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ES and the Great POMO Rally
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ES and the Great POMO Rally

  #661 (permalink)
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Lornz View Post
Thanks, kbit! I appreciate it, I was quite proud of that humorous remark...

My self-image is restored now!

OMG, I was still ROFLMAO - that 's why I couldn't acknowledge your joke.! My wife came home from the grocery store, where she bought all the bacon that our freezer could hold, only to find me on the floor rolling around in convulsive laughter. She said I just kept laughing and screaming "pork bellies", "pork bellies"! She initially tried to get me to stop, by telling me she smashed up the car, and when that didn't work, she told me she was pregnant......by another man. But I still couldn't stop. She finally had to call the paramedics and they hooked me up to an I.V. drip of Valium and Demerol, and I finally stopped laughing long enough to acknowledge your joke. Please don't come up with another one like that for a while, because I'm still recovering from this one.

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  #662 (permalink)
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Reality Check: Studying the Past to
Bring Clarity to the Future

Adapted from Robert Prechter's May and June 2011 Elliott Wave Theorists
Excerpted from The Theorist -- May 16th, 2011

"Swing, batter batter..."
Optimism is nearly ubiquitous and permeates all classes of investors, as detailed in recent issues. You can see it reflected in the blizzard of optimistic chatter about nothing, which has been mesmerizing many investors: “the Japanese earthquake is a buying opportunity”; “the tsunami was bullish for Japan because rebuilding will cause the economy to expand”; “the market is ignoring bad news”; “the economy is improving rapidly now”; “the credit crisis is over”; “if a government avoids a shutdown, the market will jump”; “falling oil prices are bullish for stocks”; etc. The value of most of these claims is nil.
The truth of most of them is also nil. Ignoring bad news per se is not bullish; this is a narrow truism useful after a long decline when a market turns up despite pessimism and worsening economic news. But it doesn’t work in bear market rallies such as in 1968 and now. The economy is not accelerating; it’s been slowing. The credit crisis is not over; in fact, the worst of it lies ahead. A government shutdown would probably be great for the economy in the long run. And stocks have been tracking oil like a pilot fish; if oil has started down, stocks won’t be far behind.
We also hear bold talk that it’s a young bull market, not even half over. Few people quoted to this effect said so when the rally was actually young, back in March-April 2009. For most people involved in financial markets, the primary role of conscious thought is to rationalize mood-induced imperatives, and that’s what investors and commentators are doing.
Last month, advisors polled by Investors Intelligence set a multi-year record for a leap in optimism, from a high level to an even higher level. We find it curious that investor psychology keeps becoming ever more optimistic, as if the market had been racing, rather than crawling, to new highs. As I write this, the S&P is unchanged for the past three months, yet investors are as giddy as if it had jumped another 30%.
Excerpted from The Theorist – June 15th, 2011
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Stocks Are Still Historically Overvalued
In May, the dividend yield on the Dow was back to 2.3%. Only 2000 and 2007, the two biggest market tops since 1929, saw lower yields. Bulls argue that a 2.3% yield from blue chip stocks is bullish because it is much bigger than the near-zero yield from Treasury bills, but this argument does not hold water. In June 1984, 12-month T-bills yielded 12%, way more than stocks, but the difference was not bearish; the stock market took off on the upside right from there.
Figure 5 shows a combination of two other valuation measures: price/book value and the annual yield on bonds vs. stocks, for the S&P Industrials (a broader version of the Dow). While these ratios have receded from their all-time highs in March 2000, the plot along the two axes has yet to return to the area of normal valuation. The last time stock values were inside that box was 1986, a quarter-century ago. Sometime this decade, these values should pass through the box on their way to the other side, as happened in 1931-1932.
Figure 6 is a new chart. It is designed to show the two most extreme indicators—book values and dividend yields—on one graph. As the bear market progresses, the dots should move toward the lower left corner of the chart.
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Figures 5 and 6 may prove unable to express the ultimate extent of the negative mood, because if economic disaster pushes dividends toward zero, the dots could move infinitely to the right on both graphs. That’s what happened to the P/E ratio in 4Q 2008, when earnings went negative.
A Rare Opportunity
These are exciting times. We seem to be entering our second big payoff period. The decline of 2007-2009 was very profitable for well positioned bears, but the 2011-2016 period should prove to be an even bigger boon. To get an opportunity like this is exceedingly fortunate. It happens to only one generation in ten.

