knapper@differences -- trotsky, 17:00:23 04/25/07 Wed
the bears actually had a good case, but got steamrollered by the biggest global money supply expansion in history.
however, every credit binge has to end sometime, and there ARE a number of things that are different now.
1. emerging markets have gone parabolic (these bubbles look now just as extended as the Nasdaq at its 2000 high - the chart of the Shanghai index in 2006/7 and the Nasdaq 99/00 actually overlap with eerie precision).
2. the yield curve has been inverted for over 12 months running and has now begun to slightly steepen (an early warning sign of a coming loss of liquidity).
3. in real terms, the stock market has not only gone nowhere, it is actually down by 57% (Dow vs. gold), so the gains have all been due to inflation.
4. the housing bubble has burst.
5. if you take out the earnings of energy and financials, then S&P 500 earnings have DECLINED by almost 4% last quarter. iow, the stock market is horrendously overvalued.
earnings of financials will take a big hit in coming quarters as loan loss reserves are at an all time low just as loan losses begin to pile up (63% of bank assets are in mortgage related assets). so that leaves only the energy sector as exhibiting earnings growth, but energy prices have also gone nowhere for quite some time now.
6. we have set a number of records that should give bulls reason for pause - the longest streak ever of bullish advisors outnumbering bearish ones, one of the longest streaks in history without even a 10% correction, one of the lowest volatility premium periods on record.
7. the global hunt for yield has become so crazy that all sorts of risky debt paper has no spread over treasuries anymore - there is zero risk priced into the markets - all of them. however, risk is not zero, it is probably extremely high (it always is after huge credit expansions).
i could think of more things, but you get the gist. i still remember when the Nasdaq streaked to 5K in its blow-off, bulls offered a similar argument as to why it would continue to rise: they said 'nothing has happened so far, so why should anything happen now?' this argument is spurious - just because a market has experienced an extended blow-off move doesn't mean the risks have become less, it means the opposite. admittedly such moves usually last longer and go further than most people expect, but that only increases the risk of a violent denouement.
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# bullish@durable goods -- trotsky, 16:28:17 04/25/07 Wed
i'll say it again, because you apparently have overlooked it the first time. ex aircraft, capital goods orders were DOWN by a whopping 12%. this was NOT a strong report, it was the opposite.
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# kitcotodd@1970's -- trotsky, 16:25:49 04/25/07 Wed
this is actually not true. gold peaked in December of 1974 just as the stock market bottomed after a 56% nominal decline from the 1973 high. then gold went down by nearly 50% in '75/'76 as the stock market recovered.
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# Hambone -- trotsky, 15:47:50 04/25/07 Wed
imo the relative weakness of the gold stocks in this recent market rally only means they will probably get hit even harder when the market declines than they would otherwise.
it has all become one trade - wherever you look. our problem is that the present rally in gold isn't the 'real McCoy' - it is simply following the stock markets and base metals higher due to spill-over liquidity, and is underperforming in the process. we have only had one phase that i would regard as a classical real gold rally, and that was the 2000-2003 period - when gold increased in real terms, the yield curve steepened, and a previous economic and credit boom was unwinding. not surprisingly, at the time gold stocks vastly outperformed both gold and the stock market (the outperformance and underperformance of gold stocks vs. gold has imo nothing to do with GLD - it has only to do with gold's real price, and consequently gold producer margins).
when the current boom ends, everything will get sold in the beginning, including gold and gold stocks. let's not delude ourselves about this - anyone remember late February/early March?
however, i do agree we will eventually positively decouple - afterwards. as to the idea that the stock market will peak and sell off and gold stocks will immediately get going to the upside, i don't think that's possible. the initial calamity is going to engulf everything imo (whenever it happens).
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# bullish, strong durable goods report? -- trotsky, 15:33:30 04/25/07 Wed
ex aircraft, capital goods orders were DOWN a whopping 12%! that's not a strong report, it's a catastrophe. |
