I have had some issues with Bill Gross over the years though there is no denying he is a great investor. Mainly I felt like he was one of the prominent voices last year cheering on the spending that I felt would make the mess worse just a little ways down the road. Well he has seen the light. Very good monthly outlook from Pimcos Bill Gross.
Starts out with a doozy of a first sentence.
Global financial market returns stand at the threshold of mediocrity. With bonds priced not for recession but near depression, most major global bond indices now yield less than 3%, surely a forerunner of returns to come.
and he is right here (how many times have I said this over the past 2 years?)
It is this lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – that is the essence of the problem
The entire thing is very good.
Wednesday, June 30, 2010
Tuesday, June 29, 2010
Pure Speculation
I don't do this very often but am going to throw out what I think is the most likely outcome over the next couple of days. This is pure speculation and probably wrong so take it for what its worth.
There are all kinds of cross currents going on related to horrible Asian economic data, European bank woes, and end of quarter. We have 1040 sitting as major resistance which we have bounced off 2 or 3 times.
Remember back in 2008. The 1040 than was 1200. We bounced off of it July and than bounced and bounced off of it again in September. Finally broke it and got alot of people short very quickly. Than we bounced again all the way up to like 1270 getting people slammed. Finally we broke it and plummet ted again.
So my speculation for whatever it is worth. We will break 1040 today with a close below it. Tomorrow morning we will go down somewhere between 1010 and 1030 before a big rally into Wednesday afternoon and Thursday morning possibly back above 1040 before kissing it goodbye for the final time.
Alot of money managers are wanting to raise cash at this point going into quarter end. The sell orders are lined up and eventually all who will have wanted to sell would have sold. The selling finishes tomorrow morning and volume dries up pushing the indexes up into Thursday morning at least.
Purely speculative conjecture. I woulnd't bet a 10 dollar bill at one to one odds that I was right but it is what is in my mind right now. That is why I have this blog. To put my thoughts in front of me so I can muse about them.
There are all kinds of cross currents going on related to horrible Asian economic data, European bank woes, and end of quarter. We have 1040 sitting as major resistance which we have bounced off 2 or 3 times.
Remember back in 2008. The 1040 than was 1200. We bounced off of it July and than bounced and bounced off of it again in September. Finally broke it and got alot of people short very quickly. Than we bounced again all the way up to like 1270 getting people slammed. Finally we broke it and plummet ted again.
So my speculation for whatever it is worth. We will break 1040 today with a close below it. Tomorrow morning we will go down somewhere between 1010 and 1030 before a big rally into Wednesday afternoon and Thursday morning possibly back above 1040 before kissing it goodbye for the final time.
Alot of money managers are wanting to raise cash at this point going into quarter end. The sell orders are lined up and eventually all who will have wanted to sell would have sold. The selling finishes tomorrow morning and volume dries up pushing the indexes up into Thursday morning at least.
Purely speculative conjecture. I woulnd't bet a 10 dollar bill at one to one odds that I was right but it is what is in my mind right now. That is why I have this blog. To put my thoughts in front of me so I can muse about them.
Monday, June 28, 2010
Hussman - Another Recession on Tap
More and more money is moving to the viewpoint that a new recession (if it hasn't already started yet) is not only possible but likely. The latest is John Hussman whose comments I have posted from time to time.
His weekly commentary found here starts out pretty bleak:
Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn.
Yep, the data has definitely started rolling over and the forward looking data is flashing danger signs.
A few weeks ago, I noted that our recession warning composite was on the brink of a signal that has always and only occurred during or immediately prior to U.S. recessions, the last signal being the warning I reported in the November 12, 2007 weekly comment Expecting A Recession. While the set of criteria I noted then would still require a decline in the ISM Purchasing Managers Index to 54 or less to complete a recession warning, what prompts my immediate concern is that the growth rate of the ECRI Weekly Leading Index has now declined to -6.9%. The WLI growth rate has historically demonstrated a strong correlation with the ISM Purchasing Managers Index, with the correlation being highest at a lead time of 13 weeks.
He than goes and talks about what you could possibly expect from the markets. The problem is (and it is a good problem) for the United States the data sets are very limited because we haven't gone through any major sovereign debt crises. He quotes the widely quoted book This Time is Different by Kenneth Rogoff and Carmen Reinhart. All stuff I have talked about before.
