Morning Audibles 3.2.10 - Tractor Beam vs. "The Horse You Rode In On"

Most of you know that despite CV's PENCHANT for "land spreadin' out so far & wide" (& thus the inclination to say to tell bankers & ANALysts to) "keep Manhattan just give me that countryside"...


You might also know that I tend to dabble in some chart work (on the SLPY)... For a couple of weeks now, I have been talking about CHART GAPS at the 1116 - 1126 levels (and how those might come into play in an extended P2 scenario which effectively tests the resolve of BEARS that the January 1150 level was indeed [or was NOT], the pinnacle of the P2 rally). You could say that CV almost assigned his "down home" version of a TRACTOR BEAM on those levels...



Well... Here we are, in front of those levels... I gotta say... It's TOUGH being a BEAR in this kind of market... For every day now (for almost a year running), it's like the world is against you... Worse, "the world" has the 3 stooges (Ben, Barry, & Curly ["Timmeh"]) at their disposal... It's like EVERY SINGLE DAY they think they have the power to say to BEARS...




Meanwhile... You're like... ("Jane...Get me off this crazy thing!")...



CV is going to try and hold on for a bit longer and ride this pony to the finish... Otherwise, again I will be the UNCLE of the my featured post from a few weeks ago... But I can say that even in the frozen tundra of the winter, it's possible to scratch for food...


But aren't BEARS supposed to be hibernating in the winter anyway?


SPX HYPOTHESIS - Updated 3.2.10 (1:00PM)





273 comments:

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McFearless said...

Love the pic of the bears on the horses.

True, it's been hard if you were bearish for the last 12 months, was just as hard to be a bull the previous 12 months, 2010 most likely won't be as easy to identify the trend in either direction until it's too late. I'd have to think shorts and longs alike here in the states are just waiting to wake up to some "news" out of Europe that completely kills their trade (I know I keep thinking about it) The blog comments also indicate that all the Johnny's in the world know about Monday rallies, so good luck with that the rest of the year.

The market is going to need one hell of an effort in order to get back above 1150. Consider:

1. There has been virtually no volume since the recent lows in early Feb.
2. The market stopped at the 50% principal in January and has never looked back. This is very bearish according to Richard Russell.
3. There was still question in Jan. about whether or not the dollar had put in a bottom just below $74.50, I remember well how skeptical people still were and then most got on the dollar bandwagon after it broke $80. Now everyone "knows" the Euro is in trouble..... In any event, despite the fact that people want to cry over it each day that the dollar does move exactly the opposite of everything else, a step back and a look at larger time frames shows it is still all the same market and this is only the initial move up in the dollar. As long as deflation is around, and most debts are based on dollars, the general trend will remain.
4. Number of stocks hitting new 52 week highs is not even at all close to what it was in January, the market is weak underneath.
5. From a wave count perspective, if you don't want to work off the traditional EW count which is the uber bear primary 3 count, then just use Andy's, he's been calling for a little while here for a move to 1128 or so as part of a more complex corrective move, and his model is bearish from there, great opp. for shorts, ....just not P3, but so what.

As for P3, lets make something clear, my "job" is to hope for the best, and plan for the worst. If you don't believe in P3, that's fine, I wish you the best of luck if it happens, because you will need a lot of luck if up until then you hadn't planned for it.

Fundamental considerations:

1. Um....credit contraction anyone? Yeah, still going on....big time. Look at charts such as M2 as well, major drops.

2. I think most of us here respect Jeremy Grantham, he says stocks are some 20% overvalued here and he's been slowly lowering what fair value was for almost a year now. Certainly stocks can stay expensive for longer than I (we) expect, maybe years, but given the current social mood, that's a bold bet. Of course, I doubt people that slave over fundamentals care much about social mood. If you want to debate this point, lets try to bring something to the table besides that weak shit....Obama gets what Obama wants talk, there are no fundamental reasons to buy stock, and the inflation argument is hilarious and completely ignores the evident deflation.

3. People still seem to hang on to this idea that one mans debts are another mans savings, and sure, in equilibrium that's true. Today though it's a very foolish statement. Problem is, we are in disequilibrium, prices aren't clearing where they need to for this statement to be true, housing is an example. You could of course try and argue that there are nothing but rational people and their money carefully evaluating each new bit of news and THEN making capital allocations, but please explain the housing market the last 8 years or so if that is your argument.

4. Rosie continues to point out that the great recovery data we are seeing is more indicative of the end of a cycle, not the beginning of one.

That's all I could come up with off the top.....

McFearless said...

Should have thrown something in there about tax revenues.....

call me ahab said...

sign of the times-

an interesting chart- circulation of Newspapers September 2009 versus 2 years ago-

unprecedented decline- my observation- outside my dad who is 80 years old- I don't know anybody who gets the paper anymore-

http://lh5.ggpht.com/_AL2FXcy6tvw/S4nQArWlF6I/AAAAAAAABAU/n5ZoGGNOU8I/s1600/image%5B7%5D.png

CV said...

@McF

Aside from other things...

1126 is 78.6% retrace from 1044 - 1150...

Also, on the charts, if you consider the SPX between 7/06 - 7/08 as a big failed H&S... 1150 is a 78.6% retrace back to that "line" from the March lows...

CV said...

@McF
"People still seem to hang on to this idea that one mans debts are another mans savings"...

HA! i've got one word for them (actually two)

DERIVATIVES & LEVERAGE...

Isn't fractional reserve banking wonderful?

CV said...

More Green Shoots...

IBM Cuts Almost 500 Jobs, With More to Come

Looks like Big Blue is getting in on the "shootin" (firing)...

call me ahab said...

b22-

where would we be without unprecedented USG action? and really- how long can that last- forever?

it's taking the USG all it has to keep the ship afloat- BR and others may lay at the alter of BB's Fed and easy money-

but that is at best- short term desperation with the hope that the private sector will right itself-

but housing is dead in the water (even with historic low interest rates and tax credits)- people aren't buying it, and unemployment will be a prolonged affair- folks are tapped out-

and a sea change is occurring regarding people's perception of finance and large banks and the ability of congress to have any control over their rapacious ways-

little trust remains- and people are more than ever- willing to stiff the banks out of a sense of outrage- as they should

call me ahab said...

and regarding my first post- it's interesting that the WSJ has basically stayed even where a paper such as the NYT went from 1.6 million to 980 thousand-

in two years!!

no wonder Carlos Slim isn't increasing his stake in the Times

CV said...

