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Another wave of deleveraging?
Old 02-23-2009, 09:26 AM   #1
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Another wave of deleveraging?

This market is acting almost exactly as it did in October and November. Almost every day is down, and almost every rally is quickly overwhelmed by a huge wave of selling to reverse the gains. Once we took out the November lows and broke out of the 7800-9000 range on the Dow, it looks like a return to meltdown mode.

Anyone have a good feel for whether this deleveraging in the hedgies is still going on?
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Old 02-23-2009, 09:29 AM   #2
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Another expression I am tired of hearing:

Buying opportunity of our lifetimes.

I think the "brains" have figured out if they nationalize the banks they will have to wipe the bond holders out too.
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Old 02-23-2009, 09:32 AM   #3
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Another expression I am tired of hearing:

Buying opportunity of our lifetimes.
Amen to that. I mean, I'm still averaging in with new 401K and Roth contributions, but in reality I'm tired of buying low. (I'd love it to continue if I were 25, but those days are long gone.) I wouldn't mind buying quite a bit higher in the future. Of course, if that did occur I wouldn't be buying much and lightening up my AA down to about 50/50...
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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Old 02-23-2009, 09:38 AM   #4
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The news is pretty bleak. My take on the market psychology now is that folks will be selling into any rally that might occur. The buy-and-holders are capitulating slowly in dribs and drabs. They ain't selling at the current lows, but if the market goes up by a few percent, some of them will be "out-of-here". This will keep happening for a few years.

There is gonna have to be some resolution before things have a chance of getting much better. So either the market stays in a narrow range or it goes lower. Those are your choices.

Examples of resolution: GM sells more cars than it did last year. More homes built than last year. Cancer is cured. Intelligent alien life discovered on Mars. Etc.
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Old 02-23-2009, 09:46 AM   #5
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The news is pretty bleak. My take on the market psychology now is that folks will be selling into any rally that might occur. The buy-and-holders are capitulating slowly in dribs and drabs. They ain't selling at the current lows, but if the market goes up by a few percent, some of them will be "out-of-here". This will keep happening for a few years.
The way I see it, that's probably how the last several years of this secular bear market will play out. I know I'm not alone in wanting to reduce my AA to equities after the prices have come back at least part of the way.

But once enough people have decided stocks are for suckers (death of equities) and most of the selling pressure has abated, that *could* lead to 1982 all over again -- eventually. Feels like it's decades away right now, though...
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Old 02-23-2009, 09:47 AM   #6
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Intelligent life discovered on Mars. Etc.
Or maybe on this planet !!!
Couldn't resist,
Steve
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Old 02-23-2009, 09:53 AM   #7
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But once enough people have decided stocks are for suckers (death of equities) and most of the selling pressure has abated, that *could* lead to 1982 all over again -- eventually. Feels like it's decades away right now, though...
C'mon, have a little faith in human nature. New suckers investors are born every year and a new batch is already in the pipeline and will be along shortly to help take up the slack. They'll see the opportunity to make a killing on something and a new bubble will start growing before you know it.

I hope.
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Old 02-23-2009, 10:06 AM   #8
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Well just to add to the gloom. I noticed in the depression that it took three years (or so) for the bottom to be reached from the peak. If that's the case we have at least another year or two of a bear market. Also of interest, notice all of the bear market rallies on the way down. here's a chart of the DOW from the depression.

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Old 02-23-2009, 10:17 AM   #9
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Yes, "investor fatigue" is starting to rear its ugly head. I am getting tired to pour money in the market to see it disappear in a matter of days. But then, I am also unexcited about bonds, cash/CDs/treasuries, gold/commodities, real estate and foreign currencies because right now we just don't know where this thing is going. A few months ago I was certain we could avoid a great depression-type scenario, but I am not so sure anymore (that would be bad for commodities, RE and equities). Yet I have a nagging suspicion that if we do avoid GD2, then we'll pay for the recovery through higher inflation for years to come (bad for cash, bonds and CDs). So what to do? My crystal ball has never been so foggy. My answer so far has been to avoid knee-jerk reactions and stay as close to the middle of the road as I can to avoid the ditches on both sides: own a good mixture of all these things which is what I have been doing all along. At this point I have become less inclined on reaping maximum profits from the crisis and more inclined on preserving what I have left. It also means that, right now, I have to buy more stocks to remain close to the middle of the road. No matter how unexcited I am about the prospect, I have to remember that putting all new money in cash/bonds/CDs would bring me closer to one edge of the road that also has its dangers.
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Old 02-23-2009, 10:22 AM   #10
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Y So what to do? My crystal ball has never been so foggy.
That's a big reason why the markets are tanking, I think. The market doesn't like really bad news, but *known* really bad news is far, far preferable to massive widespread uncertainty.
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Old 02-23-2009, 10:43 AM   #11
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Now a "stress test" on the banks later this week.

