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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (30649)	4/14/2005 8:48:42 PM
From: orkrious	Read Replies (1) \| Respond to of 110194

wow

To: ild who wrote (30649)	4/14/2005 9:21:52 PM
From: orkrious	Read Replies (1) \| Respond to of 110194

classic heinz in the second post Date: Thu Apr 14 2005 18:39 trotsky (Perley@XAU) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved to me it looks and feels like a BEGINNING capitulation, not a completed one. a lot of bravado has been on display in the face of the decline, and trading volume hasn't yet reached the levels consistent with a capitulation imo. the next support levels aren't far away though, and should produce a bounce...also, the yield curve has finally begun to steepen a bit. that said, the PoG itself looks like it could go lower here...today was the first day in a while that has seen large liquidations of futures long positions held by speculators. it usually isn't over after just one day, and the extant net long position is very big. the fact that the XAU failed to recover and that even the SA stocks couldn't manage a positive close on a day the Rand got a good whacking says a lower PoG is coming. the question is how much of this is already discounted...probably not enough. a genuine turn will be identifiable by a sizeable decline in the PoG being met with a positive close of the XAU. not that i think the LT gold bull is endangered...but it could pause for longer than is generally expected. currently the XAU seems to be leading the broader market down...and if the market as a whole keeps falling apart, it's highly unlikely that the XAU will escape the pressure ( the need for liquidty would trump other considerations ) . Date: Thu Apr 14 2005 18:21 trotsky (stock market) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved after looking through all the sector charts...well, if i didn't know that such things are a matter of myth, i'd say the market is prepping to do a Big Kahuna. practically everything fell through what look to me very important support levels...and the speed of the declines tells me that a lot of market participants have been surprised and caught fully invested ( check e.g. former leading indices as the HMO, HGX, CYC, or the already previously underperforming various tech indices on computer hard - and software, the SOX, the Internet index, disc drives, and the dog of the decade, the networking index...then of course we also have the banks and brokers, in fact the entire financial sector getting clobbered as well in this equal opportunity whacking. note that 40% of corporate earnings and 25% of the SnP's capitalization are concentrated in financial services ) . all of this, along with the plunge in the CRB says that the 'reflation' story is very likely over. the central banks have erred again - they thought they could remove monetary accomodation without ill effects. but the ostensibly 'self-sustaining' recovery was anything but - it merely was yet another paper mirage, a combination of new bubbles as well as echo bubbles creating a short term reprieve before the contraction resumes. and this time, the downturn will be led by the consumer - which bodes increasingly ill for iffy house of cards like GM, F and even FNM. note btw. that the homebuilders, which have been the leaders of the market's echo bubble, are fundamentally very weak companies. they report stellar earnings - but most have negative cash flows. their balance sheets contain a lot of debt that has been incurred for buying vastly overpriced land for housing developments - that will come back to bite them. but GM has to be the concern number one here ( closely followed by FNM ) . if its 300 billion debt load becomes unmanageable, and it sure looks like that will be the case, the systemic repercussions could be enormous. it is almost inconceivable that the tax payer won't be forced to bail it out if worst comes to worst. but there's another problem here that isn't properly appreciated imo. the situation could spiral out of control into a 'too big to bail' scenario, instead of the usual 'too big to fail'. no-one mentions e.g. GE Capital these days, but it is also one of the major players in finance, with an extremely low ratio of capital-to-assets. most of the large non-bank financials sport very thin capital cushions - which is to say, there better not be too many things going wrong at once, or it's curtains for the system. in any case, GM is top of the list of the potential crisis triggers - and for that reason alone the FOMC will likely be forced to reconsider its rate hike campaign. however, similar to the BoJ in the early to mid 90's, it may be too late this time around...it takes time for short term rate decreases to filter through to the financial sector and allow it to rebuild reserves, and once the housing bubble pops ( i actually believe it has ALREADY popped, it has just not been noticed yet ) the losses accumulating from defaulting RE related assets could for quite some time exceed the earnings potential of playing a steeper yield curve ( a la Japan, where exactly this scenario played out ) . of course it may turn out that i worry too much, and that the markets will relieve oversold conditions via a short term rally...but if that happens i think it'll only be a brief stay of execution. there can be little doubt that things look very dicey right here and now.

To: ild who wrote (30649)	4/14/2005 9:57:45 PM
From: mishedlo	Respond to of 110194

Heinz on "flight to safety" vs "repricing" .... Hussman well, strictly speaking this is true, but nevertheless funds are shifted into whatever assets are inflating - or likely to inflate. the 'repricing' is the outward symptom of this flow of funds. thus it is definitely appropriate to speak of e.g. a 'flight to quality' - after all, in this scenario funds ARE fleeing one market and entering another. one mustn't foget that transactions at the margin determine the value of the total capitalization of the asset concerned. iow, transactions worth a few hundred millions can change e.g. the market cap of a stock by several billion. what hasn't gone 'missing' are the few hundred mil (someone received them , someone paid them). but the few billions HAVE gone missing, and have been added to e.g. the value of outstanding t-bonds. so yes, it is a repricing of assets - but it is accomplished by sellers at the margin predominating in one asset class and buyers predominating in another, and when it seems reasonable to suspect that they are the same traders, they are performing a flight from one asset class to the other (of course they are also quite often NOT the same traders). i would say the 'repricing of assets' is the scientifically correct way of looking at it, but 'flight to quality' is an appropriate figure of speech to describe what's happening when e.g. junk bonds and stocks plunge while t-bonds rise. also not to forget, in the fiat money system the amount of 'money' used in those transactions is steadily increasing. it's not as if the money supply were fixed.