Bearish Information

[Jim Nickerson]

Re: Bearish Information re. Gold correction?

Gold Market Update
by Clive Maund originally published September 30th, 2007
http://www.safehaven.com/article-8521.htm

One must access the link to see his charts and other explanation for his opinion.

There are 2 factors which taken together strongly suggest that gold is about to react. One is the RSI indicator shown at the top of the 2-year chart above, which remains at a critically overbought level. By itself this would not necessarily preclude further advance, as a commodity can remain very overbought for a lengthy period and yet continue higher. However, if we also take into account the fact that the Commercials' short positions in gold have risen to by far the highest level for a year, with a corresponding ballooning of the Large Specs' long positions, then a reaction would appear to be imminent. Before taking a closer look at the latest COT chart the point should be made that overall the gold chart looks strongly bullish, with a breakout to new highs, albeit still a marginal breakout, and moving averages in bullish alignment, suggesting that a major uptrend is still in its early stages. Thus, what we are concentrating on here is a probable significant near-term reaction to correct the current short-term overbought condition.

Emphasis JN

Maund's overall impression is that a pullback to the $700 area in gold is the "most likely scenario," that because of his very bullish interpretation of the equity markets (see bullish information thread dated 9/30/07) the mining stocks will not get hit so much and during gold/silver weakness he would be buying the mining stocks.

For a bit of a different opinion see West's remarks on gold above in post #165.

[Jim Nickerson]

Re: Bearish Information Re. John Hussman's weekly comments.

http://hussmanfunds.com/wmc/wmc071001.htm

In recent weeks, a relative quiet has emerged both in stocks and in the credit markets. In stocks, the major indices have recovered to levels close to their prior highs. As yet, however, market internals have been fairly sluggish, trading volume has been fairly dull, and we've observed continued dispersion across industry groups and leadership (e.g. new highs vs. new lows) rather than the sort of uniformity that is normally associated with a robust willingness of investors to accept risk.

The other difficulty is that we've now reestablished the overvalued, overbought, overbullish combination of conditions that has historically been associated with average returns below Treasury bill yields, even when market action has been otherwise favorable on the basis of price trends. Importantly, these instances are not usually associated with immediate and persistent losses. Rather, they tend to be associated with further incremental gains and marginal new highs, followed by sudden losses that abruptly erase weeks or months of upside progress within a handful of trading sessions.

One might argue that the view of stocks as richly valued must certainly be incorrect, with the S&P 500 at a price to forward operating earnings ratio of “only” about 15. However, even if we take current record profit margins as given, and assume they will persist indefinitely at levels about 50% above their historical norms, a multiple of 15 times forward operating earnings is still only low relative to levels of the late 1990's. Those levels, by the way, have been associated with total returns on the S&P 500 that have lagged Treasury bills for more than 8 years now, despite the rebound of recent years. The current price to forward operating earnings multiple is as high as it was at the 1987 peak, higher than it was before the 1990 bear market, and is in fact at the highest level that would have been observed in history except for the late 1990's. Most of the points prior to 1965 featured interest rates that were lower than they are presently. Again, current multiples also implicitly assume that profit margins will permanently remain at the highest levels in history. Current stock prices are at far higher multiples to normalized earnings.

Emphasis JN

Not caca, but perhaps Ka.

Another interesting observation by Hussman, that I presume is correct, unless someone brings in data (charts, Bart) to refute it.

As for the stock market, it's important to keep in mind that if you look at the 6-month periods before and after the start of a recession, you'll observe that the S&P 500 has almost invariably dropped by about 20% from highest point within 6 months before a recession starts to its lowest point within 6 months after the recession starts. The eventual market decline is often far worse, but it's very typical to observe a 20% plunge within that 6-month band around a recession's start-date. For that reason, speculators who wait until there is convincing evidence of recession typically discover that any reasonable selling opportunity is long gone.

Using these latter criteria by Hussman suggests that we are not in recession yet--unless perhaps one measures the equity markets in gold or Euros--but that would be outside of data from which Hussman draws his conclusions.

[Jim Nickerson]

Re: Bearish Information Re. James West's COT reports.

Each week I get West's comments emailed to me. He used to post them in a blog section on his site, but apparently has stopped. Anyone interested should try this email address and ask if you can get on his email list: buythebottom@gmail.com. That may work or not.

