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Delusional Rally Begs to Be Shorted

By Rick Ackerman Posted on June 13, 2012, 12:01 am EDT Last Updated June 13, 2012, 2:31 am EDT

While Fitch’s was prudently downgrading 18 Spanish banks on Tuesday, U.S. stocks were thundering higher, recouping about two-thirds of Monday’s sharp losses. Wall Street’s irrational exuberance aside, news sources around the world seem to be catching on to the fact that rising share prices do not necessarily portend a solution to Europe’s deepening financial crisis. Our favorite headline of the day came from the London Globe and Daily Mail, atop a column written by one Michael Barad: Uh oh, Italy swears it doesn’t need a bailout.  Nothing like a little humor and a dab of cynicism to put things in proper perspective. Elsewhere in the news, even the usually “Ray-rah, economy!” front page of the Wall Street Journal seemed to have noticed that swelling yields for Spanish debt seem to call for an even bolder solution. Rates on the 10-year were at 6.72% Tuesday, up a steep 6.52% from the day before.  This is a euro-era record for Spanish paper, and it makes clear that investors are not willing to suspend their skepticism that a mere $125 billion loan can somehow tide things over for more than a day or two, if that long.

In fact, this token sum has bought just a fleeting blip in share prices around the world – a blip powered almost entirely by short-covering bears, not by investors who actually believe Europe is getting a grip on its problems. Granted, that doesn’t explain Tuesday’s 163-point rally in the Dow Industrials two days after-the-fact. But even if the buying continues for another day or two, pushing the broad averages marginally higher, we’ll be looking to get short every good chance we get. Mainly, that will entail buying put options on the QQQs, a proxy for Nasdaq shares; or on SPY, an equity-based vehicle that tracks the S&P 500. It’s always going to be tricky business jumping in the way of rallies like this one, but our goal in any case will be to minimize risk by using the Hidden Pivot Method to identify potentially tradable swing highs. We’ll make no claims of success herein, but if you want to learn more about our proprietary trading system from hundreds of subscribers who use it, click here for a free seven-day trial to Rick’s Picks.  It will give you access not only to a 24/7 chat room that draws veteran stock and commodity traders from around the world, but also to our detailed trading  recommendations, real-time updates and impromptu online webinars that seek to ferret out choice trading opportunities during market hours.

  • Tim June 20, 2012, 2:43 am

    Place your bets please!! “Welcome back my friends to a show that never ends. Come inside, Come inside,”……

  • Chris T. June 14, 2012, 4:50 am

    redwill:

    thanks for the mencken quote, forgotten that one.
    As may befit his heritage, here is a little, alas well-translatable quote:
    “vox populi, vox rindvieh”

    Cam:
    “Sovereign’s continue to run low on fuel ”

    Had a wry laugh recently at a letter from the state of NJ Treasury:
    It informs all employers, no matter how small, that the state had to borrow money from the US Treasury to pay for unemployment insurance/compensation, and that interest is due by NJ to the USgov on 9/30.
    Thus, please dear employer, pay your share of that interest!

    Right: they can’t manage their money in Trenton, mismanage it really, and now someone else gets socked with the bill.
    And oh, if you don’t pay on time, that’s a statutory 15% interest (as compared to the piddling the USTreasury is surely assessing the state).

    Because it’s only the interest due, I am looking forward to when the principal comes due, NOT.

  • Cam Fitzgerald June 14, 2012, 4:04 am

    Quite of lot of anger directed at Gary today. I am not sure it is all warranted though. Some of the arguments against his reasoning really have nothing to do with what he was saying anyway. Just the idea that the whole world knows the market will fail catastrophically is almost creating a certainty they will all be wrong.

    Thing is, anybody who got invested in equities off their lows and stayed there for the past few years would generally have done OK. Are profits manipulated? Some perhaps. We all question how the banks mark to market and it is normal to doubt some accounting practices. But there is more to equities than just big banks and beneficiaries of bailouts.

