Sy Harding 说

山上白云泉

BEING STREET SMART

By Sy Harding

WHEN WILL IT END?  Sept. 12, 2008.

 

How many more times can Washington and Wall Street assure us that the latest action taken will be the last needed to clean out the toxic waste from the implosion of the real estate industry, only to discover a few weeks later that even larger piles of green-glowing sludge remain? 

 

Do we even remember the fear in the air in the summer of 2007 when it all began? Merrill Lynch threatened to seize $800 million of collateralized debt obligations (CDO's) it was holding as collateral for loans it had made to two obscure Bear Stearns hedge funds. The hedge funds had defaulted on the loans. Merrill was going to seize the securities and sell them at auction to the highest bidder, in an effort to recover some of what it was owed on the loans.

 

No! No! Panic on Wall Street. An auction sale would reveal how much the CDO's had declined in value, perhaps even that there was no market at any price for them. That would force a chain reaction of write-downs by financial firms holding staggering amounts of such assets. As long as they could claim they didn't know what the CDO's were worth they didn't have to reveal they had huge losses on their books. Merrill cancelled the auction.

 

The stock market, led by the financials, actually responded with a nice two-month rally to a new high in October. Such was the power back then of Wall Street's assurances that the problems had been solved.

 

However, after the Bear Stearns hedge funds collapsed, the questions and demands began in earnest. What were CDO's worth? What was the exposure of financial firms?

So, banks and brokerage firms followed one another in announcing write-downs of the value of their mortgage-related debt, supposedly to market value or less. They were supposedly one-time hits that "cleared the books for a return to normal operations and profitability".

 

Each time investors believed. The market would strangely rally on most days when financial firms announced those huge multi-billion dollar losses and write-downs.

 

But the first was not the last after all. Each quarter has brought additional huge write-downs, increasingly decimating balance sheets, and even the ability of some firms to survive.

 

Congress, the Fed, and the Treasury Department have poured hundreds of billions of cash, easy loans, and debt takeovers, into rescue efforts. But so far, even as the government has moved much of the risk onto its own books, the train-wreck seems to be accelerating.

 

Forget about last year. Just in the last six months there has been the Fed-brokered sale of Bear Stearns to JPMorgan-Chase (for $10 a share and $29 billion of debt guarantees by the Fed). And the Fed has opened its loan discount window, previously reserved for commercial banks under its jurisdiction, to investment banks and brokerage firms. It then agreed to accept the worst of the mortgage-related assets on their books as collateral, loaning the firms Treasury bonds in exchange. That takes the risky assets off the books of the financial firms and puts them on the Fed's own balance sheet.

But still the multi-billion write-downs come each quarter. The credit-crunch, and decline in home sales and prices, continue to worsen.

 

A few months ago Congress added a couple of hundred $billion to the total of mortgages that quasi-government mortgage lenders Fannie Mae and Freddie Mac could guarantee. Washington and Wall Street assured us that by directly affecting the mortgage industry, that action would finally provide the support needed for the housing market to begin to recover.

 

Unfortunately, just a few weeks later it was discovered that the would-be rescuers were in need of rescue themselves, and Bernanke and Paulson had to rush in again. The Fed announced that Fannie and Freddie could also use the Fed's discount window for loans, while Paulson made an emergency announcement extending Treasury's credit lines to Fannie and Freddie.

 

But whoops! Last weekend came the announcement that Fannie and Freddie were within days of potential bankruptcy. The Treasury Department seized the firms, and they will be run by government appointed conservators, the equivalent of operating under Chapter 11 bankruptcy.

 

And now this week, Lehman Bros apparently moved into the lead car of the train wreck. Rumored to be near bankruptcy, another Fed-brokered deal is expected over the weekend to arrange for the firm to be purchased by Bank of America and others, probably for a few dollars a share.

 

Already being whispered is that next in line might be Washington Mutual, or even Merrill Lynch? 

 

Some day this will end. And there is probably no one hoping for that more fervently than Fed Chairman Bernanke and Treasury Secretary Paulson. But it's obvious that, positive speeches notwithstanding, neither has a clue when or where that end will take place.

