Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Max90's LINK STORAGE to stock quotes -- Ignore unavailable to you. Want to Upgrade?

To: LTK007 who wrote (3621)	11/7/2008 3:35:37 PM
From: Crimson Ghost	1 Recommendation Read Replies (3) \| Respond to of 3906

Dead Cats Bouncing: Making Sense of the Markets IMF: Recession Goes Global in 2009... Posted: 07 Nov 2008 04:07 AM CST I warned a week ago that we would face shockingly poor economic data and corporate earnings, which would test the rally's conviction, and I was therefore closing long positions. We have just seen an 18% six-day gain on the Dow dramatically reversed with a 10% two-day slump, despite sustained healing in the credit markets (3 mth Libor now below 4.5%, lowest since 2004) and change we can believe (but maybe not invest) in. Crucially, investors are seeing global bellwether stocks like Cisco and Toyota warn of unprecedented trading conditions. Every cyclical industry from advertising to steel is facing slumping demand across the developed markets, and contagion is spreading fast to the emerging economies. I described IMF growth forecasts in recent months as ludicrously optimistic, and yesterday they slashed their outlook and now expect the first global output contraction since 1945. Their solution is good old Keynesian fiscal expansion, which is fine for those countries that can fund it, but the US simply can't without massively increased foreign demand for Treasuries (see That AAA rating Won't Survive $1trn Deficits). The Fed balance sheet has already expanded to an astonishing $2trn, almost tripling in a year. The Treasury will have to find at least $1.5trn from investors by end 2009 (and that's before Detroit gets nationalized). I think it's ominous that despite a near 1,000 point Dow drop in two days, 10 year Treasuries actually rose. The looming avalanche of supply is beginning to outweigh deflation fears, and the relaunch of a monthly 3 year Treasury note reflects official recognition of the limited appetite for longer term paper. An additional factor in the renewed equity sell off has been further retrenchment in risk appetites; even JPM has shut its proprietary trading desks to de-risk, a move being repeated across the banking industry. These units are essentially in-house bank hedge funds, and in the new environment of deleveraging and re-regulation are simply uneconomic; this trend will make markets a much simpler place going forward with esoteric and alternative investment classes like commodities and OTC swaps shrivelling as liquidity drains away. Short term, it means more liquidation selling. Even the smartest hedge funds I follow, such as Clarium, run by PayPal co-founder Peter Thiel, have lost about 20% in October. However, I retain my view of recent weeks that we are in a volatile bottoming process for equities that will see a multi month bear rally through year-end; it is certainly possible we will test the October lows again, or even (maybe a 20% probability) the 2002 lows of 7,200 on the Dow, but I'm confident the markets will end 2008 at considerably higher levels, and any further sell-off should be seen as tradable buying opportunity. Longer term, the question is whether US equities will follow Japan and end up with a reverse yield gap (the growth premium assigned to equity dividends) eliminated for the first time since the 1950's.