Reinhart and Rogoff observe that following systemic banking crises, the duration of housing price declines has averaged roughly six years, while the downturn in equity prices has averaged about 3.4 years. On average, unemployment rises for almost 5 years. If we mark the beginning of this crisis in early 2008 with the collapse of Bear Stearns, it seems rather hopeful to view the March 2009 market low as a durable "V" bottom for the stock market, and to expect a sustained economic expansion to happily pick up where last year's massive dose of "stimulus" spending now trails off. The average adjustment periods following major credit strains would place a stock market low closer to mid-2011, a peak in unemployment near the end of 2012 and a trough in housing perhaps by 2014
This is how I have felt for months!!!
In recent months, I have finessed this issue by encouraging investors to carefully examine their risk exposures. I'm not sure that finesse is helpful any longer. The probabilities are becoming too high to use gentle wording. Though I usually confine my views to statements about probability and "average" behavior, this becomes fruitless when every outcome associated with the data is negative, with no counterexamples.
Than he just lays it out there.
Put bluntly, I believe that the economy is again turning lower, and that there is a reasonable likelihood that the U.S. stock market will ultimately violate its March 2009 lows before the current adjustment cycle is complete.....Moreover, from a valuation standpoint, a further market trough would not even be "out of sample" in post-war data. Based on our standard valuation methods, the S&P 500 Index would have to drop to about 500 to match historical post-war points of secular undervaluation, such as June 1950, September 1974, and July 1982. We do not have to contemplate outcomes such as April 1932 (when the S&P 500 dropped to just 2.8 times its pre-Depression earnings peak) to allow for the possibility of further market difficulty in the coming years. Even strictly post-war data is sufficient to establish that the lows we observed in March 2009 did not represent anything close to generational undervaluation.
There is much more from his latest weekly update. It talks about inflation and deflation and gives warning to investors about gold. The very things I have talked about over and over the last several months. He brings up the point that the governments are running out of room.
Anyway very interesting read. I strongly believe the S&P 500 will be below 800 by the end of this year and put 50/50 odds that the market will have broken its March 2009 lows by the end of this year. As we have seen already (and this is the pregame show) when the markets begins unraveling this time it will do so very very quickly. We already have a much weaker system with much fewer options.
The next few days will be very interesting as we go into quarter end and start a new quarter. The next couple of weeks could be bloody. The question is if the markets can hold it together through Wednesday or not.
His weekly commentary found here starts out pretty bleak:
Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn.
Yep, the data has definitely started rolling over and the forward looking data is flashing danger signs.
A few weeks ago, I noted that our recession warning composite was on the brink of a signal that has always and only occurred during or immediately prior to U.S. recessions, the last signal being the warning I reported in the November 12, 2007 weekly comment Expecting A Recession. While the set of criteria I noted then would still require a decline in the ISM Purchasing Managers Index to 54 or less to complete a recession warning, what prompts my immediate concern is that the growth rate of the ECRI Weekly Leading Index has now declined to -6.9%. The WLI growth rate has historically demonstrated a strong correlation with the ISM Purchasing Managers Index, with the correlation being highest at a lead time of 13 weeks.
He than goes and talks about what you could possibly expect from the markets. The problem is (and it is a good problem) for the United States the data sets are very limited because we haven't gone through any major sovereign debt crises. He quotes the widely quoted book This Time is Different by Kenneth Rogoff and Carmen Reinhart. All stuff I have talked about before.
Reinhart and Rogoff observe that following systemic banking crises, the duration of housing price declines has averaged roughly six years, while the downturn in equity prices has averaged about 3.4 years. On average, unemployment rises for almost 5 years. If we mark the beginning of this crisis in early 2008 with the collapse of Bear Stearns, it seems rather hopeful to view the March 2009 market low as a durable "V" bottom for the stock market, and to expect a sustained economic expansion to happily pick up where last year's massive dose of "stimulus" spending now trails off. The average adjustment periods following major credit strains would place a stock market low closer to mid-2011, a peak in unemployment near the end of 2012 and a trough in housing perhaps by 2014
This is how I have felt for months!!!
