2007 Redux?

Discussion in 'Technical Analysis' started by jsp326, Nov 14, 2012.

  1. jsp326


    Does this breakdown in the stock market remind anyone of 2007? November is historically a good month for stocks. However, in '07 and this year stocks peaked early (Sept) and crashed when they normally rally. Not a good sign...
  2. It's eerily quiet...everywhere. message boards, news articles, etc, etc...

    I think that there has been so much "QE fatigue" and after a few years of listless trading, it seems so many are gone from the game permanently. (Compare it to 2007 when there were still traders left OR 2000 prior to that).

    So yes, I think that the "infinite QE" proclamation was the nail in the coffin.
  3. Maverick74


    One big difference. In 2007, the entire system was over leveraged from hedge funds to the retail public. Now, no is in the market and the leverage is gone. In 2007, we had a credit bubble. Now we have a bond bubble. Everyone I know is long bonds and long fixed income ETF's. If there is a crash coming, it's in the bond market, not risk assets. And the irony is, this selloff in equities is just feeding the bond bubble even more.
  4. jsp326


    Valid point, but when did the Nikkei stop being overleveraged? 1991? And it's been in a slow-motion crash since then.

    I know there are differences between the US and Japan and I'm not predicting a 20+ year bear market. But lack of leverage alone won't stop a market from falling.
  5. Maverick74


    There are many differences between Japan and the US, too many to count. Do you know where the yen was in 1990 vs the dollar compared to today? The Yen use to trade at 250 and is now under 80. Japan can't recover because they have priced themselves out of global trade. Nothing can save Japan.

    The US has a debt bubble. Not an equity bubble. I'm not making a bull case for stocks. Quite the opposite. I think in real dollar terms the market is going sideways. But the bond bubble is undeniable. All the money is in the bond market, not in stocks. All the retail flows in mutual funds are going into fixed income funds, not growth funds. The Fed is going to keep rates low till 2015? 2016? That is just going to force more and more money into the bubble.

    Stocks from a real dollar perspective are dirt cheap when priced in gold. We already have taken out the 2009 lows. The reason it's so "quiet" as you put it, is because there is no one selling. No one is buying either. Prop firms have folded up shop. Hedge funds closing. Banks have shut down their prop desks and the mom and pop investor is no where to be found. That's why we can't get the VIX to uptick. Why buy the vix to hedge when you have nothing to hedge.

    Do you know where the 30 year bond futures were in 2009 at the height of the credit crisis? They were trading a 105 handle. Today? They are 152. I don't know how old you are but in the 80's they were trading a 60 handle. I have no idea when the bond bubble is going to pop, it may still take a few years. But when it does, look out. The world is going to change. This drop in equities is just a trailer to the main movie still to come. And what a movie that is going to be.
  6. jsp326


    Regardless of the economic/fundamental differences, I maintain that this is technically very similar to 2007. If I had the time, I'd post a couple of charts. We peaked a bit earlier this year (mid-September), but the eery November breakdown (not common, especially after electing an incumbent) is much the same.

    For the record, I'm not predicting another 2008 next year. I don't make any predictions, at least serious ones. But my bias would be for flat-to-moderately negative action ahead, perhaps after a Santa or early Spring rally.
  7. Maverick74


    It's NOT the same as 2007 though. In 2007 we were trading up to all time highs. The market was very over leveraged and very complacent.

    I do think the Bond market looks like 2007 in terms of the one sidedness of the trade and the extreme bullishness. And the charts resemble each other much more. I'm not sure what to make of your prediction. Saying the market is not going to go anywhere is not really a prediction. I don't think it's going to go anywhere either but the charts in risk assets today do NOT look like 2007. And the psychology of the market, wow, not even remotely close. I can't remember a time where people were more pessimistic about our economy and country. Complete polar opposite to 2007.