Current stock market (Nov. 2010) not reflecting reality

Epic post here.

Reminds me of the tired adage, "Don't confuse brains with a bull market (or cyclical bull within a secular bear)." Also, complacency is high, volatility low, mutual fund cash low, and insider selling vigorous. Nonetheless, the end-of-year, underperforming money manager chase is probably on, and with Fed POMOS ongoing, it's hard to see a significant pullback before the Jan-Mar. timeframe. But, a Dow of 12000+ means what exactly with gold priced at $1500/oz? Not much.

The Ghost of Christmas (credit) past isn't going anywhere. But we can keep him chained in the closet for awhile and pretend he isn't there.

Sagarin wrote:

God, you guys know just enough to be dangerous. Here's some homework for you.

http://www.hoisingtonmgt.com/pdf/HIM2010Q3NP.pdfhttp://www.aeaweb.org/aea/conference/program/retrieve.php?pdfid=460

Okay, I bit and actually clicked the first link. It states the ridiculous view that there is over a fifty percent chance of negative growth (great English there: why not say "positive decline?"). It offers no reasons for that, only opinion. Then it cites a Freakonomics author. Yeah, so that's great evidence, and why anyone would listen to quants like you, who got us into this mess, I will never understand.

Sagarin has been posting the same incredibly negative stuff for years. I guess he's just a half-empty kind of guy?

Flagpole, Mid 2010:

"DOW will hit 12,000 by Jan 1 2011!!"

Flagpole, late 2010, after it looks like DOW will not hit 12,000:

"Well, the DOW is undervalued! If it was valued correctly (by my arbitrary standards!!), it would have hit 12,000"

Is this what you call "admitting when you're wrong"?

jjjjjjjj wrote:

Okay, I bit and actually clicked the first link. It states the ridiculous view that there is over a fifty percent chance of negative growth (great English there: why not say "positive decline?"). It offers no reasons for that, only opinion. Then it cites a Freakonomics author. Yeah, so that's great evidence, and why anyone would listen to quants like you, who got us into this mess, I will never understand.

You didn't read it at all. It provides plenty of corroboration for why the stimulus and QE2 are ultimatley bound to fail, and why velocity is and will continue to be the problem, despite the Fed's increase in the monetary aggregates. You cherry-picked one comment out of a five page article (a guy that, ironically, Krugman would probably be quite fond of), when several other credible economists were cited, including the Rogoff-Reinhart study, the second link which you conveniently neglected to read, probably because its too overwhelming. But it's a good one and an accurate one. Frankly, you should read former Presidential advisor Christina Romer's work. And his very own Erskin-Bowles committee is advocating stout austerity as well as a redo of the tax code.

But for now, the trade is away from Europe and a bid to "safety." Last time the dollar and gold traded together, it preceded the credit collapse. Enjoy the holidays. I'm neither a glass half-empty or glass half-full kind of guy, just a pragmatist and thankful that I have a glass at all.

Meh wrote:

Sagarin has been posting the same incredibly negative stuff for years. I guess he's just a half-empty kind of guy?

Sagarin is a permabear.

Ha!I didn't say what you put in quotes there brother, and I didn't even insinuate that. Let me be crystal clear...either the Dow will hit 12,000 before the end of 2010 or it won't. I will admit I was wrong if it doesn't, and I will say I was right if it did. I am ALWAYS a black and white guy, and I NEVER try to weasel out of a statement. If you or anyone would like to accuse me of that, then I suggest you pull up a quote from me that shows that -- you will NOT be able to do that.My saying that the market is undervalued (and it is) is NOT trying to weasel out of anything, and it was a completely different topic than my prediction of a 12,000 Dow by end of 2010. I understand that the market is almost never where it should be (either up or down).So, let's be clear once again...if the Dow does NOT hit 12,000 by end of year, I will admit my prediction was wrong, no ifs ands or buts. I NEVER give ifs ands or buts when I'm wrong...NEVER, and I won't start now.Check yourself though brother, we're now just 700 points away from 12,000, and the good news is continuing to pour in. When Obama extends the Bush tax cuts (and he WILL), it will tick up even higher. 12,000 by year's end could still happen, and quite honestly it SHOULD happen...the news is just too good for a decline or stagnancy.