@ahab

Maybe Carlos Slim and T Boone Pickens can put together a PRIVATE EQUITY BUYOUT FIRM for the NY Times...

They can call it "Slim Pickens"...

mcHAPPY said...

Great comment, Ben. There is so much noise day to day people lose sight of the BIG picture. I give your comment a 5.9. It would have been a 6.0 however you forgot the revenues haha. Oh right, Olympics are over.

Anonymous said...

CV nice post :)

I'd like to know what type of funds the average joe puts their money in their 401K's now. I for one, pulled it out of the few choices I have and put everything in PTRAX and some in a money market fund some time ago. Am I an abnormal 401K'er?

Is their a website that tracks this kind of stuff?

qqqqtrader

Bruce in Tennessee said...

@Ben,

MM seems to think that stagflation is gathering steam in England. And frankly, if I were a bank (say Joesph A Bank) and you came to me now for a loan, there are many and varied things I'd look at today that wouldn't have occured to me 4 years ago. How long at the same job, what is the outlook for your industry, what is the economic outlook for your town, county, state. Have other industries in your town been downsizing, and if they have will it affect you? Where are interest rates heading? And so on virtually ad infinitum...

It would make me a cautious banker indeed...

Anonymous said...

Fresh new low on the EUR overnight-1.3435, very quick.

Since then it has rebounded to above where it spent most of monday. A "V" bottom.

bob

call me ahab said...

CV -

"Slim Pickens"- good one(-:

also-

"Goldman-Greek Deal "Completely Scandalous" ... and Legal"- tech ticker

". . .the Goldman-Greece currency swap was legit under the rules of the day . . ."It's another indication of ways in which governments connived with the financial sector all over the world to do things they really shouldn't have allowed to happen . . .[and]there appears to be no appetite in Washington D.C. to substantially reform derivatives regulation, meaning these kind of Enron-style accounting practices remain standard operating procedure for governments and corporations alike."

CV said...

@qqqq

"I'd like to know what type of funds the average joe puts their money in their 401K's now"



Not sure... But I did find his softball jersey... Look, he's the CAPTAIN!

CV said...

@bob

Maybe my weekend post on the Euro was just a day early...

CV said...

BIDU ALERT

ASK on BIDU = 524.94

call me ahab said...

"Winter storms to distort US jobless figures"-Summers

this almost sounds like a set up-

prepare everyone for a dismal number than surprise w/ a BTE

Anonymous said...

CV

I might agree with you now. Just had to see that lower number, too much time spent dancing around it.

bob

CV said...

@ahab

"Summers" commenting on "Winter" storms...

Hmmmmmmmm.........

72bat said...

@ qqqq trader
i'd also be interested to hear how others are allocating their 401(k)s now.
since being hired in f/t & qualifying to participate, i elected to dump 30% of gross into 401(k), allocated 100% to mmf. with limited alternatives, now considering ptrax myself

Anonymous said...

CV

They left the gap between 1116.48 and 1115.49 on the daily, assuming we don't go back to it today.

bob

McFearless said...

"I have and put everything in PTRAX and some in a money market fund some time ago. Am I an abnormal 401K'er?"

I don't think you are qqqq, (abnormal) most prospects I meet are head and shoulders into the Pimco Total Return fund and if it's not money market it's a stable value fund, and then perhaps some company stock. That mutual fund is the biggest for a reason, lots of 401k money in there. In fact, I've counted 5 companies in my little area this year that added the fund as a plan choice for 2010. The only thing you'd need to add to become the completely normal retail 401k participant now is some sort of target date retirement fund, like Fidelity 2020 or 2030 or something like that.

CV said...

@bob

I see that...

We'll eventually go back and fill a lot of gaps...

Big one at 1076-1078...

McFearless said...

ahab/Bruce,

I agree with your posts, then I went over to Barry's this morning to read about how Geithner and Summers are front-runners to fill the FOMC hole. Makes me sick. How many times do these guys need to FAIL it stops?

CV said...

@bob - FWIW

From GAP CLOSURE (at 1127), back to GAP CLOSURE (at 1075)...

That's a 61.8% retrace back to 1044...

McFearless said...

before it stops....

McFearless said...

@Mchappy,

yes, revenues! Each morning I have lot going through my mind, better to write down what I'm thinking, but I never think of everything.

72bat said...

ben -
i seem to recall reading that currently there are three FOMC "holes" open to be filled.
true?

McFearless said...

@C,

BTW, sweet call, you've been on this gap for quite some time now, nice going.

AmenRa said...

McF

Hasn't Summers destroyed the financial condition of every place he has worked?

Anonymous said...

That and my pattern matcher is all screwed up. Any SPX based quotes are only showing the last 2 hours of trading data from yesterday. SPY SSO SDS SPXU etc, weird...

How am I supposed to let the machine do the work?

bob

McFearless said...

72bat,

I think that's correct, there were empty spots before and now Kohn is going to retire. I always got a kick out of that, biggest crisis in nearly 100 years and we have less than the normal amount of votes on the FOMC.

Meanwhile, the chairman, the one that is supposed to be an expert on the Depression, still doesn't even understand what caused it.

Anonymous said...

The story that never got enough press was Friedman at FRBNY. On the board at GS at the same time they got BHC status and 100% payout from AIG.

bob

McFearless said...

Ra,

I don't know Summers history in and out, but I know he did a number on Harvard.

Here's something though, to his credit, he wrote a very detailed study with two other guys back in the 80's about what is really moving stocks, I just learned of this via the most recent EWT letter. It was in 1989 and by Cutler, Poterba and Summers in a paper for the Journal of Portfolio Management. Within this paper they say:

"Macroeconomic news bearon on fundamental values....explains only about one fifth of the movement in stock prices."