 

coexist

sofa?

lisa

原帖由 山上白云泉 于 2008-9-12 19:32 发表 BEING STREET SMART

alf

:(63):

5Hill

thanks

小咪

 

chinapg

aght

Thanks!

pll

thank you so much for these kind of good report! :)

ILoveRice

山上白云泉

BEING STREET SMART

By Sy Harding  

KEEP A JOURNAL OF THESE TIMES! September 26, 2008

 

As the stock market bubble was bursting in 2000 I suggested that readers keep notes or a journal, because some day they would be telling their grandchildren about the bursting of the tech bubble and its aftermath.

 

It's only eight years later, and we have the potential for even more dramatic stories for our grandchildren than the 78% plunge of the Nasdaq in the 2000-2002 bear market.

 

If we believe one side, we might see the nation plunge into the next Great Depression.

 

What's scary is they have some convincing evidence. There are too many economic conditions and reports that are accompanied by the observation that they are the worst numbers, or show the biggest decline, or are at the lowest levels, since the Great Depression.

 

If we believe the other side, the story will be of a great economic rescue, a dramatic pulling back of the economy from the brink of disaster. They say the U.S. economy remains basically healthy, the only problems being in housing and the financial sector, and those have pretty much reached bottom, and will reverse to the upside as soon as Washington comes through with 'the final' rescue package this weekend.

 

I don't believe either extreme view, of 'over the cliff' or a sudden disappearance of all fears, will be what comes out of the wringer, but something in the middle; not the next Great Depression, but a serious recession; not 20% unemployment for many years as during the Great Depression, but probably 8% or 9% for a couple of years; not a 90% decline in the value of the Dow, as took place in the 1929-32 market plunge, but a serious bear market.

 

 In the July 28 issue of my newsletter I said, "The economic problems began with the bursting of the U.S. real estate bubble, and the recovery will not begin until the housing industry bottoms and begins to recover".   

 

Former Fed Chairman Alan Greenspan seems to agree. Two weeks ago he said the U.S. economy is in "by far the worst situation I have ever seen", that "it is still not resolved, has a ways to go, and will continue to be a corrosive force until the price of homes stabilizes." [italics are mine].

 

Unfortunately for that assessment, on Thursday it was reported that not only did new home sales decline a huge 11.5% in August (versus the consensus forecast of a 1% decline), but new home prices plunged 11.8%.

 

In the same interview Greenspan was asked whether another major financial institution, "such as Washington Mutual, AIG, or Merrill Lynch", would fail in the interim. He said, "I suspect we will see one fail."

As we now know, all three failed, along with Lehman Bros., Fannie Mae, and Freddie Mac. So the worst situation he has ever seen has become even worse.

 

The Federal Reserve, the Treasury Department, and Congress have thrown a ton of money, loans, and government-backed guarantees at the situation over the last year. The total, not counting the $700 billion requested in the latest plan, is well over $1 trillion.

 

None have worked. The credit markets have not opened for borrowers, but have closed more tightly. The bailouts have not halted financial institution failures. In fact the pace of failures has quickened. Failures that were coming every couple of months, then every couple of weeks, now seem to hit every couple of days.

 

That's pretty dire stuff, and it has the S&P 500 and Nasdaq down 23% from their October peaks - in official bear markets.

 

I have been saying all year that my work shows we are in a serious bear market that will probably last two or three years. That's the bad news.

 

But I have also been saying I expect the market will see its low for the year in the October/November timeframe, and then launch into its biggest rally of the year. (The rally off the March low amounted to 13% for the S&P 500).

 

 

I see nothing that takes me off that expectation.

 

October is only days away, and there is already enough fear and 'blood in the streets' to indicate a bottom may be near. I'm not talking about the end of the bear market, but just the end of the decline that is taking place this year.

