Market Indicators - Investor Sentiment

Top 800. Oct 22, 2003 8:13 PM

» radiodude - Re: Liz Ann Sonders of Charles Schwab

In response to message posted by pbradford6:

What exactly is a "blow-off rally," and how does it differ from other rallies?

-- posted by radiodude

Top 801. Oct 22, 2003 10:28 PM

» hairie31 - 4 Down Years In A Row ?

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The Dow ended 2002 at 8,341.

From today's Dow close of 9,598, it would only take an additional drop of a little over 13 % to make 2003 the 4th down year in a row for the Dow..not seen since the 1929-1932 Decline. (and the Dow could still be up 10 % from the March 11, 2003
low of 7,524)

Too soon to tell if there was really a major inflection point in the market last week and the downtrend will continue.

But if it turns out the Dow is down 4 years in a row....what are the chances of 2004 will be a down year? In my opinion very little!

The Dow has never been 5 down years in a row and if the Great Depression didn't produce 5 down years in a row, I doubt our current economic problems will.

-- posted by hairie31

Top 802. Oct 23, 2003 6:56 AM

» Normxxx - Bank Credit Analyst says . . .

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Watch U.S. Money Growth
2003-10-23 08:33:00

U.S. money growth has recently slowed sharply. If the weakness persists it will be a warning sign for the economy and stock market.

The growth in all the monetary aggregates has plunged in the past three months. This follows an earlier spike related to tax cuts and the high level of mortgage refinancings, both of which gave a temporary boost to bank deposits. M2 growth is set to slow further given that mortgage refinancings have continued to decline. It will be important to see where money growth settles once the refinancing distortion is out of the way. If annual money growth dips below 6% or so it would be a warning sign that policy is not loose enough to support above-trend GDP growth and further equity gains

-- posted by Normxxx

Top 803. Oct 23, 2003 7:13 AM

» Normxxx - Michael Belkin says . . .

Deleveraging the System

"The Federal Reserve deliberately leverages the system -- every cycle seems to get more brazen and dangerous. Fed pump-and-dump operations resemble those of a boiler room penny stock operation -- cram a bunch of leverage (excess credit in the Fed's case) into financial markets, entice investors into excessive long positions in the targeted market (penny stocks for boiler rooms, bonds and equities for those who follow the Fed), push the bubble as far as it can go -- then watch from a distance (and deny responsibility) when it all goes up in smoke.

The Fed seems to do one of these pump-and-dump operations about every four years. The last was the 1999 Y2K credit expansion, which inflated the early 2000 Nasdaq bubble and led to the subsequent crash. The major one before that was the 1992-93 credit expansion, which culminated in the 1994 global bond market crash. The process of leveraging up the system sends out a signal -- go forth and speculate. Buy stocks, bonds and houses, build buildings, leverage up your holdings. Take no thought for tomorrow. Swing for the fences. At some point, the leveraged Ponzi scheme collapses -- either as a result of a Fed tightening -- or it simply topples from its own dead weight.

Markets and the economy are approaching that point. Since Fed honchos are promising never to raise interest rates again -- it probably won't be a Fed tightening that upsets the apple cart this time. But there is increasing evidence of an involuntary deleveraging.

1) Money supply growth has plummeted from 14% to just 1% since July (3 month annualized growth rate of M2).

2) Banks are liquidating Treasuries. Treasury holdings at commercial banks have dropped $100 billion since July. The Fed has pumped banks full of Treasuries with its low interest rate policy -- and now it is dump time. The model forecast sees an ongoing liquidation of Treasuries by banks.

3) Commercial lending has gone nowhere since July. The model sees no recovery in bank commercial lending.

4) A slowdown in real estate lending. So far it is just a slowdown in the growth rate, but the model sees a bigger real estate lending slowdown ahead.

This involuntary deleveraging process should feed through into weaker corporate results and economic statistics. This is a seasonally weak period for unemployment. The average increase in Initial Unemployment Claims (IUCs) not seasonally adjusted over the past four years was 421,000 from late September to early January. The Labor Department tries to disguise this with seasonal adjustments. Just be aware that every commentator babbling on about stronger job statistics is ignorant of the most obvious seasonal trend in existence. They are not talking about real-world unemployment claims -- they are blabbering about how fudged Labor Department numbers differ from other Labor Department fudged numbers. Why financial markets take any notice of this nonsense is beyond us. In any event, many more people will be losing jobs over the next three months in the real world -- no matter what Labor Department or CNBC morons say.

So the process of leveraging up the system has run its course and an involuntary deleveraging is underway. Deleveragings are not low-volatility events -- a financial market dislocation in the fourth quarter is likely. Earnings reporting season is keeping a bid under stocks for now, but the news should be mostly downhill from here. S&P500 earnings growth is at a 50 year high -- the profit cycle is probably topping. Overvaluation is still a huge issue -- the S&P500 P/E ratio is still 1.2 standard deviations above its long term average. That may seem cheap (down from 4 standard deviations), but the bubble era warped the concept of value. Templeton says to buy at a point of maximum pessimism and sell at a point of maximum optimism. For the current cycle -- this is a case of the latter."

