Financial topics

Investments, gold, currencies, surviving after a financial meltdown
John
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Buyer's Remorse

Post by John »

Buyer's Remorse

The Dow went up 300 points as the House vote approached. Once the
vote was completed, the Dow fell 300 points, and now is basically
flat for the day. The 3-4 pm ET hour is going to be a nail biter for
a lot of investors. It should be even more exciting than the
Biden-Palin debate.

John

John
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Buy on the rumor, sell on the news

Post by John »

It's called "Buy on the rumor, sell on the news." I've heard that
phrase before, but I've been entirely sure what it means. It's
something like this: If there's a big event scheduled, then everyone
buys. Then, when the event actually occurs, the day traders sell,
taking a profit, leaving behind the poor schmucks who thought that
buying was actually a good idea.

Anyway, that's what happened this afternoon.

Now, at 3:45 pm ET, the Dow is down 128 points, and falling rapidly,
with 15 minutes left of trading.

The pundits have a new hope: A Fed interest rate cut on Monday or
Tuesday.

It seems that the only thing preventing a big plunge is for the Fed
to keep throwing things at the market.

John

John
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What's wrong, Seabiscuit?

Post by John »

Pundits and analysts had long faces this afternoon, after the market
fell sharply, following the successful passing of the $700 billion
Bailout of the World bill.

Code: Select all

Dow     10,325.38  -157.47      (-1.50%)
Nasdaq   1,947.39  - 29.33      (-1.48%)
S&P 500  1,099.23  - 15.05      (-1.35%)
I heard words like "disappointing" and "disconcerting." The given
causes included today's disastrous employment report, and other poor
economic indicators.

Next milestone: The opening of the Asian markets, around 7 pm ET
Sunday.

John

Gordo
Posts: 122
Joined: Mon Sep 22, 2008 11:18 am

Re: Financial topics

Post by Gordo »

I believe that the market bottom for the year may have been hit today or will be hit over the next two weeks.

ALL THE STARS are aligning. The Wells Fargo deal announced this morning w/ regard to wachovia, the ignoring of the worse than expected payrolls number, the spike in VXO along with closing at the lows w/ massive down vol %, equity put/call ratio, investors intelligence bull/bear, and finally nasdaq sentiment index – all at decent bear extremes. The public finally became deeply concerned about the economy in the last couple days. Yesterday Ray Lucia (very popular nationally syndicated financial talk radio guy) was practically begging everyone to get onboard with the congressional bailout saying he would hang up on anyone that disagreed with him and that businesses everywhere would not be able to make payroll, he sounded panicked.

It will take a while (months at least) for people to realize the bailout deal isn’t working, in the meantime we have the presidential election and lots of optimism about “change” is right around the corner. You can expect a brief presidential honeymoon period.

The bulk of my cash is now in tax free muni bonds and muni bond funds. Never thought I’d say that! But the deals that were available this week were remarkable, one of them has already gained nearly 10% in just days. A very tradable bounce in equities is coming for the aggressive speculator. For the gold bugs - the ratio of gold stocks to physical gold has just hit an ALL TIME RECORD LOW - meaning that for as long as it has been tracked, gold stocks have never been so undervalued compared to the price of gold. This ratio usually reverts to the mean rather quickly, so either gold itself is going to drop big, or the gold stocks are going to rally. A decent bet would be long the stocks short the metal if you didn't want to pick a side.

Another conservative thing you can do right now - you can make quite a lot of money borrowing at 0% teaser rates from credit card companies right now and stashing the cash in FDIC insured CDs. I am aggressively doing this and currently have just under $300,000 borrowed (which is probably a sign that the credit card issuers are going to get killed a year from now). The only real risk to this strategy is that you will screw up and forget to make a min payment on time so if you don't know what you are doing you probably shouldn't get started, but really its a fantastic source of easy income.

John
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Re: Financial topics

Post by John »

Dear Gordo,
Gordo wrote: > I believe that the market bottom for the year may have been hit
> today or will be hit over the next two weeks.

> ALL THE STARS are aligning. The Wells Fargo deal announced this
> morning w/ regard to wachovia, the ignoring of the worse than
> expected payrolls number, the spike in VXO along with closing at
> the lows w/ massive down vol %, equity put/call ratio, investors
> intelligence bull/bear, and finally nasdaq sentiment index – all
> at decent bear extremes. The public finally became deeply
> concerned about the economy in the last couple days. Yesterday Ray
> Lucia (very popular nationally syndicated financial talk radio
> guy) was practically begging everyone to get onboard with the
> congressional bailout saying he would hang up on anyone that
> disagreed with him and that businesses everywhere would not be
> able to make payroll, he sounded panicked.
You and I have been exchanging e-mail messages for - what? - 3 or 4
years now? And you're still writing stuff like this? Can it really
be that not a single word I've written has sunken in with you?