    Those other companies posted good earnings too. As a general rule, profit cannot be faked. Not for long anyway. You either have it or you don’t. To doubt that all companies who have been posting good quarterlies are just gaming the market and playing with our heads is just childish. I will have to take sides with Gary here.

    But in the bigger picture (all arguments aside) we are heading into a new corporate world. How crazy is that? We all know governments are strapped financially and that the public has little taste for contributing more in taxes. At the same time, business, especially our diversified global companies and some high techs are doing very well. But what does that really mean for the future?

    My view is that as Sovereign’s continue to run low on fuel to burn (meaning money) that more responsibilities will be shifted onto the corporate sector. Partners will be sought to undertake a multitude of tasks that were previously all within the domain of the Government and its various agencies.

    We have already see this of course as a merging of public initiatives and private money was faddishly showing itself in public/private partnerships. Here though I am referring to many more of the core operations of government being contracted out to the private sector which might include security, policing, technology, health services, education, public works, military services, lab-work, data retention and data collection etcetera.

    Actually, the list is almost endless.

    It would probably surprise a lot of people to hear that their cherished identity and personal records are already commonly handed off to companies for storage and protection.

    Perhaps they might be equally surprised to learn that business is already cooperating with government in data sharing. Some of you will be familiar with the protocols that have been developed along these lines to tap into the vast store of knowledge being accumulated by our Googles, Facebooks and Microsoft empires.

    Yes, it is a corporate world all right and it is on the rise.

    Many have recently learned and been alarmed to discover that almost all data including cell calls, emails, satellite transmissions, text messages, Skypes and cloud data will soon be routinely gathered, recorded and retained in massive data banks.

    But it is not government that is doing the collecting. Rather the public initiatives are focused on the storage and potential dissemination and use of the data. For what use….? Well that is a post for another day I think.

    There have always been relationships between the business sector and those who run the country. Never were they so close though and at a time when subsidy money is drying up as States and Federal agencies face inevitable cutbacks, what we will begin to see is the government relying more upon business to meet it’s needs rather than the other way around.

    As I pointed out above in the earlier post, this just makes sense. Sovereigns are financially weak whereas corporate balance sheets are strong. It is not much of a leap to see who will share with whom down the road and how the sharing of responsibilities will change. What is harder to imagine is exactly what forms the new relationships will take.

    In an enlightened world we might like to believe that if government cannot invest in our business or subsidize ongoing operations during tough times, that others might step in to play a leading role. We might like to imagine there would be private gifts, endowments or grants bestowed from our leading companies on other profit making entities.

    This is already done for universities and such but when private capital meets good ideas the exchange is usually a beneficial change in share ownership. An efficient market mechanism no doubt but it is not always in the publics interests. Outsourcing is a perfect example of this.

    Certainly I expect to see M&A activity rise sharply in the coming months and years. Any company of quality with decent assets who has been weakened by recession will be a target. But nor would I be surprised to see the wealthiest companies also taking some of the roles that previously were almost exclusively the domain of government.

    This may include serious initiatives to repatriate lost jobs.

    And the reason that I think this may evolve is because the fundamental relationship between corporate and public interests is about to undergo a transformation as public money available for funding becomes scarce while the taxpayer is being expected to foot the bill for past debts.

    Part of this transformation will see government slimmed considerably and depending more on private money to fund its previous role. We are already seeing this in the Space agency with partnerships developing out of private initiatives. The Shuttle program is canceled and yet new ideas have already come on the scene to fill the void. The new guys plan to do it economically though and if possible with profit in mind.

    A vast sharing of technology that was paid for with tax dollars is therefore being transferred out of necessity to these new upstarts. Should there not therefore be some form of mutual exchange that is also beneficial to taxpayers? That is where the trade off begins in establishing new relationships for those who offer to take over tendered Federal responsibilities.

    It will not end with just the obvious mundane and manual jobs shifting to the new entrepreneurs of course. Thousands of tasks previously under the strict control of government will be tendered to those who can make more efficient use of resources while still maintaining quality standards and keeping data secure.