Below is copied from his email received last night 9/29/07. Click on his link to see his charts and then you can use the quote below to read his comments for the individual markets. Forgive the underlining--I can't get rid of it.

www.buythebottom.com/cot_charts/


** Crude Oil
Oil is setting new highs, after testing a support-level at
78-79. The trend continues to point up; but what I find
especially bullish about oil is its COT chart. Notice how
commercial selling has been marginal as crude rallied
from mid-August up to today. So from a COT perspective
this market continues to look very bullish. And trend looks
bullish as long as we remain above the 78-79 level.

** Stock market
There has been a huge decline of open interest in all of the
major stock-indexes. As a result there has been some big
developments in the COT charts. For the S&P 500, net-
commercial position has seen a huge increase to being just
shy of 70,000 contracts net-long. If net-commercial position
remains at this record-level, I can only conclude that this
is very bullish. Trend also remains bullish as we continue to
consolidate on the SPX and hold above 1500-support.
The Dow Jones COT chart is starting to perk up, but
is overall little changed. On the price-chart the Dow
is consolidating not too far from its record 14,000-level.
The Nasdaq 100 COT chart is like the inverse of the
S&P 500 chart. There has been a huge breakdown in
commercial net-position. If you look at the Nasdaq three
year chart, you can see that these break-downs in net-
position are typical for this index. And when they occur
you typically see the NDX correct or at least consolidate.
From the price-chart, the Nasdaq 100 index broke-out,
above its 2007 highs last week, leading the other indexes
in relative strength. So the COT chart is starting to look
bearish, but trend remains very bullish. In this scenario
we must be weary of the COT development while
respecting Nasdaq's uptrend. As long as we continue
to trade above support at around 2050, the path of least
resistance for the NDX remains UP.
The Russell 2000 has also seen a decline in its net-
commercial position. The RUT continues to be one of
my key indicators on the market. While we are holding
about critical support at 800, the market should be fine.
A bullish confirmation would come if we close above 820.
In conclusion, the message from the COT charts
warrants caution, while the TREND for the indexes
remains UP.

** VIX
The COT chart for the volatility index continues to decline:
forecasting a continuation in the current down-trend. A
continued decline in the VIX would be supportive of a rally
in the stock-market.

** Gold
Gold's price chart is similar to oil's. Both are breaking out
to record-levels. However, their COT charts are very much
different. While in crude, commercials have shown very
little willingness to sell, for gold on the other hand, net-
commercial position dropped to levels not seen since
2005. So the COT chart is bearish and the price chart
is bullish. In this scenario we respect the uptrend 100%
but look out for any breakdowns. Currently gold looks
like it is resuming its bullish uptrend after breaking out of a
bull-flag pattern. I would be cautious if gold closed below
746, and become short-term bearish if we broke below the
bull-flag's support line at 730.

** US Dollar
The USD continues to sell-off. The trend remains down so
this development is to some extent 'expected'. What I find
even more bearish is the fact that net-commercial position
did not rise to a new high. Maybe it will next week, or maybe
it won't. For the time being, commercials are not viewing the
current levels on the US dollar as 'bargain' prices. Overall, the
USD continues to paint a bearish picture.

[Jim Nickerson]

Re: Bearish Information RE: Epic bear market.

Here's a link to a reference put up by Sapiens (and someone else earlier) discussing Satyajit Das' perceptions of the coming unwinding of the derivatives market.

http://articles.moneycentral.msn.com/Investing/SuperModels/AreWeHeadedForAnEpicBearMarket.aspx?page=all



I am glad the truth is coming out. I found iTulip while doing research into the securization of sub-primed loans. I could not understand how the alchemy of turning sub-prime loans into AAA securities worked, therefore I refused to gamble with them.

P.S. if you didn't understand the quote at the end by Pres. da Silva, here is a link http://www.moneymorning.com/2007/08/...s-third-class/

For my gnat-fart sized economic brain, Das's perceptions of the unwinding of the derivatives markets harkens back to claims made by Prechter in "Conquer the Crash" (2002) page 111, "If borrowers begin paying back enough of their debt relative to the amount of new loans, or if borrowers default on enough of their loans, or if the economy cannot support the aggregate cost of interest payments and the promise to return principal, or if enough banks and investors become sufficiently reluctant to lend, the "multiplier effect" will go into reverse. Total credit will contract, so bank deposits will contract, so the supply of money will contract, all with the same degree of leverage with which they were initially expanded. The immense reverse credit leverage of zero-reserve (actually negative-reserve) banking, then, is the primary fuel for a deflationary crash."

I'm not putting this up to re-open old arguments here on iTulip as to whether the future holds inflation or deflation. It has been argued strongly here, that deflation cannot occur--I think I have gotten the gist of that correct. I guess it is the contrariness in me that sparked by anyone making statements that something can't happen that prompts me to make this post.

