I love days like the last few days when the market is in sell off and panic mode, and CNBC in their wisdom brings out virtually everyone to rattle off their opinion and outlook.
As if that much information both bullish and bearish can do anything but emotionally paralyze the individual investor.
I've always thought they do an injustice to individual investors in an attempt for ratings and advertising dollars. That being said, I heard some things the past couple days on CNBC coupled with reading some things in various places, plus some quick conversations with friends, and I thought it needed addressing.
The US is fine, it's just Europe:
Mostly clap trap and many are saying it. Yes, the markets might be in sell mode because of what's happening in Europe and European investors scrambling to sell other assets to raise cash. So from the microscopic that could be why we've had so much selling. But to suggest the U.S. is fine is a pile of you know what.
The U.S. has the very same issues as Europe, sure we might be lagging in time of recognition and dealing with it. And we might have more global confidence behind us for the time being. But do we not have the same issues? We see Ireland, Greece, etc as major problems. But we have that here! We call them California, Illinois, and New York, we just haven't dealt with it..................YET.
Nor have we dealt with the national issue of spending versus debt versus taxes. That probably won't happen in earnest until after the 2012 elections, if politicians can help it. But no matter how that is resolved it carries a negative consequence much like muni budget resolutions.
We only lag Europe for now, but some day these issues come home to roost.
Barton Biggs and Steve Moyer:
Barton Said, "The current sell off reminds him of the flash crash, whereby sell stops are placed so tight that we got this cascade of selling!" A nugget of wisdom.
Steve Moyer: I was talking with my good friend Steve Moyer on Friday. He pointed out how this entire market the past 2 years has been almost exclusively driven by a short list of Wall Street firms and major financial institutions. Many of which full of cash from the federal reserve who have played the market up hard because where else were they going to put their money! A nugget of wisdom.
When I merge these two views I come up with two important thoughts. When one of these big money firms starts to sell and these stops are triggered, the rest of this crowd follows because of their sell side stops and computer trading, so you're bound to get these 500 point selling days.
Secondly, and far more interesting in my discussion with Steve was the notion of the potential Elliott Wave count in relationship to Barton's observations and Steve's thoughts.
Assume for the moment we are in Wave 1 of 5 down. The classic view would be a near term bottom at or just below the 200 week or month MA on the $SPX, something like a target range or 1,160 or 1120. Maybe as low as 1,050. We hit the 200 week MA this morning!
Then we bounce into wave 2 of 5 up, maybe right back to major resistance at 1,250 to 1,260ish. IF we got that and the market failed, we could be in Wave 3 down. Wave 3 being the steepest and fastest wave. And here's why!
If Barton's and Steve's observations are correct, how do you think the selling will compare then in a Wave 3 to now in Wave 1, when once again the short list of major players begin to exit the maze at roughly the same time.
Steve and I chatted about the potential for a 1,000 point day on the DOW, maybe a couple during a Wave 3 because all the players pile out at the same time stepping all over each others sell stop triggers, and we get the Bigg cascade!
Below is a chart of the market to visualize what this might look like:
One of the keys to this view is to see 5 waves down. In that view, we need a small bounce followed by another push lower into real support.
I like what Barton had to say because it was constructive. Steve's observations, as usually, were on point. And combined, great stuff to store in the back of your brain.
The Fed is your Friend: Yes, and with friends like that do we need enemies? Clap Trap
QE2 has been a complete failure. Outside of providing the cash to firms to pump up the stock market where has QE2 benefited the Main Street economy? When do we realize deflation is not a bad thing but a good thing.
Let me scream that one more time, WHEN DO WE REALIZE DEFLATION IS NOT A BAD THING!
Deflation is the reset button on this nightmare, but the bobble heads keep the public focused on the very short term while the longer term issues mount once again.
Deflation will wash out all of the excesses we have that block us from healthy economies and a more viable long term stock and real estate markets.
Sure, we get pain near term, but we are going to get it whether we like it or not it's just a matter of how big we let the problems grow to before we deal with them.
The Fed is not your friend unless your Wall Street, major international companies, the super rich, or part of the politically entitled.
Cramer: He said on Friday night, that the US and China need to buy European bonds in a global solution to Europe! Are you kidding me?
So he wants to take QE2 to a global level. Cramer says that will solve the problem and bring in global growth and we recoup all of the stock market losses. That cold be, but why are we kicking the can to a global level even further?
And who is going to bail the US out when that needs to happen? NO ONE!
Thoughts like this one really turn my insides, and it disappoints me to see a Wall Street professional suggest such insanity.
MISH: I couldn't help emailing MISH Friday, and he kept it very simple and to the point: "The market is finally waking up to the fact that QE2 did not create a real sustainable recovery, QE3 wont either, and that recession is likely. It's as simple as that." A nugget of wisdom.
We can over analyze the turmoil in Europe and a US down grade all we want, but what has QE2 really done? Mask over economic weakness on Main Street. It had no long term structural positive impact on the Main Street economy and neither will a QE3, if one is rolled out.
Recession likely? Here comes 2008.2, between 2012/2013 we should be in the deepest part of the most painful part of the next deflationary leg.
Earnings Have Been Great: Well duh and clap trap. Yes they have been great, but Mr. Market has already digested prior earnings into values. The market is looking forward. What companies earned in Q1 and Q2 is almost meaningless now. And with those higher earnings, growth rates in the future could struggle. No, those past earnings do not help us on the go forward, they could hurt us on a valuation basis.
The Market is Cheap: That depends on whether you believe growth will pick up! GDP has gone through a major revision downward for the first half of 2011, almost as if we've been lied to because the adjustment downward was just to big.
And where do we get growth of 2.5% to 3% that the most bullish economists and strategists talk about? If you believe we get that growth, then yes maybe stocks are cheap.
However, if you believe as I do, that we are in a secular bear market with major headwinds facing 2012 and 2013 then no stocks are not cheap. We could easily see range bound values or lower valuations, especially if companies begin to lower earnings expectations and then we see head winds come to life shortly there after.
Headwinds like Baby Boomer graphics, even more crippling muni budget resolutions (including higher taxes/fees, salary and benefit cuts, muni bondholders loosing money, and even bankruptcy), and a major pull back in retail spending: Will This be a Problem? US Is at the Start of 500-Day Retail Recession: Analyst , a melt down in the Chinese economy and real estate, Lower US gov't spending, and any financial crisis related to the PIIGS.
Market Sentiment is Extremely Bearish: A nugget of wisdom.
The markets are so over sold on many indicators we should expect a bounce. And this might be the critical piece of data short term.
The next bounce in the market, the one that potentially pushes back up to major resistance at 1,250 to 1,260, could tell us everything. A bounce and back test of that area says a great deal.
The bulls can only regain this market if it climbs above that on strong technicals. That would be bullish conceptually for now. If however, the market got to that level and failed, then we have to be on crash alert.
I was very disappointed CNBC didn't call me to invite me on air to trumpet my opinions, so I thought it was timely to comment on some things I've heard in the past few days.
Hope all is well.
J.D. Rosendahl, Rosey
Monday, August 8, 2011
|CNBC's He Said She Said, Nuggets of Wisdom and Clap Trap: Are you on Tilt Yet! Posted by J.D. Rosendahl at 9:47 AM||Print Page||Email This Post|
Copyright 2010 J.D. Rosendahl. All rights reserved.