Thanks for that post Ralph. Gregor also wrote a piece more recently about the positive positive correlation seen gold and treasuries http://gregor.us/policy/are-gold-and-us-treasuries-in-conflict/
My concern about 2009 and the next few years is less about the performance of the economy and of asset markets but has more to do with dangerous developments in western democracies and in geopolitics. As Ed Crane observed, âthe history of mankind is a history of the subjugation and exploitation of a great majority of people by an elite few by what has been appropriately termed the 'ruling class.â The ruling class has many manifestations. It can take the form of a religious orthodoxy, a monarchy, a dictatorship of the proletariat, outright fascism, or, in the case of the United States, corporate statism. In each instance the rulingclass relies on academics, scholars and 'experts' to legitimize and provide moral authority for its hegemony over the masses." Clearly, 2008 was a year during which âthe US ruling classâ relied on âexpertsâ at the Fed and at the Treasury and on academic scholars to indoctrinate the public that highly expansionary monetary and fiscal policies were necessary to save the US economy. Marc Faber
I disagree with this bash the government no matter what attitude. Its great to have markets 'sort it out', reset to the 'right levels' and let them do 'the work'. The question is which state of mind do you want the market doing that on. Everyone and their mothers was scared as hell back in Q1, thats not the kind of mindset where people make rational decisions so the market wasnt doing rational stuff there, mispricings were all over the place When everyone thinks all banks are insolvent, you dont have Capitalism you have a Tarantino movie. The Bush and Obama administration along with the Fed deserve great praise for having stopped the panic, now markets can function, world trade is back, runs stopped. I do think things got out of hand and the government is now not using this euphoria break they got to solve the zombie bank problem along with other issues but at least brought capitalism back and medium-term growth(even if weak) looks a high percentage bet
The fact the countries like Australia and Canada are doing well through employment and even raising interest rates might not be bullish for the US or hawkish for rates at all like some speculate. Since the US is a net importer of commodities if those countries do well, the US trade balance goes deeper into deficit weakening GDP figures
According to bloomberg so far 30ish or so companies reported Q3 earnings 74% missed revenue estimates 74% beat earnings estimates And the cost cutting aka furniture burning continues...
Looks like besides the Barron research I pointed out in the past suggesting that profits tend to recover by about 6x GDP growth during recoveries there is now this bloomberg research saying the same "The profit growth forecast for S&P 500 companies by analysts for 2010 is 11 times faster than the expansion in U.S. gross domestic product projected by economists surveyed this month, the highest ratio on record, data compiled by Bloomberg going back 60 years show. The average ratio is 6.1. " http://www.bloomberg.com/apps/news?pid=20603037&sid=aT1nPG0YoeYo This might be a better reseach since the Barrons one was looking at corporate profits in the national income accounts. This one looks like is actual public traded company earnings although I cant be sure
Goldman's deficit projection http://www.zerohedge.com/article/go...it-estimate-105-9-trillion-sees-output-gap-10
Hussman posted a VERY interesting letter http://www.hussmanfunds.com/wmc/wmc091011.htm I refer specifically to where he says this market is mostly owned by technicians and the fundamental investors are selling(he doesnt provide much evidence but it seems likely that is right). This was something I intuively thought about it but I never was able to put into words and he does a very good job at it. It seems to me that at some point around 800-900 this rally became a momentum mini-bubble and the momentum guys pilled in buying every dip, technical pullbacks to MAs, while the fundamental investors realize the market gets more expensive by the day and it has lower expected long-term returns therefore they cut positions. It resembles oil in 2008
This Hussman insight gives me the confidence to now try to get short this market through ES in a big way. I, of course, wont counter-trend so I will wait for a key technical level to be broken(A trendline of some kind or MA), get short with a tight stop, anekdoten style. If correct and if I'm patient with the stop(I dont keep trailing at every opportunity) the gains there could be huge compared to the risk I will need huge discipline because I wont be able to tighten the stop when the profits are all hanging out there but then I just need to remember what the patient bull made when he bought at 800 and refused to put his trailing stops tight but used KEY levels instead But the hussman insight seems quite correct, there seems to be a large gap between fundamental reality and technical factors. When the market dip stops exactly at the 50MA like it did a while ago you know its not warren buffett that is buying. The momentum guys will crash this market as fast as they drove it up, they are not known to be loyal
One way to put this hussman theory is, if that is correct, technical breakdowns should be FAR more likely to produce large moves in the opposite direction. All the ES daytraders watching key levels might not be aware of the current market composition so they will trade like they always do but that could be a bad idea since you have a disloyal market In fact the last two daily trendline breakdowns that I followed would have worked as shorts even though eventually the momentum guys bought the dips. If I use patient stop and refuse to trail I will have to take small losses like those though. But if the Hussman theory is right this is a large edge that most people are not aware, in one of the most liquids markets in the world