[GRG55]

Re: Bearish Information; Re: UK's Antony Bolton warns of bear market

Antony Bolton is one of the "rock stars" of the FIRE economy in Great Britain (sort of an Old World Peter Lynch). I imagine words like this from him have some folks in the City reaching for the kool-aid...

Anthony Bolton warns of bear market for UK shares
By James Quinn, Wall Street Correspondent
Last Updated: 9:43pm BST 28/09/2007
One of the UK's most feted stock market gurus has warned that British equities may be in the first stages of a six-to-nine month bear market.
Anthony Bolton, who manages Fidelity's Special Situations fund, believes UK markets be headed for a continued downturn based on his cyclical analysis.

Mr Bolton is one of the most trusted names when it comes to analysing what lies ahead for equities.

Link to full article:
http://www.telegraph.co.uk/money/mai...nbolton128.xml

[GRG55]

Re: Bearish Information; Re: House Price Deflation in Britain?

Coming soon to a country near you...

...property price deflation, the newest manifestion of "globalization"?

For anyone who has not recently spent time in the UK, and particularly London, the prices for anything are completely insane. 5 British Pounds (about US $10) will get you a pot of tea in the lobby of a Central London hotel (biscuits extra). I lived there part time in 2004-06, and my conclusion was that London had become overcrowded, inefficient, overpriced and globally uncompetitive. Although the live theatre is still superb, the final straw was when they "modernized" the menu at the venerable Savoy Grill. Ohhh Britannia...

From the Daily Telegraph:
Hedge funds bet on fall in house prices
By Jonathan Russell
Last Updated: 11:36pm BST 29/09/2007
Hedge funds are gambling on a fall in Britain's housing market with aggressive short selling of shares in housebuilders, developers and landlords...

Link to full article:
http://www.telegraph.co.uk/money/mai...cnhedge130.xml

[GRG55]

Re: Bearish Information; Re: Goldman Goes Bearish (who said pigs can't fly?)

Flash: Hell freezes over...Goldman goes Bearish!!!

From the UK's Daily Telegraph...

By Ambrose Evans-Pritchard

Last Updated: 9:43pm BST 28/09/2007

Goldman Sachs has abandoned its ultra-bullish view of the world economy, warning of a likely recession in Japan and mounting risks that US property slump could spread to parts of Europe.

In a new report, "The Global Economy Hits a Crunch", the US investment bank said it was no longer sure that Asia and Europe would be able to pick up the growth baton as America stumbled. It fears that turmoil is spreading beyond the debt markets to the factory floor.

"Much has changed since mid-July, when we wrote that 'the global economy continues to enjoy one of the strongest sustained expansion in modern history'. The mood in financial markets is clearly darker, and the economic data in the developed world is showing signs of wear," it said.

"Japan's recovery is tottering, with the chance of an outright recession having risen to nearly two in three," said the report, authored by chief economist Jim O'Neill.

It is an abrupt change of tack for the bank known as the "cheer leader" of the global boom. Until now Goldman has insisted that Asia and the developing world are strong enough to shrug off an American slowdown, allowing world growth to keep racing ahead without missing a step -- despite subprime woes.

Often overlooked, Japan remains the world's second biggest economy and top creditor with some $3,000bn in net foreign assets. Output had already contracted an annual rate of 1.2pc in the second quarter before the credit crisis hit.

There has since been a surge in the yen as speculators unwind carry trade positions, leaving Japan's margin-trading housewives and grannies nursing big losses. Wages have fallen for the last eight months in a row. They are now down 1.9pc from a year ago, threatening to pull the country back into deflation.

Goldman Sachs feared it was now "inevitable" that consumers would batten down the hatches for a while. The bank said Europe is now so weak after a clutch of dire confidence surveys in Germany, Italy, France, and The Netherlands that any further rate rises by the European Central Bank are "off the table".

It expects the euro to fall back to $1.35 against the dollar over the next year, and sterling to tumble to $1.88 as the Bank of England pushes through three rate cuts.

The one bright spot is the 'BRIC' quartet of Brazil, Russia, India, and China, all still firing on four cylinders, if slowing slightly. In a separate report, "Rising Risks to the Global Housing Market," it said that much of global system had succumbed to a property boom that is in some ways more stretched than in the US, with real (inflation-adjusted) house price rises of over 100pc in France, 60pc in Italy, 55pc in Canada, and 72pc in Australia since the late 1990s. The bubbles in Spain and and Ireland have been more extreme.
"Such a widespread housing boom has little precedent in modern history. In those markets where prices have run up the most, and rental yields have fallen dramatically, the risks of a housing correction are likely to have increased materially," said the note, by Peter Berezin.
"The wealth effect for housing is about twice as large as for equities, with consumption falling by about two cents in the short run for every $1 decline in home prices," he said.

