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russiangambit (29.24)

S&P 500 got over 1015 on the 4th try

Recs

7

August 21, 2009 – Comments (20)

It is rather intresting to watch, though it is rather sick curiousity, how far the market can be pushed by the banks with all their free money. The news this week is really bad but the people on CNBC are all bullish and trying to explain the run up in the market this week. The explanations like: the things will get better (eventually), China will save us, mutual funds managers are underweight equities. The same explanations we heard over and over. Yet the simple truth is that the banks don't have any other place to put their FED money, so they are making trading profits with them. And because they are so big, they distort the market.

Just now S&P went through 1015 level like a rocket where it stopped several times before. It is pretty surreal, I tell you.

20 Comments – Post Your Own

#1) On August 21, 2009 at 10:16 AM, russiangambit (29.24) wrote:

Euro and Gold are also up a bunch last 2 days. Yeah, it is fundamentals driven rally, sure. I guess deflation is forgotten for today and we are back on the inflation play.

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#2) On August 21, 2009 at 10:30 AM, portefeuille (99.59) wrote:

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German Services, French Industry Unexpectedly Grow

Aug. 21 (Bloomberg) -- German services and French manufacturing unexpectedly expanded in August, signaling a pick- up in domestic demand in Europe’s largest economies is helping lift the region out of the worst recession in six decades.

An index of the German services industry rose to 54.1 this month from 48.1 in July, Markit Economics said today, citing its purchasing managers’ survey. The French manufacturing index increased to 50.2 in August from 48.1 in the prior month. A reading above 50 indicates expansion. Economists forecast both indexes would remain below 50, the median estimates in Bloomberg surveys showed. A composite index of both industries for the 16 nations sharing the euro increased to 50 from 47 in July.

The recession is over,” said Klaus Baader, chief European economist at Societe Generale SA in London, who forecasts the euro area will grow at least 0.3 percent in the current quarter. “Today’s incredible reading in Germany shows that the domestic economy is improving beyond just the car sector, and France’s economy is also progressing.”

With today’s data adding to evidence the euro region will emerge from the deepest slump since World War II sooner than previously forecast, economists say the European Central Bank may start to raise interest rates as soon as next year. Economists from Deutsche Bank AG, UBS Ltd. and Bank of America- Merrill Lynch in the past two weeks brought forward their projections for an ECB rate increase to 2010 from 2011.

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#3) On August 21, 2009 at 10:35 AM, portefeuille (99.59) wrote:

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Ifo World Economic Survey 
WES Q3/2009

Ifo Economic Climate for the Euro Area 
(ifo Wirtschaftsklima für den Euroraum)

12 Aug 2009

Advance results of the Ifo World Economic Survey (WES) of 3rd quarter 2009 
in co-operation with the International Chamber of Commerce (ICC), Paris

Euro Area: Ifo World Economic Climate Indicator Rises Clearly

The Ifo World Economic Climate for the euro area improved in the third quarter of 2009 for the second time in succession. The increase in the Ifo indicator was solely the result of more favourable expectations for the coming six months; the assessments of the current economic situation, in contrast, still remain at an historical low.
The current economic situation is still assessed as definitely unfavourable in almost all countries of the euro area. The expectations for the coming six months, however, have brightened in the euro area. Especially in Germany, Austria, Franceand the Netherlands, the WES experts anticipate a clear improvement, and in Italy, Portugal, Slovenia, Slovakia, Belgium, Spainand Finlandthey foresee at least a stabilisation of the economic situation in the coming six months. A continued pessimistic view, albeit somewhat weaker than in the previous quarter, prevails among WES experts in Irelandand Greece.
The inflation expectations for 2009 stand at 0.7% on average for the year, which is clearly below the ECB target. Little change in the inflation rate is expected in the coming six months. The majority of WES experts expect that key lending rates will remain stable in the next half year. In contrast, for capital market interest rates an increase is foreseen. The major world currencies, US dollar, British pound and the Japanese yen, are considered to be slightly undervalued vis-à-vis the euro.
Nevertheless, the WES experts do not expect the US dollar to appreciate over the euro in the coming six months.

Hans-Werner Sinn, President of the Ifo Institute for Economic Research at the University of Munich

 



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(from here)

 

 

 

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#4) On August 21, 2009 at 10:37 AM, portefeuille (99.59) wrote:

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18.08.2009 - ZEW (ssc/mko/kbo)

ZEW Indicator of Economic Sentiment - Optimism Returns

The ZEW Indicator of Economic Sentiment for Germany increased considerably in August 2009. The indicator rose by 16.6 points and now stands at 56.1 points after 39.5 points in the previous month. This value is well above the indicator's historical average of 26.5 points.

