Down goes the Dow

Why do you think we are in the late stages? Don't you think the broad market will rise 7 - 10 percent by year end? Then retail will join the party in a huge way.

In what scenario are there large outflows? Isn't this a classic melt up?

Yes, I think this a melt-up.

Sagarin wrote:

It also wouldn't surprise me to see the Fed increase debt purchases rather than tapering.

You say that as if you believe tapering was ever a realistic possibility.

Of course they are going to increase debt purchases.

This seems appropriate for today, as it's what I have been saying all along:

"The Fed’s capabilities to engineer changes in economic growth and inflation are asymmetric. It has been historically documented that central bank tools are well suited to fight excess demand and rampant inflation. The Fed showed great resolve in containing the fast price increases in the aftermath of World Wars I and II and the Korean War. Later, in the late 1970s and early 1980s, rampant inflation was brought under control by a determined and persistent Federal Reserve.

However, when an economy is excessively over-indebted and disinflationary factors have forced central banks to make overnight interest rates as close to zero as possible, central bank policy has repeatedly proved powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere) and from 1989 to the present in Japan are clear examples of the impotence of central bank policy actions during periods of over-indebtedness.

Four considerations suggest the Fed will continue to be unsuccessful in engineering stronger growth and higher inflation with their continuation of the current program of Large Scale Asset Purchases (LSAP).

First, the Fed’s forecasts have consistently been overly optimistic, indicating that their knowledge of how LSAP operates is flawed. LSAP obviously is not working in the way they had hoped, and they are unable to make needed course corrections.

Second, debt levels in the U.S. are so excessive that monetary policy’s traditional transmission mechanism is defunct.

Third, recent scholarly studies, all employing different rigorous analytical methods, indicate LSAP is ineffective.

Fourth, declining velocity deprives the Fed of the ability to have a measurable influence on aggregate economic activity and is an alternative way of confirming the validity of the aforementioned academic studies."

http://www.hoisingtonmgt.com/pdf/HIM2013Q3NP.pdf

What a load of crap. That's the same bozo who said there'd be another recession in 2012. Moran.

His analysis, which I rather doubt you bothered to read, is correct. As for as your second point, John Hussman addressed this in a recent piece:

"The upshot here is that it’s critical for investors to take month-to-month economic reports with a grain of salt. Given that we accurately anticipated both the 2000-2001 recession and the 2007-2009 recession, the deterioration in the relationship between historically reliable indicators and subsequent economic outcomes has been frustrating, as it probably has for the tiny number of other economists who also accurately anticipated those recessions (e.g. Lakshman Achuthan of ECRI). Aside from briefly clouding our records, only a few economists really understand how closely the U.S. economy has been hugging the edge of recession lately. I have no doubt that the normal historical relationships will reassert themselves over time. Indeed, there’s a modest historical tendency for these correlations to be weakest shortly before recessions. In any event, quantitative easing has distorted more than just the financial markets, and has made a great deal of other data uninformative.

http://www.hussmanfunds.com/wmc/wmc131007.htm

Face it jack... $3.5 trillion on the Fed's balance sheet and what do we have to show for it but anemic, even illusory growth, dropping median household income, and a greater wealth divide? The Fed doesn't have a clue, and that will only increase under Yellen's "guidance. And you will recall that we did have a negative advanced growth print for one quarter, and last quarter's GDP print would've been a mere 0.6% if the BEA had used the same PCE deflator that printed right around 1.7% the prior 14 quarters but somehow remarkably dropped by a full percentage point to goose nominal growth.

I will caveat this by saying what I said previously on another thread- that, while the analysis is correct, I don't necessarily agree with the conclusion of Dr. Hunt.

Sagarin wrote:

Face it jack... $3.5 trillion on the Fed's balance sheet and what do we have to show for it but anemic, even illusory growth, dropping median household income, and a greater wealth divide? The Fed doesn't have a clue, and that will only increase under Yellen's "guidance.

What we have to show for it is NO RECESSION. Are you so taken in by these failed prognosticators that you cannot see they are spouting bullshit. They were wrong before and they are wrong this time. The QE has been effective. You mention yourself that there has been growth. Where do you think we'd be without the Fed's work? In the crapper, jack, that's where.

The growth is not organic and it never will be so long as the Fed keeps inflating their balance sheet. There's no spouting BS. The ten-year has been falling and hit a low of 1.6%. Exactly what was predicted. Sure, it has rebounded, and I believe rates can rise even in a disinflationary/deflationary scenario for other reasons, not the last of which is ultimately waning faith in the security of sovereign debt, but I don't see that near-term. Why don't you read the economic studies cited and look at long-term charts of the 30-yr yield, M2, and the velocity of money, instead of proclaiming "Wrong!"

The QE has been effective? That's the most comical thing I've heard. Perhaps if we'd held banks to account and not fallen into the abyss of a liquidity trap, we'd be well on our way... Ever ponder that scenario?

Sagarin wrote:

The growth is not organic and it never will be so long as the Fed keeps inflating their balance sheet...

... and we fail to rein in our gross debt/GDP.

I respect your opinions and have read Hussman and others you have cited over the past year or two.

Using today's relative valuations as a baseline, which do you think will be relatively more valuable in 25-50 years, after everything shakes out. In other words, what is this year's smartest long term investment. I am wondering whether you think any of these are relatively undervalued now, in comparison to other things on this list. U.S. stocks, U.S. dollar, U.S. residential real estate, U.S. farmland, U.S. rural open land, gold, or silver. Is there something else not listed that seems better by comparison to any of them?