I found it interesting that Summers was part of this study.

Bruce in Tennessee said...

I also like the PTRAX idea

McFearless said...

"bearing on"

instead of bearon on, whatever I was doing there....

call me ahab said...

"Hasn't Summers destroyed the financial condition of every place he has worked?"

and are you inferring that he doesn't know what he is doing? lol

CV said...

@ben (9:48)

1126 isn't filled yet (but it's close)...

Right now I'm contemplating two THROWOVER scenarios that really wouldn't upset the apple cart that much...

One, is slightly higher to about 1131, the other about 1137... Either way... it's getting close...

But there are some other things I'm considering as well...

- Today is DAY 29 since, 1150... DAY 34 would fall on March 9th (where the P2 rally started)... The market LOVES FIBOS & anniversaries...

- Assuming we don't go much higher today, the RISING WEDGE pattern that currently exists could play itself out in a way that it gets to be a SLOW GRIND (5 more days) up to those mentioned price levels...

So there's a CHANCE that this doesn't, in fact, happen suddenly...

I'm just thinking of all possibilities...

Leftback said...

HY is making up for yesterday, this is strictly a rotation play, from Ts into HY and IG today, but it is nothing of note. As ever, the FX and credit markets are waiting on the jobs numbers.

Bruce in Tennessee said...

I did buy a little AMAT this morning because of this:

http://www.semi.org/en/Press/ctr_034510

CV said...

@LB (10:04)

SURVIVOR CAPITAL - Exclusive sneak peek at JOBS number...

AmenRa said...

CV

IF we get above the weekly 3LB reversal of 1126.48 these are the fibo minor levels I'm looking at as resistance:

.0021= 1128.85
.00344= 1130.36
.00557= 1132.75
.009= 1136.62
.01459= 1142.92
.0236= 1153.66
.0382= 1169.51
.0500= 1182.80
.0618= 1196.10

italics on numbers above yearly high

call me ahab said...

b22-

that equities are only 1/5 driven by fundamentals is apparent-

the other critical factors-

psychology, manipulation, bullshit and make believe

Karen said...

morning all! late to the table.. spilled coffee beans on the counter again, sorry.. but the pattern might be indicating good luck.. dow dropped 20 pts since i started typing, i think..

CV said...

@Amen

The 1130.36 & 1136.62, then, coordinate with my eyeball...

Especially 1130.36...

From there it's 61.8% back to gap fill at 1076, and 50% back to 1086.33 (which YOU KNOW is a support level in many ways)...

CV said...

@Amen

Further on that...

I'm kind of taking the stance that if we go beyond 1126.48 (3lb weekly reversal), it will still close the week UNDER that number...

Therefore, I'm NOT expecting a weekly 3lb reversal (simply a "threat" to doing so)...

I-Man said...

Morning everybody!
I-Man got off to a late start this morning...

Are we at 1126 yet?


@ K-Money

JJC Anno is up over at Dread, in your honor.

Leftback said...

Morning all,

...you know KAREN, LB could make your coffee in the morning and then you'd never have to worry about spilled beans, LB having SAFE HANDS...

CV said...

It would also probably need a 1130 print to pierce the DAILY UPPER BB's...

Mannwich said...

Interesting that douchebag Summers is already doing damage control on what will likely be a terrible Feb. jobs number, blaming it on the snowstorms. You gotta hand it to these guys. They're "good" at what they "do".

CV said...

Typical morning for karen

McFearless said...

Ahab,

I think we could argue that credit makes up for what,.... 1/2 of stock prices right now, maybe more?

I'm just throwing numbers out there, this is not scientific, but when social mood caused credit to massively expand like this in the past, it accounted for most of the rise in speculation instruments, stocks or tulips, take your pick.

Leftback said...

Another bailout nation reaches a fork in the road..

Iceland Referendum

call me ahab said...

regarding Iceland referendum-

the Dutch and the Brits will be told to go pound sand

Mannwich said...

@ahab: As they should.

Karen said...

jjc did not form the abandoned baby i had wished for.. but my copper/gold miner is up at least. then again, maybe i'll have twins by eod !! (babies, lb, pls don't get excited.)

CV said...

@karen

I don't know if 'babies' get LB excited...

But I know "TWINS" do!

DL said...

Leftback's currency (GBP) has sure been going down the toilet recently.

Mannwich said...

How long can this continue?

call me ahab said...

manny-

where was our referendum?

so much for democracy- all a big show

Leftback said...

"How long can this continue?"

The banter about the TWINS can probably continue for ever.

Luckily, LB is not remunerated in Sterling. Just as well as it has been POUNDED. Actually quite handy for the cost of LB's TWIN trips across the pond this summer. Have you ever stayed at the Ritz, KAREN?

Karen said...

goldbugs have a sweet rev h&s to moon over...

I-Man said...

The Sacred Geometry at AM is making I-Man's brain hurt.

Karen said...

CV will straighten you out on that AM stuff, I-Man.

McFearless said...

"How long can this continue?"


That's what she said?

CV said...

Did anybody read this?

German ProSieben TV Channel Finds 500 Gram Tungsten Bar At W.C.Heraeus Gold Foundry With Bank Origin

Mannwich said...

@lb & ben: Ha! Too many ways one can take interpret that question, but I KNOW you KNOW what I meant.

CV said...

@I-Man

As karen pointed out...

Here's the solution to that math problem...

Karen said...

anecdote.. received an email from my husband that he wen to cancel an amex card issued thru usaa and discovered $950 in fraudulent charges from february.. he said they were "weird" about it on the phone.. i'm wondering how many others are claiming fraud fraudulently??

72bat said...

@ lb
thanks for "iceland referendum" link
the money line:
"in reality, the icelandic vote is the test of an important point. governments around the world have bought into the idea that banking losses should be paid for by the taxpayers.
it is a bad principle."
if only the american people could have had such a referendum...

McFearless said...

Karen,

Same thing just happened to one of my clients with amex.

@C,

Interesting article there from ZH, those damn banks, that's why these days I only buy my gold at department stores or out of vending machines... ;)

McFearless said...