    Understandably, anyone wishing to participate in garnering contracts for road clearing, maintenance of military facilities, the provision of private policing services etcetera, must be able to do so with cost in mind. The effect will be to drive wages down and this will be most notable in the professional in unionized categories. Private prisons are a good example of this. So are labs that were previously under government control but now spring up to provide all sorts of testing for pollution, engineering, environmental, chemical and other hazardous materials.

    We may in fact be seeing that the government will truly be one with the people as the people (via private initiatives) take over responsibilities that once were only held by public servants. In turn many, many thousands of public servants will be dropped or retired and vacant positions never refilled. This too is already happening and the advent of the retiring Boomer generation just happens to be timed well with a new era of private initiatives.

    So the reason that I am talking about this is because I believe this is where some of the best opportunities will come from in the future. One man’s loss is another’s gain I suppose but that is hardly relevant. Unless we are prepared to all pony up significantly more tax dollars then the status quo will not sustain. It is in fact impossible to keep the current level of services where they are at.

    I suppose this is a warning too. Especially for affected employee groups but more particularly for all working people and for our consumption society. Wages will be dropping as an outcome of the radical changes that must take place in how governments operate that will be compounded on inflation adjusted losses in existing incomes. There is very little to be done to prevent this either. Sovereign default is out of the question.

    So we are headed into a corporate world and you will all be part of it. Gary is not wrong to stay invested nor to sense the direction for the future. That is where strength lies and if I am correct the strength will only increase over time while Governments at all levels repair their past profligacy and shed their obligations in favour of private interests.

    The new boss will be more efficient than the old boss. He will not be elected. His constituency will be a board of directors not the general public, but he will still answer to those who write the cheques and democratic principles should continue to persist.

    • redwilldanaher June 14, 2012, 6:14 am

      “Those other companies posted good earnings too. As a general rule, profit cannot be faked. Not for long anyway. You either have it or you don’t. To doubt that all companies who have been posting good quarterlies are just gaming the market and playing with our heads is just childish. I will have to take sides with Gary here”

      Apparently you have a pretty short memory Cam. Earnings were faked every which way to Sunday during the 90’s and by the banksters etc. during the past decade. The foundations upon which they were built were a lie. The profits were predicated on a scam. Corporate accounting is a farce. See Vlad above for a little insight. Government accounting is a fraud as well. I can’t believe I even have to type this.

      Have you checked that Soc. Sec. “lockbox” lately? Sheesh…

      I am not saying that you shouldn’t trade it to the upside. I’m not even ruling out new ridiculous highs, just please understand that the data you are all too willingly swallowing is a fraud, plain and simple. You want to use it because other “wink wink” types use it the same way. That’s fine. We’re all in on the game within the game but please don’t push that the earnings reported are legitimate. They’re not. They are rigged exponentially to appear the way they do. I can’t believe that any sane person would buy into anything Wall St. and corporations and their tax lawyers and accounts put out but you and Gary have proven that even veteran market participants do.

      As for you corporate future fantasy, ask yourself what happens to corporations when sovereigns become desperate. Hint: See Argentina, Bolivia, Venezuela.

      Ask yourself how the proletariat will react when the corporates that survive finally push them too far and the sovereign puppets aren’t there to call their “law enforcement” lackeys.

      Events have a way of unfolding largely unscripted.

    • redwilldanaher June 14, 2012, 6:28 am

      Let’s see how simple this can be made, and remember, this doesn’t discount the sham accounting and inflation that’s built into the fraud.

      American Corporate Might right? Overpriced tech gadgets that hipsters wouldn’t be caught dead without. This is what is so spectacular????

      From bloomberg a few months back:

      Apple Results Distorting S&P 500 Earnings, Golub Says:
      By Inyoung Hwang and Tom Keene – Feb 7, 2012 1:17 PM ET

      Record profit from iPhone and iPad maker Apple Inc. is masking weakness at other Standard & Poor’s 500 Index companies during the fourth-quarter reporting season, according to UBS AG’s Jonathan Golub.