The assessment of the current economic situation in Germany improved significantly in August as well. The corresponding indicator increased by 12.1 points to minus 77.2 points.
Positive growth figures for the Gross Domestic Product (GDP) in the second quarter 2009 have led to a better assessment of the current economic situation in Germany. A repeated rise of incoming orders and increasing exports have brightened the economic perspectives for Germany in the next months. In line with the increase of the overall economic expectations for Germany the expectations for all surveyed sectors of the German economy and for the export-oriented sectors particularly, have noticeably improved.
"The recent development of the GDP shows that the previous expectations of the financial market experts have come true. There is, however, no reason for euphoria. The German economy develops parallel to the world economy and should, hence, recover only gradually," says ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.
The economic expectations for the euro zone rose in August by 15.4 points compared to the previous month. The respective indicator now stands at 54.9 points. The indicator for the current economic situation in the euro zone improved as well. It now stands at minus 82.1 points.
For further information please contact: 
Sandra Schmidt
Phone: +49/621/1235-218, Fax: -223
E-Mail: s.schmidt@zew.de
Matthias Köhler
Phone: +49/621/1235-148, Fax: -223
E-Mail: koehler@zew.de

 

 

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(from here)

 

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#5) On August 21, 2009 at 10:41 AM, russiangambit (29.24) wrote:

Portfeuille, I agree  that Europe is getting better especially Germany. It is because they didn't have as much debt. Even Russia, which I visited a couple weeks ago is back from the completely Apocaliptic scenario of this winter. But there is no growth anywhere, just some seasonal thawing I would say.

But the US has so much debt and with consumer credit cut off ( you won't believe the interrogation I went through to get loan lately and my credit is excellent), there is not a chance of growth. Most of foreclosure houses have to be bought with 100% down because banks won't give mortgage on them. That undercuts investments on them.

IThe government aims to subsitute the consumer but it will run out of money eventually or will be foreced to print so much money, the interest rates will go through the roof and then the people will simply revolt.

The world needs to reconfigure its trading patterns and that that means some rought sledding ahead.

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#6) On August 21, 2009 at 11:12 AM, MattH42004 (30.30) wrote:

russiangambit

"It is rather intresting to watch, though it is rather sick curiousity, how far the market can be pushed by the banks with all their free money...Yet the simple truth is that the banks don't have any other place to put their FED money, so they are making trading profits with them. And because they are so big, they distort the market."

You might find THIS CHART from Zero Hedge interesting. It tracks the increase in FED open market operations (OMO), i.e. printing money and giving it to banks in exchange for their garbage, alongside the rise in the S&P. I know, correlation is not causation and all that, but nonetheless it is an interesting chart. HERE is another well written piece you might enjoy. Keep up the blogs, I enjoy reading them!

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#7) On August 21, 2009 at 11:30 AM, leohaas (32.26) wrote:

Can you explain what was so magical about 1015? Why is that even relevant? And why surreal? Maybe all you pessimists are just wrong. At what point are you gonna admit that?

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#8) On August 21, 2009 at 11:37 AM, russiangambit (29.24) wrote:

> Can you explain what was so magical about 1015? Why is that even relevant?

It is one of resistane levels that worked so far. 

> And why surreal?

Let me see, unemployement claims at over 500K , there is no growth everywhere, insiders are selling, P/Es are at 15-20 for the junkiest of stocks. Politicians and CEOs are lying (see my AIG post from yesterday). Should I continue ?

> Maybe all you pessimists are just wrong. At what point are you gonna admit that?

What is your definition of right and wrong? Are you saying the laundry list of things I listed is wrong? You can argue that some of the issues are long-standing, and I will agree with you. But many are new and majority of them are getting worse everyday.

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#9) On August 21, 2009 at 11:38 AM, russiangambit (29.24) wrote:

> there is no growth everywhere

no growth anywhere in the US (as far as I've seen at least)

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#10) On August 21, 2009 at 11:42 AM, MattH42004 (30.30) wrote:

leohaas

1015 is/was a huge barrier for all the technicians out there. It was a point of convergence for multiple Fibonacci retracements. You can find a few good charts HERE.

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#11) On August 21, 2009 at 11:57 AM, portefeuille (99.59) wrote:

overlay of March and July rallies



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#12) On August 21, 2009 at 11:59 AM, portefeuille (99.59) wrote:

... so this might suggest a "resumption" of the rally, hehe ...

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#13) On August 21, 2009 at 12:01 PM, portefeuille (99.59) wrote:

... and then it could take the October 87 turn, hehe ...

 

 

 



enlarge

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#14) On August 21, 2009 at 12:04 PM, russiangambit (29.24) wrote:

portefeulle, if it works out just the way you are showing here, it will be truly amazing. How many % to the top proportionally from here? It looks like the green is already at the level the balck is at the end.