Or I go to gold parties where I trade tupperware or longaberger baskets for Gold!

Karen said...

fascinating! just checked the account myself.. all to Vueling (a discount air carrier based in Spain) and some foreign transaction charges. That should be easy enough to prove..) Anyway, i will diligently check my cards.. less is better.

call me ahab said...

CV-

I did read that!

Did you see the follow-up on the gold wrapped Willy Wonka Bars?

CV said...

@McF/ahab

That's what was happening at the end of the Roman Empire, they were minting coins that really has no gold or silver in them...

LOL

CV said...

Can you imagine if all the gold bars the GLD had in its vault were "counterfeit"?

LMFAO!

call me ahab said...

b22-

"that's what she said"

classic(-:

reminds me of a story- a day or two ago- my daughter and her friend- both 12- were in the back seat of my car- and the friend said something along the lines of "it's too long"- and I had to refrain my immature self from saying those exact words-

so maybe I do have some couth- but just maybe

Helicopter Ben said...

No counterfeit gold bars in our vault, CV. It is EMPTY !!

I-Man said...

New Marty:

http://www.martinarmstrong.org/files/Behind-the-Curtain-Part-II.pdf

Looks like the poor guy got moved back into "The Hole".

http://economicedge.blogspot.com/2010/02/martin-armstrong-behind-curtain-part-ii.html

Karen said...

je vous en prie, ahab.

call me ahab said...

Karen-

what- no kudos for being "well mannered"

sheeesh- and I was showing my good side(-:

call me ahab said...

wow- these Fed guys really catch on quick-

"Fed's Hoenig: Zero rate pledge invites speculation"- yahoo finance

"[Hoenig]said on Tuesday that an extended period of ultra-low interest rates invites speculative behavior and is risky."

Mannwich said...

So TODAY (or THIS HOUR) we're back to the "no aid" for Greece meme. When will that change? Is this back and forth by the design or do they just not know what the hell they are doing?

http://www.zerohedge.com/article/germany-coalition-member-no-eu-aid-greece-must-help-itself

CV said...

@ahab

Yeah... Hows about 30 years of it?

But, of course, the SOLUTION to that problem is to get 'em LOWER...

CV said...

@Manny

If you read my EURO Thread over the weekend, that is EXACTLY what I said would start happening...

Of course, when the Euro regains a little TECHNICAL ground, then they'll capitulate and find a way to toss them a bone...

Then the Euro will get stomped (which is probably what they'd prefer at the moment)...

call me ahab said...

manny-

have no fear-

"Greece is contained"

CV-

no doubt-

now we have ZIRP- and QE- what else can they come up with?

CV said...

@ahab

They don't even need to back up the ZIRP or the QE with GOLD RESERVES either cause they can apparently make that out of TUNGSTEN...

Anonymous said...

TMAT- Throw Money At Them.

bob

call me ahab said...

bob-

velocity < zero

CV-

tungsten's cool- I hear they make jewelry out of it- and way cheaper than gold-

oh wait . . .

I-Man said...

TLT looks to be finding some new buyers, and this recent churn in the SPX at 1123 looks shaky.

call me ahab said...

CV-

the good thing about the Wonka bars- if times get tough-

you can always eat them

CV said...

@bob

MACGRUBER will figure out what to do with all that tungsten...

Karen said...

Todd Harrison: If this is a “recovery,” what the heck will the next downdraft feel like?

McFearless said...

Ahab,

There is an older (us version) episode of the Office where Michael can't stop doing the "that's what she said line" it never gets old.

As for tungsten, yes, it's popular now for men's wedding rings, its heavy, and my understanding is it can't really be cut, so if your finger gets stuck it's not just the ring that is coming off.

CV said...

@ben

I never understood why the wedding band goes on the third finger...

Wouldn't it make more sense to have it on the MIDDLE FINGER? That way, when you get divorced you can say "Here's your ring back"...

...or ladies getting hit on at the bar could say "See this, I'm married"...

call me ahab said...

on a serious note though-

it would make me question any gold possessions- unless possessed in my home-

also- the ironic thing- if it was found that much of the gold bars were gold plated tungsten (or Wonka bars)- the value of actual gold would probably go up-

or would it?

Anonymous said...

http://gutenberg.net.au/ebooks06/0600221h.html

"THE 1930s IN AMERICA"

Good book all online. The author picks up on all sorts of different data points. Not really a business book, more of a detailed history. Real observations on the mood and what was really happening on the ground.

bob

call me ahab said...

CV-

no doubt-

marriage is very tough-

and it truly is a contract (when you get divorced- you find out real a contract it is)

AmenRa said...

ahab

That would mean less gold has been mined over the years and they've been lying about actual levels. This is where I'd take delivery and get them checked for content. I wonder if China is taking a look at their gold to see if they've been ripped off.

call me ahab said...

bob-

thanks for the head's- I'll give it a read- sounds interesting

call me ahab said...

AmenRa-

so I look at it two ways-

more uncertainty/risk- gold value increases

less supply- gold value increases

AmenRa said...

Pivots points are nice but I prefer minor fibos for daily price movements i.e. close=1115.71
.0021= 1118.05
.00344= 1119.55
.00557= 1121.92
.009= 1125.75
.01459= 1131.99

JTOL

call me ahab said...

or maybe-

no confidence in the purity of gold-

gold value goes down

Leftback said...

P3 fans will enjoy this simple chart gazing analysis:

Comparisons of Historic Market Crashes

AmenRa said...

ahab

Call CSI and have them use that scanner that can tell you the chemical composition of an object. :-)

I-Man said...

Ra-

You have a solid definition for what a "pivot point" actually is?

I know it intuitively, but not officially.

Just wonderin

AmenRa said...

I-Man

Pivot point(PP)= (High+Low+Close)/3

resistance/support levels
R1= 2*PP-L S1= 2*PP-H
R2= PP+(H-L) S2= PP-(H-L)
R3= 2*PP+(H-2*L) S3= 2*PP-(2*H-L)
R4= 3*PP+(H-3*L) S4= 3*PP-(3*H-L)

I-Man said...