In recent months, I have finessed this issue by encouraging investors to carefully examine their risk exposures. I'm not sure that finesse is helpful any longer. The probabilities are becoming too high to use gentle wording. Though I usually confine my views to statements about probability and "average" behavior, this becomes fruitless when every outcome associated with the data is negative, with no counterexamples.
Than he just lays it out there.
Put bluntly, I believe that the economy is again turning lower, and that there is a reasonable likelihood that the U.S. stock market will ultimately violate its March 2009 lows before the current adjustment cycle is complete.....Moreover, from a valuation standpoint, a further market trough would not even be "out of sample" in post-war data. Based on our standard valuation methods, the S&P 500 Index would have to drop to about 500 to match historical post-war points of secular undervaluation, such as June 1950, September 1974, and July 1982. We do not have to contemplate outcomes such as April 1932 (when the S&P 500 dropped to just 2.8 times its pre-Depression earnings peak) to allow for the possibility of further market difficulty in the coming years. Even strictly post-war data is sufficient to establish that the lows we observed in March 2009 did not represent anything close to generational undervaluation.
There is much more from his latest weekly update. It talks about inflation and deflation and gives warning to investors about gold. The very things I have talked about over and over the last several months. He brings up the point that the governments are running out of room.
Anyway very interesting read. I strongly believe the S&P 500 will be below 800 by the end of this year and put 50/50 odds that the market will have broken its March 2009 lows by the end of this year. As we have seen already (and this is the pregame show) when the markets begins unraveling this time it will do so very very quickly. We already have a much weaker system with much fewer options.
The next few days will be very interesting as we go into quarter end and start a new quarter. The next couple of weeks could be bloody. The question is if the markets can hold it together through Wednesday or not.
Thursday, June 24, 2010
A Shuffling in the World
There has been an amazing shift in the world in the last three months. The idea that one can spend, borrow, and print money to reach prosperity is slowing losing clout while basic common sense of balanced budgets is starting to gain traction. Understanding what this means and doesn't mean is very important. For over two decades our world has moved full speed heading for a cliff. In many ways we have gone over the cliff. Europe is trying to pull back from the cliff now but they may have already gone over and trying to make an impossible climb back up. This effort is admirable but could be fruitless. While I support this new wave of enthusiasm for common sense, there is a distinct probability it is to late.
The new growing sense by government leaders that what has been created is not sustainable and the Keynesian effort to reflate out of the problems has failed is a tectonic shift. You now have open mockery by European leaders at what the United States has done and the road they have traveled. The new path being taken is one of austerity and an effort to balance world government budgets. This is admirable but I have said many times before that doing the right thing will cause massive human suffering and a large depressionary type outcome. The hope is that 2020 will be a good year. Not 2012.
This road should have started being traveled in 1998. Every year builds up a debt to the piper. This debt owed is human suffering. The longer it goes the higher the eventual human suffering will be. The growth in this debt is exponential. At some point the market (the piper) won't allow the debt to grow any higher. Could the world governments possibly buy another month or year? It is possible. Currently Europe is trying to start to pay off the debt. They are isolating the United States heading into the G-20 this weekend who still doesn't want to pay the debt.
What this means for asset prices is extremely bearish. What it means for society is extremely troubling.
The equity markets seem to be at a breaking point. The rally to the 1140 area came up short and at this point it seems like one should be shorting and asking questions later. Financial stress in financial markets is showing up world wide and economic data is plunging off a cliff at worst and rolling over at best.
If the new European viewpoint takes hold it will probably mean a major shift in how asset markets react. Of top importance is gold. I am becoming moderately bearish on gold. This is a short term thought (1 to 12 months) but what Europe is moving towards is full deflation. This could spell trouble for gold in the short term. Gold does well in deflation (i.e. the Great Depression) and severe inflation (1970s). Most investors do not realize how well gold does during deflation. The reason is deflation puts stress on sovereign nations and the currencies backing those nations. Even if gold goes down I am still a buyer but there is a growing risk that gold could drop 20 to 30% over the next twelve months. Like I said I am keeping and buying more gold regardless.
