the country is extremest and hate mongering. Look at Saudi Arabia ( and I am partially of Arabic descent).
I hope whoever is elected will cut this golden parachute crap out, and cut out this free-market-at-all-costs agenda. It does not work, and never has. NAFTA was a joke. Our relationship with China is a joke as well. We open everything to them, and they open nothing to us. We get crappy toys with lead paint, melanin, and crap that breaks in three days. Enough. We need technology jobs. Energy jobs. Cutting edge healthcare jobs. And companies that move call centers, or service jobs, or whatever offshore, should be tax disadvantaged. And we need better schooling here, with better paid teachers with no tenure. NO TENURE. Perform baby. I would gladly pay the good teachers $100k if I could fire the dead weight. Finally we must be compassionate. God loving. Good societies are not judged on how they take care of the best; they are judged on how they take care of their least fortunate.
Phew. Got that off my chest. By the way I hope you see that I am not a Conservative or a Liberal, a Republican or a Democrat. And I bet when you get right down to it, most of you don't fit into those tiny media created labels either.
Look for a 5,000 Dow. As I've said in other posts, the gross over-valuing of companies that produce nothing of true value (is starbucks really a market leader? Come on!) and essentially are created with smoke and mirrors are toast. The old "dogs" of the market, sound companies that aren't sexy, will be the "new" norm. And to those of you who claim to be able to "call? the bottom, keep this in mind: the bottom of any bad market is not a point as you so foolishly claim, it's a period. Pay attention folks, there is a shitload of money sitting on the sidelines and those of us who've been smart will make it pay. 5,000, watch it happen, especially if these tax-fattened asshole hyenas in teh gubmint keep phukking with things. Good luck and make money...
I wish I had the credential to back up the fact I think the statement here is gold. 2 cents? I'd consider that the valuation of your opinion in the current environment. Scoop this up now folks, when the pendulum swings we won't be able to afford gg's opinion.
Are you a 'pro' gg? I'm a heavy investor but merely an armchair broker. I did the E*Trade thing for a while, but could never better a top tier investment dept. with true fidiciary responsibility with regard to 'returns'. I have NO ear to the rail, they do, 24/7. Their 'fees' are not that self indulgent in the grand scheme (% of portfolio). It got to the point, I just kept thinking of the old adage " An attorney who represents himself in court, has a fool for a client."
It begs the question, toward "Faith" in a market with regard to the current volitility; What's up? Are there that many "on-line" players at the helm who are screwing with the mechanics with pure emotion'? Where is the response to the 'sound advice' you are offering here? I don't see it. The market doesn't scare me, the average Joe with his finger on the left click does.
Nope, not a pro -- but I manage my own investments to avoid paying 1% to a supposed "expert". No matter what view one believes, there is some "pro" who holds the opposite. So I merely look at the PAST and rebalance for the most part rather than try and predict the future. The past is documented, printed, unchangeable. The future is unknown. If something I have goes up, I sell some, and buy something of what I have that went down. At the moment, the latter camp is chock full!!
Seriously, the "fed model" always compares the possible returns of bonds (interest rates) versus the dividend returns of the market (such as the S&P500, which I think returns 2% or so in dividends -- when it was going for 1200). The dollar value of dividends tends to say constant. Therefore, if the S&P500 decreases to 600, it will be returning perhaps 4% in dividends (twice the PERCENT return in dividends). I may be off a bit on the actual numbers, but you get the idea.
The entire FED is determined to keep interest rates low at the moment (and everything that is happening in the credit market is going to oppose that, and tend to RAISE interest rates -- particularly if Congress allows "rewriting" of supposedly sacrosanct contracts known as mortgages.... lenders will demand much higher interest rates to protect themselves against this sort of thievery).....I am not sure which way that will go, but I doubt very far up. With consumer demand tanking, we are unlikely to see very high inflation.... so I'm going to bet on middle-of-the-road interest rates.
With all that, it is likely that in the "fed model" a tanking S&P500 will begin to have dividend yields (when expressed as a percentage) that begin to look much better than bonds (and corporate bonds right now are toast anyway)....and that will act as a nother reason to buy stocks.