Damn... I guess my intuitive was a bit remedial on the math tip.

Mannwich said...

More on Greece at ZH.

http://www.zerohedge.com/article/greek-prime-minister-greece-faces-bankruptcy-without-radical-action-country-wartime-situatio

call me ahab said...

Ra-

of course CSI!

also- pretty good article from Marketwatch-

"8 reasons Wall Street loses another 20% in this decade"

http://www.marketwatch.com/story/wall-street-is-stealing-another-20-from-you-2010-03-02?pagenumber=2

"Statistically, the odds now predict Wall Street losing another 20% of your money in the next decade. The momentum's headed down. So, what should you do? Sell all your stocks, ETFs, bonds and funds. Get out of commodities and gold. Sell."

call me ahab said...

and then I guess- my next question is-

do what with your $$$-

passbook saving accounts are hard to come by

I-Man said...

Seed, soil, sun, and IPA.

CV said...

@ahab

Buy food with it...

call me ahab said...

IPA- of course!

lol

Leftback said...

We have hammered away at several themes here over a few months, notably how inventory rebuilds and faux inflation themes can surface during a deflationary depression. An excerpt from the book on the 1903s that bob posted above reflects on 1937-1938:

{NOTE the comments about stock prices, sounds like Kudlow and Fast Money, and the comments at the very end about "inflation" and "copper prices". History doesn't repeat, but it rhymes}.

And, as the stock-market ticker stopped at noon on Saturday, August 14, 1937, it would show brokers debating whether Steel at 121 and Chrysler at 118 5/8 were still attractive purchases, or whether it might be a sensible idea to play a bit safe for a time.

It would have been a distinctly sensible idea to play safe. For the Recession of 1937-38 was at hand.

When it came, it came fast--and apparently out of a clear sky.

Toward the end of August, 1937, the stock market sold off and business showed signs of slackening. After Labor Day the retreat became sharper. Stocks went down fast and far. On the morning of October 19 the market seemed near demoralization, with support for some stocks apparently quite lacking and selling orders pouring in from all over the country; the tape lagged twenty-five minutes behind the trading, and when at last the gong rang for the closing, the total of transactions had come to 7,290,000 shares--the biggest total since the collapse of the New Deal Honeymoon bull market in the summer of 1933. All through the autumn of 1937 the decline continued. Only the fact that speculation previous to August had been moderate and well-margined, with the SEC watching carefully to prevent manipulation, kept the annihilation of values from having disastrous consequences outside the exchanges. Meanwhile business operations contracted steadily and rapidly. Not until the end of March, 1938, did the stock market touch bottom; not until May did business do so. Never even during the collapse of 1929-32 had the industrial index shrunk at such a terrific rate.

Look first at what happened to the prices of some leading stocks in the space of only seven and a half months:



Closing Price on
August 14, 1937 Low Reached in
March, 1938
American Telephone & Telegraph went from 170 7/8 to 111
Chrysler from 118 5/8 to 35 3/8
General Electric from 58 3/8 to 27 1/4
General Motors from 60 1/8 to 25 1/2
New York Central from 41 1/2 to 10
U. S. Steel from 121 to 38
Westinghouse E. & M. from 159 1/2 to 61 3/4


Then see what happened to our familiar measure of the state of business in general, the Federal Reserve Board's adjusted Index of Industrial Production. (Do you recall its previous ups and downs? Its high of 125 in 1929, its low of 58 in 1932 and of 59 in the bank-panic month of 1933, its rush up to 100 during the New Deal Honeymoon, its decline to 72 as the Honeymoon ended, and its wobbling rise thereafter?) At the end of 1936 the index had touched 121, which looked distinctly promising. As late as August, 1937, it stood at 117. Then it ran downhill, month after month, until by May, 1938, it had sunk to 76. In nine months it had lost just about two-thirds of the ground gained during all the New Deal years of painful ascent!

What had happened? During the latter part of 1936 and the early part of 1937 there had taken place sharp increases in the prices of goods--some of them following increases in wages during the CIO's offensive, some of them affected by armament orders from Europe, many of them accentuated by a general impression, among business men, that "inflation" might be coming and that one had better buy before it was too late. The price of copper--which you will recall especially disturbed the President--had jumped in five months from 10 cents a pound to 16. Business concerns had been accumulating big inventories. When the time came to sell these goods at retail to the public, the purchasing power to absorb them just was not there.

Leftback said...

Interesting stuff, eh? Thanks a lot to bob for the post.

Karen said...

i rather liked this grid format, as i tend to be somewhat disorganized:

Richard Suttmeier

also, below is an old jeff cooper worth reading.. the wedge he noted didn't play out.. cv's is still on however..

http://www.minyanville.com/businessmarkets/articles/jeffrey-cooper-charts-index-trading-markets/2/19/2010/id/26919

McFearless said...

Just got this from my biz partner:

The Abu Dhabi media website “The National” ran the following report under the headline “That was a war council in Damascus”:



The three-party meeting that took place in Damascus on Friday gathering the Syrian president Bashar al Assad, the Iranian president Mahmoud Ahmadinejad and the Hizbollah chief Hassan Nasrallah was a war council to devise counterattack plans and assign tasks in the event of an Israeli offensive on one or all parties, wrote Abdelbari Atwan, the editor-in-chief of the pan-Arab newspaper Al Quds al Arabi.

“The timing of the meeting, the way it was undertaken and the ensuing press conference that was held at its conclusion, all point to a strategic coalition being reinforced. This is the build-up of a new front that will spearhead the confrontation with the US-Israeli alliance and whichever Arab countries that may, expressly or implicitly, be affiliated with it.”

The Iranian president said he expects war to break out somewhere between spring and summer of this year. Meanwhile, the Hizbollah chief vowed to strike the Israeli capital, its airports and power stations if Israel dared to attack Beirut’s critical infrastructure. “Indeed, we are being exposed to a new discourse here, an unprecedented sense of self-confidence and an unheard-of preparedness for retaliation.”

CV said...

@karen

I've got a NEW SCENARIO that I'm going to post in a few minutes on this THREAD...

