Bearish Information

[Jim Nickerson]

Re: Bearish Information

Jim,

This thread seems like a good place to post this.

A few months ago I mentioned that my wife and I had about 200k to invest (recently sold a small commercial building and the business) and asked advice on what we should do with it. A few folks here suggested buying metal, which we may do.

We use an AG Edwards broker suggested to us by our tax guy, a very shrewd tax lawyer.
The AG guy wants us to invest the lot in 50k chunks (tranches may be the correct term..??) by dollar cost averaging it through the next 12 months or so. We gave him the first 50 and he spread it out in 5 conservatively mutual funds, but now I am thinking on sitting on the rest and waiting. The term ‘cash is king’ resonates with me right now.

Every week brings more bad economic news and the markets scare me a bit.
My question is this (the AG guy sort of shrugged his shoulders when I asked him); with consumer spending accounting for about 60-70 percent of the GNP, and more and more bad news on how Joe average consumer is tapped out on credit cards, or rapidly getting there, how will consumer spending increase in the future and where will they get the money for it?

Am I correct to assume that consumer spending is the major driving force in our economy, and if it stalls, everything stalls?

bobola,

I am not one of the brightest lights here, but to your question above, your conclusion seems correct based on my probably having seen the same reports you've seen about the contribution of consuming spending to the economy.

Perhaps Jim Rogers, the investor, is the smartest guy of whom I know. If he's telling the truth, and no doubt he is smarter than the average non-professional investor, then his answer to what lies ahead as he apparently sees it unfolding is to have gotten the hell out of the US and the dollar.

I don't think that is an answer for most people realistically, but perhaps the best one can do if you think the facts as you can understand them suggest on-going inflation, then do those things with your money that willl hopefully preserve its purchasing power for necessities. Shit, no one knows exactly what lies ahead or at what speed some possible scenario will unfold, but if you believe the inflation arguments and if you believe that bear markets follow bull markets, then for myself I think being seriouosly long in the equity markets right now is not where I wish to be--and not infrequently am I wrong.

Probably no one wants to get into your private business, but if you wish serious opinions that may be in here somewhere from iTulipers, put up your "conservative mutual funds'" symbols for anyone willing to look and see how they are allocated, and then you might get some sort of decent opinion.

Currently I am short the equity indices via etf's (dXd, SDS, TWM, QID) and also real estate and financials (SRS, SKF). I am long FXF, FXY, MEAFX, and CNY (currency plays). I am long gold and silver and some Agricultural ETFs or N's DBA, RJA, and RJZ (metals: 2/3 base, 1/3 PM's), and short oil, but that position is about to reach $0.00 in value. I even bot 18K of physical PM's recently. I am long interest rates on 30-year Treasury bonds, and long equities via hedged mutual fund HSGFX, otherwise still ~30% in cash. I would like to have less cash and more in the short ETF's if I can figure out the indices are likely headed lower. Sorry I don't have my percentage allocations at hand.

If you don't like the information someone is giving you, then change information sources--ie, get another broker. As you know it is you who is ultimately responsible for managing your wealth--not your broker or your shrewd tax guy.

[bobola]

Re: Bearish Information

Jim,

This thread seems like a good place to post this.

A few months ago I mentioned that my wife and I had about 200k to invest (recently sold a small commercial building and the business) and asked advice on what we should do with it. A few folks here suggested buying metal, which we may do.

We use an AG Edwards broker suggested to us by our tax guy, a very shrewd tax lawyer.
The AG guy wants us to invest the lot in 50k chunks (tranches may be the correct term..??) by dollar cost averaging it through the next 12 months or so. We gave him the first 50 and he spread it out in 5 conservatively mutual funds, but now I am thinking on sitting on the rest and waiting. The term ‘cash is king’ resonates with me right now.

Every week brings more bad economic news and the markets scare me a bit.
My question is this (the AG guy sort of shrugged his shoulders when I asked him); with consumer spending accounting for about 60-70 percent of the GNP, and more and more bad news on how Joe average consumer is tapped out on credit cards, or rapidly getting there, how will consumer spending increase in the future and where will they get the money for it?

Am I correct to assume that consumer spending is the major driving force in our economy, and if it stalls, everything stalls?

