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Latest Comments37 Comments
The Dow's Lost Decade
AAPL is a great company with great potential, yet it’s my opinion that it’s also great short and will be unless it breaks above $90 and stays there.
Pull it up on a candlestick chart and notice the incredible support it had around $87. Yet on Thursday, (Nov 20) it broke down through that support very convincingly with high volume. That strong support is now strong resistance.
Friday, it set an even lower low but did not make it back to Thursday’s high. It also deviated from the general market in that the $SPX was up 6.3% but AAPL was up only 2.6%.
Fundamentally, this consumer stock hasn’t yet been punished enough to reflect market realities, imho. The great credit superbubble has burst (as I’ve been pointing out for months) and iPods, iPhones, and music downloads at .89(?) are not a necessity that today’s shell-shocked and credit contracting consumer really needs to have.
This stock has some support around $70, but I expect it to break through that without much effort.
I’ll go long when we start to crawl out of this financial vortex.
Disclosure; purchased April puts on AAPL last week.
Three Areas of Opportunity for the Bold
If this current real estate crash, which we’re probably only half way through, hasn’t dramatically driven home the fallacies in that line of reasoning, then nothing I can possibly say here will.
And yes I know that $1300 is more than $930, but that's not cash flow positive btw. After expenses and the inevitable repairs, you need a ratio that's closer to 2:1.
gl
Five Signs of a Market Bottom
4. Ok, so there’s one prominent perma-bear who flipped. We still have too many people who are now bullish looking for value plays (traps), and way too many others now calling this a bottom.
The bottom will be in when talking heads and bloggers have stopped calling for a bottom and it will arrive quietly.
Impending Inflation? The Global 'New Deal' All but Guarantees It
However, in most ways the article actually argues in favor of deflation. Here are a couple of its more salient quotes:
“The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion.” Ludwig von Mises – 1949
And this one…
“However, banks' limited equity capital wouldn't allow expanding credit and money supply any further, whatever the amount of excess reserves. Perhaps even more important, a contraction of the means of payment, accompanied by a sudden stagnation of credit supply, can be expected to exert downward pressure on money prices, production and employment.”
At this point in the crisis, the government will attempt to rescue the banking system so lending can begin again. The first strategy is injecting peoples' tax money into banks. The second strategy is buying banks' risky assets, and the third is monetizing banks' risky assets.
We are now, or soon will be, doing all three, but here’s the key, credit will still continue to collapse. Even after the Fed’s efforts, banks and finance companies will not be willing to lend so extremely promiscuously again. As previously pointed out, lending standards will be much tighter in the years ahead.
Also, at least for a few years, individuals and business will not wish to borrow nearly as much again as jobs are being lost and prices for everything is in freefall. As JasonC so diplomatically puts it…
“No, prices are not going to trend up after a brief scare.
Earth to inflationary brainstorm clueless people, please write on a blackboard 500 times, "the demand for money is not a constant".”
Deflationary Depression: Where Do We Go from Here?
DBA,DBC,DIG,GLD,VTI,
HYG,ITB,URG,IYR,IYF,
MOO,OIL,UNG,URE,
HSG,XLY,XME,SLV
Deflationary Depression: Where Do We Go from Here?
"the central banks' inability to raise rates to combat inflationary pressure,"
Go back to stockcharts and create a new list, add the following then view:
DBA,DBC,DIG,GLD,HYG,IT...
What inflationary pressures?
Five Behaviors for Making Money Now
Impending Inflation? The Global 'New Deal' All but Guarantees It
The US government isn’t going to simply print money and throw it out the windows of helicopters. As you point out in the article, the government expends the money supply by going into debt, but the much larger great credit super-bubble has popped. Will they issue enough bonds to balance the $20 trillion that has been lost? What about the next $20 trillion after that? I’m not saying that this is the end of the world, but I just don’t see hyper-inflation.
Four factors are in motion that will make the next several trillion in losses pretty much baked in.
1. Most asset prices are collapsing, not just real estate. Oil, precious metals, agriculture… all. Count ‘em and stack ‘em, nothing is safe and the tape doesn’t lie.
2. Incomes all over the globe are falling, jobs are being lost, and Joe the plumber is reacting by popping handfuls of Xanax and tightly hording his savings (that he doesn’t have).
3. Credit is much harder to obtain and will stay that way. Yes, the current credit freeze is thawing but still credit standards will be much stricter in the years ahead than they were during the last 15.
4. The world's economy is caught in several deflationary feedback loops due points 1 through 3 above. These dynamics all feed off of each other and they are even accelerating.