 

I expect the overall bear market will last for three years, similar to the 2000-2002 bear market, but like most bears, will have numerous opportunities for profits; by buying for the rallies, and short-selling and positioning in bear-type etf's for the down-legs. Bear market rallies in the 2000-2002 bear amounted to as much as 30% for the Dow, and 44% for the Nasdaq. And as with most buying opportunities, they began when corrections and surrounding conditions had created high levels of fear, (such as the big 6-month rally that began from the depths of despair just two weeks after the terrorist attacks in 2001).

Short-term, there is an old Wall Street adage, 'Buy on the rumor, sell on the fact', which says the market often rallies on the rumor of a coming positive event, and then runs into profit-taking when the rumor becomes fact.

 

So, it will be interesting to see the market's response to the rescue effort that has been rumored for a couple of weeks now, and is expected to become fact this weekend.  

 

 

[ 本帖最后由 山上白云泉 于 2008-9-28 07:08 编辑 ]

bigbadwolf

山上白云泉

BEING STREET SMART

By Sy Harding  

LOOKING STILL FURTHER AHEAD! October 3, 2008

 

For the most part I have been on the right side of the market again this year, in for the rally off the March low, in short-sale positions for the subsequent next leg down to the July low, currently primarily in cash with only a couple of downside positions.  So I'm up some for the year, while the S&P 500 is down 24%, and foreign markets have lost even more.

 

All year long I have also been predicting that beyond the rallies and pullbacks, the market would not see its low for the year until "sometime in the October/November timeframe". And here we are in October.

So, although still on a sell signal and positioned in cash and downside positions, I am alert to the possibility that the market may be near its low for the year, while still recognizing that it may take place later "in the October/November timeframe".

 

As I have also been saying all year, when the market does bottom, I expect a significant market rally to year-end, a rally that will have Wall Street telling us the bear market is over, that the next bull market has begun. That kind of optimism should provide the fuel to keep the rally going into a significant move.

 

The re-entry signal for our Seasonal Timing Strategy when it comes, is likely to be the definitive sign that the bottom is in. It has had a remarkable record of out-performing the market over the last nine years (since it was introduced in my 1999 book Riding the Bear - How to Prosper in the Coming Bear Market), primarily by being out of the market for its serious declines, and then re-entering in a timely manner for the favorable season rallies.

 

But I believe we are still in a secular bear market that will last some years, during which even periodic cyclical bull markets will not manage to take the market back up to new highs, or even to its previous highs, before the next bear market decline drives it back down.

 

At the present time, the S&P 500 is down 24% for the year. Even if we were already at the bottom, it would take a 32% rally to get it back to break even for the year.

I expect a significant 'favorable season' rally, but not that significant.

 

Unfortunately, away from the stock market, I don't expect conditions in the economy to improve hardly at all in the winter months, even though a rising stock market will be fueled by hope for that outcome.

And for that reason, looking beyond my previous forecasts, the significant rally I expect in the market's 'favorable season' will probably be temporary, with the bear market resuming in the market's next unfavorable season (due to begin sometime next spring).

 

Another reason to expect the bear market will be with us next year also, is that the economic numbers say we have the worst surrounding conditions since the Great Depression. That is even admitted now, although belatedly, by Wall Street and the Fed. So, it isn't a great leap to expect we will also see one of the more serious recessions and bear markets in decades, and serious bear markets tend to last for two or three years. Think back to the 1929-32 bear, the 1973-74 bear, the 2000-2002 bear.

 

That expectation of an ongoing bear market next year, based on the economic fundamentals, is supported by several very consistent historical market patterns.

 

For instance, the Four-Year Presidential Cycle shows that since at least 1918 the first or second years of a new presidential term, sometimes both, almost always see problems in the economy, and corrections in the stock market. (The pattern is not as consistent in the first two years of a re-elected president's second term).

 

There is also a remarkably consistent pattern of the 10^th year of each decade tending to be a down year for the stock market, which by coincidence, would also be the 2^nd year of the next presidential term.

 

So there you have it. All year you've been hearing my prediction that the market would see its low for the year in the October/November time frame, and then a significant rally to year-end and into next year. Now I'm stepping out further with a forecast for next year.

