Bearish Information

[Jim Nickerson]

Re: Bearish Information Re: Leverage

BEING STREET SMART
By Sy Harding
THE DOWNSIDE OF LEVERAGE! June 29, 2007 http://www.decisionpoint.com/TAC/HARDING.html

Harding offers what to me is an easily understood explanation of the factors of leverage and how hedge funds have employed it, and how they may come to suffer from it.
He concludes:

The realization that the Bear Stearns hedge funds were apparently not even aware their mortgage-backed securities were tumbling in value, roiled markets two weeks ago. Analysts wondered how many other hedge funds holding similar investments may be forced to announce losses in coming weeks. If that happens, the falling dominoes that began in the real estate markets would not stop at the hedge funds. They would tumble on into the banks and brokerage firms that have loaned hedge funds the hundreds of billions that are at risk in those investments.

The market's unfavorable season does seem to have an unusual overhang of potential problems this year.

[Jim Nickerson]

Re: Bearish Information Re. Panel discussion with Faber, Moebius, et. al.

http://www.marketoracle.co.uk/Article1386.html dated 6/27/07

To me, some interesting exerpts.

Marc Faber: We had a more than 20-year bull market in bonds - Sept 21, 1981, to June 2003 when the 10-year (US) Treasury bond yield fell to 3.3 per cent and the JGB (Japanese government bond) yield fell to less than 0.5 per cent. We are now at the onset of a major bear market in bonds worldwide that should bring interest rates above the level in 1981 when US Treasuries were yielding over 15 per cent. But this process will take at least 10 years. In this environment stocks will not do well in real terms but will rise in nominal terms. How high will depend on (US Federal Reserve chairman Ben) Bernanke's money printing presses.

Christopher Wood: The 10-year US Treasury bond yield has broken above the long-term trend line, in place since the beginning of the great bond bull market back in 1981. The recent equity rally has occurred in the context of rising government bond yields, just as the sell-off in February/March occurred in the context of falling bond yields.

All this suggests that the Fed model, where hundreds of billions of dollars of portfolio capital is allocated globally on the relationship between bond yields and earnings yields, has broken down.

Marc Faber: Excess liquidity has been driven by the US current account deficit growing from 2 per cent of GDP in 1998 to close to 8 per cent now. Growth of the current account deficit has slowed down as the US consumer is struggling. If US inflation were properly measured, we would already be in a phase of stagflation in the US . (The rate of new money flowing into the global system) has slowed down considerably and so not every asset bubble can continue to expand. The global bond market was the first casualty.

The reason that other asset markets have continued to soar is, however, increased leverage and a flight from cash into assets as people rightly begin to realise that paper money's purchasing power is collapsing. Therefore, any catalyst, no matter how small, could one day reverse investors' expectations and lead to a process of de-leveraging and a collapse in asset prices.

Interviewer: Is it equity or bond markets that are most at risk of a severe and lasting correction?

Marc Faber: Emerging stock markets are now vulnerable because they are the most extended. They were the prime beneficiaries of the excess liquidity.

Mark Moebius: Those markets that have risen the most will probably suffer the greatest percentage falls, so emerging markets, since they have risen more than developed markets, should have greater declines.

Interviewer: What would be the likely magnitude of a correction in terms of percentage fall?

Mark Moebius: A severe market correction could range between 20 per cent and 70 per cent.

William Thomson: That is impossible to say. It depends on the reason for the reaction and will vary from market to market. Ten per cent is hardly a correction; 25 per cent does not seem unreasonable; 50 per cent seems far too great unless we have a true crash, especially as we had one like that in 2001-3.

Christopher Wood: If credit spreads blow, a bear market would ensue which would mean 50 per cent-plus corrections. Otherwise, corrections are likely to be limited to 10-15 per cent.

Marc Faber: Once the shares of Goldman Sachs are down by 20 per cent from their peak the phones at the Fed and at (US Treasury Secretary) Hank Paulson's office will ring asking them to cut interest rates to support the asset markets. So, who knows? But in real terms (in gold terms) US financial assets will be 'toast' for a long time.

Faber and Moebius are to my understanding well regarded investors. I don't know anything about Thomson and Wood.

[DemonD]

Re: Bearish Information

Didn't happen. Still looking for gold to drop below 600/oz. Also if we have a market meltdown in sep-nov, gold will hold value but still sell-off along with equities, wouldn't it (eg a definite Ka)?

