Spring has sprung violently in all risk markets, from junk bonds to sovereign credits, from financial to alternative energy stocks, from copper and crude oil to ship charter rates. In a word, from risk revulsion and panic selling to risk appetite and panic buying, all in the space of a few months. My, my.. what on Earth is going on?
VIX is back to July 2008 levels!As best as I can gauge it, the "logic" of traders in dealing rooms across the globe is as follows:
- "They" are not going to let the system collapse.
- "They" want asset prices to move higher.
- "They" will do whatever it takes to make it so.
The Greenspan put is now the Bernanke put and is deemed to have been exercised with a vengeance to the tune of several trillion dollars. Furthermore, such "put" operations have been expanded to include the enthusiastic support, or at least the tacit acquiescence, of every major politician and policy maker in the world.
Within two months the traders' motto has changed from: Sell everything before it's too late to: Buy everything before it's too late. In my 25 years of active involvement in markets I have never seen such a perfect and absolute reversal of psychology in such a short time. Economists can argue about the shape of the economic recovery until the cows come home, but for traders it's V all the way, baby..There is no fundamental rhyme or reason necessary; after decades of deeply imbibing from the free-market neo-liberal chalice, adherents religiously believe the market creates its own reality. If stocks are up, then the economy must be getting better and thus.. buy before it's too late. Traders are looking over their shoulder to their mates next screen over and mumble determinedly: "I'll be damned if I'm left behind."
And that, ladies and gentlemen, is a copycat speculator, trader, ivestor, whatever..
Trouble is.. this is not the 1990s or even the early 2000s. The game has changed and there is nothing left to goose; technology, real estate, commodities - they have all been played out. All we have left now is a huge pile of debt rapidly going to stink. That's NOT an asset, folks..
Here's what I think: this copycat bounce is going to quickly turn into a deadcat bounce.
Bankers simply buying stocks with your tax dollars and TARP funds, what is the big deal?
ReplyDeleteNo average American is putting money into stocks right now.
why would be in the stock market anyway, invest in hard assets?
4. "They" need to raise interest rates to slow inflation.
ReplyDelete5. "They" need to lower interest rates to support home prices.
6. "They" are criminals and we just taking the gold as the ship sinks.
7. "America" will die in its sleep.
Sorry for the length of post. From Frederick Lewis Allen's 'Since Yesterday', written in 1939.
ReplyDelete"But if business was so shaken by the Panic that during the winter of 1929-30 it responded only languidly to the faith-healing treatment being prescribed for it by the Administration, the stock market found its feet more readily. Presently the old game was going on again. Those pool operators whose resources were at least half intact were pushing stocks up again. Speculators, big and little, convinced that what had caught them was no more than a downturn in the business cycle, that the bottom had been passed, and that the prosperity band wagon was getting under way again, leaped in to recoup their losses. Prices leaped, the volume of trading became as heavy as in 1929, and a Little Bull Market was under way. That zeal for mergers and combinations and holding-company empires which had inflamed the rugged individualists of the nineteen-twenties reasserted itself: the Van Sweringers completed their purchase of the Missouri Pacific; the process of amalgamation in the aviation industry and in numerous others was resumed; the Chase National Bank in New York absorbed two of its competitors and became the biggest bank in all the world; and the investment salesmen reaped a new harvest selling to the suckers five hundred million dollars' worth of the very latest thing in investments--shares in fixed investment trusts, which would buy the very best stocks (as of 1930) and hold on to them till hell froze.
Who noticed that there was more zeal for consolidating businesses than for expanding them or initiating them? In the favorite phrase of the day, Prosperity was just around the corner.
But a new day was not dawning. This light in the economic skies was only the afterglow of the old one. What if the stock ticker--recording Steel at 198 3/4, Telephone at 274 1/4, General Motors at 103 5/8, General Electric at 95 3/8, Standard Oil of New Jersey at 84 7/8--promised fair weather? Even at the height of the Little Bull Market there were breadlines in the streets. In March Miss Frances Perkins, Industrial Commissioner for New York State, was declaring that unemployment was worse than it had been since that state had begun collecting figures in 1914. In several cities, jobless men by the hundreds or thousands were forming pathetic processions to dramatize their plight--only to be savagely smashed by the police. In April the business index turned down again, and the stock market likewise. In May and June the market broke severely. While Hoover, grimly fastening a smile on his face, was announcing, "We have now passed the worst and with continued unity of effort we shall rapidly recover," and predicting that business would be normal by fall--in this very season the long, grinding, heart-breaking decline of American business was beginning once more."
I think you were making this point a few posts back, where is the REAL economy at the moment?
Dead-on quote from Dean Baker:
ReplyDelete"How many people in government have lost their jobs because they failed to see the bubble? How many people even missed a promotion? In fact, the top financial officials in the Obama administration, without exception, completely missed the housing bubble. One might think it was a job requirement."