      The degree to which S&P 500 earnings beat the average analyst estimate drops by about two-thirds when Apple is excluded, New York-based Golub in an interview today on “Bloomberg Surveillance” with Tom Keene. He is the chief U.S. market strategist at UBS.

      UBS’s Golub Sees ‘Complacent’ Investing Environment

      The world’s largest company by market capitalization said on Jan. 24 that profit in the quarter ended Dec. 31 was $13.1 billion, 36 percent more than the average analyst projection, while revenue beat forecasts by $7.3 billion, the most ever. The Cupertino, California-based company single-handedly erased a drop in S&P 500 earnings for the October-to-December period, turning a 4.2 percent decline into a 4.4 percent gain.

      Apple’s report “obfuscates the fact that the underlying earnings trend is really weak,” Golub said. “It’s a terrific company, but it’s also important you get a sense of how the average stock, the average company is doing. You want to make sure you don’t distort that view.”

      Analysts project income for S&P 500 companies climbed 4.9 percent in the fourth quarter, according to data compiled by Bloomberg. Out of 280 companies that have reported since Jan. 9, 68 percent have exceeded analysts’ estimates by an average 2.9 percent, while profit has gained 3.5 percent.

      The S&P 500’s fourth-quarter income growth rate was 1.6 percent, excluding Apple, Golub wrote in a Feb. 2 report.

      Faster growth overseas, higher oil prices and a weak dollar have boosted the perceived success of U.S. corporations in the past year, Golub said during today’s interview.

      “Now that those things are rolling off and becoming effectively headwinds not tailwinds, and then you take out the Apple numbers, you just see how weak the underlying trend is,” he said.

    • redwilldanaher June 14, 2012, 6:32 am

      From Joe Weisenthal at Business Insider:

      A couple of great stats just tweeted out by Eddy Elfenbein of Crossing Wall Street:

      Once you remove $AAPL, the S&P 500’s year-over-year earnings growth drops from 7.8% to 2.7%. $$
      — Eddy Elfenbein (@EddyElfenbein) March 23, 2012

      In Q4, the tech sector’s earnings growth was 19.6%. Sans $AAPL, it was 3.3%. $$
      — Eddy Elfenbein (@EddyElfenbein) March 23, 2012

      Aside from questioning the ludicrous corporate accounting “rules” that can be changed whenever results aren’t what were requested, maybe a little elementary statistics should be applied to those oh-so-spectacular earnings reports for the Scam & Profit 500.

      You were saying….

    • Cam Fitzgerald June 14, 2012, 7:28 am

      So how are those shorts working out for you Red?

  • redwilldanaher June 14, 2012, 1:58 am

    Thanks Vlad for taking the time to deal with Gary. He refuses to do any research and prefers to swallow the illusions but worse regurgitates and defends them.

    He’s on the verge of being outed as an establishment shill IMO.

    Democracy is the theory that the common people know what they want and deserve to get it good and hard.

    H. L. Mencken

    As you noted, Gary thinks he can time it to perfection just before they give it to him good and hard. For the sake of his family I hope he’s right.

    For the sake of everyone else, I hope he either wises-up or shuts his propaganda-spewing pie hole.

  • Rich June 13, 2012, 10:21 pm

    GS targeting 58 from 182…

  • Bradley June 13, 2012, 8:35 pm

    Back in ’06 and ’07, I made some money trading the QID. I didn’t make much, and if I look at that chart now, I wonder how that was even possible. My bias was that bad things were coming, so I traded to the short side.
    It would be easy to say, “I was early”, but it would be more accurate to say, “I was wrong.”

    Check your bias. If you insist that the market is wrong, it will make things harder on you. If you think that markets are manipulated, then trade alongside the manipulators. If your sense of honor won’t let you do that, then don’t trade, (or donate a nice percentage of your profits to something you think will help make things better.)