LetsInvest wrote:

Flagpole, Mid 2010:

"DOW will hit 12,000 by Jan 1 2011!!"

Flagpole, late 2010, after it looks like DOW will not hit 12,000:

"Well, the DOW is undervalued! If it was valued correctly (by my arbitrary standards!!), it would have hit 12,000"

Is this what you call "admitting when you're wrong"?

Flagpole wrote:

Sagarin is a permabear.

I am bearish on gleaning anything useful from these threads.

[quote]Sagarin wrote:

But, a Dow of 12000+ means what exactly with gold priced at $1500/oz? Not much.

quote]

pls explain why this means anything

seems to me there is little to no inflation - gold is going up for some other reason than inflation.

So a dow at 12,000 means quite a bit, I'd say.

In a low-inflation environment what does it matter what gold is priced at in relation to the dow?

I just hope you are not one of those "inflation is actually 8% but the government lies and says it is 1%" guys.

jjjjjjjj wrote:

why anyone would listen to quants like you, who got us into this mess, I will never understand.

Quants didn't GET US INTO this mess, but they certainly exacerbated it. The Federal Reserve and Fannie and Freddie's distortion of the transparency of credit, the government's incestuous ratings cartel, and everyone's greedy entitlement attitude towards homeownership and investment, which created a glut of excess, got us INTO this mess, in the wake of the popping of the technology bubble (also created by the Fed, greed, and excess).

I no longer work for a boutique. Just a prop-trader and market-timer. Got silver, nascent global economies, other hard commodities, and non USD currencies? Because they've all outperformed the US.

agip wrote:

[quote]Sagarin wrote:

But, a Dow of 12000+ means what exactly with gold priced at $1500/oz? Not much.

quote]

pls explain why this means anything

seems to me there is little to no inflation - gold is going up for some other reason than inflation.

Gold is a harbinger of risk, as I've said forever. But forget about gold for a minute, which I don't even own. The point is, US stocks, measured against any proxy of REAL wealth, are actually down, even as their nominal values are up. Look at commodities. Think the CPI measures anything useful, particularly when food and oil are excluded and a proxy for housing in ownership-equivalent rents (a very dubious assumption as pointed out by several astute economists) comprises some 40% of the measurement? I'm not a "hyperinflation" guy, even as I don't trust "official" statistics. I am a deflation guy, as the Fed overtly recognized in August, but, unfortunately, we're not willing to take our medicine and let the economy heal on its own. There will be unintended consequences.

Nobody cares about the Dow. It is a constant refrain on one of my trading forums that only the dumb money looks at the Dow, which is true. But, the Dow could go to unprecedented heights if nobody pulls the plug on the Fed's counterfeiting operation.

However, I have indeed underestimated the Fed's arrogance. But you have to remember, I was the first who uttered deflation in '07, noted I sold all stocks in Jan of '08, noted that financials had capitulated in early '09, even as I didn't think Joe Q. Public had, and got more bullish in August of '09, before turning bearish again. I believe the Fed is sailing without a compass. My point has been and continues to be, why own US stocks when you can own hard, industrial commodities, emerging economies that are flying under the radar, and non-US currencies? They have done quite well and will probably continue to do so, even with a sharp pullback, which is overdue.

AGQ flying again. I suppose you could call that a US "stock."

I have limited time to waste and will stop reading if what I am reading is garbage and so I stopped at 1.5 pages of nonsense with no evidence. Read Romer? She wildly overestimated the effect of an inadequate and misplaced form of stimulus.

so...if we are in a deflationary environment, a dow 12,000 would be beyond terrific. An even better investment. You seem to be arguing against yourself,no?

(or forget the dow - say a stock market 10% higher than it is today)

As for the Fed - M2 growth is actually in line with normal - around 2.8%, so what does 'counterfeiting' mean in that context?

