Imminent and severe market correction

[Uncle Festivus]

My reference to Japan in the 90's was to illustrate how a leading economics Professor who was so convincing with his data and got it so terribly wrong, not with any comparison with China in mind.

Uncle - not sure about timing nor severity as will depend on how effective US is in addressing their fundamental problems of debt, spending and income.

debt - much higher now than when times were good - in 2010 will be approx 100% of GDP
spending - much higher now than when times were good
income - much lower now than when times were good

50% of states now require federal assistance, in the form of multi billion dollar loans, to pay welfare & unemployment benefits. Several states are already insolvent without federal aid. It's happening now ie we won't have to wait too long?

It is exceedingly difficult to convey exactly how much we are spending on bailouts. Start talking trillions (versus mere billions) and you get puzzled looks from people. Humans have a hard time conceptualizing any number that large. I wanted a graphic way to clearly show how astonishingly ginormous the amounts involved were. This Bailout Nation graphic shows the the total costs to the taxpayer of all the monies spent, lent, consumed, borrowed, printed, guaranteed, assumed or otherwise committed. It is nothing short of astonishing. In one short year the bailouts managed to spend far in excess of nearly every major one-time expenditure of the USA, including WW2, the moon shot, the New Deal, Iraq, Viet Nam and Korean wars -- COMBINED. 206 years versus 12 months. Barry Ritholtz

​

 

[Beej]

[/I]50% of states now require federal assistance, in the form of multi billion dollar loans, to pay welfare & unemployment benefits. Several states are already insolvent without federal aid. It's happening now ie we won't have to wait too long?

... [snip chart]....

UF - surely there is a "fundamental" flaw with that picture? Ie it used $$ in nominal amounts instead of in real/inflation adjusted terms? Ie the Vietnam war cost was MASSIVE in real $$$ terms (not to mention the human cost) compared to the Iraq war, yet the cost appears equal in that picture as you are comparing 1960s dollars with naughties $$$? It seems to be a pattern amongst many of the D&G blogs to ignore inflation and attempt to 'wow' people with big nominal $$$ figures, without providing any context (such as the shear massive value of production of goods and services in the US every year), or by ignoring inflation when comparing expenses/debt from different era's as is the case with this chart, or through the use of linear scale vs log scale long term charts of various things. It's all a bit of sleight of hand to me if you are interested in a proper analysis of the situations at hand.

PS (Edit): Also don't some of the larger blocks there represent money that has since been paid back? Ie it was temporary liquidity? And some it it represents money that may not end up being spent, but having it available has rebuilt confidence and avoided further need for some it?

Cheers,

Beej

 

[questionall_42]

UF - surely there is a "fundamental" flaw with that picture? Ie it used $$ in nominal amounts instead of in real/inflation adjusted terms? Ie the Vietnam war cost was MASSIVE in real $$$ terms (not to mention the human cost) compared to the Iraq war, yet the cost appears equal in that picture as you are comparing 1960s dollars with naughties $$$?

It is clear in the text that it is adjusted for inflation:

"It is exceedingly difficult to convey exactly how much we are spending on all these bailouts. Whenever I start talking trillions (versus mere billions), I get puzzled looks from people. Humans have a hard time conceptualizing any number that large. I wanted a graphic way to clearly show how astonishingly ginormous the amounts involved were.

So I once again went to Jess Bachman at Wallstats. I gave him my list of expenditures (inflation adjusted of course!) and he went to work."

Also, you said:

PS (Edit): Also don't some of the larger blocks there represent money that has since been paid back? Ie it was temporary liquidity? And some it it represents money that may not end up being spent, but having it available has rebuilt confidence and avoided further need for some it?

I agree that the image can be misleading, but he does say:

"This early Bailout Nation graphic shows the the total costs to the taxpayer of all the monies spent, lent, consumed, borrowed, printed, guaranteed, assumed or otherwise committed." (my highlights)

It is not supposed to represent money that needs to be paid back or is lost, but rather representative of all commitments.

Source: http://www.ritholtz.com/blog/2009/06/bailout-costs-vs-big-historical-events/

 

[Beej]

It is clear in the text that it is adjusted for inflation:

"It is exceedingly difficult to convey exactly how much we are spending on all these bailouts. Whenever I start talking trillions (versus mere billions), I get puzzled looks from people. Humans have a hard time conceptualizing any number that large. I wanted a graphic way to clearly show how astonishingly ginormous the amounts involved were.