The other MAJOR shift that is occurring is that I think currency correlations are going to start breaking down. For 2 years if the Euro went down, basically the US stock market went up and vice verse. Even more relevant was the Euro / Japanesse cross. This correlation has been strong but is not necessarily a must. It was a risk trade signal. If the Euro went down the European stock markets went down. The same can happen in the United States. That correlation isn't a market rule. Europe is taking actions to protect their currency. While this will ultimately fail I think it is distinctly possible that the Euro still has some more rally left in it. 1.30 seems very possible to me. I won't bet on it but the reason I bring it up is that I don't necessarily think the U.S. markets will rally hard if that occurs like they have previosly. Another important point in all this is European "states" started having troubles first but their budgetary problems are just as big as U.S. state budgetary problems. This is inherrently dollar negative and U.S. economy negative. So despite being dollar negative it is also deflationary and U.S. equity market negative.
Anyway, there have been a couple of major shifts in the way the world is operating in the last few months. These changes may give 2020 a chance of being a good year but in the next couple of years it is very bearish for asset prices.
The new growing sense by government leaders that what has been created is not sustainable and the Keynesian effort to reflate out of the problems has failed is a tectonic shift. You now have open mockery by European leaders at what the United States has done and the road they have traveled. The new path being taken is one of austerity and an effort to balance world government budgets. This is admirable but I have said many times before that doing the right thing will cause massive human suffering and a large depressionary type outcome. The hope is that 2020 will be a good year. Not 2012.
This road should have started being traveled in 1998. Every year builds up a debt to the piper. This debt owed is human suffering. The longer it goes the higher the eventual human suffering will be. The growth in this debt is exponential. At some point the market (the piper) won't allow the debt to grow any higher. Could the world governments possibly buy another month or year? It is possible. Currently Europe is trying to start to pay off the debt. They are isolating the United States heading into the G-20 this weekend who still doesn't want to pay the debt.
What this means for asset prices is extremely bearish. What it means for society is extremely troubling.
The equity markets seem to be at a breaking point. The rally to the 1140 area came up short and at this point it seems like one should be shorting and asking questions later. Financial stress in financial markets is showing up world wide and economic data is plunging off a cliff at worst and rolling over at best.
If the new European viewpoint takes hold it will probably mean a major shift in how asset markets react. Of top importance is gold. I am becoming moderately bearish on gold. This is a short term thought (1 to 12 months) but what Europe is moving towards is full deflation. This could spell trouble for gold in the short term. Gold does well in deflation (i.e. the Great Depression) and severe inflation (1970s). Most investors do not realize how well gold does during deflation. The reason is deflation puts stress on sovereign nations and the currencies backing those nations. Even if gold goes down I am still a buyer but there is a growing risk that gold could drop 20 to 30% over the next twelve months. Like I said I am keeping and buying more gold regardless.
The other MAJOR shift that is occurring is that I think currency correlations are going to start breaking down. For 2 years if the Euro went down, basically the US stock market went up and vice verse. Even more relevant was the Euro / Japanesse cross. This correlation has been strong but is not necessarily a must. It was a risk trade signal. If the Euro went down the European stock markets went down. The same can happen in the United States. That correlation isn't a market rule. Europe is taking actions to protect their currency. While this will ultimately fail I think it is distinctly possible that the Euro still has some more rally left in it. 1.30 seems very possible to me. I won't bet on it but the reason I bring it up is that I don't necessarily think the U.S. markets will rally hard if that occurs like they have previosly. Another important point in all this is European "states" started having troubles first but their budgetary problems are just as big as U.S. state budgetary problems. This is inherrently dollar negative and U.S. economy negative. So despite being dollar negative it is also deflationary and U.S. equity market negative.
Anyway, there have been a couple of major shifts in the way the world is operating in the last few months. These changes may give 2020 a chance of being a good year but in the next couple of years it is very bearish for asset prices.
Tuesday, June 22, 2010
Bridgewater Associates Principles by Ray Dalio
Been busy so haven't commented much on the market action. Last couple of days have been really interesting. Big reversal yesterday with DOW bouncing off the 50 day moving average. Today we broke back down below resistance below 1110 than the 200 day moving average and than the 1100 area. Tomorrow the Fed meeting decision is released. That is typically bullish. We shall see. World news again has become fairly bearish. The U.S. existing home sales number was a shocker even for me. It was bad bad bad. I have not jumped on adding to short exposure (still plenty short). Still nervous about the Euro though it has been selling some off recently. I think that correlation is going to weaken soon but I don't want to be the one betting on it. I am watching that 1185 area. Breaking that could mean this rally stage is over. I had been watching 1140. We got up to 1132 area yesterday. Close enough. So on watch for major deterioration but with the Fed meeting tomorrow I wouldn't want to short in front of it. We shall see.