[Jim Nickerson]

Re: Bearish Information

http://www.fiendbear.com/LAMEMME.html

PLUS CA CHANGE, PLUS C’EST LA MEME CHOSE
(The More Things Change, The More They Remain The Same)
Aubie Baltin CFA. CTA. CFP. Ph,D June 24, 2007

WHAT TO DO?
For once, the little guys like you and me have it all over the big guys because they are dead only they are too dumb to lie down (except for all those insiders who have been cashing out like crazy for over two years now.) They and their Funds are beyond help- they can’t get out of their positions. Does anyone remember that old Bob Newhart skit that he performed on the Ed Sullivan show where, after a super run up in the stock that he was being encouraged to accumulate, he stops buying and instructs his broker that he now wants to take his profit. Sell, sell, sell, he yells at his broker. “TO WHOM?” comes the reply, “YOU OWN ALL THE STOCK”. The big boys, especially those super smart (?) Hedge Funds, can’t get out. They and all their Carry Trades are all on the same side of the market- they can’t get out or even reduce their exposure (we all know what ends up happening to all those lemmings). But as far as us little and even not so little guys, there is more than enough liquidity for us to get out. After all, the big guys have no other choice but to support the markets in their attempt to stop them from collapsing. So what do you do now? SELL everything except gold and silver either now or gamble and wait for that last Blow- Off rally.

Emphasis JN.

There are as I read them semi-bullish comments on gold and silver by Claude Maund that he wrote on 6/25 and were put up today on safehaven.com. http://www.safehaven.com/article-7841.htm on silver, and http://www.safehaven.com/article-7842.htm on gold.

As I write this 11AM EDT 6/26 gold and silver both are down at near breaking their March lows. Perhaps they both will turn around before today's close.

[Jim Nickerson]

Re: Bearish Information Re. John Hussman "Ripe Fruit"

http://hussmanfunds.com/wmc/wmc070625.htm

John Hussman 6/25/07

Does ripe fruit never fall? Or do the boughs
hang always heavy in that perfect sky?
- Wallace Stevens, "Sunday Morning"

In my opinion, if one is bullish, every week Hussman's comments seem worth while to temper exaggerated enthusiasm.

If one is a stymied bear, then Hussman's comments offer a bit of fresh air to help overcome one's frustrations.

[Jim Nickerson]

Re: Bearish Information Re. Bonds continue to weaken.

Carl Swenlin 6/22/07

http://www.decisionpoint.com/ChartSp...622_bonds.html

Swenlin shows the 30-year bond in daily and monthly charts with some MA's and triangles and channels. He concludes:

My opinion is that bonds are forming a long-term top and are entering a long-term decline. All the signs are negative except that the long-term rising trend remains intact, no small exception that.

[rachits]

Re: Bearish Information

I also want to add that one of the reasons why the 3rd year of presidential years are so good is because the 2nd year is usually bad.

Last year the S&P went up double digits.

[DemonD]

Re: Bearish Information Re: Options Expiration week and seasonality.

He also notes the 3rd year of Presidential cycles to be positive.

He concludes, "The odds are therefore 7 to 3 in favor of exercising caution in the market's unfavorable season in the 7^th year of a decade, and 2 to 1 even when it is also the 3^rd year of the Presidential Cycle."

I would just like to point out the last time a republican president was in his 3rd year of his second term, there was a day that (i believe) was the single worst day on wall street in the history of the NY stock market.

Caveat: I'm not big on technical analysis and "trending" of any kind.

[Jim Nickerson]

Re: Bearish Information Re. Economy's to crash.

It’s Official: The Crash of the U.S. Economy has begun
by Richard C. Cook
Global Research, June 14, 2007

http://www.globalresearch.ca/index.p...xt=va&aid=5964

It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.

What is likely to happen? I’d suggest four possible scenarios:

1. Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your 40s instead of your 30s. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai. Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.
2. Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes?
3. Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway. Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.
4. Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

The latter is the only sensible solution. There are monetary reformers who know how to do it if anyone gave them half a chance.

[Jim Nickerson]

Re: Bearish Information Re: Options Expiration week and seasonality.

BEING STREET SMART
By Sy Harding
PAYING ATTENTION TO HISTORY! June 15, 2007
http://www.decisionpoint.com/TAC/HARDING.html

In last week's column I noted there had been no safe havens for investors the previous week. The stock market had given back six weeks of its previous gains in just three days.

...this week the stock market recovered much of last week's sell-off.

This quarter's triple-witching options expirations took place on Friday. There is a very strong tendency, regardless of economic reports or events, for the market to be up in the week of the triple-witching expirations, especially if the previous week was negative, which was certainly the case this time.


The rest of that picture is that there is also a tendency for the market to be down for the week after options expirations, which next week will be, particularly when the week of the expirations was positive. It's also interesting that the week after the June expirations has been down for the last eight years in a row, and down 15 of the last 17 years.

So I won't read anything into the market's recovery this week until we see what happens next week.

Harding discusses the tendancy for the 7th year of each decade to be negative. Read his discussion.

He also notes the 3rd year of Presidential cycles to be positive.

He concludes, "The odds are therefore 7 to 3 in favor of exercising caution in the market's unfavorable season in the 7^th year of a decade, and 2 to 1 even when it is also the 3^rd year of the Presidential Cycle."

Keep in mind these are very small samples.

What do I take away from his article? Personally, I am cautious to the extent to about 70% in cash.

[Jim Nickerson]

Re: Bearish Information Re. Gold

http://www.safehaven.com/article-7740.htm

June 10, 2007
Gold Market Update
by Clive Maund

If one is invested long in Gold and short the US$, then Maund's article is worth reading.