  • Chris T. June 13, 2012, 6:31 pm

    Gary writes:

    ” …3 years were a delusion where earnings were faked and government manipulation fixed all markets.

    If profits are being made than there is no delusion. ”

    Its all a question of where you locate the delusion!

    Obviously the money created by the Fed has to go somewhere, and ALL of it did not just go right back to the Fed as interest-yielding reserves.

    So, to see some of that flowing into the market is no surprise.

    But given the sums we are talking about here, the effect is really minor:
    It wasn’t even able to produce a pop, however brief, above the all-time nominal highs, let alone above the those highs adjusted for inflation.

    Whatever the explanation du-jour for that 3-year rally you mention is (corporate earnings, better demand, yadda yadda), is just that:
    one more explanation that appears reasonable, but isn’t the actual thing causing the effect observed.

    So, there is no delusion about the rally, only about where its cause is located.
    What is delusional is the belief that this root-cause is sustainable or a fix of the ills hurting us.

    All if this wouldn’t even matter if the general belief that the stock market’s performance (or at least it’s direction) is a surrogate for the economy.
    People didn’t used to believe that, in fact they didn’t use to give a sh*t about the stock market.

    Once upon a time, the average person understood that “the market” wasn’t for them, and that whatever the market did, really had nothing to do with the economy, or impacted them.

    Then, Wall Street realized that there is an ocean of suckers out there, that it could be very very profitable to bring into the fold and fleece real good.
    All of it aided of course by the post 1913 moentary system.

    As to the Euro:

    Back in 1992, while the Maastricht treaty was in the ratification process, one could read from well informed people, the problems that could be caused by this mega-fiat currency, and the lack of a tie to a political union.

    (In fact, the US is proof that such a union DOES NOT keep the problems from happening, it’s just a panacea to be proffered to the “we must do something” masses).

    In any case, I thought then, and it was not hard to be cynical about this, that these problems would really be welcomed, to be used in the Rahm Emanuel fashion:
    “never let a crisis go to waste”.

    It’s not a long stretch to going from USING a crisis that somehow “just” happened for a (really) unrelated end (see 9/11 and the Patriot Act, the Act was written long before 9/11, and they were just waiting for the right event to pull it ou), to producing that crisis in the first place, or at least accepting a crisis-prone system.

    Certainly the latter, accepting a crisis prone system, happend during Maastricht, and the former, setting it up with the intent of getting that crisis, was most likely in some of the involveds’ heart of hearts.

    All to be used to force an even greater union, a USE, on the unwilling citizens of the the member states.

    “You are just a conspiracy nut…”

    Well, just read the Economist, or Der Spiegel, all now calling for a need to go in that direction, to save the Euro!
    It has happened just as predicted way back then, and as soon as the next EU summit, we will prob. see the next attempt at this USE, the proposals are already on the table.

    Will the rubes resist this time around? Or will they buy into the:
    “if we don’t do this now, the sky will, so we have no choice” argument the elite are making?

    I hope not, but I am not too sanguine about it either.
    The system seems to keep winning (there and here), and ultimately seems destined to end only when it can not be sustained any longer by any more hook-and-crook.

    And boy, will we all suffer ever then.

  • redwilldanaher June 13, 2012, 5:10 pm

    Gary, where would things be if TPTB had actually allowed the markets to work as they should post-multibubbles -implosion?

    Still want to peddle that there hasn’t been any manipulation?

    • gary leibowitz June 13, 2012, 5:33 pm

      When has the markets NOT been manipulated? Absurd statement. If the FED raises or lowers rates that is a manipulation. Politicians cater to their constituents in order to win elections. Bailouts, graft, cronyism, protectionism, etc. have all been in place for centuries. Is it really any different now? All big problems require big government manipulation.

      Earnings results these past 3 years have been very good. You want to dispute those also as manipulation? If a company stock rises 10 fold becuase of a goverment contract, do you complain it was manipulated?