Actually, the NEW SCENARIO still conforms to the old one... It just updates it a little, and projects a fallback level...

Coming up...

Anonymous said...

LB

The author had an FDR fetish, but other than that it really was a good read. The similarities are striking.

bob

CV said...

NEW CHART ADDED TO THREAD - A HYPOTHESIS

I-Man said...

You chart gigolo you...

call me ahab said...

b22-

sweet picture- standing on the steps of the Lincoln Memorial obviously-

did you try the view on the other end of the Mall at the Capitol?

also- another observation from Marketwatch-

"[Wall Street]They're 24/7 gamblers. They don't have a clue what's going to happen in a decade. Worse, they don't give a damn. It's irrelevant in their 24/7 short-term trading world. Irrelevant to guys making anywhere from 10 times the income of the average American to making more in a single year than you'll make in a lifetime. Irrelevant in a culture that needs no moral compass and lives by one rule: "Greed is very good!"

Leftback said...

Workers taking pay cuts to save their jobs. That ain't inflation....

Small Town USA

Leftback said...

Small Town USA

CV said...

@LB

I poster earlier...

IBM fired 500 workers today... More expected...

I-Man said...

FXE just closed the weekend gap at 135.83...

Now maybe we can get back to business and break this "piece of shit euro"

Once and for all.

DL said...

McFearless @ 1:00

Something else that could potentially push up the price of gold and oil is Obama’s stated intention to pull out most of the troops from Iraq by August of this year.

DL said...

LB @ 1:19

No one here is arguing for "inflation".

Not even me.

CV said...

Unbelievably low volume...AGAIN...today...

McFearless said...

Richard Suttmeier has about $300 of money that he owes me.... I'll leave it at that, we paid for a service of his that didn't deliver what it said it would, and then just vanished to something new that required a new fee.

As I'm to understand it, Nails ripped off most of his ideas, Suttmeier has made lots of good calls the last few years.

@Bob,

wow, thanks a lot for that e-book link, great stuff there.

CV said...

@DL

Name me one thing... ONE THING, that Obama has "stated" he would do that he has done so far...

He can't even quit smoking...

I-Man said...

@ Karen:

Whats your "feel" on DTO?

McFearless said...

@Ahab,

No I didn't take any shots from the other end of the mall, well not of the memorial anyway. I'm looking forward to going back, maybe this summer as it's a short train ride from DE and since I now have a video camera I can create some cool stuff with it on the Mac. I could go to the Treasury or FedRes building and work up some "movies".

Also, to clarify my post at 1:26:

Nails = Lenny Dykstra (aka, Captain Twizzler)

Karen said...

same target as before.. 62.50 fills a gap but 60 looks quite possible.. the geopolitical speculation could accelerate the down move but snap it back just as quickly..

DL said...

CV,

I agree with your point. Mr. "O" usually says all the right things. Action, however, is another matter entirely.

What Obama might do, though, is take out a few troops before the election, and put them back in right after.

Anonymous said...

From that book, growth industry-

Astrology

Can't figure any way to play that. Any ideas?

bob

CV said...

@DL

I seriously can't think of ONE THING that he's accomplished...

I can think of a bunch of things that he's either failed to accomplish, or done the exact opposite of what he promised he'd do...

McFearless said...

Bob,

Perhaps there is demand in your area for a Bob's Palm Reading Shop.

I imagine you could keep the overhead pretty low.

You could get the parents in for the "adult astrological items" by selling the constellation sticker kits for the children's bedroom.

I-Man said...

I just played around with some lines on DTO, and it seems to get toyed around with alot near the important levels.

I was hesitant to do this chart before because of the leverage factor, but I am going to give it a shot tonight.

There is something going on with that 70-78 range that needs to be hashed out.

McFearless said...

"I seriously can't think of ONE THING that he's accomplished..."

Oh me, me, let me help you out (playing my best liberal radio show host here).

He did the stimilus dude, it put an end to the Great Depression AND The Great Recession, all in one package. It also saved or created jobs, a lot of them. Hell, he's even wisely deploying all the money leftover from TARP.

And if it weren't for the No party he'd have done a lot more.

Obama!

72bat said...

@ ahab @ 12:15
"when you get divorced- you find out real a contract it is"
which totally confounds me, with the divorce rate where it is, as to why pre-nups are not the norm.
i mean what other contractual arrangement would you enter into based on terms set by the state?

McFearless said...

do pre-nups hold any weight in community property states?

I believe Kobe Bryant had a pre-nup, but it wouldn't have mattered in CA, hence the diamond purchase.

Anonymous said...

You could be onto something.

I have a friend who is an insurance underwriter. He was telling me about a store he looked at. He couldn't figure out what they were selling. Very nice layout, almost spa like. Then he was invited upstairs, to the 'adult consultation room'. Same high end layout, but 'toys' all over.

I thought it was brilliant.

bob

Anonymous said...

It was actually a flower shop at street level. Just remembered that. He couldn't figure how they were doing so much business in flowers.

bob

Karen said...

Turk is undoubtedly right about this.

CV said...

@McF

Oh yeah, I forgot... Cash For Clunkers also...

So he's got that going for him...

call me ahab said...

b22-

the art museums are fun- I prefer the Modern Art Museum myself

Natural History Museum is a always fun- sure you been there already- but you can wander around that place for days- has had a huge makeover over the last few years-

the Supreme Court is on the street right behind the Capitol- that's cool just to check out- totally open to the public-

I haven't been to the American History Museum in a long time- was closed for a while for renovations- but may be worth a look-

also- Library of Congress is pretty cool- same street as the Supreme Court - I think?

for lunch- check out the American Indian Museum- pretty cool selection of food- kind of pricey- but I don't think you have kids- so no big deal

DL said...

McFearless @ 1:46

“do pre-nups hold any weight in community property states?”

I think so.

DL said...

Karen @ 1:49:

Velocity.

Karen said...

just looked at bidu..

call me ahab said...

CV-

hahahahha- man you keep getting that Bill Murray line- it's funny every time-

72bat-

dude- when I got married I didn't have shit but a pair of Tony Lama's amd a 61 Ford F100-

I guess I could have pre-nupped those- but I don't think the boots would have fit her anyway and the truck was manual steering and a brute to drive

Karen said...

also, bearish turn xrt candle in the making.