It had been remarked on in past Gold Market updates that the entire formation from last year's highs at around $730 was a potential Double Top in the making, and last week's break below the long-term trendline has considerably increased the risk that this is the case. At this juncture it is worth noting that gold appears to be completing a Double Top against various other important currencies including the Australian dollar, the Canadian dollar, the Euro, the British Pound, with the one against the Canadian dollar being a particularly fine example. Only against the Japanese Yen has gold made any significant progress since last year. If this is happening, and it is, then what is the principal reason for it - fortunately we don't have to look far to find the answer.

After earlier looking like it was turning lower again, the US dollar made sharp gains late last week, which is why gold got clobbered, but the bigger picture revealed by the US dollar index charts really piles on the agony for gold bugs - for the dollar appears to be turning up, BIG TIME.

It seems to me the drop in gold has been much bigger than the rise of the Bonar, but then I haven't "put a pencil to it."

He also makes briefer though similar comments on Silver. http://www.safehaven.com/article-7739.htm

[Jim Nickerson]

Re: Bearish Information Re. World Warning

http://hussmanfunds.com/wmc/wmc070611.htm 6/11/07

A final observation - given the extremely elevated and overbought condition of global stock markets, not just here in the U.S. but nearly everywhere, the combination of extended, uncorrected stock market advances and rising yield trends could invite a strikingly coordinated decline. Interest rates are already rising globally, and the U.S. trends are part of a broader picture. As I used to teach my international finance students, international diversification can be very useful over long periods of time – but it generally fails at precisely the point where it is most needed, because market declines tend to be globally coordinated. That's not a forecast, but it is useful to remember given the enthusiasm of investors for international investments at present. This could be an interesting few weeks.

[Jim Nickerson]

Re: Bearish Information Re: Morgan Stanley turns bearish.

Morgan Stanley report confirmed in this businessweek.com article:

http://www.businessweek.com/investor...606_559290.htm

Nice work to find that link, TraderJoe.

It would be interesting if anyone knows a link to the MSCI index of 600 European and British stocks to which the MS call referred. Just thinking about the two previous calls that were mentioned and applying them to the US, then the Sept 1987 call was not a bad call, but the April 2002 call would have been a "bit" late as a warning for the US markets--though it would have saved a few buck yet before the bottom turned out to have been in place.

Can anyone point us to a chart of the MSCI index?

[TraderJoe]

Re: Bearish Information Re: Morgan Stanley turns bearish.

From Richard Russell's site 6/7/07 http://ww1.dowtheoryletters.com/



Russell didn't reference the MS report's date or how he happened to become aware of it.

Morgan Stanley report confirmed in this businessweek.com article:

http://www.businessweek.com/investor...606_559290.htm

snippet:

A Morgan Stanley spokesman confirmed to BusinessWeek that the sell signal was targeted at European equities. Some of the confusion in other markets may have resulted from early media reports about the release of the note, which "blew things out of proportion," said the Europe-based spokesman, who declined to be identified because of firm policy.

more:

There have been a number of bearish analyst calls on stocks amid the recent global stock rally, but it took a three-alarm warning from Morgan Stanley (MS) on European equities to catch investors' attention. The note, which was released June 4 but didn't seem to attract the market's attention until June 6, helped spark a big sell-off during the European session and also contributed to big declines on Wall Street, with the Dow Jones industrial average down over 150 points at one point. The Nasdaq and S&P 500 indexes were both off about 1% in afternoon trading.

[Jim Nickerson]

Re: Bearish Information Re: Morgan Stanley turns bearish.

From Richard Russell's site 6/7/07 http://ww1.dowtheoryletters.com/

Morgan Stanley turns bearish. I have no idea what their "full house" signal is. However, I've been warning for many weeks about the two years ending in 6 and 7. Since 1850, there's never been a two year stretch in years ending in 6 and 7 without a full correction

I first became acquainted with this observation during 1947 (following the 1946 bull market top) and again in 1957 when the Dow dropped from 520 in July to 419 in October. The next year I started Dow Theory Letters.

The text of the Morgan Stanley message is below --


Morgan Stanley has advised clients to slash exposure to the stock market after its three key warning indicators began flashing a "Full House" sell signal for the first time since the dotcom bust. Morgan Stanley warns the 'mid-cycle rally is over' Teun Draaisma, chief of European equities strategist for the US investment bank, said the triple warning was a "very powerful" signal that had been triggered just five times since 1980. "Interest rates are rising and reaching critical levels. This matters more than growth for equities, so we think the mid-cycle rally is over."

Our model is forecasting a 14pc correction over the next six months, but it could be more serious," he said. Mr Draaisma said the MSCI index of 600 European and British equities had dropped by an average of 15.2pc over six months after each "Full House" signal, with falls of 25.2pc after September 1987 and 26.2pc after April 2002. "We prefer to be on the right side of these odds," he said.

Russell didn't reference the MS report's date or how he happened to become aware of it.