As for the 'real' value of stocks - do a comparison chart of the value line arithmetic average vs a basket of commodities like DJP - fact is, the average stock has far outperformed a basket of commodities. The only stocks that haven't are mega cap US, which unfortunately are the only class of stocks that john 1 investor measures.

hard asset guys forget the value of a human brain - that when you buy stocks you buy a man's ability to create wealth.

jjjjjjjj wrote:

I have limited time to waste and will stop reading if what I am reading is garbage and so I stopped at 1.5 pages of nonsense with no evidence. Read Romer? She wildly overestimated the effect of an inadequate and misplaced form of stimulus.

Yes, that you stopped reading was obvious. At least you're honest. You should've kept reading. There's plenty of credible evidence and it's a good article. That's your problem, you only read snippets and regurgitate the garbage. And you are correct about Romer in the light in which you cast her. My point is, you likely would've been in love with her, as Krugman was, when she was first nominated to the committee, more than half of which has left, ironically. But she did note that deficit spending and tax increases would likely thwart organic growth. That part she got right.

Go back and read the entire article. Even if you don't agree with it for whatever reason, you didn't get far enough. And who are you kidding that you don't have enough time? You just took a six-week vacation to Europe. Must be nice.

The Dow can never be as significant as other indexes because there are only 30 stocks in it. That said, it's not insignificant. Blue chip stocks typically provide dividends, and dividends are not insignificant at all. Also, the stocks in it are more diverse than the tech-heavy NASDAQ, but the S&P 500 (the broader market) is even more diverse. I don't just buy the Dow anyway. I have so many funds that I'm in just about everything. I just like using the Dow as a measuring stick. Gotta use something.Regarding the value being less than it was even at the same levels, I'm not one to care much about that. The purpose of investing is to have money for the future. $4 million dollars at age 62 is not the same as $4 million dollars at age 23, but it is likely the 23 year old didn't have $4 million dollars, AND as the wealth built, it is HIGHLY likely that the 23-year-old's money all the way to age 62 earned more in the market than was eaten away by inflation or devalue of the dollar or whatever you want to mention.Either you invest to have a shitpile of money when you retire or you don't. IF think inflation is going to be a big deal (and I DO), THEN what you do is invest MORE than experts say you need to, not less.Why own US stocks? Because they are a part of a diversified portfolio that should include those and international stocks and bonds if you're closer to retirement. As Buffet said, no one ever got rich betting against the United States.

Why do you care only about M2?

"By the early 1990s, the relationship between M2 growth and the performance of the economy also had weakened. Interest rates were at the lowest levels in more than three decades, prompting some savers to move funds out of the savings and time deposits that are part of M2 into stock and bond mutual funds, which are not included in any of the money supply measures. Thus, in July 1993, when the economy had been growing for more than two years, Fed Chairman Alan Greenspan remarked in Congressional testimony that "if the historical relationships between M2 and nominal income had remained intact, the behavior of M2 in recent years would have been consistent with an economy in severe contraction." Chairman Greenspan added, "The historical relationships between money and income, and between money and the price level have largely broken down, depriving the aggregates of much of their usefulness as guides to policy. At least for the time being, M2 has been downgraded as a reliable indicator of financial conditions in the economy, and no single variable has yet been identified to take its place."

http://www.ny.frb.org/aboutthefed/fedpoint/fed49.html

http://www.bank.gov.ua/engl/Publication/stat/data/1-stat-release_monetary_aggregates_e.pdf

Lastly, the point is that the underlying morass, overleverage, and toxic balance sheets are deflationary, but the Fed is goosing "asset inflation," which is not inflation itself. I suppose you would call that a bull market. The Dow isn't measuring anything useful in one direction or the other, just the fact that there are many greater fools and that irrational exuberance can go on for a long time. Hell, the hangover may not come until 2014. I have no desire to own the US, even if the Dow climbs to 15,000 by 2012. There is money to be made elsewhere.

Hang on... I transported the wrong link. I have so much shit here.