The sarcasm of that last quip is just toooo delicious.
As a trader, I have to add my input.
ReplyDeleteWhat are we supposed to do? While neither me nor anyone else I work with is convinced we have put in a bottom, it's been impossible to be bearish lately.
I know we will probably test the lows again - I think a lot of people do. One of the reasons the VIX isn't a lot lower is because traders are hedging their bullish bets by buying vix options.
However, trying to short this market as of late has been closer to suicide than anything else I can think of.
Hell,
ReplyDeleteSo you are rejecting your optimism of a few weeks ago. Why the change of heart? Bond market, perhaps?
Let me add to the consensus.
ReplyDeletehttp://3.bp.blogspot.com/_ZdctlOEsqMQ/SgOizlWz8kI/AAAAAAAABoQ/oMuN2GqHsKw/s1600-h/unit+-+spx.GIF
PIMP MY TRADE, I am greatly enthusiastic about your presence on this blog, and encourage you to become a regular, because I really want your input here.
ReplyDeleteFor nothing in the world would I be a trader, and I would excommunicate my children from my home if they became traders (fat chance...) BUT I want to hear where you're coming from. I want YOUR angle on this too.
And since I DO believe in democracy (by the way, we do NOT live in a democracy, we live under an OLIGARCHY, so please spare me any ranting about democracy here...), I think that your viewpoint can only enrich the debate here.
And I really do understand that YOU TOO NEED TO EAT in a society that has determined (since those self-righteous Puritans stepped off their boats) that we all need to sweat until we drop in order to BE WORTHY OF the filthy lucre that we take home in exchange for it.
I'm occasionally worried that our COLLECTIVE DENIAL will soon be really getting the better of us, making us take PIGS for ROSES, for example.
My self help forum has all these people on it who are worried because they've been labeled "crazy" by our society.
Is that, like well, the pot calling the kettle black ?
And Hell, thank you for E.E. Cummings.
Makes me want to drag out my poetry anthology and plunge my nose into it, just to smell the...
ROSES.
Anonymous@May 7, 2009 9:39 PM:
ReplyDeleteI've the same feeling from Hell's posts.
A few weeks ago the shoots seemed green around here, not anymore.
FrontierPsychiatrist - Nice!
ReplyDeleteFL Allen's books (Only Yesterday & Since Yesterday) should be required reading. They are amazingly relevant to today. As you show you can lift entire passages from those books and if people didn't know any better they'd think they were written about current issues.
Speaking of Harper's magazine, did anyone see the latest cover?, wonder how that is going to play out?
ReplyDeleteJust what the economy needed, a quick pick-me-up crusade in Central Asia. Shouldn't divert too many resources from the home front.
Might as well be banksters (he he hee, love that term) buying up good stocks cheaply and then inviting suckers to buy some more.
ReplyDeleteAbout the post: well, the bad thing about relying on a few 'they' to save the world all the time is that those same 'they' might be crooks seeking your ruin instead.
And so, if I get it right: shorting is off for now, trading can be profitable if you get Out Before the Rape, getting out of USD ain't a bad idea and finally, there are (I suspect) less plumber Joe's in the market and chances for private investor are risky as the market is most likely rigged.
It is going to turn into a slaughter of the rest of people's 401K savings, the criminals have nothing left to lose so might as well go all the way.
ReplyDelete"Bankers simply buying stocks with your tax dollars"
ReplyDeleteWRONG, Bankers buying stocks with your 401K funds through Index funds, they will be using your tax dollars to short the market next time they dump and take your money.
That is a great point.
ReplyDeleteWhy is the Home Depot CEO not arrested for allowing illegal Mexicans to use thier property to sell illegal employment services?
I will boycot home depot and any other business supporting illegal Mexicans.
NOURIEL AND THE "DEAD FAT CAT BOUNCE"
ReplyDeleteWilliamBanzai7's Book of Wall Street Fat Cats
Nouriel Roubini is such a prescient and fastidious Cat
He likes to lick his paws clean
Then tell us where we're at.
When Fat Cats preen and prance
their cagey Fat Cat beat all over Fat Cat Town.
Nouriel emerges from his lair.
Then says "this is a dead Fat Cat bounce"
Those Fat Cats don't think much of him
They say he's as scaredy as a tweety bird.
But lets be serious do you really think
you should be following that Fat Cat herd?
Before the subprime Fat Cat meltdown.
Nouriel said with great disdain,
"That Fat Cat parade will be short lived
and forecast financial rain."
Now some say economists are superstitious Cats
their predictions are absurd.
But me I'd sooner listen to that hip Cat Nouriel
than feast on Fat Cat turds.