A guy who sits next to me at work lives paycheck to paycheck, has a fair amount of credit card debt and his marriage has recently gone south, yet when I asked him what he will do with his 900$ share (they have 2 kids) of the upcoming rebate check, the last place he will put it is toward his credit card debt. With that attitude just maybe this stimulus package will make a big difference? After I cringe I congratulate him for spending.

[Jim Nickerson]

Re: Bearish Information

No, it's just the steaks that are Brazillian, not the customers. I'm in Atlanta, which was hardly a boom town during the housing runup. The Brazillian steakhouse has gone out of business, which I noticed just yesterday. Yes, I have owned a lawn maintenance business for the last 16 years. You couldn't drag me back into a corporate office. I'm gradually becoming semi-retired now thanks to some of the clever advice I got about investing in things like gold. I should be sitting on a beach collecting 20% like Hans Gruber by age 50.

I also noted that the number of sales in the zip code I'm referencing for a 2 month period last reported was down to 199 from over 1500 at the peak a couple years back, and 1,000 a year ago. But I also note that prices have gone down just a few percent. Apparently what they say is true. Don't discount it, you won't sell it. Slash the price and you'll sell it.

First, to f-jacek, yes, I am "bad, bad person" in some respects probably depending upon the observer's orientation.

Bruce,

Thank you for putting up a bit about yourself. I prefer to know (at least prefer to think I might know) who the fuck is writing what on iTulip. My life's experiences in exchange of information and argument were all on a definite basis of knowing to whom I was speaking or writing with regard to whatever the case was. Those here who for whatever their intentions, reasons choose complete anonymity frustrate me, because I have never dealt with others anonymously on important issues.

I really detest not knowing anything about some of the jay-birds who post here. (Jay-birds = mild contempt) (goddammed idiots = serious contempt).

It would be nice, I believe, if you can figure out how to edit your profile and put in "Atlanta" and whatever bit you prefer about yourself regarding age, work, interests, etc.

I appreciate your contributions. Cutting grass is good. Grass probably is not going away in Atlanta, though I read something a while back about water shortages there. The best house painter I ever had was a ex-convict, and the second best was a math-major who took over his dad's painting business because he wasn't paying his way with mathmatics.

Re: Bearish Information

No, it's just the steaks that are Brazillian, not the customers. I'm in Atlanta, which was hardly a boom town during the housing runup. The Brazillian steakhouse has gone out of business, which I noticed just yesterday. Yes, I have owned a lawn maintenance business for the last 16 years. You couldn't drag me back into a corporate office. I'm gradually becoming semi-retired now thanks to some of the clever advice I got about investing in things like gold. I should be sitting on a beach collecting 20% like Hans Gruber by age 50.

I also noted that the number of sales in the zip code I'm referencing for a 2 month period last reported was down to 199 from over 1500 at the peak a couple years back, and 1,000 a year ago. But I also note that prices have gone down just a few percent. Apparently what they say is true. Don't discount it, you won't sell it. Slash the price and you'll sell it.

[friendly_jacek]

Re: Bearish Information

So where are you working, Bruce, Brazil? And what do you do, cut grass?

You are a bad bad person, Jim.

As the gas prices near $4, the traffic on the streets improved some indeed, my commute time decreased noticeably.

To stick with the topic of this thread, we officially reached overbought levels and there is a healthy retread in equities that stated yesterday. I was bit early on selling equities (roughly a week), but not a big deal. The worst part is oil. I'm underwater on oil shorts. This feels as bubbly as Nasdaq 1999-2000. Probably too dangerous to short. If someone keep saying that oil prices just reflect inflation (in 100% nonetheless), I will scream BS or have your head examined (at least I tried).

[Jim Nickerson]

Re: Bearish Information Re. Union Bancaire Privee

For additional discussion see http://www.itulip.com/forums/showthread.php?t=3919

Thank you, ronin for this link. http://www.ubp.ch/ged/AAGF.20080430....ANNUEL2007.PDF

Below was written Jan. 2008 by Edgar de Picciotto, Chairman of the Board, UBP.