Can Your Bank Pass the Stress Test?

Wonderful free market capitalism.
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Old 02-23-2009, 10:57 AM   #12
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Well just to add to the gloom. I noticed in the depression that it took three years (or so) for the bottom to be reached from the peak. If that's the case we have at least another year or two of a bear market. Also of interest, notice all of the bear market rallies on the way down. here's a chart of the DOW from the depression.
I think it's interesting to look at the 60's and 70's. I figure the long postwar bull market ended in January 1966. After that it got very volatile, with higher peaks in 1969 and 1973, but lower valleys in 1970 and 1974. S&P 500 investors lost 40% of their money (WITH dividends reinvested, adjusted for CPI) from 1966 to 1974. By that standard, the current market looks like a "typical big bear cycle". They didn't fully recover until 1983-84, about 17 years after the bull ended.
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Old 02-23-2009, 11:40 AM   #13
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Count me in as one who is also very tired of buying at lower levels. I don't care if it's the "Buying Opportunity of a Lifetime," I'd prefer some good news for a change.

So now this "stress test." Seems plenty stressful enough already. What are these folks thinking by publicizing this? This analysis could have gone on in the background. Now the word is being sent out that it's just for fun, that it won't (necessarily, right away at least) result in closures or nationalization. Guys, you got your bill passed, now start pulling for the team. In academia we have a phrase for what to do when you can't say something that will help the situation: Shut The F' Up!
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Old 02-23-2009, 11:49 AM   #14
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We are going to advertise the fact that we will be "stress testing"; but we are not going to advertise the results. What kind of crap is that? Kind like going to the Doctor's Office and he says "we will check you BP, but no matter what it is we will not tell you".
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Old 02-23-2009, 11:53 AM   #15
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Now a "stress test" on the banks later this week.

Can Your Bank Pass the Stress Test?

Wonderful free market capitalism.
From the article:

Quote:
To do so, we relied on the loan-loss estimates of New York University professor Nouriel Roubini, a.k.a. Dr. Doom, who has been sagelike in his predictions about the credit crisis so far.
Yeah, because his head and ego needed to be bigger...
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RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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Old 02-23-2009, 05:07 PM   #16
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John Mauldin had said a couple or three months back that Nov '08 was bad partly due to forced hedge fund redemptions. He mentioned the same thing was going to happen in February. Maybe they only allow redemptions once a quarter or something. Anyways, that did turn out prophetic. He also said this summer could be worse, but I don't remember a specific reason for that.
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Old 02-23-2009, 05:14 PM   #17
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That's a big reason why the markets are tanking, I think. The market doesn't like really bad news, but *known* really bad news is far, far preferable to massive widespread uncertainty.
It seems not many of us have any confidence the clowns leaders in Washington (either Party) know what they are doing.

I'm off to the basement to find those old books I have on gardening and self-sufficiency.
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Old 02-23-2009, 07:25 PM   #18
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Old 02-23-2009, 07:54 PM   #19
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My sense is that most of the hedge funds have already substantially deleveraged. In contrast to November, investors aren't puking paper this time. Feels a bit more like a buyer's strike than forced liquidations.
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Old 02-23-2009, 09:40 PM   #20
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In contrast to November, investors aren't puking paper this time. Feels a bit more like a buyer's strike than forced liquidations.
I have the same feeling - not based upon any knowledge except my own - I'm not buying with the little cash I have left until I sense the risk is worth it. It is a fragile time and if Osama were to do something in the USA, no matter how small, we could see lows not seen since the disco era.
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