This is exactly what I was writing about just two days ago:

** Pundits are all smiles, as they await a 'retail capitulation' or 'panic crash'
** http://www.generationaldynamics.com/cgi ... 01#e081001


You're talking about this hare-brained "capitulation" concept. I'm
telling you, Gordo, you're dreaming.
Gordo wrote: > It will take a while (months at least) for people to realize the
> bailout deal isn’t working, in the meantime we have the
> presidential election and lots of optimism about “change” is right
> around the corner. You can expect a brief presidential honeymoon
> period.
Things are moving much more quickly than that. Wow! I can't believe
what I'm reading from you.
Gordo wrote: > The bulk of my cash is now in tax free muni bonds and muni bond
> funds. Never thought I’d say that! But the deals that were
> available this week were remarkable, one of them has already
> gained nearly 10% in just days. A very tradable bounce in equities
> is coming for the aggressive speculator.
So take your 10% and sell. You're going to lose everything.
Gordo wrote: > Another conservative thing you can do right now - you can make
> quite a lot of money borrowing at 0% teaser rates from credit card
> companies right now and stashing the cash in FDIC insured CDs. I
> am aggressively doing this and currently have just under $300,000
> borrowed (which is probably a sign that the credit card issuers
> are going to get killed a year from now).
Well guess what, Gordo? The rest of us don't get $300,000 credit
lines like you do. You're in a different class than the rest of us.

Honestly, I can't imagine how you could stand reading my web site for
several years, given that you've evidently never believed a word I've
written.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.GenerationalDynamics.com/forum

John
Posts: 11479
Joined: Sat Sep 20, 2008 12:10 pm
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Re: Financial topics

Post by John »

From a web site reader:
> I read your blog about the reader who can only choose 1 money
> market for his 401K.

> First of all, he has been informed of what is in it. These
> companies are required to send a prospectus periodically stating
> what is in each money market fund and they do. If he threw it
> away, that is his problem. I read mine and pulled my money out of
> the fund in 2005 when there was still plenty of time to do it.

> Ignorance is no excuse. If someone is too stupid to understand
> the prospectus or too lazy to read it, then that person deserves
> to lose their money, and frankly, I don't feel sorry for any of
> these people.
You're a hard, hard man.

John

User avatar
Tom Mazanec
Posts: 4180
Joined: Sun Sep 21, 2008 12:13 pm

Re: Financial topics

Post by Tom Mazanec »

I just don't "grok" this "capitulation" thing. When people give up hope, you would think the market would REALLY fall. Or am I misunderstanding something?
“Hard times create strong men. Strong men create good times. Good times create weak men. And, weak men create hard times.”

― G. Michael Hopf, Those Who Remain

John
Posts: 11479
Joined: Sat Sep 20, 2008 12:10 pm
Location: Cambridge, MA USA
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Re: Financial topics

Post by John »

A message from a web site reader:
> I am from Malaysia and have been following your website since
> last year. For your info, I was a complete neophyte to finance,
> but have since enrolled in the CFA program. I even have shared
> some of your predictions with my colleagues, and believe me they
> are impressed.

> Ok, I may have securitized your ideas.

> Anyway, keep up the good work, I respect your knowledge and
> analysis
I certain appreciate the compliments, but I wonder what "securitized
your ideas" means?

John

John
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The fallacy of "capitulation"

Post by John »

Dear Tom,
Tom Mazanec wrote: > I just don't "grok" this "capitulation" thing. When people give up
> hope, you would think the market would REALLY fall. Or am I
> misunderstanding something?
The "capitulation" concept is a complete misreading of what happened
in 1987, in what I call the "False Panic of 1987."