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  #663 (permalink)
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Who do i have to listenNews Headlines interesting 2 standard deviation theory

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Don't Fight Bet On The Fed

August 5, 2011
(Mobile version)


The era of quasi-religious belief in "Don't fight the Fed" is drawing to a close; the Fed has been revealed as significantly less omnipotent and powerful than previously imagined. Many observers expect the Federal Reserve to bail out the stock market next Tuesday with an announcement of QE3, another round of "monetary easing" to reinstall the trade in risk assets. If they do, it will fail. The basic reason it will fail is that the Fed's credibility has fallen below a critical threshold. Put another way, the quasi-religious trust in the Fed's infallibility and power to single-handedly reverse global markets has been eroded by reality: QE2 was a monumental failure.
Here's a couple of things to understand about the Fed before you "buy the bounce when they announce QE3."
1. Though nominally independent, the Fed is a political construct. The idea that public opinion and political support have no influence on the Fed is wrong; the Fed's failure to revive the economy while squandering trillions of dollars propping up banks and Wall Street bonuses was not lost on the political class. Though nobody's talking about it, the Fed's abject failure to revive the real economy has greatly diminished its political range of maneuver.
Rumor has it that the word has already gone out to the Fed not to intervene with additional trillions to prop up Europe.
2. The consensus view is the Fed has either engineered the stock market drop to give it a free hand with QE3, or it will be "forced to do something" to combat the implosion of its pet fix to the broken economy, the "wealth effect" of rising stocks.
What these views miss is the Fed is now in a no-win endgame where its best move is to minimize the damage to what's left of its own reputation and credibility. The worst move here would be to double-down on QE3, because if it failed to goose global markets in a sustained fashion, then the Fed's remaining credibility and "magic" would vanish in a puff of smoke.
Chairman Ben Bernanke telegraphed this in his recent testimony to Congress, in which he basically stated that the Fed had done all it could and there was little more it could do other than wave a dead chicken and chant a few old incantations. Though he dutifully repeated the standard reassurances, i.e. "There is always more monetary easing we can do," he was careful to lower expectations that such easing would accomplish anything.
His testimony was that of someone setting up CYA in a major way. (CYA = cover your behind from recrimination when things head south.)
3. The Fed's power rests not in the fabled printing press but in the invisible coin of trust. Now that its fallibility has been exposed, its power, i.e. the magical faith in the guaranteed efficacy of its actions, has been destroyed.
This cloak of invincibility is what generated its power, and now that its grand policy of rescuing the economy via monetary easing and "the wealth effect" have collapsed into smoking ruins, that cloak has been shredded.
The folks running the Fed are not stupid, though they may be profoundly misguided. If they announce a vast QE2-type "easing," they would be taking on a potentially fatal risk, as the entire blame for the coming debacle would fall squarely on the Fed. They know a QE2-type easing will fail, because they have undeniable evidence that QE2 failed.
In other words: since they know QE3 cannot revive the economy or the market, then why on earth would they bet the farm pursuing a policy that's doomed to fail? That would be a form of institutional suicide.
While doing nothing would expose them to political heat from politicos desperate to revive the economy by any means, the Fed is not about to step in front of the train just to satisfy inept congresspeople.
What is the least-risky course of action for the Fed? Announce some wimpy half-measures to dodge the accusation of doing nothing, but also avoid any grand QE3 measures which would shift the blame for the coming meltdown on the Fed.
The Fed is backed into a corner of the board where all the endgame choices are unsavory. The Fed squandered all its pawns, rooks and bishops in 2008, 2009 and 2010. Its political capital has been expended pursuing policies that failed to fix the financial causes of the 2008 meltdown and also failed to revive the Main Street economy. As of yesterday, the "wealth effect" created by a rising stock market has been gutted.
The Fed is on the defensive. When you're playing defense, trying to protect your King and Queen with a single Knight, the Grand Strategy is no longer an option.
4. The limits of monetary policy are now clear for all to see. Even if the Fed announced a $1 trillion buyback of Treasury bonds, the market would go through the motions of a dead-cat bounce, but the faith in the efficacy of that policy has been lost. Neither the political class nor the market believe such a policy will accomplish anything.
In other words, QE3 is dead on arrival. If the Fed announces a massive "surprise" campaign of easing, it will be accepting the entire responsibility for the revival of the U.S. economy and the stock markets. Since we all know any such Grand Gesture will fail, then the Fed would be committing institutional suicide.
5. The Fed's easing does not push money into the economy. Thus is will necessarily fail.
6. The "risk trade" is on the order of $30 trillion. Printing $500 billion and shoveling it into the risk trade over six months is not going to offset the losses from this week, never mind the potential losses over the next six months.
Add all this up and the inescapable conclusion is that the Fed will duck for cover. Maybe the market rallies for a few days, back up to the 200-day moving average in a classic oversold retrace, but the technical weakness outlined in Remind Us Again Why Anyone Should Own Stocks For the Next Two Years (August 3, 2011) cannot be resolved by QE3 for the reasons noted above.
Here is a simple chart of the S&P 500, the SPX. The SPX sits on 1,200, a line in the sand going back to the days in 2008 just before the waterfall collapse in global markets. Note how the SPX bounced off 1,200 back then; perhaps history will echo as the Fed's soothing half-measures will spark a relief rally of sorts.
But then gravity takes hold and reality sets in.
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As noted earlier this week: since the U.S. dollar and the SPX have been on a see-saw for years, it's interesting to compare the DXY's recent decline with its action back in the summer of 2008, just before the global financial Ponzi scheme imploded.
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The Fed bet the farm last August on QE2, and it lost. It no longer has the political capital or market credibility to make that sized bet again. It is on the defensive, and in survival mode. Big bets and grand gestures have no place in this endgame.

