Nemo has just spent five minutes staring at US equity index charts and has decided they are depressingly ugly, arguing powerfully for a quick and nasty slide of some proportion. Since Nemo hates charts, he is therefore filled with irrational exuberance, and his confidence in a continued upswing remains high, in spite of catcalls and hoots of derision from the oft-discredited Publisher, whose market-predictive skills correlate inversely with the length of my sentences.
One wonders at a stock market that can absorb with equanimity the political catastrophes unfolding daily both domestically and internationally, but markets at this point dismiss politics: having heard a great deal of noise and having seen very little action, perhaps traders have decided to heed the wisdom of Strom Thurmond: “I has seen it all — and the rain do not necessarily follow the thunder.”*
Still, what with commercial real estate about to fall off a cliff (well…probably not) and a money supply expanding faster than an Acorn scandal (even as interest rates remain near historical lows), what on earth drives all this optimism?
Could it be simple supply and demand? Are asset managers so exhausted from one point annual returns on cash balances that they keep buying stocks just to justify their fees? Or do they all really think that equities present an atractive risk/return proposition right now?
Hell if I know. Maybe we should demand that the SEC, Fed, Treasury and the FDIC regulate portfolio manager compensation. Or better still - nationalize mutual funds, and pass a law that they shall rise by 3% more than inflation every year. The Chinese will love it.
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* Actually, I can’t find this anywhere on Google, so maybe he never said it. Someone did; I don’t just make these things up. I leave that to politicians.
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Every time I start to analyze the indices, I get depressed. I see bad things coming. Of course, it all depends on what tomfoolery tries this year. If Cap and Economic Suicide passes the Senate and Healthcare via Dr. Kevorkian gets signed into law, I expect us to become nostalgic for days of the Dow over 2000.
This is anecdotal and from a ground level perspective only but the commercial market has already started to drop off and this is in a relatively “safe” area that has weathered downturns before without much effect, but this is what I am seeing. Future stuff that is in the pipeline currently is government or government related not much in the way of free market speculative building.
Heh.
Except I wasn’t dead wrong. A couple of days early, though.
The market bottomed at 6469 on March 6, and has currently rebounded to about eight percent past my 9100 prediction. Sorry I couldn’t nail one of the biggest turns in the past fifty years any closer than 48 hours, nemo.
Anyway, this move is still a bull-trap sucker’s rally, it’s not going to 10,500 this year or next, and its next major move will be down to at least a retest of 6500, and probably lower than that.
Once a friend of mine pulled onto a drilling site in West Texas, jumped out of his car, opened the trunk, and pulled out a dead jackrabbit, holding it aloft triumphantly.
“Killed it with one shot!” he said, waving his 9MM Browning.
“Missed it with three clips.” added his traveling companion.
Funny, but in this case, inaccurate.
That was my only other market prediction in the time period.
We can quibble over a few hundred points, and some waffling about “decisive breaks,” but the fact remains that after being bearish for two years, within two weeks of the actual bottom I began looking for, and then calling, a specific turn, and I did nail that turn.
A stopped clock is right twice a day. Chaos systems are not possible to predict and statistical analysis of them only predict based on past behaviour. This is most likely correct more than 50% of the time with the occasional “correction”; hence, you can be successful with this approach if you are very consistent with investments and trades and are disciplined enough to get out and leave money on the table when things look too good. By the time you follow advice of others the “hand that writ” has moved on. But as a parlor game of “I told you so,” it’s fun to watch.
Yawn.
Daily Pundit » Your Friday Helping of Economic Gloom - September 22, 2006.
Gain on investment until exiting bear fund about the time I called the bottom? About 40%.
Gain if invested in SP tracking fund at the turn I called? About sixty percent. I didn’t do that, but my individual speculations have generated a higher return over that period. Trend following works wonders, when you know which way the trend is going.
Total gain if you went went bear when I did, and then turned bull when I did? About 125%. During one of the biggest bear markets in history. But of course that’s with my inability to predict chaotic systems, which everybody knows is true, and so I guess that my public predictions and actions predicated on them must be fantasy. (The market is actually a fractal system, and does generate repetitive patterns, btw…)
How’d you do?
So you did. I didn’t know it, as I was not paying attention to DP at that time. But I note you hedged nicely with a “3750-4000″ call.
Exactly. All we do here is make “educated” guesses, because it’s fun. But even if the market is unpredictable, perhaps even over longer terms, money management skills may enable a trader to profit consistently. Ultimately, all (good) short-term trading strategies are pure money management strategies.
My point exactly.
Bill,
You win, no more cliches, “I will avoid them like the plague” (h/t to Wm Safire)
Should I point out here that you are teaching your grandmother to suck eggs? No. Your points are worth making at least four times a year, so that they remain somewhere near the frontal lobes of investors.
Markets are of course fractal. Unfortunately, nobody — and I mean nobody — has ever figured out how that can possibly help. As you point out, the data is all in the past — and even though fractal patterns exhibit scalar repetitions, that doesn’t help when you don’t know where the next datapoint will be.
Jebus Christ, nemo, you hedge just about everything you post to the point that it verges on hand-waving. I mean, what is this:
If not one big hedge? And I haven’t given up on that 3750 call as a potential bottom for the third leg down. I’ll try to fine tune it as the market makes its next move.
You guys are making it hard for us little people to trust experts, or even the well-informed. I’m about ready to believe my golf buddy’s wife, who’s into tarot, crystals and follows several astrologers’ predictions.
According to her, the market is going to drop substantially in the final quarter and the eventual bottom will be around 4000-4500. She also mentioned an astrological “grand cross” next year that will herald a major mideast war, that Obama’s horoscope indicates his sudden removal from office, and that the late 2010, early 2011 period will see a wholesale removal of the old guard.
That may be totally wrong, but at least it’s semi-specific. I’m still waiting for her latest attempt to get tarot cards to produce winning lottery ticket numbers.
My Lakota spirit guide says that astrology is a load of bullshit.
And if you can’t trust your Lakota spirit guide…
(He’s predicting a bottom of 5500 in January, BTW)
I quite frankly don’t know what to do in this market.
On the “minus” side there is no justification for this run-up in the fundamentals of the economy, amount of international trade, increasing government debt, etc., etc., so that side of me wants to short.
On the “plus” side the Fed is POURING cash into the system, most of it ending up at banks who aren’t lending, but who are instead putting it into both stocks and bonds (so we have a run-up in both markets). So I ask myself do I want to make a bet against the ever increasing printing presses of the Fed?
So every time I want to pick up some SPX shorts I ask myself how long the flood of Fed cash printing can last. And the answer is: a lot longer. So I am waiting and watching.
Check the Fed stats again. They’ve not been pouring money into the system for 5 or 6 months now. Which is why we’re seeing weakness. To hold the market up they need to pour, pour, pour.
They’ll be back to doing it soon. Meanwhile foreign purchases of Treasury securities continues apace. But that has a different effect.