Here is the full PDF of Bridgewater Associates Principles by Ray Dalio for those who are interested.
Thanks goes to John
Here is the full PDF of Bridgewater Associates Principles by Ray Dalio for those who are interested.
Thanks goes to John
Monday, June 21, 2010
A Ray Dalio Profile
One of the most admired investment firms / hedge funds in the world has to be Bridgewater. The founder of Bridgewater is now billionaire Ray Dalio. The WSJ had a profile of him in the weekend edition. I like Ray because he thinks in terms of natures models. He is very bearish and for someone like Bridgewater did not do very well in 2009. There was a recent interview in Barrons however where he reiterated his bearish views.
From the WSJ
WESTPORT, Conn.—The euro was plummeting. The stock market was gyrating. And Ray Dalio, president of one of the world's largest hedge funds, took a moment to talk about mosquitoes.
"Man will never be able to build a flying device like a mosquito," mused Mr. Dalio, the 60-year-old founder of Bridgewater Associates. "I look at nature's complexity and think, man has the intelligence of mold growing on an apple."
Mr. Dalio, his staffers readily admit, is an unusual boss. His firm runs on a set of 295 principles that Mr. Dalio devised and distributed to all employees. The 83-page treatise, which draws lessons from the natural world, advises employees on how to achieve fulfillment at work and in life.
and
Mr. Dalio is among a handful of philosopher-investors known not only for moneymaking prowess but also for their distinctive take on life.....Mr. Dalio's basic philosophy is what he calls "hyper-realism," a notion that brutal honesty, no matter how uncomfortable, yields the best results. Principle No. 8: "There is nothing to fear from truth....Being truthful is essential to being an independent thinker and obtaining greater understanding of what is right."
and
Principal No. 11: "Never say anything about a person you wouldn't say to him directly. If you do, you are a slimy weasel."
The entire thing is a good read.
From the WSJ
WESTPORT, Conn.—The euro was plummeting. The stock market was gyrating. And Ray Dalio, president of one of the world's largest hedge funds, took a moment to talk about mosquitoes.
"Man will never be able to build a flying device like a mosquito," mused Mr. Dalio, the 60-year-old founder of Bridgewater Associates. "I look at nature's complexity and think, man has the intelligence of mold growing on an apple."
Mr. Dalio, his staffers readily admit, is an unusual boss. His firm runs on a set of 295 principles that Mr. Dalio devised and distributed to all employees. The 83-page treatise, which draws lessons from the natural world, advises employees on how to achieve fulfillment at work and in life.
and
Mr. Dalio is among a handful of philosopher-investors known not only for moneymaking prowess but also for their distinctive take on life.....Mr. Dalio's basic philosophy is what he calls "hyper-realism," a notion that brutal honesty, no matter how uncomfortable, yields the best results. Principle No. 8: "There is nothing to fear from truth....Being truthful is essential to being an independent thinker and obtaining greater understanding of what is right."
and
Principal No. 11: "Never say anything about a person you wouldn't say to him directly. If you do, you are a slimy weasel."
The entire thing is a good read.
Greed Back In Favor
Last week started feeling like March of this year all over again. Or the fall of 2009. It is getting absurd. The economic data was not good. Jobless claims, regional manufacturing surveys, Fed Ex warning on earnings, ECRI, building permits, and housing starts. All misses, all showing signs of rolling over. It didn't matter. The market grinds higher. Doesn't matter what the data is, volume disappears and the market goes up.
Now Asia is screaming and US futures are screaming higher on the news that China will supposedly will devalue the Chinese yuan against the U.S. dollar. Let's see, US futures are screaming higher, China stock market is screaming higher, Japan stock market is screaming higher, everyone is screaming higher on this news. HOW DOES THAT MAKES SENSE???? Currencies are a zero sum game. It CANT be good for EVERYONE!!