2008 will be turbulent, because it will represent a historic
inflection point in the path of our economic and monetary
policies. However, this does not rule out the possibility of
an accelerated rebound, fuelled by the old models and
providing yet another reprieve for the credit super-cycle.
But we shall pay dearly. The dollar and the rest of the world
will have to bow to the political priorities of America, which
controls the only global reserve currency.

The BRIC countries will forge ahead without skipping a

beat and will constitute the investment platforms of choice.

Their stock markets may experience some severe jolts
along the way, but the underlying trend will remain robust.

The western stock markets will deteriorate, whereas
currencies and gold will once again benefit from the
demand for capital preservation and prove rich in opportunities
for substantial gains. Gold remains the mirror image
of the West’s difficulties.

When we emerge from these major changes, it will be to
find that the sun has set on the western economy and

the New World has dawned.

[Jim Nickerson]

Re: Bearish Information

I work in neighborhoods in affluent areas. Normally over the years I was annoyed at how many bored housewife/soccer mom types were coming/going through subdivisions all day long. I mean streams of cars, sometimes a car would leave a home, return, and leave again all within an hour or so. I'd also notice ridiculous numbers of truck deliveries of large furniture and electronics.

Lately I've noticed that there are far fewer cars and trucks out in these neighborhoods during work hours. I suspect this may be because they are a little more worried about their incomes and the "I'm bored let's go to the mall and buy something" trips are being nixed and also because fuel costs may be making people more cognizant of the price of driving around for fun.

I've also noticed that a particular strip of road servicing these affluent people with shopping/restaurants/etc that historically has been a PITA to get through is now nearly clear sailing during the day. The Brazillan steakhouses, designer toy stores, and home improvement stores don't seem to be drawing them out as in the past.

Even higher income families seem to be curbing their enthusiasm for spending, perhaps worrying that there will be a job loss and they'll need to live on savings rather than blow it on consumer goods.

It's anectdotal, but I'm convinced.

So where are you working, Bruce, Brazil? And what do you do, cut grass?

Re: Bearish Information

I work in neighborhoods in affluent areas. Normally over the years I was annoyed at how many bored housewife/soccer mom types were coming/going through subdivisions all day long. I mean streams of cars, sometimes a car would leave a home, return, and leave again all within an hour or so. I'd also notice ridiculous numbers of truck deliveries of large furniture and electronics.

Lately I've noticed that there are far fewer cars and trucks out in these neighborhoods during work hours. I suspect this may be because they are a little more worried about their incomes and the "I'm bored let's go to the mall and buy something" trips are being nixed and also because fuel costs may be making people more cognizant of the price of driving around for fun.

I've also noticed that a particular strip of road servicing these affluent people with shopping/restaurants/etc that historically has been a PITA to get through is now nearly clear sailing during the day. The Brazillan steakhouses, designer toy stores, and home improvement stores don't seem to be drawing them out as in the past.

Even higher income families seem to be curbing their enthusiasm for spending, perhaps worrying that there will be a job loss and they'll need to live on savings rather than blow it on consumer goods.

It's anectdotal, but I'm convinced.

[Jim Nickerson]

Re: Bearish Information Re: William's Hyperinflation

See the thread in which iTulip discusses John Williams' Hyperinflation Special Report of 4/8/08 http://www.itulip.com/forums/showthr...5810#post35810

Hyperinflation could be experienced as early as 2010, if not before, and likely no more than a decade down the road.
.
.

..the current circumstance will evolve into a hyperinflationary depression, then great depression. Although such is not likely much before 2010, or after 2018, that financial end game for the current markets will tend to come sooner rather than later and will break with surprising speed when it hits. As discussed later, this likely will not be a deflationary environment as seen during the Great Depression.

[Jim Nickerson]

Re: Bearish Information Societe Generale

This is a cross-reference to a post by Rajiv here.

http://www.telegraph.co.uk/money/mai...ambrose112.xml

The bears at Société Générale are going into Siberian hibernation, issuing an "Ice Age" alert. They have slashed exposure to global equities to a minimum 30pc for the first time ever.

Their weighting of super-safe "AAA" government bonds has been raised to a maximum 50pc. This is a bet on gruelling "Japanese" deflation. The bank expects equities to fall by 50pc to 75pc.