He expects US house prices to drop 7pc in 2007 and another 7pc in 2008, as mortgage lenders shut off credit to chunks of the market. "The US is often a leading indicator for what happens in the rest of the world".
Mr Berezin said construction booms usually lead to housing busts lasting several years. Residential construction in the US reached 6.3pc of GDP at the peak of the bubble, the highest since the baby boom in the early 1950s.

In Spain, it has been even higher, averaging 8.7pc of GDP since 2003, and in Ireland it has exploded to 14.2pc, leaving a overhang of unsold property. House prices are already falling in Spain, where 98pc of mortgages are on floating rates that have roughly doubled since late 2005.

Property prices have dropped for the last four months in a row in Ireland.
Mr Berezin said the Goldman's "decoupling" thesis was based on the assumption that the US housing slump was a "country-specific-shock" that would not spill over into other economies. This was now in doubt.
"The spread of global credit risks has introduced a new potential transmission mechanism. If home prices in the key economies begin to fall, this will have an adverse effect on global growth," he said.

[GRG55]

Re: Bearish Information Re: Evidence of Decoupling?

This is my first post on this bearish thread and I agree. The same way 1990's was the time to be in US stocks (i experimented with emerging markets and was burnt then), this decade is a reversed mirror image and you don't want to be invested in US. Only 10-15% of my assets are parked in US equities via global funds. The only problem is, the international markets are well synchronized short term, but long term we will see a major decoupling.

Evidently they don't want to be "just like us" after all. Wouldn't want to spoil the Party now...

BEIJING (Reuters) - Days after banning "sexually provocative sounds" on television, China has now stopped networks showing "saucy" adverts for push-up bras and figure-hugging underwear ahead of a major Communist Party meeting next month.
Other targets of the crackdown are "low-brow and base" commercials for sex toys and those featuring famous people or experts attesting to the efficacy of medicines, the State Administration of Radio, Film and Television said on its Web site (www.sarft.gov.cn) Friday.
"Every television advertisement management bureau and television station must strengthen their political consciousness and responsibility toward society," Tian Jin, deputy head of the regulator, was quoted as saying.
The order is the latest in a raft of measures which have included axing reality shows featuring sex changes and plastic surgery and banning talent contests during prime-time.
The media watchdog's edicts have reached fever pitch in recent weeks, ahead of a meeting of the 17th Party congress, a sensitive five-yearly meeting at which key national leaders are appointed and policy set for the next few years.
It earlier urged the country's increasingly freewheeling broadcasters to forgo vulgarity and bad taste in the pursuit of ratings in favor of providing "inspiring" content for the masses imbued with "socialist" values.
"Create a positive atmosphere for public opinion," the regulator cited state television head Zhao Huayong as telling his staff in preparation for the congress.
"Strictly adhere to propaganda requirements; do not rush to report, do not report impulsively, and make sure there are no mistakes from reports on any large events," Zhao added.

[GRG55]

Re: Bearish Information

Investor emotions in at least this part of the market still seem pretty euphoric...

NEW YORK, Sept 26 (Reuters) - Global volumes in credit derivatives grew 32 percent in the first half of 2007, and are up 75 percent on the year, the International Swaps and Derivatives Association said on Wednesday.
Credit derivatives volumes surged to $45.46 trillion, from $34.42 trillion at the end of 2006, ISDA said. Interest rate derivatives also grew 21 percent in the same period to $347.09 trillion, from $285.73 trillion, with volumes increasing 38 percent on the year.
"We expect this strong volume to continue over the 2007 second half, as privately negotiated derivatives have provided liquidity and functioned efficiently through the recent market volatility," Robert Pickel, chief executive officer of ISDA, said in a release.
Over-the-counter derivatives are privately negotiated contracts and are not traded on exchanges.
Volumes in equity derivatives also grew 39 percent in the first half of the year, and are up 57 percent over the past year, to $10.01 trillion, ISDA said. Volumes in the securities were $7.18 trillion at year end.

[GRG55]

Re: Bearish Information

No way to sugarcoat this...