Well we are quickly approaching that 1140 area that I have been talking about. Why? Because the Euro is going up? I don't know. That correlation hasn't broken for over 2 years. Why is the Euro going up? I thought we would see such a bounce and mentioned it on this blog several times but I don't know why it is really going up besides the fact that it ran out of sellers. Bond spreads in Europe continued to widen last week. Nothing has made sense for over a year. Up or down the market is broken. No one really should be playing it. Just insane.
New home sales, existing home sales, durable order, jobless claims and FED meeting all this week. Of course it won't really mean anything. If we are really back to stupid time the existing home sales number will look good because those homes that met the tax credit deadline will close in May and June and so will be a lag in the data. So that data will good even as every current piece of data with no lag shows housing crashing again. So this good data will be bought with a vengeance as the market screams higher. That 1140 may be a low estimate of where a stupid market can head.
Now Asia is screaming and US futures are screaming higher on the news that China will supposedly will devalue the Chinese yuan against the U.S. dollar. Let's see, US futures are screaming higher, China stock market is screaming higher, Japan stock market is screaming higher, everyone is screaming higher on this news. HOW DOES THAT MAKES SENSE???? Currencies are a zero sum game. It CANT be good for EVERYONE!!
Well we are quickly approaching that 1140 area that I have been talking about. Why? Because the Euro is going up? I don't know. That correlation hasn't broken for over 2 years. Why is the Euro going up? I thought we would see such a bounce and mentioned it on this blog several times but I don't know why it is really going up besides the fact that it ran out of sellers. Bond spreads in Europe continued to widen last week. Nothing has made sense for over a year. Up or down the market is broken. No one really should be playing it. Just insane.
New home sales, existing home sales, durable order, jobless claims and FED meeting all this week. Of course it won't really mean anything. If we are really back to stupid time the existing home sales number will look good because those homes that met the tax credit deadline will close in May and June and so will be a lag in the data. So that data will good even as every current piece of data with no lag shows housing crashing again. So this good data will be bought with a vengeance as the market screams higher. That 1140 may be a low estimate of where a stupid market can head.
Wednesday, June 16, 2010
Thoughts From Investing Legends
News flow is very bleak today. Spain bond spreads over bunds is the widest ever and this morning brought a string of weak economic data out of U.S. (though industrial production wasn't bad) but so far the markets are ignoring it. Like I said yesterday a close below the 200 day moving average in my mind makes it 50/50 the rally is over. Without that close the odds are high we are going to at least 1140.
Two interesting articles citing two investing legends.
The first from Reuters citing George Soros thoughts on Europe.
Europe faces almost inevitable recession next year and years of stagnation as policymakers' response to the euro zone crisis causes a downward spiral, billionaire investor George Soros said on Tuesday.
and
European banks had bought large amounts of the sovereign bonds of weaker euro zone countries for a tiny interest rate differential, Soros said.
"That's one of the reasons why the banks are so over-leveraged and why the German and the French banks own Spanish bonds," he said.
"Now ... they have a loss on their balance sheets which is not recognized and it reduces the credibility of those banks so the banking system is in serious trouble," he said.
And this article from Australia Hearald Sun citing GMO's Jeremy Grantham thoughts on the great Australia housing bubble.
The Australian reported he said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend.
"You cannot possibly miss it," he said.
"The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times).
"Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be."
Oh I am sure many people are missing it.
Two interesting articles citing two investing legends.
The first from Reuters citing George Soros thoughts on Europe.
Europe faces almost inevitable recession next year and years of stagnation as policymakers' response to the euro zone crisis causes a downward spiral, billionaire investor George Soros said on Tuesday.
and
European banks had bought large amounts of the sovereign bonds of weaker euro zone countries for a tiny interest rate differential, Soros said.
"That's one of the reasons why the banks are so over-leveraged and why the German and the French banks own Spanish bonds," he said.
"Now ... they have a loss on their balance sheets which is not recognized and it reduces the credibility of those banks so the banking system is in serious trouble," he said.
And this article from Australia Hearald Sun citing GMO's Jeremy Grantham thoughts on the great Australia housing bubble.
The Australian reported he said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend.
"You cannot possibly miss it," he said.
"The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times).
"Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be."