"Nowhere and nothing will be immune. We are on the cusp of an equity meltdown that will slash and shred portfolios," said Albert Edward, SG's global strategist.

"We see a global recession unfolding. Liquidity will drain away and crush the twin emerging market and commodity bubbles. The recent hope that 'the worst might be over' is truly staggering. Profits are disintegrating," he said.
...
.

The oil spike will burn itself out. China has hit the buffers. With inflation at 8.5pc, it risks political turmoil. Moreover, it has repeated Japan's mistakes in the 1980s, building too many factories shipping too many goods at slender margins into a crumbling export market.

Lehman Brothers' Sun Mingchun says China will tip over in the second half of this year. "With so much latent overcapacity, an export-led slowdown could trigger a chain reaction which, in the worst case, could threaten the stability of [its] financial and economic system," he said.

Britain, Europe, Japan, and China will go down before America comes back up. This is turning into a synchronised bust, after all. The Global Slump of 2008-09 is under way.

[Jim Nickerson]

Re: Bearish Information Re. Aden Sisters Oil

http://www.marketwatch.com/news/stor...518C59FC03A%7D

From Peter Brimelow

While remaining committed to an inflationist, and almost apocalyptical long view, The Adens have been quick to recognize when major trend are temporarily exhausted. For example, oil. In their latest issue, out last week, they write, in their native chartspeak: "Chart 29A shows the incredible run in oil. It's now overshooting the top side of a 23 year channel, while its leading indicator (B) is at an overbought area, the most since 2000. This is saying that oil is near, or at a high area for now. Keep an eye on $106 as oil will remain very strong even if it declines to this level. Major support is at $84."

Similarly, on stocks: "An intermediate trend change that started in March remains underway. This contra trend is up for stocks, the dollar and interest rates, while it's down for the precious metals and currencies. This trend could last a couple of months but the major trends are solidly intact"
In essence, the Adens think that the U.S. has succeeded in inflating its way out of its current problems, but that will cause more problems later.
But for now, they have currently increased their stock position to 50%, reducing cash to 10%. It comprises:

• 40% gold & silver physical & ETFs, and gold & silver shares
• 50% energy, resource and other stocks
• 10% cash: Euro, Swiss Franc, Singapore and Australian dollars or currency funds

[Jim Nickerson]

Re: Bearish Information Re. Housing by Feldstein

http://hussmanfunds.com/wmc/wmc080512.htm

Here Hussman relates comments by Martin Feldstein who is in Hussman's opinion "undoubtedly among the most respected U.S. economists," and who is president of the National Bureau of Economic Research, the group that dates recessions.

Among Feldstein's comments was the observation that GDP is a quarterly average of 3 months, so the positive mark for GDP during the first quarter was actually quite misleading about the direction the economy has been taking: “If you compare where the economy was at the end of March with where the economy was at the beginning of the year, there's no question the economy is down by just about every measure.”

More important were his remarks about economic prospects, and the risk of placing too much faith in the Federal Reserve to manage those risks. These comments are important, and should not be missed:

“To me, the big question is what happens as more and more homes move into negative equity – as more and more people see that the value of their mortgages exceeds the value of their homes. If we see a big increase in defaults, ultimately in foreclosures, that's going to push us definitely into a significant recession.

“I think there's not much more that the Fed can do to help us in this situation. They've used up half their balance sheet setting up credit lines to take on questionable credits from the banks and the securities firms. They've brought interest rates down to the point where we have negative Fed Funds rates. So I think the policy shifts to the Administration and the Congress if we're going to put a floor under these house prices.

“I'll tell you what worries me. We saw house prices overshoot by 60% relative to costs of building and relative to rents. And I worry about the possibility that they will keep falling; they will spiral downwards. In the same way that they went much too high, they could go much too low. And if that happens, then we are going to see individuals feeling a lot poorer, cutting back on their spending, defaulting on mortgages, and we're going to see the holders of those mortgages see their assets, their capital being cut and therefore their ability to make loans being cut.