DL said...

I assume we get a pullback (to perhaps 1105) on Thursday or Friday. If so, I'll probably pick up a few SPY calls.

McFearless said...

A few snips from Abelson this week:

Introducing the health-care summit with a quote from Thomas Brackett Reed, who had this to say about his fellow congressmen:

"never opening their mouths without subtracting from the sum of human knowledge"

and then this:

Expectations for the success of this high-level powwow were extremely low and fully met.

He also gives BR a shoutout in the article.

DL said...

"Expectations for the success of this high-level powwow were extremely low and fully met"

Depends how one defines "success".

I actually think there was some merit to it.

Leftback said...

Let's get back to talking EUR:USD you know it is the only game in town.

EUR is on a moonshot as shorts were forced to cover. When will it turn?
They WILL do a bailout, and the EURO will fall, and that's what they want.

DL said...

"They WILL do a bailout, and the EURO will fall, and that's what they want"

Depends what you mean by "fall".

Initial reaction to a bailout would be a rise. Longer term, yes, a decline.

Karen said...

ben, just finished reading the never disappointing abelson of my own accord but was disappointed over some of the dopey comments..

Anonymous said...

EURUSD

On my four hour, the one I have been watching the most lately, the MA 20 moved above the MA 50 today. It just bumped off of the MA 100.

bob

I-Man said...

From Turk:

"However, the unprecedented changes it has engineered over the past two years have resulted in a vast amount of deposit currency being created by the Fed. Instead of purchasing paper from the banking system solely with cash currency – its traditional form of payment to ‘monetize’ assets by turning them into currency – the Federal Reserve since the start of the financial crisis has increasingly relied upon deposit currency to purchase paper."


"Regardless how the Federal Reserve pays for the paper it purchases – cash currency or deposit currency – it is creating dollar currency and perforce expanding the money supply. But the traditional definition of M1 does not accurately capture this process when the Fed uses deposit currency to pay for its purchase. In fact, it is totally excluded. Because the Federal Reserve did not create deposit currency in the past, none of the Ms take it into account. "

I-Man said...

And more:

"The Federal Reserve reports M1 to be $1,716 billion as of February 15th. When deposit currency created by the Federal Reserve is added to the traditional definition of M1, M1 after adjustment is actually 170% higher at $2,918 billion. Its annual growth increases to 29.5%, nearly 3-times the rate reported by the Fed and more importantly, is an annual rate of growth in the quantity of dollar currency that is approaching hyperinflationary levels.

This restatement of M1 explains why crude oil is back at $80 per barrel; copper is $3.25 per pound; and commodity prices in the main are rising in the face of weak economic conditions. The US dollar is being inflated and worryingly, the rate of new currency creation is approaching hyperinflationary levels. Unless the Federal Reserve changes course, the US is headed for a deposit currency hyperinflation like those that plagued much of Latin America in the 1980s and 1990s."

McFearless said...

@ahab,

I really enjoyed the Aviation museum when I was there.

CV said...

@I-Man

They can create all the dollar currency they want...

But if it just sits there and does nothing then there will be no inflation...

To me, one can't even make the argument that "speculators" can use that cash to bid up commodities because the more they do, the more they will end up FREEZING other cash and slowing the velocity even more...

I understand the numbers, I just don't buy the HYPERINFLATION extrapolation...

McFearless said...

well, imo, trying to look at M1, or M2, or any measurement of "money" while ignoring credit, and then trying to use that to rationalize prices, well, waste of time....again, just my opinion.

Ignoring the credit side of the ledger would lead you to conclusions like hyperinflation....

call me ahab said...

b22-

dude- being on an aircraft carrier- launching real jets in the Indian Ocean makes the Air and Space museum have a bit less impact for me-

however its fun for the visitors in town that I take to the Mall- that place is always a favorite

I-Man said...

@ B22, CV...

Agreed, just trying to foster some digging...

72bat said...

not sure about the community property states,
but it still puzzles me why any two people cannot just write a contract for their own marriage according to their own desires and objectives regardless what the state's definitions/terms are.

CV said...

@McF

Exactly! Ostensibly, the fact that there is such a big debt overhang has basically just made the currency SIT THERE (as if to just hold it for liquidity purposes and take care of monthly cash flow obligations)...

This is a simple game of long term survival...

Karen said...

desperately seeking santoli

"THE STOCK MARKET IS ESSENTIALLY an argument over the future, staged over six-and-a-half hours each weekday, among people who can't even agree what's most important to be arguing about at any given moment.

The obvious center line of the tug-of-war divides those who believe the economic rebound is sputtering from those who see it strengthening. The market in recent weeks has seemed to require affirmation of sturdy improvement in order to catch a bid, though last week the data were mostly disappointing, and the bears couldn't do much damage."

call me ahab said...

CV has it right-

zero velocity-

and for the Fed to counter contraction in credit-they would have to "create" a lot more than a couple trillion- no?

CV said...

IF ANYBODY TOOK A LOOK AT MY NEW CHART IN THIS THREAD - ABOVE

I'm basically saying that it's POSSIBLE that this apparent "wait" to print numbers like 1126, or 1131 might be extended until Friday or next Monday...

Leftback said...

Hyper-inflationary silliness should be ignored. Noise pollution.

We know the FED is going to stop backing up mortgages very soon, that's the event we should be focused on. That and the continuing clavadista d'Euro - soon to be renewed....

Karen said...

"But the key disputes are even narrower than that. One is whether we ought to believe the message of the extremely steep Treasury yield curve. Another is what to make of the enormous proportion of idle cash and Treasury paper on banks' balance sheets. The traditional textbook interpretation of both these conditions is that they are signs of quicker growth. To disbelieve or to explain them away mainly requires asserting that it's very different this time."

CV said...

@LB

Agreed - Euro 129.22 by May (for starters)...

CV said...

@karen

Translation:

"Let me see what I can dig up here to talk my book and get people to buy gold"

McFearless said...

