Pretzel Logic
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Latest Comments65 Comments
The One-Word Topic of the Day, and Week: Obama
It's like having an inoperable cancer, and then hiring a "surgeon" who never went to medical school, and actually spent his entire life working at 7/11, to remove it -- solely because this 7/11 Guy had "hope" for "change" when all the real surgeons said it was inoperable. Good luck with that. In reality, 7/11 Guy (Obama) will just kill the patient faster.
Wise move, America. "Hope" springs eternal!
What this country needs for REAL change is Ron Paul, or someone like him. Sigh. Maybe 4 years from now, we'll be ready. No? Maybe 8..? We can only "hope." ;)
Investors Face the Psychological Pressure
a) Foreclosures come onto the market and lower comps (real estate values) for the whole neighborhood, so...
b) John and Mary ARM can't refinance now, because their house has become worth less than they owe, so...
c) John and Mary ARM get foreclosed
d) Go back to a)
a) Jack and Jill Consumer can't get HELOC loans anymore, because of everything outlined above, and because of the credit crunch, so...
b) J/J Consumer tighten their budgets, so...
c) Businesses have to lay off workers, because sales are down and...
d) People without jobs spend less
e) go back to b)
The last lynchpin is the government. How much of this bad debt do you think Uncle Sam can backstop in an environment of falling GDP/falling tax revenue before THEY become insolvent? If the foreign central banks decide one day to stop showing up to buy treasuries, we'll have our answer.
And on. There's a lot more, but I have limited time. Suffice to say: we're not even close to bottoming on a long-term basis. We might get a short-term rally... but long-term "investors" here will get creamed. It only SEEMS gloomy now -- it can get MUCH worse. One day we will look back fondly on this time as "the good old days."
Dow 3600 will be a buying opportunity for long-term investors who can see past the seemingly impenatrable doom and gloom that will be all-pervasive when we get there.
I sincerely hope I'm wrong, and by correlation, I hope you're right. But unfortunately, I don't think that's the case.
Bailout, Schmailout
Getting even further away by nationalizing private business will ultimately make things worse, not better. We need to be stripping away all these never-intended functions of government, not adding to them. I can't believe all these cries I keep hearing, from both sides, of "give the government more power!"
Where is the outrage the left showed over the increased power of the government through the Patriot Act? You ain't seen nothing yet. Giving over our businesses and our banks and our health care, now THAT's giving the gov't real power -- because money is power in today's world. We are creating a monster that will devour our every last freedom.
We need a real revolution. Not an Obama or McCain "business as usual" revolution. Vote all the bums out.
Happy-Sad News: Foreclosure Sales Climb
At least the stock brokers keep their message logically consistent (even if it's historically misleading): "Buy buy buy, stocks always go up long term."
Anyway, the other issue with home prices stabilizing is the overhead supply. How many people are waiting for prices to go up so they can sell? Quite a few. Which means, prices won't go up again for a while. And all those sitting on a 33% loss now need a 50% gain just to get even.
Should You Go Long at Volatility Extremes? Nikkei As Example
Using earnings per share over the trailing 12 months, the current PE ratio for the S&P 500 index is 18:1. Only 21% of the months since 1871 have had higher PE ratios than this.
We're closer to historic high valuations than we are to historic low valuations.
This Recession Will Be Anything but Deep
1) We are destroying credit, which is deflationary. Much of the money supply is credit and/or leverage. It is imaginary, not "real" money supply. As a result, money is being destroyed faster than it is being created.
2) We already HAD the rabid inflation people were predicting years ago. In case you missed it: oil was trading around $150 bbl, gold was north of $1000/oz., etc., ad infinitum.
3) We have never had inflation during a falling housing market.
4) We have passed a psychological threshold where banks, people, and businesses no longer view "easy credit" as desirable. Gov't can't reinflate that balloon right now, there are too many holes in it.
My personal opinion is that we get strong deflation for a while as the deleveraging and credit destruction continues. Once that unwinds fully, we will finally see inflation again.
Chasing Unicorns: The Cycle Gods Are Still Playing with Us Mere Mortals
Has the Energy 'Tsunami' Been Aborted?
I know I'm not a family member, but I hear from a great many homeowners who are waiting for the market to go up so they can SELL. There is a huge overhead supply in housing, so I think the "technical damage" in the housing market will make it hard for prices to rise in the near future.
And we are still completely overbuilt. For years, the realtors told us, "They aren't making any more land!" Well, according to demographics, the problem is: they aren't making any more people, either. And the days of average Joe Speculators owning 27 houses are gone. There are tons of new developments that have huge vacancies. So demand will have to rise again to meet supply before houses can stabilize.
What a Look Back at the Japanese Market Tells Us
Reaching for the Bottom in the Markets
Friday Outlook: Commodities, Emerging Markets
Lee Adler, who runs Captialstool.com, has a saying: "There's no such thing as support in a bear market."
Global Coordinated Rate Cut: Nice Try, but the Party Is Over
I'm no fan of Bush, but if we don't know how we got here, we don't know how to avoid repeating our mistakes.
Apparently, few seem to know about Robert Rubin (Clinton's Secretary of Treasury) and the *hugely* instrumental role he played in getting us here. Here's a quick education on the matter:
Rubin discovered a great accounting trick. He discovered that you could take the Social Security "surplus" and add it to the Treasury's balance sheet, and in its place you could write IOU's to Social Security. (Remember Al Gore's SS "lockbox"? This is what he was referring to.) So Rubin, through this accounting trick, created tons of extra liquidity out of thin air. (Rubin himself has written about this) This huge liquidity in turn led to the NASDAQ bubble.
When that bubble crashed, we should have paid the piper.
But instead of paying our dues, Greenspan dropped interest rates to artificially low levels and we traded the stock bubble for the housing bubble. Now that's collapsing, and it seems our due can be delayed no longer. But make no mistake about where this all started: it started in the 90's, long before Bush took office.
Bank of America's Acquisitions: What Was Ken Lewis Thinking?
Love your blog, btw. Great work.
Our Coming Depression
36 Opportunities for the Beginning of the Bull
1) The markets are overly unstable, as the 300-700 daily point swings illustrate. We run the real risk of a crash.
2) The fundemental conditions are not anything most of us have seen in our lifetimes. Maybe everyone is RIGHT to be fearful. Contrarian indicators generally only work to confirm other indicators. They are virtually useless on their own, because the levels of bullish/bearishness are all relative. As an example: It may seem high when 50% of the people are bearish, relative to the 20% who were 2 months ago... but it will turn out that 98% will be bearish at the REAL bottom -- which makes the 50% seem low. There's just no way to know where you are in that cycle, except by hindsight.
3) There is a risk of systemic meltdown. This would obviously be exceedingly bearish.
4) The hedge funds are facing extremely high redemptions, and may be forced to continue selling.
5) The market anticipates the future. The future 6-9 months ahead looks worse, not better.
All in all, I have considered trying to bottom pick, but decided against it. Bottom picking implies a bottom -- and I'm not convinced we're there yet. Stocks are still not cheap by historical standards.
I would rather miss the exact bottom by a few percent than be way too early and lose dozens of percent.