      Play by the rules we are given. The stock market does simply by viewing earnings and trends.

    • Cam Fitzgerald June 13, 2012, 7:16 pm

      You have a got a point there, Gary. It has been the consumer and Joe Public who was deeply indebted and unable to service his obligations these past few years. Business has been just fine for the most part and as people keep noting, balance sheets are quite healthy. But now we can see that the US consumer has delevered fairly significantly over the past 5 years while shedding a chunk of real wealth in the process. Most of that was through real estate holdings and the elimination of mortgage debts. Ultimately it will be the turn of government to unwind some of its own vast indebtedness that has been accumulated. That is when the houses of both business and the consumer driven engine of private consumption have got to be prepared and be in good shape (because taxes will rise just for starters). It is going to take a long time no doubt, but it will happen. As for end-of-the world scenarios and Black Swans I think I might rather hold equities than banked cash if the financial system actually blew up. Don’t know if this has also occurred to you but if money (credit and debt) did suddenly vanish in a great big reset that does not necessarily mean that wealth would not survive in the form of direct stock ownership of good companies. Just a thought.

    • Cam Fitzgerald June 13, 2012, 7:26 pm

      Gee, I never even got around to saying that I think you may be right about euquities, Gary. As you note, if revenues are good and profits keep rolling in then that is where you will want to be. I think there is this idea still floating around that during the depression almost every equity (other than gold stock) got slaughtered and so the popular market wisdom now is to avoid stocks and companies like the plague because…well, you know….the sh** is going to hit the fan inevitably (everyone says so so it must be true). Thing is, history rhymes but it does not repeat and this is no exception. Corporates are strong while it is Sovereigns that are weak and that is fundamentally different in aggregate than experiences from our parents past.

    • redwilldanaher June 13, 2012, 7:53 pm

      I’m sorry that you are having such a difficult time spotting hyper-manipulation vs. the garden variety version of yesteryear.

      If I can change the rules at will and lie with immunity I can make any pig in this world look as beautiful as Ingrid Bergman.

      Why don’t you make an attempt to characterize things in a more genuine way? Instead of treating this BS as the real deal, why not argue instead in something close to this way?: ” I don’t guys, I think the illusion looks pretty good at the moment, I think this farce carries on for a few more rounds at least…” Instead of insisting that there is even a semblance of reality to this fantastic geo/macro affair…

      I’m not going to go through the ongoing fraud that are corporate earnings again with you. Believe if you will. Have you even looked at the foundation of anything? Even a home?

      I’m guessing you’re good with the PPI and CPI numbers huh? Part of the rules we are given right? Milk is $6 to $7 a gallon some places. < 1/2 gallon of "dairy dessert" is running near $7 per gallon. You think that the living standards of hundreds of millions of people being inflated away while being squeezed on compensation which continues to decline vs. purchasing power is a stable foundation. I hope you live in Cali because these types of leaf induced fantasies are illegal in most of the rest of the continental 48…

  • redwilldanaher June 13, 2012, 5:08 pm

    Gary, you remain very entertaining. There is so much “ridiculousness” to some of your comments that I had to at least write this:

    Yes, this has all been based on hyper-manipulation. And I am not surprised that you won’t acknowledge that long term mutual fund returns are also lies.

    I have never encountered anyone that has been more enthusiastic about buying the lie than you friend.