I-man,

yeah, I knew that, those arguments sound very smart to me, but they are just leaving out the 800lb gorilla, which is debt.

Ahab,

Yeah, if I had that experience in life I guess Avaiation museum wouldn't be a big draw.

My first time on an aircraft carrier for a dinner I had the same feeling I did the first time I was in Vegas, only then looking at the hotels:

"Wow, this is huge"

call me ahab said...

72bat-

in most break ups- the children and their support are the biggest issue-

outside of retirement accounts- I think most men gladly give up their possessions just to get out-

not that marriage isn't wonderful(-:

McFearless said...

OT and not related to EUR/USD.

There is a headline on Yahoo right now saying the Chile earthquake may have shifted the Earth's axis...

My take on any currency vs. the dollar is that if debts in those currencies deflate faster than the dollar then they rise against the dollar, if not, it's the dollar in charge, and ultimately I like the dollar best, because nothing comes close to debts denominated in dollars, sickest paper currency ever....

call me ahab said...

b22-

that's what she said

Helicopter Ben said...

Steep yield curve in this case = a sign of yield curve manipulation.

Anonymous said...

EURUSD

On the really long term charts, weekly, the MA 50 (1.4147)just went flat and is going to start to fall.

Down trending MA 100 (1.4179) is just above that.

MA 20 is still up at 1.4346

When MA's cross, in my experience, there are wild price movements. In this case the MA 50 and 100 are both trending down.

On the daily, we have lower lows, and lower highs. Capped at about 1.3700 since feb 18.

Still don't know which way to lean. Does seem like a 'sell the rumor, sell the news even harder'.

bob

Karen said...

"The hoarding of cash by banks is less discussed but perhaps more significant and certainly more dramatic. Michael Shaoul of Oscar Gruss & Sons points out that cash and Treasuries as a percentage of bank balance sheets shot to a 16-year high above 31%, almost half of it cash yielding almost nothing. This is the fastest increase in this measure ever; it was at a historically low 15% in early 2008."

and from a commentor: The banks are covering their butts. They are also bringing on even more short-term problems in their treatment of credit card wielding consumers. They will own one hell of a lot of real estate by the time this party is over...

DL said...

McFearless,

That 800 lb gorilla is going to get fatter.

Will be a 1500 lb gorilla at some point.

CV said...

@karen (last paragraph)

The Velvet Revolution (on banks)...

Leftback said...

"... that cash and Treasuries as a percentage of bank balance sheets shot to a 16-year high above 31%, almost half of it cash yielding almost nothing. "

Hence the reason why you don't have to worry about a buyer for USTs. This is their new business model. Take in money, buy Ts, sit on it. Add to the banks the increased buying in retirement accounts and you have the shift from foreign buyers of Ts to domestic, as US switches from spenders to savers. I have outlined this several times at Macro Man and other observers have also predicted this shift.

Elementary. Next question, please.

Leftback said...

I have advocated a Velvet Revolution. We should divest from C, BAC, and the rest as the US did from South Africa. Close accounts, don't use their ATMs, protest peacefully outside the branches. Advocate for people to pay off debt, cut up the credit cards and take business to small clean banks. Then they can just wallow like pigs in their own excrement.

Anonymous said...

LB

I have heard elsewhere that they only thing that can be tendered(by a bank for repaying a repo (at the fed) is a T. That's why short T's keep going negative.

Still don't get the repo market.

bob

McFearless said...

ahab,

lol!

DL,

but how do you measure it, if we "print" a trillion and debt deflates by a trillion, there is no new money. Generally though, I would expect the debt to get bigger before it gets smaller, that always happened in credit deflation, the only real question is if we already lived through that part of this story....I have no idea if we did or not.


LB,

I agree on treasuries, and sure, of course the banks own a hell of a lot of mortgages. I read in a study that in the 50's RRE could have dropped some 85% and virtually all banks would have remained solvent.....today....no chance if something like that happened.

DL said...

LB @ 2:36

You working for Arianna Huffington?

72bat said...

lb -
agree in spades and preach it to all and sundry who will listen: take all your savings, loans, mortgages, credit card business away from those tbtf mofos and put it with your local (sound) bank or credit union. just received word my new cu credit card has been approved. when it arrives, i'll be cutting up the chase visa.

McFearless said...

Another thing is I keep going back to Karen's idea of gold going up in Euro's, why not do that trade or the GBP rather than just trying to trade the Eur/Usd.

I just think those would be "easier" trades....if there is such a thing.

DL said...

McFearless,

Federal debt is not going to decline any time soon.

Maybe in 10 years we'll start to get serious.

I-Man said...

Would be kind of fitting if the lower high turns out to be:

1123.5

(I know it was really 1123.46 but couldnt resist the round up)

Just caught I eye.

McFearless said...

Here's the thing though about pulling your personal business from larger banks....in this environment, why do banks need customers?

I know I'm being very general here, but I think it's a fair question right now.

Leftback said...

Gold going up in GBP could be a really sweet trade for a while.

Karen said...

LB, great post at MM! (reprinted here w/o permission)

A global inability to borrow to extend sovereign debt (in other words a second phase of the credit crisis) would certainly bring about a worldwide contraction. Sooner or later someone is not going to be bailed out. The only questions to be answered are: which banks, and in what country?

Gary, welcome back, and LB agrees with the sentiment. But the difference between Iceland and the US is that we will not have a say in the bailout decisions. No referenda here.

All bubbles eventually pop when the rate of expansion exceeds the ability of surface tension to hold the materials together, the Australian housing version will be no exception, the RBA knows this and is trying to arrest it before it becomes even more superheated.

If Aussie housing bursts at the same time as China slows its building programs, the recession that results could be extremely deep and the AUD will tank. Bruce's main business is digging ore in Woop Woop and getting Wayne in Sydney to sell it to China, while Sheila sells houses in Penrith to newly arrived Pommies. An economic miracle it isn't.

McFearless said...

I know DL, what Obama wants Obama gets right?

that'd be better stated to somebody else, I only laugh at it....

DL said...

"what Obama wants Obama gets right?"

Perhaps not so much after November.

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