I've heard a strong argument that all the credit-default-swaps on Lehman Brothers are going to have to be settled by Oct 21 (Wall Street Journal reporting) and that much of the selling going on is companies defensively increasing their cash position because they don't know what, or who, will have to pay the big bugs to settle out those swaps. Jim Jumbak thinks that come a day or two after that fateful day, those still "standing" will look around, and say, "Why did I ever sell those wonderful companies for such pitiful prices? I'm still solvent -- let me go buy them back!" I do not know if those things are true or not. Margin calls are also forcing many (including some very red-faced corporate CEO's!!!) to liquidate positions, even in their own companies (WSJ reporting again). All of this is causing incredible SELLING that is unrelated to the value of othe companies involved.
That is the key part -- selling that is unrelated to the value of the companies involved.
My "rebalancing" model tells me that my bond percentage is higher than desired at the moment, so I am going to (continue) to cautiously buy into the stock market as I have been for some time now....suspended during last week's storms....but now probably planning to fix that out-of-kilter bond-stock ratio, perhaps over the next 4-6 months....
There may still be yet another downturn to this market. Can't tell. AGain -- can't predict the future. But the past is perfectly documented, and my stock percentage is lower than wanted right now....
The times in my investing life that I've made the WORST mistakes were when I CHANGED STRATEGIES rather than sticking to a strategy. So I'll stick to my strategy, which comes right out of Ecclesiastes, by the way!
Good luck!
Well, your armchair is certainly a lot bigger than mine was! The 'changing of strategies' factor was always tugging on my pant leg. I suppose if you really enjoy the process of managing your own investing in itself and have discipline then you have a good recipe for success. I enjoyed the research, just never felt good about the 'call' or paying "micro" attention to it. I always felt I was missing parts of the puzzle to realize the bigger, complete picture.
Great post gg. It will be interesting to see where we all stand in a few weeks, then a few months. On paper I'm back to my 2001 levels. Oh well, I'm not discouraged, I never saw the market as a 'get rich quick scheme'. Ever. Just as long as it pulls it's weight as "wealth" in the long, long run I can tolerate "crashes". I'm about to turn 50, enough time to wait out another positive wave cycle, two kids, and my four generation portfolio goes to them in my will, would just like them to enjoy the same advantage.
Quote:
Themis Sal - 10/12/2008 7:35 PM
I would like to weigh in.
I think the market bottomed Friday, or will tomorrow. I bought some ETF's and calls on QQQQ and SPY. I was probably early, as I usually am. I see a 20% pop from this low in the next few months. That sounds like a lot, but it actually is not, considering how much we have lost. After this pop it will be a slow multi-year grind, and it will not be pretty at all. Save your acorns people and live frugally.
So much wealth has been destroyed. America MUST reinvent itsef (it will...). We must innovate and create meaningfully for the world. America under the Clintons and Bushes has been bastardized. Our manufacturing base has been sold off to China in exchange for cheap overnight stays in the Lincoln bedroom. Deregulation and a blind eye turned has resulted in an economy built on matchsticks and appearances. The American economy has to mean more than providing spoiled consumers addicted to credit cheap crappy goods. America has to be about making something meaningful. Being something meaningful. We have to stand for something other than buying cars, Asian goods, and Starbucks. The success of America has always been, and must be in the future, directly tied to a thriving middle class. A thriving middle class is tolerant, hard working, and possesses values of goodness and ingenuity. A dead middle class means the country is extremest and hate mongering. Look at Saudi Arabia ( and I am partially of Arabic descent).
I hope whoever is elected will cut this golden parachute crap out, and cut out this free-market-at-all-costs agenda. It does not work, and never has. NAFTA was a joke. Our relationship with China is a joke as well. We open everything to them, and they open nothing to us. We get crappy toys with lead paint, melanin, and crap that breaks in three days. Enough. We need technology jobs. Energy jobs. Cutting edge healthcare jobs. And companies that move call centers, or service jobs, or whatever offshore, should be tax disadvantaged. And we need better schooling here, with better paid teachers with no tenure. NO TENURE. Perform baby. I would gladly pay the good teachers $100k if I could fire the dead weight. Finally we must be compassionate. God loving. Good societies are not judged on how they take care of the best; they are judged on how they take care of their least fortunate.
Phew. Got that off my chest. By the way I hope you see that I am not a Conservative or a Liberal, a Republican or a Democrat. And I bet when you get right down to it, most of you don't fit into those tiny media created labels either.
Great post as well Sal. I find the first paragraph encouraging, but the rest moreso. You're a great American!
Re: I'm Calling The Bottom 
) about bonds.