  • Buster June 13, 2012, 9:23 am

    I find myself able to agree with Ricks conclusions as well as Garys on any particular occasion. I think the problem is that there really are no rules anymore, no accurate weights & measures system in place to allow a reliable method of appraisal. It makes sense really, as only this way can TPTB have the most efficient system of fleecing the bulls & the bears at any profitable moment. I seriously suspect that Ricks Hidden Pivot method is about the only way left to chance the market, so long as you keep limited amounts in the system at any time, just in case they decide to have an ‘MF Global moment’ again.
    Anyway, whichever way they swing it, & I’m sure they can ad infinitum, some truths will remain. I highly recommend spending an hour to look through the great work done in the following link. It may even shed some light on what to do in the present time:
    http://ampedstatus.com/the-road-to-world-war-iii-the-global-banking-cartel-has-one-card-left-to-play/

    • mario cavolo June 13, 2012, 9:55 am

      Hi Buster, no disrespect intended on that article…it contains not one single shred of information or viewpoint or insightful voice that hasn’t been hashed through for the past couple of years…all the same unfortunate and scary stuff churning in the vat of the bologna factory…

      Cheers, Mario

    • Buster June 13, 2012, 8:11 pm

      Thanks, Mario!
      That clears that up then.
      I think what was worrying me, obviously mistakenly so, was that my decades of experiences & looking (some would say obsessively so) for the answers to all things great & small seemed to concur with the essay.
      But now that I have found someone wise enough to dismiss the claims I can rest easy once more.
      BTW. here’s another huge collection of evidence that needs to be pulled apart by a greater mind than these scheming troublemakers & conspiracy nuts:
      http://www.thirdworldtraveler.com/

      Please excuse my sarcasm, mate, it’s nothing personal.

  • mario cavolo June 13, 2012, 7:59 am

    …..separating the issues, re Gary’s retorts to Rick is meaningful. I’ve been arguing, as Gary, that the private sector consumption exists well “enough” . Treating that as a separate fact, then the question becomes more along the lines of Rick’s focus, whether or not the Western banking/financial/politico system of today will, may I use the words “severely rupture” or not. Of course if it does, we are all royally screwed in someway or another, some less, some worse. But until that possible black swan event/moment six months to 30 years from now, yes, life goes on with all its ups and down for various masses of citizens impacted by which country the live in, which sector they work in, etc.

    Cheers, Mario

  • Cam Fitzgerald June 13, 2012, 7:15 am

    If Greece bails out the Euro is going up, not down.

    • Robert June 13, 2012, 5:09 pm

      That is a highly rational probability that completely flies in the face of the conventional “wisdom”…

      For the record, I agree with you completely.

    • Chris T. June 13, 2012, 6:48 pm

      Germany should bail out:

      Its EURO debt would get halved (or more) in relation to the “new” DM, but even though it is the right thing to do, will never happen, see my comment below.

  • TC June 13, 2012, 6:17 am

    gary leibowitz April 4, 2012 at 6:05 pm (S&P at 1400)

    “… In fact I think the recent consolidation phase, or more precisely rotation, is just about over. I am expecting, perhaps as early as next week, another nice run up. For the full year we could see a 20 to 25 percent rise from here.”

    So I guess now I should expect 30%? 🙂

    • gary leibowitz June 13, 2012, 3:52 pm

      Obviously we are churning a lot longer than originally thought. I still see this as only a consolidation. If you look at all election year charts you would see a pattern that reflects a bottom around end of May and a big run up till year end.

      As for Rick’s use of the word dilusion, I would argue that his extreme bias and market expectation ignores opportunities on the upside. His micro views and technicl method might be sound, but he makes a conscious effort to mask out any possible positive scenario. If you start with a premise that the market could crash at any time, you will naturally shy away from any bet that would put you in a position of being long for any amount of time.

      I am just stating it’s best to us a technical method of betting without any emotional bias. That’s why in the long run Mutual Funds usually outperform individual betting styles. They are forced to ride out the bad without trying to time the markets exit and entry points.

    • Rich June 13, 2012, 4:16 pm

      Re
      “If you look at all election year charts you would see a pattern that reflects a bottom around end of May and a big run up till year end.”

      Look again GL:

      http://stockcharts.com/freecharts/historical/spxusb1978.html

      GL…

    • Mark Uzick June 13, 2012, 4:45 pm

      Gary, that black swan events have happened and will happen is not a matter of conjecture. You know that, but you make longer term trades anyway, thereby disproving your own thesis by your actions.