Also, will a New Deal necessarily be inflationary? It wasn’t during great depression 1, why would it be now?
Thank you for making both sides of the argument. However I think you made a much better case for deflation rather than inflation because it’s hard to see how government’s efforts can stop the super cyclone of credit and asset destruction.
Rare Batman Pattern Forming in the VIX
BAM!
DOUBLE-WHAM!
The Physics of Money
The problem with this current environment is that I don’t see much money in motion lately. How is it getting into the system???
Yes, banks may have unprecedented amounts of liquidity thanks to the Fed and Treasury, but who are they lending it to? They’ve greatly tightened their lending standards for both consumers and businesses and they’re still too scared to lend and fewer entities and individuals now meet their new standards.
Hedge funds are desperately deleveraging and liquidating their portfolios. Customer redemptions are killing them. How many will be gone by this time next year? Most?
Assets prices are in a free-fall, especially in real estate. How many trillions of dollars have now left that particular asset class? How many trillions more will leave it in the next couple of years?
Commodity values have collapsed with no floor yet in sight.
With the economy being caught is several nasty feedback loops, layoffs are accelerating and the consumer has rolled into a fetal position, praying that they will still have a job in the next 12 months. How many cars and houses are they currently buying?
Contrary to popular belief, the Fed doesn’t print bails of $100 bills and toss it out of the windows of helicopters. So I guess I’m asking the hyper-inflation proponents (Jim) and gold bugs, how exactly is inflation going to work itself into the system anytime in the foreseeable future?
Anyone?
How Have Absolute Return Funds Held Up?
Jim, you're probably one of the biggest proponents stating that high inflation will spill over into the general economy due to the Fed and Treasury’s dumping hundreds, or even a couple trillion into the money supply. This you believe will greatly drive up the prices of commodities and agriculture and cause overall inflation, even hyperinflation. However, I’m having trouble seeing that.
To many of us it looks like we’re in the early states of the of the great credit bubble collapsing, and the consequences of that will be many more trillions of dollars of capital actually leaving the system. On top of that we have asset prices collapsing, credit becoming more expensive, and massive general downsizing of jobs and corporations coming our way in the next few quarters.
Given those conditions, how is the Treasury’s money going to find its way into the system and overcome the (in my opinion) much larger deflationary collapse taking place?
Thx.
Are More Big Falls Ahead?
Can’t you just hear the drum beat of clueless commentators stating that the market in undervalued, there’s an incredible amount of cash sitting on the sidelines just waiting to get in, that the Fed’s printing presses are running red hot and so we’re now set up for the biggest bull run ever, etc, etc, …
All this should make for quite a significant bounce. After it sucks in the masses and tops out, then go short.
The Crash of 2008
3. imho, we have had far too few meltdowns of this severity to reasonably game where this current one will end and a new bull leg will begin, or how high the rally will go. I would think that we would need at least a couple hundred meltdowns to gather statically meaningful trends. Too many people from Cramer to Roubini compare this crisis to 1987 or 1929. Today’s crisis is neither because important dynamics are so different. Sorry to use the overused cliché, but we really are in uncharted waters. Throw away the book on those past episodes when it comes to predicting the current market. They don't apply, imho.
4. It would have been nice to know what specific measures the author was referring to. VIX, Put/Call ratio, magazine covers, newsletter authors, men’s beards? Not all of these indicators are yet at pessimistic extremes. Also, how do we quantify “maximum pessimism”? I would be willing to bet that at the bottom of every economic crisis the population believed that things indeed could get much worse, and guess what, they were right. So how do we know when we’re really at a bottom?
That being said, my technical indicators suggest that we may indeed at a short-term bottom and ready for a good bounce, so late Friday I stuck my toe in the water and bought calls in ABK and IDEV. But I used specific (albeit rule of thumb) quantifiable indicators. We shall see.
What Would Jim Rogers Do?
For people like Jim, I’ve yet to see any of them even acknowledge the other side of the monetary dynamic, which is that the great credit superbubble has burst. How can we have hyperinflation when trillions of dollars in asset classes are being destroyed and trillions more in credit is being unwound? Yes, there currently is a ridicules amount of liquidity, but even so ,who’s lending, who’s borrowing, and how many businesses are even expanding? Not many. I’ve yet to see people like Jim even acknowledge that this counter-dynamic even exists.
The Devastating Week That Was
But it’s much more fun just to do a populist tribal dance around the camp fire with our spirit masks and spears and blame all this on Jim Cramer.