Wednesday, May 20, 2009

Any Way You Look at It, Sideways Market Likely

Home late yesterday and again today! Trying to get some work done and out the door before the long weekend. The new lawn is starting to show some "green shoots", and these shoots are the real deal!

Federal and State Judges Ready to Back Fed/Treasury Actions
The Chrysler move into bankruptcy at lightspeed hit it's first speedbump when an Indian pension fund files for a delay/halt to the proceedings so that their position could be heard as to what kind of compensation they were entitled to under law. These things usually can result in minor to major delays for various actions.

The courts realize that the best way to minimize the jarring effects of a speedbump is to, counter-intuitively, run over them really fast. In a summary judgement delivered less than 24 hours after the original motion, the bankruptcy court judge said "out of luck chumps" to Indiana. Please see Zero Hedge for the complete written ruling.

I am sure that having no legal recourse when it comes to settling business matters will have a wonderful effect on private investment going forward.

California Dreaming
Tuesday belonged to California as there was a big vote that decided whether ever escalating taxes would solve the state's budgets issues or if the process of waiting for the FEDs to bail them out would be the road taken.

The votes are in, and the California voters rejected all tax games and funny spending tricks to finance the states losses. All eyes will be on Washington for the next move.

Mish has been all over the story, and I would point to his site and these relevant posts:
California Rejects Propositions
California Elected Officials Pay to be Cut 18%
That was fast! See, change you can believe in!

Any Way You Look at It, Sideways Market Likely
Calculated Risk often posts a couple of charts from the site DSshort. These charts are historical comparisons between bear markets in past with our current bear in comparison.

Lets start with the chart "Four Bed Bear Markets" and see what we can see (Click on charts for larger view):

Looking at this chart I come away with the following thoughts:
-It is a close call between the Oil Crisis line and the Crash of 1929 line as to which scenario the current market fits in
-If you like the Oil Crisis idea; slow and sideways looks likely, all things being equal (which of course they are not)
-If you like the Crash of 1929 idea; a slow spiral down is still in the months ahead

The other chart is called the "Mega-Bear Quartet" and this chart compares today's mess with the biggest busts in history over a longer time frame. The other culprits are the Nikkei 225 (1989-2000), Nasdaq (2000-present) and the DOW (1929-1938):

This longer term chart is a bit more provocative.

My take away ideas:
-Today's market action is hardly without precedent or historical context
-All the items listed exhibit classic post bubble behavior; big crash-long move sideways-trending up over the long term at a slow rate
-The bottom scale is YEARS; not days, not weeks, not months, but years.

I would call attention to the last point about the time scale. Everything the government has done is built on the idea that a turnaround is right around the elusive corner. The massive balance sheet growth of the FED and the never ending bailouts, backstops, and guarantees are all measure meant for a short term fix. The calls for a "V" shaped recovery, now almost the consensus, all cement this idea.

Now look at that chart again.

It is my opinion that the FED and the Treasury know full well that their plans cannot last years in effect. That is why I believe even more intervention is a sure bet. What this will entail I can only guess at this point as every trick known is in place and quite a few that were never imagined before.

Long term, only dollar devaluation, debt destruction, and forced inflation will shorten the long move sideways. Shorten, not "make short". The action in the dollar and gold today seemed to indicate a small but growing recognition of this fact.

Are pensions and those about to retire prepared for this?

Are States prepared for this?

Is the US government prepared for this?

And most importantly, are YOU prepared for this?

Have a good night.


Lisa said...

I was getting worried about you. Glad you are just busy and nothing is wrong. :)

getyourselfconnected said...

Thanks, but just busy for now! Scary thing was a black swan (no kidding, my wife saw it as well!!!) flew by the car yesterday morning and I was like "Oh man, I did not need that".
Thanks for checking in.

GawainsGhost said...

I'm prepared. I have money, guns and ammo.

That said, I don't think this is going to end very well. People are stupid, and they like to believe in things like gumdrops and lollypops. Until the bill comes due. Then they throw a fit.

Yeah, well, they can throw a fit. I'm ready. And I've got bullets with their names on them.

getyourselfconnected said...

Now Gawains,
Lets play nice!

Anonymous said...

Bush Pension Chief Charlie Millard To Senate: "I'll Plead The Fifth"
By Moe Tkacik - May 20, 2009, 6:40PM
For practically his entire 18-month term directing the obscure Pension Benefits Guaranty Corporation, Charlie Millard could not stop talking about his radical new plan to plow the majority of the agency's coffers -- which offer partial bankruptcy insurance to the retirement funds of 44 million Americans -- into stocks, real estate and private equity.

Well, that ended today.

Millard pleaded the Fifth three times before a Senate subcommittee convened to discuss the fund this afternoon, refusing to answer any questions about his controversial tenure, which began when Bush appointed him interim director in May 2007 and ended when Obama was sworn into office. There are some pretty good reasons for him to : last week four senators formally requested the Office of the Inspector General to open a criminal investigation into Millard's activities in response to a preliminary OIG report detailing the former Lehman Brother's executive's eyebrow-raising call logs during his time at the office. The report showed that Millard made hundreds of calls to Wall Street investment banks in line for lucrative contracts managing the fund's money under the new investment regime, and traded dozens of emails with a Goldman Sachs executive assisting Millard's post-D.C. job hunt after Goldman was awarded just such a contract.

There's Goldman Suks again right in the middle of the fleecing. These guys need to be in prison.


watchtower said...

Being debt free is only part of the battle IMO.
Rising healthcare, taxes, and the probable return of higher energy cost are but a few of the things that concern me.
I'm debt free but there is no way I can just quit work and do want I want to (I may be debt free but I'm far from being independently wealthy).
The place that I work for has a pension plan (not a 401k like my wife's) and so far they are keeping up with their obligations but for how long I wonder?
Those knuckleheads drank the kool aid that says stocks only go up.
They send out out a letter every now and then telling us in their best Casey Serin voice "It's all good"...yeah, right.
Everything has a breaking point (OK, maybe not everything, I don't know) and what I see does not look to good.
The Great Depression of 2006 blogspot had an illustration at one time showing how interconnected things are, it basically said this:
1. The housing bubble popped.
2. The financial, credit card, retirement bubble is currently popping.
3. Social Security, Medicare, and Medicaid bubble is going to pop.

Going to pop

Made sense to me but what do I know.

And as Monty Python sezs; "Now for something completely different".

Went to see the new Star Trek movie tonight (I didn't get to see it on IMAX though) and I thought it was good, well worth seeing on the big screen IMO.

david said...

I think that apart from low/ manageable levels of debt, liquidity is going to be key to surviving this downturn.

Trouble is most people ar already overinvested in assets, with their cost prices being far above current market prices.

GawainsGhost said...

Well, well, well. That bankrupt NTY economics writer only told half the story.

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