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#15) On August 21, 2009 at 12:14 PM, portefeuille (99.59) wrote:

Yes, that is simply log q(t)/q(0), where q(t) the S&P 500 index closing values in green and t numbering the trading days, where t=0 for 03/09/09 and similar for NASDAQ 100 index in 1987 in black. So 0.5 would mean a value of 676.53 * exp(0.5) = ca. 1115.41. The 1987 was clearly less "dynamic". I took the higher beta NASDAQ 100 index to make it "come close" as to "scale" of the rally.

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#16) On August 21, 2009 at 12:16 PM, portefeuille (99.59) wrote:

So, yes, green has already exceeded the black peak so maybe crash is "overdue", hehe ...

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#17) On August 21, 2009 at 1:20 PM, Tastylunch (29.22) wrote:

portefeuille,  russiangambit

furthermore if we were to assume that march 9 was the generational bottom than comparing it to past recoveries from crashes there is potentially only about 6-8% left of upside over the next two years.

In either case going long the US market seems increasingly risky w/o a dramatic improvemnt in earnings, revenue and GDP. The long high beta trade likely won't work forever.

I don't know if it will crash 1987 style but a significant correction seems very likely.

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#18) On August 21, 2009 at 4:17 PM, leohaas (32.26) wrote:

"Let me see, unemployement claims at over 500K , there is no growth everywhere, insiders are selling, P/Es are at 15-20 for the junkiest of stocks. Politicians and CEOs are lying (see my AIG post from yesterday). Should I continue ?"

Unemployement is a lagging indicator. It will be among the last to improve after coming out of a recession. And new claims have been trending down. More than 500K is not good, but already better than it was.

The stock market is a leading indicator. Need I remind you what it has been doing for nearly half a year now? See also my comment directed at he chart overlappers below.

Growth indeed is non-existent. That is typical for a recession. It will not return until we are out of the recession. Duh...

PEs of 15-20 are the norm. Nothing wrong with that.

All politicians are liers if there is any political gain. All CEOs are liers if there is any financial gain. It has been that way since the beginning of time.

"> Maybe all you pessimists are just wrong. At what point are you gonna admit that?

What is your definition of right and wrong? Are you saying the laundry list of things I listed is wrong? "

You and all the other pessiments are wrong about things getting a lot worse. They are not. You just choose to interpret every bit of news as negative, and ignore or discredit any not-so-negative news. Where is the balance? If the talking heads at CNNBC are bull cheerleaders, then you and the other gloom-and-doomers on CAPS are bear cheerleaders. Again, can we get some balance here?

I am not saying we are out of the woods yet. We will be facing tough times over the next quarters. But please stop acting as if we are about to fall off a cliff.

To all chart overlayers: comparing what happened in the spring with any previous event is useless. Over the winter, the market dropped so low because the market makers (pension fund managers, hedge fund managers, mutual fund managers, and so on) feared we would enter a new Great Depression. Early March these market makers started to be convinced we will not have another Great Depression. In other words: the March lows were overdone, and the spring rally was nothing but a reaction to that overdone low. This is something that has not happened in the recent past, so there is no precedent. Not all recessions are the same!

 

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#19) On August 21, 2009 at 4:33 PM, portefeuille (99.59) wrote:

Not all recessions are the same!

But some rallies are. I have some other examples here. There was no recession in the U.S. in 1987 by the way. One ended in 1982 and the next one started in 1990.

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#20) On August 21, 2009 at 10:43 PM, russiangambit (29.24) wrote:

> I am not saying we are out of the woods yet. We will be facing tough times over the next quarters. But please stop acting as if we are about to fall off a cliff.

I don't really consider a market fall of  let's say  of 20% falling of the cliff. P/E of 15-20 is not normal for a recession it is normal for the time of growth. 20% fall will take these P/E into more reasonable 12-15 range that is not a recession range either.

Having said that, when the market starts moving , it always overshoots and while I think the market is about 20% overvalued, if it starts going down, there is no telling how low it will go.

As for the economy, it is in a bad shape and I don't expect it to get much worse. But I don't expect it to get better anytime soon either. First, the excesses must be flashed form the system.

As for the point about the market being the leading indicator, I don't subscribe to it. The market tries as many times as it takes until it gets it right, there is no special foresight in that. There was a similar theory in the USSR about the wisdom of the crowds, stating that whatever an individual did didn't matter, but this is a topic for another day.

I respect all views, and I certainly want to hear the other side of the story. I want to understand what makes you believe the market is not overvalued here. I am just not hearing a convincing argument other than the liquidity argument, which I agree with 100%.

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