Profit Growth in U.S. May Hit 5-Year Low on Housing
By Tom Randall

Sept. 28 (Bloomberg) -- Profit in the U.S. may grow at the slowest rate in more than five years this quarter as the housing slump hurts results at companies from IndyMac Bancorp Inc. to Target Corp.
Earnings of Standard & Poor's 500 Index members may rise an average of 2.7 percent from a year earlier, breaking a 20- quarter streak of gains exceeding 10 percent, according to data compiled by Bloomberg.
Since Aug. 20, at least 52 financial and consumer discretionary companies in the Standard & Poor's 500 Index have issued third-quarter forecasts that met or fell short of analysts' estimates, compared with 10 that said earnings would be higher than forecast.

Link to full article:
http://www.bloomberg.com/apps/news?p...moM&refer=home

[GRG55]

Re: Bearish Information

Excerpts from a Bloomberg item...
Defaults on Insured Mortgages Increase 30 Percent
By Hugh Son and Josh P. Hamilton
Sept. 28 (Bloomberg) -- More American homeowners are missing mortgage payments, pushing defaults on privately insured home loans up 30 percent last month from year-earlier levels, according to a trade group.
Borrowers more than 60 days behind rose to 58,441 in August, Washington-based Mortgage Insurance Companies of America
The report bolsters data that show the worst housing slump in 16 years may be getting deeper. Foreclosures set a record in the second quarter, according to the Mortgage Bankers Association, and last month lenders sent a record 108,716 notices of default, auction or repossession, RealtyTrac Inc. reported. Fannie Mae Chief Executive Officer Daniel Mudd said yesterday the weakness will last beyond 2008, increasing credit losses.
``These defaults are a lagging indicator, so they're probably going to get worse from here,'' said Michael Darda, economist at Greenwich, Connecticut-based equity trading firm MKM Partners LP.
The trade group's report draws data from six of the seven mortgage insurers, excluding Radian, which isn't an association member.

[friendly_jacek]

Re: Bearish Information

Jim,
I posted on a few studies on what happens after fed cuts on your sticky bullish thread. 1/3/01 was the sole exception from the trend up after the rate cuts. One way of looking at it, the market went down in 2001 as USD went up (IIRC). Now, with USD going down, the market has to go up in nominal value.

One more thing: the investor emotions are NOT extreme yet looking longer term (comparable to end of march 2007), short term, yes.

[Jim Nickerson]

Re: Bearish Information Re. Alan Abelson

Alan Abelson 9/24/07 http://online.barrons.com/article/SB...gazine_columns subscription

In his column for 9/24/07, he referenced Charlie Minter and Marty Weiner of Comstock Partners, noting

on Jan. 3, 2001, the Fed, then under Mr. Greenspan's guileful management, after an extended stretch of nudging up rates, reversed course and made its first cut (to 6% from 6.50% on fed funds and to 5.75% from 6% in the discount rate) stocks, then as last week, exploded on the upside.

In that single session, the S&P 500 was up a full 5%, while Nasdaq went absolutely bananas, racking up a stunning 14% gain. Alas, over the next 21 months, the S&P lost a formidable 43% and Nasdaq fared even worse, skidding some 57%.

History may not repeat itself; in truth, it rarely does, as least precisely. And it may not always even rhyme. But, as that observant philosopher George Santayana warned, it has a way of causing pain for those who choose to ignore it.

At that point 1/3/01, I was down about 600K from exactly one year earlier. I don't remember how exactly I was feeling then, but I imagine I was rather stressed out with my losses. On the day mentioned above I gained 110K back or about 18% of my losses, and I am sure that hope for more such days kept me in the market down to the very bottom.

There is so much bullishness now, from the things I look at--even some technical indicators that I generally believe rather reliable--that it is easy to get sucked into the long side of the markets just now. It will not surprise me that if later the tops already in place for the past 5 years turn out to be "the tops" until after some significant correction.

[Jim Nickerson]

Re: Bearish Information Re. John Hussman's weekly comments.

http://hussmanfunds.com/wmc/wmc070924.htm

9/24/07

The bottom line – the much celebrated move by the Fed last week created no new liquidity, no new reserves, and no new purchasing power. Given all that, it's unlikely that all of this will result in any material improvement in the solvency of the mortgage market.

I think everyone should read Hussman's weekly commentary on Mondays.

This week's article is pretty simple, as I think I grasped most of it.

He attempts to dispel a lot of misinformation that he argues exists with the Fed and the subsequent reporting by the media and the general hullabaloo Fed moves are cast into the limelight.

[friendly_jacek]

Re: Bearish Information

This is my first post on this bearish thread and I agree. The same way 1990's was the time to be in US stocks (i experimented with emerging markets and was burnt then), this decade is a reversed mirror image and you don't want to be invested in US. Only 10-15% of my assets are parked in US equities via global funds. The only problem is, the international markets are well synchronized short term, but long term we will see a major decoupling.