So I once again went to Jess Bachman at Wallstats. I gave him my list of expenditures (inflation adjusted of course!) and he went to work."

Also, you said:



I agree that the image can be misleading, but he does say:

"This early Bailout Nation graphic shows the the total costs to the taxpayer of all the monies spent, lent, consumed, borrowed, printed, guaranteed, assumed or otherwise committed." (my highlights)

It is not supposed to represent money that needs to be paid back or is lost, but rather representative of all commitments.

Source: http://www.ritholtz.com/blog/2009/06/bailout-costs-vs-big-historical-events/

All fair enough - the bit about being adjusted for inflation, was that from the linked website? As I couldn't see that in the originally quoted text posted. Must say I'm surprised that the Iraq war cost the same in real terms as the Vietnam war then - there were many more troops in Vietnam for a longer period of time, much higher loss of life, many planes etc shot down (which didn't happen in Iraq), so to me something doesn't look quite right with those figures still to me?

For context, I'd still like to see a block on there that represents the annual GDP of the USA economy.

Cheers,

Beej

 

[questionall_42]

All fair enough - the bit about being adjusted for inflation, was that from the linked website? As I couldn't see that in the originally quoted text posted.

Yep - the bit about being adjusted for inflation was in the text before the graph in the source (link at the end of my last post), but it wasn't in the text that UF quoted.

FYI - here are the raw #s and the #s adjusted for inflation:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

Source: http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-bucks/

 

[Edwood]

absence of 'real money' driving last years rally

http://www.smartmoney.com/Investing/Stocks/Why-This-Man-Sees-a-Secret-Market-Cabal/

 

[Nyden]

absence of 'real money' driving last years rally

http://www.smartmoney.com/Investing/Stocks/Why-This-Man-Sees-a-Secret-Market-Cabal/

So, umm - the guy has a hunch? That about covers it, right?

 

[Edwood]

yeah, a well respected analyst who has nearly half of the top 30 hedge funds as clients has a hunch - based on their own analysis they have been unable to determine a valid source of funds driving the rally.

clearly he's no chump Nyden

 

[Wysiwyg]

Never underestimate the combined financial muscle of ASF members.

 

[Uncle Festivus]

So, umm - the guy has a hunch? That about covers it, right?

It's all about confidence ie a confidence trick funded by massive debt on behalf of taxpayers?

His theory is based on the numbers not adding up, as has been posted here for several months ie Goldman has been the governments financial stand over man, doing the covert work through futures etc

Have a look at the volume and insider sales - still giving signals loud & clear - it's a Lemming Bull market - you have to be in it just because everybody else is, not because it presents any compelling fundamental value, especially now after such a manipulated advance?

Put it this way, if Bernanke & Co have indeed succeeded in steering the US economy on a new sustainable bull market, then Harvard and all those other business schools are pretty much redundant because all we/they have to do is know how to issue more money ie be a banker? How hard is that then?

China is getting a bit nervous about the runaway stimulis train it has created. Standby for commodities glut and price drops?

 

[Trembling Hand]

China is getting a bit nervous about the runaway stimulis train it has created. Standby for commodities glut and price drops?

Yes interesting point we are at Unc. If they have started a runaway then its inflation we would be worried about not gluts?

 

[Aussiejeff]

It's all about confidence ie a confidence trick funded by massive debt on behalf of taxpayers?

His theory is based on the numbers not adding up, as has been posted here for several months ie Goldman has been the governments financial stand over man, doing the covert work through futures etc

Have a look at the volume and insider sales - still giving signals loud & clear - it's a Lemming Bull market - you have to be in it just because everybody else is, not because it presents any compelling fundamental value, especially now after such a manipulated advance?

Put it this way, if Bernanke & Co have indeed succeeded in steering the US economy on a new sustainable bull market, then Harvard and all those other business schools are pretty much redundant because all we/they have to do is know how to issue more money ie be a banker? How hard is that then?

China is getting a bit nervous about the runaway stimulis train it has created. Standby for commodities glut and price drops?

That's it, Unc.

The "Secret To Eternal Profits"... has been discovered by those far cleverer than us mere mortals.

Thus, NO MORE SEVERE MARKET CORRECTIONS TO THE DOWNSIDE!

The evidence is clear - hedgies, bwankers & speccies are home and hosed. There is nothing that can touch them, now that gummints worldwide have shown their winning hands.

Party on, man!!

 

[Timmy]

Thanks for the link Edwood - good info to ponder.