To understand it, begin by looking closely at the following table:


Date DJIA (Change) (% of trend) (% of 1987 high)
----------------- -------------- ---------------- ----------------
Tue 1987-08-25 2722.42( +0.94%) (128% of 2113.6) (100% of 87-08-25)
Wed 1987-08-26 2701.85( -0.76%) (127% of 2113.9) ( 99% of 87-08-25)
Thu 1987-08-27 2675.06( -0.99%) (126% of 2114.2) ( 98% of 87-08-25)
Fri 1987-08-28 2639.35( -1.33%) (124% of 2114.4) ( 96% of 87-08-25)
---------------------------------------------------------------------
Mon 1987-08-31 2662.95( +0.89%) (125% of 2115.2) ( 97% of 87-08-25)
Tue 1987-09-01 2610.97( -1.95%) (123% of 2115.5) ( 95% of 87-08-25)
Wed 1987-09-02 2602.04( -0.34%) (122% of 2115.8) ( 95% of 87-08-25)
Thu 1987-09-03 2599.49( -0.10%) (122% of 2116.0) ( 95% of 87-08-25)
Fri 1987-09-04 2561.38( -1.47%) (121% of 2116.3) ( 94% of 87-08-25)
---------------------------------------------------------------------
Tue 1987-09-08 2545.12( -0.63%) (120% of 2117.3) ( 93% of 87-08-25)
Wed 1987-09-09 2549.27( +0.16%) (120% of 2117.6) ( 93% of 87-08-25)
Thu 1987-09-10 2576.05( +1.05%) (121% of 2117.9) ( 94% of 87-08-25)
Fri 1987-09-11 2608.74( +1.27%) (123% of 2118.1) ( 95% of 87-08-25)
---------------------------------------------------------------------
Mon 1987-09-14 2613.04( +0.16%) (123% of 2118.9) ( 95% of 87-08-25)
Tue 1987-09-15 2566.58( -1.78%) (121% of 2119.2) ( 94% of 87-08-25)
Wed 1987-09-16 2530.19( -1.42%) (119% of 2119.5) ( 92% of 87-08-25)
Thu 1987-09-17 2527.90( -0.09%) (119% of 2119.7) ( 92% of 87-08-25)
Fri 1987-09-18 2524.64( -0.13%) (119% of 2120.0) ( 92% of 87-08-25)
---------------------------------------------------------------------
Mon 1987-09-21 2492.82( -1.26%) (117% of 2120.8) ( 91% of 87-08-25)
Tue 1987-09-22 2568.05( +3.02%) (121% of 2121.1) ( 94% of 87-08-25)
Wed 1987-09-23 2585.67( +0.69%) (121% of 2121.3) ( 94% of 87-08-25)
Thu 1987-09-24 2566.42( -0.74%) (120% of 2121.6) ( 94% of 87-08-25)
Fri 1987-09-25 2570.17( +0.15%) (121% of 2121.9) ( 94% of 87-08-25)
---------------------------------------------------------------------
Mon 1987-09-28 2601.50( +1.22%) (122% of 2122.7) ( 95% of 87-08-25)
Tue 1987-09-29 2590.57( -0.42%) (122% of 2122.9) ( 95% of 87-08-25)
Wed 1987-09-30 2596.28( +0.22%) (122% of 2123.2) ( 95% of 87-08-25)
Thu 1987-10-01 2639.20( +1.65%) (124% of 2123.5) ( 96% of 87-08-25)
Fri 1987-10-02 2640.99( +0.07%) (124% of 2123.7) ( 97% of 87-08-25)
---------------------------------------------------------------------
Mon 1987-10-05 2640.18( -0.03%) (124% of 2124.5) ( 96% of 87-08-25)
Tue 1987-10-06 2548.63( -3.47%) (119% of 2124.8) ( 93% of 87-08-25)
Wed 1987-10-07 2551.08( +0.10%) (120% of 2125.1) ( 93% of 87-08-25)
Thu 1987-10-08 2516.64( -1.35%) (118% of 2125.3) ( 92% of 87-08-25)
Fri 1987-10-09 2482.21( -1.37%) (116% of 2125.6) ( 91% of 87-08-25)
---------------------------------------------------------------------
Mon 1987-10-12 2471.44( -0.43%) (116% of 2126.4) ( 90% of 87-08-25)
Tue 1987-10-13 2508.16( +1.49%) (117% of 2126.6) ( 92% of 87-08-25)
Wed 1987-10-14 2412.70( -3.81%) (113% of 2126.9) ( 88% of 87-08-25)
Thu 1987-10-15 2355.09( -2.39%) (110% of 2127.2) ( 86% of 87-08-25)
Fri 1987-10-16 2246.73( -4.60%) (105% of 2127.4) ( 82% of 87-08-25)
---------------------------------------------------------------------


** Great Depression and Dow Jones Industrial Average
** http://www.generationaldynamics.com/cgi ... 010.i.djia


As you can see, on August 25, 1987, the Dow was at 2722, the high for
the year. At that point it started falling at the rate of a point or
two every day, and then on Friday, Oct 16, it fell 4.6%.