“So I think that there is a role to prevent this kind of downward overshooting of house prices. Prices have to fall somewhat from where they are today, but I think the danger is we have so many loan-to-value ratios greater than 100%, and those individuals are going to have a very strong temptation to simply turn in the keys and walk away because there's nobody to negotiate with. These mortgages have been securitized to the point where they cannot simply sit down across the table with the mortgage originator from their bank and work it out.“

Hussman goes on:

From a public policy standpoint, Feldstein is suggesting that structured finance and securitization (i.e. chopping up different streams of mortgage payments into dozens of separately traded securities) has created what economists call a “coordination failure” that may require government intervention to address. Frankly, I don't think the prospects are good that government intervention will catch anything but the tail end of this problem, because policy takes time to develop, and the defaults are already largely baked in the cake. What happened here is that the markets tolerated a huge “principal/agent” problem, where the people who were originating the mortgages (“agents”) didn't really have anything at stake, and could sell mortgage debt to willing buyers (“principals”) who would fund those loans in the belief that they were getting nice AAA paper. A lot of the money that was lent simply can't be paid back, because it was used to buy assets that were priced far in excess of sustainable market value.

In short, far from the credit crisis being over, it's likely that we will see a troublesome second round that eventually provokes government intervention. The financial markets shouldn't take too much comfort from the idea of intervention, since it will almost surely be of the sort that forces the lenders to take losses while providing some sort of reduced principal workout to homeowners. Some of these proposals are already being discussed, but with limited urgency. My guess is that all of that is likely to change in the months ahead.

[Jim Nickerson]

Re: Bearish Information Re. Hussman on Au shares, commodities

http://hussmanfunds.com/wmc/wmc080512.htm

May 12, 2008
Round Two - Home Price Erosion
John P. Hussman, Ph.D.

On last week's rally in precious metals shares, we clipped our exposure further, to just about 5% of assets. This is about our lowest allocation to precious metals shares since the Strategic Total Return Fund's inception in 2002. Meanwhile, given recent weakness in the euro and British pound, we added an allocation of about 10% of assets to foreign currencies. My impression is that commodity prices and the U.S. dollar will become less correlated in the months ahead. Though commodity prices are still in a frothy blowoff (making the ultimate highs uncertain), I do expect that we will observe a standard, run-of-the-mill, predictable, routine, and I-can't-believe-investors-don't-see-it-coming-a-mile-away commodity price “spike top” over the next few months or even weeks (stare at some historical charts), off of which prices are likely to decline with very little in the way of relief rallies. At the same time, further dollar weakness is likely as the U.S. economy slows and our need for foreign capital persists. As the decline in commodity prices in terms of “global” prices will probably be faster than the decline in the dollar, U.S. investors are likely to observe an unusual pattern of weakness in both commodities and the U.S. dollar.

[Jim Nickerson]

Re: Bearish Information Re. Hussman

Hussman gives a very nice account of the ups and downs of the market collapse of 2000. I think Hussman's weekly reports are always worth my time to read them.

May 5, 2008
Deja Vu

John P. Hussman, Ph.D.
All rights reserved and actively enforced.
Reprint Policy

Well, having declined nearly 20% from its peak, the S&P 500 has recovered about half of its loss in a period of several weeks, taking the index within about 10% of the all-time high it registered in the mid-1500 range a few quarters ago, with the Dow Industrials down even less. Transportation stocks, in particular, have enjoyed a scorching rally in recent weeks, bettering their prior bull market highs. Despite the fact that our most reliable recession indicators registered a clear warning late last year pointing to an oncoming economic downturn, the unemployment rate stands only about a half-percent above its lows and remains modest on a historical basis. The option volatility index has declined significantly, while credit spreads and advisory bullishness are on the mend. All of this suggests that market participants believe the worst is over, thanks largely to the actions of the Federal Reserve. For our part, the Strategic Growth Fund has achieved positive returns since the market's peak. Still, the Fund has not participated in the recent advance, and remains a few percent below its all-time high, but we are willing to take a more constructive position if market internals improve.

But enough about January 2001.

Talk about deja vu. At that time, market conditions could be precisely described by the preceding paragraph, including the optimism of investors. As I wrote in my weekly market comment then, “Everybody seems to believe that the Fed has bought a market bottom, and that the current economic slowdown is "old news". We're skeptical. Mainly because the current economic downturn is coming off of a capital investment boom financed with a great deal of leverage. We believe that the economy is in the early phase of a "deleveraging cycle". Investors who believe in the omnipotence of the Fed have evidently forgotten phrases like "liquidity trap" and "pushing on a string", which are ways that economists describe the failure of easy money to stimulate the economy when spending is sluggish. Well, that's what we're likely to get.”