 

Near term the problem is with the extreme volatility, which is repeatedly whipsawing those who have been premature with expectations that the bottom was in. Even that two-day rally of 778 points on the Dow, 7%, a couple of weeks ago, which could well have marked the beginning of the winter rally, was a false move, with the Dow back down 777 points in just one day on Monday of this week, and at a lower low.

I will just wait for the next buy signal on my technical indicators, which have been serving us well.

 

 

山上白云泉

THIS TOO WILL END! October 10, 2008

 

All year long, as I guided my subscribers into the intermediate-term rallies and then the subsequent corrections, I said in these columns that the rallies would be worth going after but should be sold into as they failed, and downside positions should be taken, as our work called for "the market's low for the year to take place in the Oct/Nov timeframe".

 

But this far down? No, I did not expect this. Our downside target for the Oct/Nov low was the lower limit of the Dow's bear market trading band, which was around 10,250. That would have been a serious decline of 23% for the year, and a 28% decline from the bull market peak last October.

 

This is being written mid-day on Friday. The Dow closed yesterday at 8,579, down 35% for the year so far, down 39.4% from the bull market peak a year ago. The Dow is at more than a five-year low, and has given back almost all of its gains of the 2002-2007 bull market. So much for buy and hold investing - again! So much for Wall Street's claim that the market can't be timed - again!

 

As some guy on TV joked this morning, the market has now been down 7 days in a row, the Dow losing 21% in the process, and 12 more days like yesterday's 678 point decline would have it at zero.

That's not going to happen. But this is certainly serious. I described it the other day on my free blog as a slow-motion crash. The charts don't look so slow-motion now.

 

The only good news is that I have been saying all year that I expected the low for the year in the Oct/Nov timeframe, and then for a new buy signal and a substantial rally in the final months of the year - although not enough rally to get the market into positive territory for the year.

 

With the Dow now down 35% for the year, it would take a 55% rally to get it back to even. That leaves a lot of room for a very substantial rally, which would still fall within my parameters of not getting the market back to a positive close for the year. So we shall see.

 

Meanwhile, surrounding conditions could not look worse.

 

The serious problems of financial firm failures and required bailouts that were shocking investors every couple of months earlier in the year, began hitting every couple of weeks, and now seem to hit every couple of days. They have spread rapidly around the globe, with virtually all countries now trying to deal with similar bank failures and stock market collapses with massive government interventions.

A year and a half ago much smaller bailout efforts were sending stock markets soaring into intermediate-term rallies each time they were announced.

 

However, as each effort failed, and was followed by ever worsening conditions, requiring ever larger and more costly responses, hope that any efforts will help seems to have disappeared, and markets have spiraled down at a more rapid pace.

 

But this too will end.

 

Keep in mind that the market does not move now based on what is happening now. The market always looks ahead and moves now based on what it anticipates conditions will be six to nine months ahead. 

For instance, it topped out into this bear market 12 months ago, when in looking ahead, it anticipated the conditions we are currently seeing.

 

So the question now is, even though we are probably in a recession that will get worse, at what point will the market anticipate the probability of the economy bottoming six to nine months ahead, and beginning to improve, at least temporarily? When it can make that assessment, even as current conditions worsen, is when the stock market will begin to rally in a sustainable way.

 

Thus do markets top out before recessions arrive, and begin to rally before recessions end. Thus do markets bottom and begin to rally when surrounding conditions are terrible and the consensus opinion has become that they cannot improve, can only get worse.

 

We, nor no one else, can give you the answer to that question 'when?' quite yet. Even those supposedly in charge, the Fed, the Treasury Department, Congress, don't know at this point how it will shake out short-term. 

 

They keep bailing but the boat keeps taking on water faster than they can bail.

 

We will simply continue to follow our indicators, which have been taking pretty good care of us for many years. At some point, and I suspect soon, this will end.

 

Meanwhile, this is the week before this month's options expirations week, and the week before tends to be negative, and this week certainly has been. The potential upside of that is that next week is the options expirations week, and they tend to be positive.

So we shall see.