Oh I am sure many people are missing it.
Tuesday, June 15, 2010
Risk On
Well much of what I thought about blogging today Cramer covered in the previous video. Ha. Today was a bad day for news flow though you wouldn't know it by looking at markets world wide. It was risk on. Everything was up. You had poor European economic data and the U.S. data stunk it up as well. Fresh signs of potential stress in Spain but Spain rallied with everything else.
Today was also gruesome because again yesterday you had a head fake with the sell off into the close with the market just getting slapped down from the 200 day moving average. Just like last week a usual decent signal ended up being completely false as today not only did we rally but closed above technical resistance I am sure hurting bears taking yesterday as weakness. I am halfway expecting at least for tomorrow a similar thing to happen for the bulls. Would not be surprised to see a slap down tomorrow catching all the bulls off guard after breaking resistance today. The markets should be heavy with BP bad news flow again going into the open. Tonight the estimated barrels per day being released into the gulf was upped, apparently some banks are starting to pull in trading lines, and Obama was blasting the airwaves tonight. You have a bunch of economic data coming out before the market opens tomorrow also but as you saw today the market is going to trade in whatever direction it wants regardless of the data.
If we close back below the technical resistance tomorrow(200 day moving average and below 1110) I put it at 50/50 that the rally is done. The other 50/50 is that we will go to that 1140 area I have talked about numerous times. Even if we get slammed tomorrow I would be very hesitant to short unless the news flow is equally bad out of Europe. It can't be just about BP. Another interesting thing to watch tomorrow if the markets are down will be the volume. The NYSE volume was abysmal today and has been getting progressively worse as the rally has rolled on. The ES futures volume was decent which means almost the entire move today was driven by futures. The slowing volume on the NYSE is also a warning signal.
The economy is on life support, the market is on life support, and danger signs are flashing but in the interim it still seems like this market could grind higher.
Today was also gruesome because again yesterday you had a head fake with the sell off into the close with the market just getting slapped down from the 200 day moving average. Just like last week a usual decent signal ended up being completely false as today not only did we rally but closed above technical resistance I am sure hurting bears taking yesterday as weakness. I am halfway expecting at least for tomorrow a similar thing to happen for the bulls. Would not be surprised to see a slap down tomorrow catching all the bulls off guard after breaking resistance today. The markets should be heavy with BP bad news flow again going into the open. Tonight the estimated barrels per day being released into the gulf was upped, apparently some banks are starting to pull in trading lines, and Obama was blasting the airwaves tonight. You have a bunch of economic data coming out before the market opens tomorrow also but as you saw today the market is going to trade in whatever direction it wants regardless of the data.
If we close back below the technical resistance tomorrow(200 day moving average and below 1110) I put it at 50/50 that the rally is done. The other 50/50 is that we will go to that 1140 area I have talked about numerous times. Even if we get slammed tomorrow I would be very hesitant to short unless the news flow is equally bad out of Europe. It can't be just about BP. Another interesting thing to watch tomorrow if the markets are down will be the volume. The NYSE volume was abysmal today and has been getting progressively worse as the rally has rolled on. The ES futures volume was decent which means almost the entire move today was driven by futures. The slowing volume on the NYSE is also a warning signal.
The economy is on life support, the market is on life support, and danger signs are flashing but in the interim it still seems like this market could grind higher.
Cramer Gets it Right?!?
I don't very often say this but wow...Cramer is actually right. He said it the way it is. I think the market has been broken for months so he may be late to the game but what he said is 100% right. The market is broken. Today was an endless day of bad news. It is downright ridiculous. At the end of the video I don't agree with his view on housing but he is Cramer. I don't expect Cramer being right to become the norm.
What this means for the equity markets I don't know. I mean can you get a contrarian play off of this? Remember when Cramer started going nuts about Bernanke knowing nothing. That was the beginning of a 2 year slide so I don't want to read to much into the video. Just enjoying it for what it was. Overall a very good video with alot of truth.
What this means for the equity markets I don't know. I mean can you get a contrarian play off of this? Remember when Cramer started going nuts about Bernanke knowing nothing. That was the beginning of a 2 year slide so I don't want to read to much into the video. Just enjoying it for what it was. Overall a very good video with alot of truth.
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