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  #665 (permalink)
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Sometimes there's no logic behind politics my friend.


Lornz View Post
Maybe he should reread some of his own books, they might come in handy:

Amazon.com: Essays on the Great Depression (9780691118208): Ben S. Bernanke: Books


"How should governments and central banks use monetary policy to create a healthy economy?"
Amazon.com: Inflation Targeting: Lessons from the International Experience (9780691086897): Ben S. Bernanke, Thomas Laubach, Frederic S. Mishkin, Adam S. Posen: Books

A few years ago, when I wanted to learn more about macroeconomics, I thought it would be wise to choose a book ( Amazon.com: Principles of Macroeconomics (9780073362656): Robert Frank, Ben Bernanke: Books ) written by the current Chairman of the Federal Reserve, but it seems his actions and writings are not that correlated...


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  #666 (permalink)
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This market has been absolutely amazing today. From the big picture, we're just taking out every potential support level in a hurry. Looking for 1037 to be hunted down now. You would think we get some sort of retracement at some point but the selling is just coming in so strong.

Curious to see if BofA fails in the next few days followed by Citi. These TBTF's have been zombie banks for years. It's time for them to meet reality.

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Private Banker View Post
Curious to see if BofA fails in the next few days followed by Citi. These TBTF's have been zombie banks for years. It's time for them to meet reality.

Can you elaborate on your reasoning that these banks may fail soon?

Mike

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Sorry for beeing the contrarian, the markets have discounted enough, ES has reached -3SD from the weekly vwap. There is a virgin weekly vwap at 1234, I would not be surprized if we'll reach that level on the coming days.
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Big Mike View Post
Can you elaborate on your reasoning that these banks may fail soon?

Mike

The obvious answer being the financial pressure these banks are going through. Consumer and commercial loan defaults, rising costs for debt collection and foreclosures, trading revenues falling, underwriting revenues falling and most importantly toxic assets on their balance sheets. Now there is the high potential of their debt ratings to be dropped increasing there borrowing costs and we have the perfect storm here. Nothing has changed since 2007 and 2008. If anything, things may be worse. The credit default swap costs for these banks have shot up through the roof. Traders are long their CDS and short their outright stock with huge bets on them failing.

I don't think the Fed or the government will be in a position to bail them out this time from the political pressure. If they do, we are going to see chaos and count on the ratings agencies carving another notch out of the US' credit rating. They'll have to break them up finally. This is long over due of course. Ken Lewis and Chuck Prince sending these firms down the river with no chance.

I forgot to mention the long line of lawsuits BofA is under. Just noticed AIG is now going after them for Fraud. They seem to be lining up now. http://www.reuters.com/article/2011/08/08/bankofamerica-aig-lawsuit-idUKN1E7770B620110808?type=companyNews


Last edited by Private Banker; August 8th, 2011 at 05:33 PM.
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Private Banker View Post
The obvious answer being the financial pressure these banks are going through. Consumer and commercial loan defaults, rising costs for debt collection and foreclosures, trading revenues falling, underwriting revenues falling and most importantly toxic assets on their balance sheets. Now there is the high potential of their debt ratings to be dropped increasing there borrowing costs and we have the perfect storm here. Nothing has changed since 2007 and 2008. If anything, things may be worse. The credit default swap costs for these banks have shot up through the roof. Traders are long their CDS and short their outright stock with huge bets on them failing.

I don't think the Fed or the government will be in a position to bail them out this time from the political pressure. If they do, we are going to see chaos and count on the ratings agencies carving another notch out of the US' credit rating. They'll have to break them up finally. This is long over due of course. Ken Lewis and Chuck Prince sending these firms down the river with no chance.

Don't forget that Wikileaks has a hard drive from a former executive... It seems Assange it using it as life insurance at the moment, but that could potentially do much damage...

These banks should have been allowed to "fail" during the last crisis anyway, to keep propping the up is insane...

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