 

山上白云泉

RECESSIONS AND BEAR MARKETS! October 17, 2008

 

In a speech on Tuesday, Fed Governor Janet Yellen became the first senior member of the Federal Reserve to proclaim that the U.S. economy is in a recession.

 

 Last fall, and again in January, I outlined why I expected a recession would begin this year, and why it would probably be "the worst in 25-years, much worse than the mild recessions of 1991 and 2001, which most people remember as typical recessions."

 

Wall Street and the Federal Reserve said otherwise. Until just a couple of months ago the majority of economists, and the Federal Reserve, assured Main Street and investors that we were in for slower economic growth, but not a recession. Over the summer, assurances continued that only slower growth, but not a recession, was all that lay ahead.

 

Small business owners and folks on Main Street knew better, thought we were already in a recession. But as it had with the problems in the housing bubble, banking crisis, and bear market in stocks, the Fed also kept its head in the sand (or was it in the clouds) regarding the economy.

 

Then two weeks ago, in a move coordinated over a weekend with global central banks, the Fed rushed out with an emergency rate cut to help stimulate global economies, and the possibility of a recession entered Fed Chairman Bernanke's vocabulary.

 

Aimed at calming global markets, that emergency rate cut seemed to have the opposite effect, indicating to investors that central banks were panicked, that the situation is worse than was thought. The Dow plunged 995 points over the next three days.

 

The Dow has since recovered most of that three-day decline, amid extreme volatility.

 

But the expectations for the economy have darkened. Not only has the consensus opinion now become that the U.S. is already in a recession, but that it is global, worsening, and will not be brief and mild as were those of 1991 and 2001.

 

In my January outline, and repeated a few times since, I said it wasn't rocket science to believe the worst housing meltdown in 30 years, the worst financial system crisis since the Great Depression, the bursting of the worst consumer debt bubble ever, the greatest government debt exposure in history, and a few other 'worst ever' conditions, would result in a worse than usual economic recession.

 

The mild recession in 1991 lasted nine months and the unemployment rate reached 7.8%. The recession of 2001 lasted eight months, and the unemployment rate reached only 5.8%.

The two previous recessions of the last 25 years were those of 1973-75, which lasted 16 months, in which the unemployment rate reached 9.0%, and that of 1981-82, which also lasted 16 months, and in which the unemployment rate reached 10.8%.

 

If we are just entering a similar 16 month recession, it would not end until early 2010. The unemployment rate, already 6.1%, would likely wind up being similar to in those previous more serious recessions.

 

That ties into a few of my other forecasts, that the stock market is in a serious bear market, which will see its low for this year in the October/November time-frame, but will not see its final low until 2009 or 2010. That, like the bear markets of 2000-2002, and 1973-74, this one will also last for upwards of three years.

 

Looking back to the bear market of 2000-2002, the S&P 500 declined 50% in total, the decline interrupted by three bear market rallies, of 17%, 19.5%, and 17.5%.

 

In the bear market of 1973-1974 the S&P 500 declined 45.2% in total, the decline interrupted by two bear market rallies, of 17.4% and 13.4%.

 

So let's refine my forecast for the current bear market a bit more.

 

The market has become much more volatile in this bear market - like you don't know that, given the frequent 5% to 10% one-day moves in both directions. And its initial decline this year has been more substantial, to more deeply oversold conditions, than the declines in the first year of the 2000-2002 and 1973-74 bears.

 

So I expect the bear market rallies will be more substantial, probably as much as 30% or more.

 

If I am correct with the forecast of a low this year in October/November, possibly already seen, and then a resumption of the bear market next year, it follows that it will likely be as important next year as it was this year for investors to become comfortable positioning for market declines. Bear-type mutual funds and 'inverse' exchange-traded-funds are likely to again be the source for larger and easier profits than the bear market rallies.

 

But short-term, the market is potentially oversold, investor sentiment is at record levels of bearishness, and fear among investors and on Main Street is similar to that seen near significant stock market lows.

 

So, we should soon see if the second half of my prediction for this year will also come to pass, after the low in the October/November time-frame for a significant rally to year end.

We are watching our charts and buy/sell indicators closely with that in mind.