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Forget the Scalpel, Go for a Machette!



January 04, 2008 – Comments (9)

What a title, I stole it from Bespoken

It is about the degree to which analysts are downgrading their projections.  If you look back at my blog, I stated why I was a banking bear at the beginning of July.  I talked about why I was going to be taking my time and really think through doing anything in the market as I ended my first year in the market last July. I am sure that I have stated a few times that I think smart money has been selling into strength.

I also know that I've been a complete bear all over the fool saying that I think earnings are going to have a major squeeze going forward for a few months now.  It appears analysts have jumped onto the downgrade bandwagon.  Bespoken has an interesting read about the degree to which estimates have been downgraded.

Be safe, the first rule of investing is to preserve capital. 

9 Comments – Post Your Own

#1) On January 04, 2008 at 6:07 PM, MakeItSeven (31.73) wrote:

Return of capital trumps return on capital.

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#2) On January 04, 2008 at 6:39 PM, abitare (29.85) wrote:


Another good day for you +474. (FYI - I am up about 300, I decided to underperform solar and it has been killing my points.) When I said I expected the S&P to fall 25%, I did not mean this month? It is tough to determine what is going to come down the most. I wish I had some room for some more ultra shorts. 

Is it any warmer there? 

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#3) On January 04, 2008 at 11:10 PM, dwot (28.95) wrote:

I am in Vancouver right now, I fly back to the NWT tomorrow. 

Here's a number to remember...  Americans have been spending 130% of their income for the past 5 years.  That would essentially mean that in five years on average each American owns an additional 1.5 times their salary.  

That is mind boggling.  It means that to just get to living within their means household budgets need to be shaved by 25% on average.... 

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#4) On January 05, 2008 at 12:01 AM, abitare (29.85) wrote:

I am hoping for a "soft landing", but I cannot see how this is going to end well. I do own SKF and SRS, but I prefer a loss and a happy ending.


Also Shiller Warns Of Japanese Style Recession

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The Times Online is reporting Shiller Says America could plunge into Japan-Style Recession.

Losses arising from America’s housing recession could triple over the next few years and they represent the greatest threat to growth in the United States, one of the world’s leading economists has told The Times.

Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.

Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: “American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.”

He said that US futures markets had priced in further declines in house prices in the short term, with contracts on the S&P Shiller index pointing to decreases of up to 14 per cent.

“Over the next five years, the futures contracts are pointing to losses of around 35 per cent in some areas, such as Florida, California and Las Vegas. There is a good chance that this housing recession will go on for years,” he said.Well I certainly am not arguing with that forecast. A Japanese Style Recession is consistent with what I have been proposing for quite some time.

When does Peter Schiff hop on board that train of thought? Please see Not Your Father's Deflation: Rebuttal or Peter Schiff Replies to Deflation Rebuttal for alternative viewpoints and a rebuttal of those viewpoints.


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#5) On January 05, 2008 at 2:22 AM, dwot (28.95) wrote:

I saw that.

I have been considering Schiff's idea of hyper inflation and Mish's idea of deflation.  I finally understand why Schiff is so hyper-inflation.

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#6) On January 05, 2008 at 8:56 AM, floridabuilder2 (97.94) wrote:

good post dwot, finally we have the news that knocked the markets out of their whip saw pattern which was killing me...  the UE numbers were the last straw and the overall market trend is 95% officially down...there are 3 legs to the stool of american net worth.... housing, investments and jobs...

housing was the first leg knocked off, jobs is now the 2nd leg... and if the markets continue their reaction because of the first 2 legs then the third leg are investments in stocks (e.g. 401k, etc..)  this will put a total squeeze on spending

I finally had enough confidence yesterday morning at the open to buy the QID ultrashort and hold long term... it is better to be late and get 80% of the profit than try to be early and lose money... i think we continue lower with stops at all the major support floors... the next major support assuming the nov 2007 doesnt hold is the august 2007 floor

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#7) On January 06, 2008 at 12:18 AM, abitare (29.85) wrote:


Do you know how to post a video on the CAPS blog? 

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#8) On January 06, 2008 at 8:15 AM, dwot (28.95) wrote:

The ones that I have posted have the code for embedding them at the end of the video, or if on Utube you can usually see the code off to the side.

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#9) On January 06, 2008 at 8:59 AM, dwot (28.95) wrote:

floridabuilder, I think we had the information to that effect months ago, there was just so many companies in the news reporting layoffs and then with building starts so low, the job report was a given.  I read Mish and he does a great analysis of the job report, breaking it down to non-sense numbers they use.  So, he's shown for quite a while when you read about all of these layoffs the job report is still showing job growth in housing and finance, for example.  He worked out that he thought a truer figure was 8.9%.

The other thing that he's shown in the past is how the job market is declining due to the aging population.  The job numbers are disasterous when you consider that there is a huge number leaving the workforce for retirement now.  The unemployment rate is one thing, but probably a very important number to be looking at is the employment level of the population as a whole as I believe that is declining.

I am so not a technical investor.  This floor and support stuff the way it is used is nonsensical to me.  I am not talking about you specifically, but I read these technical analysis write-ups and they are full of "if," "if," "if," if what they say doesn't happen then it will go either way.

I suppose the theory for the support that you mention is that a lot of people bought in at those level and there is the physchology of not wanting to sell for a loss so there would be less sellers at that level.  I wonder what is the turnover in buying and selling shares.  If the volume is high there would likely be a lot of those buyers already sold.

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