What does anyone think about the last point Biderman has made in the article:

“If somebody’s been buying,” he says, “at some point they’ll have to sell.”

Contracts such as the S&P500 futures and the Emini S&P500 futures are cash settled, no selling required?

 

[motorway]

Some market watchers say the question of who’s been doing the buying in the rally is a good one ””
but there are other explanations beyond the U.S. government making secret purchases. “From one perspective, we know it’s not retail or institutional investors,” says Jamie Selway, managing director of White Cap Trading.

But “it could be not necessarily buying, but an absence of forced selling,” he says. “We had incredibly violent selling pressure in the end of 2008. It was liquidity oriented -- you remove the forced selling and the imbalance, and things are going to bounce a bit.”

ALL YOU NEED IS FOR TIME HORIZONS TO EXPAND -->

THEN The Volume NOT TRADED is as important as the VOLUME TRADED

and YES look were it came from.. The "BUYING" was way down ( back ) there and YOU canBounce a LOT

Motorway

 

[Uncle Festivus]

Yes interesting point we are at Unc. If they have started a runaway then its inflation we would be worried about not gluts?

Yes, stimulis money inflation causes bubbles (demand) in <insert asset class here>, which causes a head fake rise in raw materials prices that is not supported by inventory (supply). Add in the $USD exchange rate price movement and we have a Claytons bull in commodities?

Japan again! Please catch up to US in your recovery! Please China buy some more machines to make more $2 junk! Woops, over-supply of production capacity already?

Japan's core machinery orders, seen as a key leading indicator for capital spending there, took a sharp drop in November despite expectations for a rise, according to data released Thursday. Core machinery orders fell 11.3% during the month, the Cabinet Office reported.
The result was well below estimates: A Kyodo News survey had expected a 1.1% rise from October, while a survey by Dow Jones Newswires and the Nikkei had indicated a rise of 1.2%.
Compared to November 2008, the orders dropped 20.5%, the Cabinet Office said.

 

[derty]

This has been worrying me for a while UF. You can see the same in most commodities. It's very pronounced in Ni where LME stocks are three times greater than they have been for the last 5 years and climbing.
http://www.kitcometals.com/charts/nickel_historical.html

 

[Trembling Hand]

This has been worrying me for a while UF. You can see the same in most commodities. It's very pronounced in Ni where LME stocks are three times greater than they have been for the last 5 years and climbing.
http://www.kitcometals.com/charts/nickel_historical.html

I guess the perception by the suits is that the consummation will soon take off. We are only just seeing the start of goodish news. :sheep:

 

[eddyeagle]

Recently I have been pondering over whether now is the best time to get OUT of stocks completely or start selling down my holdings.

Everyone seems to be predicting problems in the second half of 2010 but I’ve learnt from experience that when the falls kick in, they kick in fast!

Seems that a few of the older wiser heads on here have moved to cash recently.

In 2008 I got absolutely smashed. But I held on. And I made up for a lot of those losses in 2009. I view that as a ‘get out of jail free’ card!

But now I am getting a little edgy again. There is a little too much confidence and a lot of complacency in these markets.

Just today, ‘The Daily Reckoning’ posed the question - Has there been a better time in the past two years to liquidate your entire share portfolio?

I’d be interested to hear what people have to say.

 

[CanOz]

Recently I have been pondering over whether now is the best time to get OUT of stocks completely or start selling down my holdings.

Everyone seems to be predicting problems in the second half of 2010 but I’ve learnt from experience that when the falls kick in, they kick in fast!

Seems that a few of the older wiser heads on here have moved to cash recently.

In 2008 I got absolutely smashed. But I held on. And I made up for a lot of those losses in 2009. I view that as a ‘get out of jail free’ card!

But now I am getting a little edgy again. There is a little too much confidence and a lot of complacency in these markets.

Just today, ‘The Daily Reckoning’ posed the question - Has there been a better time in the past two years to liquidate your entire share portfolio?

I’d be interested to hear what people have to say.

The last two declines, i got out way too early and missed the irrational exuberance rally. The markets seem overbought, but so far the technical s are still in ok shape. Besides, my stops will take me out this time.


CanOz

 

[GumbyLearner]

The last two declines, i got out way too early and missed the irrational exuberance rally. The markets seem overbought, but so far the technical s are still in ok shape. Besides, my stops will take me out this time.


CanOz

Time is what you need. In the words of Benny Benazzi.
Don't bank on anything for 2010 IMHO!