Fall US Stock Clearance Sale! All Stocks 10% off! All Stocks Must Go!

[EJ]

Stocks Surge on Rate Cut Hopes
By JOE BEL BRUNO – 22 hours ago

NEW YORK (AP) — Wall Street shot higher Monday, sending the Dow Jones industrial average above 14,000 for the first time in 2 1/2 months as investors moved back into stocks at the start of the fourth quarter.

AntiSpin: Wall Street, of course, wants retail investors to focus on the price of securities, not the underlying risk. Prices may be rising, but risk is rising faster.

The risk-adjusted return on stocks and bonds has been falling since iTulip re-started March 2006. The growing risks, in line with models going back to 2000, are: inflation and default, both corporations and bonds. The Fed's bind is that all available tools to control one risk increases the other. The recent credit crunch was a forcing function that caused the Fed to chose one over the other by cutting rates 50 basis points, thus tipping its hand.

This recent piece by PIMCO's McCully is illustrative. He makes the same case we do, but using different terms: the Fed, in order to avoid a runaway debt deflation, will bail out the FIRE Economy at the risk of more serious inflation in the P/C Economy.

Looking at the stock market on a risk-adjusted basis is unintuitive. Price is apparent while underlying risk is not. You have to dig hard and analyze hidden factors to estimate risk, and the results are subjective; no two analysts are likely to reach the same conclusions. Bears tend to look for the risk, bulls tend to avoid it.

iTulip's long and medium term view has not changed. Soon we will begin looking for evidence of the housing led recession we projected in October 2006 for the current quarter. Don't expect to read about the recession in the business section of your newspaper. Typically recessions are not acknowledged by the Fed until after they are over. You may see evidence showing up in various blogs, however. And, of course, don't forget to look out the window, and talk to your friends and family.

The challenge of managing a recession under current global imbalances is not exactly a secret. There is far more debt on household and government balance sheets, a far weaker dollar, and far more inflation than in 2001 when we had the last Ka-Poom disinflation/re-inflation cycle. (See also EJ's Comments on the Week's Posts - Sept. 22, 2007.)

NY Mayor predicts global economic downturn
October 1, 2007 (ABC News)

"In New York, the economic uncertainty our two countries face today is beginning to feel similar to the economic downturn we experienced six years ago - but this time, the stakes are higher because more people owe more debt and so do our governments," he said.

While it's always dangerous to try to assign a reason to short term market action in the absence of an obvious contributing event, our theory on the rise of the stock market recently is that US stocks look to foreign investors the way Las Vegas did to the thousands of visiting Europeans, Canadians, and Asians we saw there a few weeks back. Priced in euros, yen, Canadian dollars, and sterling, US stocks are fire sale cheap.

The rise of the DOW, gold, and other assets priced in dollars is tracking the decline in the dollar. Frankly, we don't understand why anyone who is paid a salary or earns interest in US$ is buying US stocks. Maybe the Dec. 7 Fed Flow of Funds report will show us that they aren't.

For those eager to see our projected 1,000 plus point down day for the DOW, remember A Financial Market Crash is a Process, Not an Event. It'll be here soon enough. Meanwhile, relax and enjoy the illusion while you can.

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[0tr]

Re: Fall US Stock Clearance Sale! All Stocks 10% off! All Stocks Must Go!

" Frankly, we don't understand why anyone who is paid a salary or earns interest in US$ is buying US stocks."


If I remember correctly, some comments at itulip refer to metal and currency ETFs, and so perhaps a grain of salt is in order. A blanket dismissal of issues/stocks may be throwing out some babies with the bath water.

Of the thousands of stocks traded only a small number would appear to merit the term 'high quality'.

Is there a thread that deals with selection of high quality stocks? Or contains a list of issues that could be considered for purchase under suitable circumstances? Many people do not have the possibility to participate in commodity or foreign exchange markets, but are able to purchase ETFs, and other stocks.

[FRED]

Re: Fall US Stock Clearance Sale! All Stocks 10% off! All Stocks Must Go!

" Frankly, we don't understand why anyone who is paid a salary or earns interest in US$ is buying US stocks."


If I remember correctly, some comments at itulip refer to metal and currency ETFs, and so perhaps a grain of salt is in order. A blanket dismissal of issues/stocks may be throwing out some babies with the bath water.

Of the thousands of stocks traded only a small number would appear to merit the term 'high quality'.

Is there a thread that deals with selection of high quality stocks? Or contains a list of issues that could be considered for purchase under suitable circumstances? Many people do not have the possibility to participate in commodity or foreign exchange markets, but are able to purchase ETFs, and other stocks.

Think what the captain meant to say is that US stocks are pricey in bonars, cheap in others. Gold is expensive in Canadian dollars, including ETFs.

Good idea on the idea of a thread on what are good stocks to own in a dollar deflation. Semi-monopolies that can rapidly expand production for export are a good start, such as...

[Piv]

Re: Fall US Stock Clearance Sale! All Stocks 10% off! All Stocks Must Go!

For those eager to see our projected 1,000 plus point down day for the DOW, remember A Financial Market Crash is a Process, Not an Event. It'll be here soon enough. Meanwhile, relax and enjoy the illusion while you can.

As a new member here with very little knowledge of how the economy works, I have found it an eye opening experience. I appreciate the education that a novice can understand along with the humor often used. My only knowledge previous to here was from shows on tv such as Fast Money, Cramer, etc. (ok you guys can stop laughing now). It did not take me long to figure out that they were mostly a bunch of cheerleaders behaving with their own best interest.

My concern is that I felt the market was going to react to the housing and other problems with the economy, so I gradually started moving into cash about 1 1/2 years ago leaving about 10% in energy and increasing my existing PM fund to about 20% after the Fed cut rates.
I think along with many other people that perhaps we under estimated how quickly and forcefully the Fed would come to the rescue.

With all this money being pumped into the system and needing a place to go, won't the market go up enough to beat the return on cash even though it may not keep up with inflation?

What about other countries loaded with cash (China, Mid-East, etc.) buying assets and stocks cheaply because of the falling dollar?

Don't most Booms end with a dramatic rise? It still doesn't feel like thats happened.

I still believe my moves may be right in the long run, but it's difficult to watch the market continue rising despite the bad news.

Piv