      That Rick has a way to make money without taking that risk is the explanation for how he trades, not his understanding that the economic and financial system is a house of cards just waiting for a breeze – the same understanding that you’ve also expressed.

      It’s impossible to know what kind of longer term trades that Rick would make in his trading portfolio if he had no safer option, but I would suspect that he would hedge his investment portfolio as well as his trading portfolio so that the effects of a black swan event would be neutralized. I’ve never heard Rick discuss his investment portfolio, but it’s likely that he’s hedged against multiple scenarios.

    • gary leibowitz June 13, 2012, 5:14 pm

      Rich,

      Big bad bear markets do start usually in Sept/Oct. In the last 2 bear markets of 2000 and 2008 that was the case. They were prompted however by known events that rattled the markets. I still contend that as statistics go, there is a good correlation concerning election year rallies.

      Given the recent data of a huge drop in the PPI, big rise in home applications and refinancing, and a business iinventory level that is lean, I see no reason to conclude it all ends here. Retail sales were soft, but not at any alarming levels. I suspect the summer months will show a surge in spending and borrowing.

  • gary leibowitz June 13, 2012, 1:39 am

    “Delusional rally begs to be shorted”

    Permabear burden? Using emotional expectations instead of clinical evaluations will just cause frustration. I suppose you still think the last 3 years were a delusion where earnings were faked and government manipulation fixed all markets.

    If profits are being made than there is no delusion. If consumers and companies continue to spend in this environment than who is to say when the “delusion” ends.

    In the 70’s we had an horrific inflation problem yet earnings survived. Companies adapt better than individual people do.

    Is the game over where spending stops? I put my ear to the government data points and key sector corporate announcements.

    Domestic spenders couldn’t care less about Spain. It’s only when US companies are affected adversely do we care. If the EU follow our path of spending, shoring up bank debt, and giving a helping hand to mitigate the slide, we could be waiting a while for it all to break apart.

    To your point that this rally doesn’t have legs, I would agree. I don’t think it will be the start of a vicious bear market, nor do I think it will last more than 3 weeks.

    Think about it. In all this time when the EU is falling apart the markets are only down 6 percent from its highs. There is total transparency. We know what to expect in terms of elections, political mood, and the bailouts. Where is the shock? Will Greece leave the EU? Doubtful. That could be a shock if they do exit. Will the central government money making machine stop lending? Doubtful. If they do that is another possible shock.

    A book maker would place the status quo as the odds on favorite. More of the same. More money thrown at the problem, more bank lending, more promises to cut spending in the future.

    I agree it has to end some time, but given human nature in it’s full glory, we hold out till we can’t anymore.

    My opinion is that Germany concedes to the demands of everyone else. China pushes hard for rate cuts, spending programs, and reduces restrictions to help business grow. Low commodity prices and a stable job market domestically will ignite the service sector going forward.

    Time will tell.

    • Mark Uzick June 13, 2012, 10:03 am

      Gary, you ought to allow Rick some literary license.

      My interpretation of “delusional rally” is:

      “To the extent that this rally reflects faith in the economic and financial soundness of the world’s developed countries, then it’s delusional.”

      Rick’s strategy is in no way contingent upon this belief (one which I think we all believe); he’s well aware that there are scenarios where the market can do well in the face of economic hardship (E.g., an inflationary depression where equities become an inflation hedge.) He’s just expressing his exasperation at all the delusional rationalizations as to why there was a rally – the kind of nonsense that’s reported after the fact with every move in a stock or index, partly to show that the commentator knows why, partly to fill a demand for reasons from an over-credulous audience and partly to promote some policy agenda.

    • Cam Fitzgerald June 13, 2012, 11:38 am

      Sounds about right to me, Mark. I think you are correct. We all feel disgusted day by day with all the shenanigans. As you say, it is an exasperation with all the delusional rationalizations. There are very few out there who can cut through the BS this market floats on with so few well time words and Rick is surely one of them.


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