I actually have a personal memory of that weekend. The market had
fallen roughly from 2500 on Tuesday to 2200 on Friday, and it was
being discussed on tv. My memory is of an old guy (who I now realize
must have been around 5-10 years old in 1929) saying the following:
"The market may fall a little more, but the next 300 point move will
be in an upward direction."

Then on Monday, October 19, the market fell 500 points, or 22.6%, to
around 1700.

Now you can imagine the psychology at the time. The people in charge
were survivors of the 1929 crash. As I've described in conjunction
with the "58-year hypothesis," these are people 63+ years old who
realize that (1) the pattern from 25-Aug to to 19-Oct-1987 was almost
identical to the pattern 3-Sept to 28-Oct-1929. These people would
recognize the similarity, but younger people would be almost entirely
oblivious to it.

I discussed the 58-year hypothesis in these articles:
** The Iraq war may be related to the bombing of Hiroshima and Nagasaki.
** http://www.generationaldynamics.com/cgi ... 17#e080217


** Investors commemorate the false panic of Monday, October 19, 1987
** http://www.generationaldynamics.com/cgi ... 19#e071019


The Boomers and Generation-Xers, who are now running things, learned
completely different lessons from what happened in 1987.
  • They learned there was no longer any danger of a stock market
    crash, because the Fed could stop any crash at any time by injecting
    liquidity into the banking system. (This worked fine in 1987, but
    the same strategy has failed miserably under Ben Bernanke's Fed since
    the credit crunch began in 2007.)
  • They learned that when everyone "capitulates," as they did on
    October 28, 1987, then the market has reached a bottom, and starts
    going up again.
In other words, the pundits and investors believe that when we have
another day like October 28, 1987, a "capitulation," then the market
will have truly reached bottom, and will start going up again.

Those who believe in capitulation are missing two very big
points: So it's good to understand that even people who disagree with me
about a coming stock market crash still agree that "something" is
going to happen -- something like the 22% plunge that happened on
28-Oct-1987. And this is important -- mainstream investors agree
with me that this is what's going to happen. (Among those who
believe in the capitulation=bottom concept, most would disagree with
Gordo, who apparently holds the view that the capitulation event has
already happened. That would have to be considered wishful thinking,
even among those people who believe that capitulation = market
bottom.)

So mainstream investors agree with me that some kind of panic event
is going to occur. Where we differ is what happens afterwards.
  • Mainstream investors believe that the market will bottom out at
    that point, just as happened in 1987. To see that this belief is
    silly, just understand that they believe that the stupid Boomers and
    nihilistic Gen-Xers will act today just like the sensible Silents did
    in 1987. That assumption is ridiculous on its face.
  • Generational Dynamics predicts that the market will continue to
    fall for several years.
Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.GenerationalDynamics.com/forum

catfishncod
Posts: 7
Joined: Sun Sep 21, 2008 7:42 pm

Re: Financial topics

Post by catfishncod »

Greetings, gentles all --

John, almost all your predictions are based off the assumption that we are going to recapitulate the 1929-1933 Great Depression crash. Will you allow an alternate hypothesis?

http://chronicle.com/temp/reprint.php?i ... 4hy9z83x18
Scott Reynolds Nelson wrote: When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now...

In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.
In Dr. Reynolds' analogy, we (and Europe) are like Paris, Vienna, and Berlin -- all on building sprees spurred by the competing, newly unified empires they were the capitals of. America, like China today, was suddenly on an industrializing spurt and flooding the market with cheap goods. There were excessive mortgages underwritten by governments and complex financial instruments (railroad trust deals).

And the results? Massive consolidation by "the robber barons" to create the Gilded Age, where Rockefeller, J.P. Morgan, Andrew Carnegie, and suchlike could buy up smaller firms for pennies on the dollar -- because they were undercapitalized. The largest -- and most violently opposed -- growths of the union movement came right after the Panic of 1873. Europe blamed the Jews -- and the first glimmers of the anti-Semitic movement that culminated in the Nazis became visible. America blamed itself -- and the thoughts that led to both progressivism and modern fundamentalism in the Awakening to come.

1873 was the near the end of the Fourth Turning here in America (I'm sorry, Mr. Howe and ghost-of-Mr.-Strauss, but the Fourth Turning did not end at Appomattox. Southerners know this deep in their bones. It ended in 1876-7 when Reconstruction died and the country was unified by the completion of the transcontinental railroad.) but it was near the beginning in Europe. (If anyone has good evidence of 4T in Europe before the events of 1870-71, let me know.) What was Europe like in 1874-1884? THAT may be where we are headed...

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