As it turned out, the rally into 1/30/01 was quickly erased by a plunge in the S&P 500 Index of -19.7% into 4/4/01, followed by a powerful bear market rally of 19.0% through 5/21/01. The S&P 500 then proceeded to surrender that gain, and the events of 9/11 worsened an already weak market, driving the market down -26.4% from May's rally high. The S&P 500 then surged 21.4% into 1/4/02, dropped -7.9% into 2/7/02, advanced 8.3% into 3/19/02, collapsed -31.8% into 7/23/02, advanced 20.7% into 8/22/02 and finally plunged -19.3% to its bear market low on 10/9/02, for a cumulative loss in the S&P 500 Index of -49.1%.

Investors really have no sense of market dynamics if they believe that a recession-linked bear market comprises a single decline of less than 20% followed by a “V” shaped rebound into a new bull market. While I don't expect the market's losses to be nearly as severe as they were in the 2000-2002 bear market, the simple fact is that if the recent market low was indeed a final bear market trough, it occurred at the highest valuation level of any prior bear market trough in history.

I don't want to convey the impression that the market cannot advance further as a result of speculative pressures, but at present, the S&P 500 remains priced to deliver probable total returns of about 2-4% annually over the coming decade (a decade ago, using the same methodology, the projected return was in the range of 0-2%, which is about what we've observed). I do not hope for a steep market decline, but it is effectively the only way for stocks to be priced to deliver meaningful long-term returns.

Rest of the weekly comment.

Hussman also notes:

In precious metals, the Market Climate continues to be modestly favorable but we continue to look for opportunities to clip our exposure in this area, now at less than 10% of assets in the Strategic Total Return Fund.

That fund was previously about 15% long gold shares, now cut back to <10%, and he's still looking to lighten up.

[Jim Nickerson]

Re: Bearish Information

http://www.decisionpoint.com/ChartSp...80502_6mo.html

by Carl Swenlin
May 2, 2008

Something you will be hearing a lot about for a while is that for the next six months the market will be carrying extra drag caused by negative seasonality. Research published by Yale Hirsch in the "Trader's Almanac" shows that the market year is broken into two different six-month seasonality periods. From May 1 through October 31 is seasonally unfavorable, and the market most often finishes lower than it was at the beginning of the period. November 1 through April 30 is seasonally favorable, and the market most often finishes the period higher.

Back testing of a timing model using the beginning of these periods as entry and exit points shows that being invested only during the favorable period (and being in cash during the unfavorable period) finishes way ahead of buy and hold. As I recall, the opposite strategy actually loses money. (See Sy Harding's book "Riding the Bear" for a full discussion of this subject. Seriously, I really, really recommend this book.)

While the statistical average results for these two periods are quite compelling, trying to ride the market in real-time in hopes of capturing these results is not always as easy as it sounds. Below is a chart that begins on May 1, 2007 and ends on April 30, 2008. The left half of the chart shows the unfavorable May through October period and the right half shows the favorable November through April period. As you can see, the seasonality periods performed exactly opposite of the statistical average. The point to be made is that, regardless of how the market performs on average, every year is different and presents its own challenges, and there is no guarantee that any given period will conform to the average.



Whether or not you find the seasonality strategy compelling enough to use, the statistics tell us that the next six months are apt to be dangerous, and that is something to keep in mind when evaluating the overall context of the market. The fact that this negative seasonality period is taking place during a bear market, makes it even more dangerous.

Bottom Line: We are in a bear market, and the 6-month period of negative seasonality has begun. Expect price reversals when the market gets overbought. When the PMOs (Price Momentum Oscillators) begin to reverse downward, that would be a good time to consider tightening stops and/or closing long positions.

We rely on the mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. Note that we have included the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their cap-weighted counterparts, and they provide a way to diversify exposure.

Also here is today's comment by Sy Harding wherein he discusses his version of the six-month seasonality consideration.