[Norm here:] That's certainly a lot to stew over. But the big point that is that the monetary system itself is now contracting liquidity -- right at the point when the majority feels the liquidity bubble can go on indefinitely. This is how a liquidity bubble collapses under its own weight. He also foresees a "market dislocation" in the fourth quarter.

When majority opinion is so well-entrenched, there is not room for everybody to exit gracefully.

-- posted by Normxxx

Top 804. Oct 23, 2003 8:20 AM

» sentimentguru - 5 years down in a row

It is highly likely that we will see 5 years down in a row, Remember that in 1929 we had a sharp crash because economic stimulous was too late. This time around it's more of a soft landing. It's likely we could see several more down years unless we crash now. Good luck

-- posted by sentimentguru

Top 805. Oct 23, 2003 8:25 AM

» Normxxx - Alan Newman/Joseph Stiglitz say . . .

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[Alan speaking]
Last week, Reuter's Pedro Nicolaci da Costa reported that Nobel winning economist Joseph Stiglitz had concluded he had erred big time in his key involvement with the Clinton administration by equating the interests of Wall Street with those of the nation at large. Stiglitz admitted, "It was an overly zealous, even naive faith in the market." The Columbia University professor's new book "The Roaring Nineties" says that instead of shaping a new economic order, "we wound up trying to shape it reflecting our commercial and financial interests," and further admitted that Federal Reserve officials, rather than curb the dangerous excesses of the mania, "were too caught up in its glory to step in at the right time...." Stiglitz goes on to show how Greenspan inflated his perceptions of his own power to end the bubble without harm and the damage done by the so-called New Economy, which required that the average investor take on extraordinary risks with their life savings. Unfortunately, the financial industry has achieved such paramount importance that the Fed has compromised our future by repeatedly committing to a stance wherein risk taking is encouraged. The "Greenspan Put" continues to embolden participants to take on risk in increasingly larger steps. Acutely aware of the “wealth effect,” the Fed implies they will do all they can to keep prices high and are not interested in stressing risks at all. Clearly, with Nasdaq prices still more than 60% down from their peak, the Fed is nowhere close to tampering with speculators. Nor will there ever be an admission that they blew it big time back in 2000. The Fed’s stance has denigrated the theme of investment per se and has instead, elevated speculation to the preferred mode of the financial markets. This has led to the creation of more bulls and has changed the way sentiment should be measured. Like P/Es and dividend yields, the old parameters no longer apply. But where risks grow, the odds must necessarily grow as well [ so] that[,] in time, this drama is destined to play out poorly.

* * * * * * * * * * * *

Today's featured charts illustrate both share volume and transactions for OTC Bulletin Board stocks, the penny kind, and the most speculative of all. The final entry on both charts speaks volumes about Act II of the mania and should once and for all, dismiss the myth that we are in a normal bull market, cyclical or otherwise. Incredibly, at September's rate, Bulletin Board share volume would be clear off the chart and more than four times the pace in the year 2000. Although velocity as measured by dollar trading volume is at a lower clip than in 2000, we must not forget that these issues again finally traded back to pennies (where they belonged) from the much higher prices seen at the top. Transactional velocity is also rising rapidly. At September's pace, average daily transaction are actually above where they were in 1999.

-- posted by Normxxx

Top 806. Oct 23, 2003 8:28 AM

» sentimentguru - Market has most likely topped

I would say odds are better than 50% we topped on the 15th of October. It is possible to have 1 more push higher that shows divergence in the A/D line & Transports etc. but we are most likely headed lower now. The sentiment as measured by retail investing crowd was off the charts in mid October. This was most likely enought to bring instutions into selling into the crowd. We may see the October lows very soon.

-- posted by sentimentguru

Top 807. Oct 23, 2003 8:36 AM

» pbradford6 - Re: Re: Liz Ann Sonders of Charles Schwab

In response to message posted by radiodude
What exactly is a "blow-off rally," and how does it differ from other rallies?

A "blow-off rally" IMHO would be an explosive rally to the upside accompanied with a strong short squeeze.

Two friends that work in the industry mentioned last month at a dinner party they felt this was a strong possibility. I thought at the time they were just prospecting and didn’t give much credence to their opinion. Interestingly Liz Ann Sonders of Charles Schwab recently mentioned the same possibility in a notice to her clients. My understanding is that they expect the rally to start in November and carry through the month of December. We shall see if their right.

Does anyone else expect/predict a strong year end rally?

-- posted by pbradford6

Top 808. Oct 23, 2003 10:15 AM

» hairie31 - Re: 5 years down in a row

In response to message posted by sentimentguru:

Welcome to the board, Sentiment Guru:

I think the question might me, what route would bring the market to a undervalued condition where a new bull market could start?

1. Have the market go nowhere for the next 20 years till valuations get to a very low level.

2. One big crash (or maybe a major terrorist attack) that would very quickly bring down valuations.

I would tend to go for the Number
# 1 scenario. Although a terrorist attack is a wild card that no one can predict.

-- posted by hairie31