By contrast, what seems to be the worst value at today's prices?

Thanks.

Sagarin wrote:

The QE has been effective? That's the most comical thing I've heard. Perhaps if we'd held banks to account and not fallen into the abyss of a liquidity trap, we'd be well on our way... Ever ponder that scenario?

Of course it's been effective. To suggest otherwise implies ignorance.

"The fact is, QE certainly has been extremely effective, at least in America. "

"The first round of quantitative easing appeared to be effective in preventing the economy from sinking into a giant depression."

"The program is generally considered to have been successful in further easing monetary conditions....As the experience with quantitative easing has shown, monetary policy can be effective even when nominal interest rates are at the zero bound. QE2 was successful as a classic easing of monetary policy in that the imprint on the financial markets looked just like a standard, aggressive monetary policy easing."

Sappy Sales wrote:

What we have to show for it is NO RECESSION. Are you so taken in by these failed prognosticators that you cannot see they are spouting bullshit. They were wrong before and they are wrong this time. The QE has been effective. You mention yourself that there has been growth. Where do you think we'd be without the Fed's work? In the crapper, jack, that's where.

This is exactly right. In 2009 Sagarin was arguing that nothing could be done to successfully offset the deleveraging. He complained incessantly that we should be letting depression wash over us instead of "kicking the can down the road."

Somehow, he believed that healthy organic growth would come faster if only we let market forces play out in our badly broken markets. Can you imagine how much worse off we'd be? Sagarin, of course, can't.

It was clear then that he was completely out of touch, and that he would dismiss any evidence of economic prosperity over any number of years or decades as calm before a storm. I once asked him to put a time frame on his projections for doom, knowing after two years that he would never admit to having been wrong without an indisputable record of his position. He refused, of course, to back his rhetoric with any clear statements or predictions to which he might be held accountable.

He simply wants to rail against the Fed and the Obama administration. I don't think he has any other agenda. Certainly not truth.

You're still missing it. We have NOT "successfully" offset deleveraging. Deleveraging forces are still largely in play which is why the Fed won't exit, acquiescing to the view that their growth projections are perpetually overly optimistic, while failing to realize that they are exacerbating the damage. As far as a time frame, I clearly stated in 2008 that this deleveraging would take anywhere from 7-10 years to play out. So, you are LYING. I, did, in fact, give you a time frame. I sold in 2008, have been a tactical trader, with international holdings and the bulk of my money in multifamily housing, as we exited storage in anticipation of soft consumer spending trends.

The Keynesian and monetarist views are inaccurate, and, fortunately, were not employed during the Great Depression of 1920-21, and we achieved escape velocity by 1922. Of course, we didn't "tinker" with accounting standards and we held the banks to account. The politically-connected ones got a pass this time around. There are still skeletons in those closets.

Did you even read Dr. Hunt's piece Webby? These guys are much smarter than you, even if they are not completely accurate in the short run. Of course you would point to an unemployment rate of 7.2% and attribute the drop in the LFPR to historic lows to "retiring baby boomers," when it has, in fact, been shown that the LFPR rate for 65-79 yr olds is climbing while it is falling for 25-54 yr olds.

Sappy Sales wrote:

http://www.washingtonpost.com/blogs/wonkblog/wp/2012/09/13/qe3-what-is-quantitative-easing-and-will-it-help-the-economy/

Geez, did you even read this link? It's decidedly undecided and sure talks about "hope" a lot. Certainly not convincing. I agree to some extent about Japan in the first link and have argued with liberals on here forever that Japan is an accident waiting to happen. Japan has a major demographic problem, which we will have one day ourselves, but they at least had strong internal domestic savings, quite unlike the US. Funny, no mention is made of that. Your third link was sourced from the Fed itself. At least I read your "sources." You might try reading mine.

Oh, I've read them alright. What did you think I was talking about?

Klondike5 wrote:

Down to 14,850 from a peak of 15,700 I believe.

Maybe 5%

What's the bottom?

I am betting sub 13,000

End of October results:

OP started this monster at Dow 1485, now we are at 15,545.

that's 4.7%, plus maybe 0.4% in dividends, so I'll call it a bad decision by 5.1%.

The other indices are up much more - for example, the SP 500 is up 8.1% incl dividends since that fateful day.

Globally, stocks are up an amazing 9.2% since day one of this thread. Nearly an entire year's return, neatly dodged by OP.

he claims he sold somewhere around dow 15000 in late June, but that just makes the story worse for the OP - since June 28, which is when I believe he claims to have sold, global stocks are up an incroyable...12.4%.

(using the Vanguard Total World Stock Market Index (VT) as a proxy for world stocks)

Yeeeeouuuuch that's got to hurt. I would feel bad, but...

by the way, this massive thread is an impressive creation. it has stayed mostly on the market, but has had many standard lrc vicious interludes. I especially appreciate the 3 or 4 digression of furious grammatical nazism.

we are now bigger than lrc classics like loss of coordination in a leg, and closing in on post nuptial shutoff.

[quote]agip wrote:

by the way, this massive thread is an impressive creation. it has stayed mostly on the market, but has had many standard lrc vicious interludes. I especially appreciate the 3 or 4 digression of furious grammatical nazism.

Amazingly delusional.

Agip was launching grammatical attacks on me when the Dow was dipping -- all of which proved to be incorrect by the way -- and now pretends it was others doing so and calls it Nazism.

This level of self delusion can only be explained as zi%n*sm.

What is staying on market? is that British for staying on point or something?