Der Doomsday Bären-Thread

It is ironic that the stock market should reverse on a fear of the flying yellow metal as a raison d'etre for continued Fed hawkishness on what may be a spiked top in gold -- at least in the near term.

Interestingly, despite gold's "new-found strength" on Thursday, many gold stocks refused to go along for the ride and were hit hard, underscoring the idea of $729 being an important level.

The gap up and reversals in many of the strongest stocks on Thursday led to a solid distribution day, which, for a change, saw piggyback distribution on Friday. The coincident reversal in equities as gold tagged our $729 number is not a coincidence, and points to the handiwork of the cycles and the May turning point that we have been warning about.

Who knows the reason for last week's selloff? Who can point to a specific news item? As I like to repeat, the news breaks with the cycles. It is not the news that creates the psychology, but rather the psychology that creates the news. And psychology turned ugly last week.

You have heard me say before that seven is the number of panic. Seven years ago in December 1999, the Dow made an all-time high. As indicated in a chart that I showed recently, the Dow has just tested its monthly high close. Seven months ago, the indices scored an important low, and of course, from 70 years ago, the 1936 pattern that I showed a month ago caused me concern as well.

Consequently, I do not adhere to the idea that this pullback is just another great buying opportunity -- at least not yet. I have never seen stabs down in the wake of a move to new swing highs turn right back up after just two days down. But that did not stop a few bulls from parading on the tube, saying what a good buying opportunity this was and to load up on stocks.

Remember, time is more important than price. After just two days down following what has been the third-longest period in modern markets without a 10% correction, there are professionals out there who go where angels fear to tread.

Strategy: The last thing that the Street wants to contemplate is a back-to-back double-digit-down Thursday and Friday. It conjures up fears of 1987 and what followed on Black Monday. I have seen black-and-blue Thursdays and Fridays come and go since 1987, and the following Monday is a nonevent -- every time. But that does not mean that I am willing to bet that this one is a nonevent. I am not interested in being a hero.

Let's just say I suspect there are powers out there that do not want and will not tempt that kind of a meltdown. Call them the "Plunge Protection Team" or whatever you want to call them. However, if investors panic and mutual funds see beaucoup public redemptions on Monday morning, you never know what can occur after a feeble rally attempt on Monday. I would not be surprised to see a rally attempt after the first hour. But I will be mindful of a possible midday rollover.

Conclusion: If 1280 S&P breaks, it will project to 1240 for the first leg of this decline.

That's all I believe it will be -- a surprise in the direction of the trend -- if a bounce back toward the breakdown point occurs. The onus is on the bulls; the burden of proof is on the longs.

From the way the pattern has played out, I would expect an up open on Tuesday and a likely drift down that tests toward Monday's low. In other words, some backing and filling -- a little bit up and a little bit down ahead of any rally that tests the breakdown point.

Conclusion: A few months ago, I wrote that the compression in markets' volatility was due to explode this year and into 2007. Well, hereeee's Johnny. Volatility is reborn. And it will inject religion into traders who think trading is an easy game.

It will inject religion into investors who think that piling on and buying momentum and buying into new highs at every pullback is a quick and painless road to riches. It doesn't exist.

You knew the momentum ride in the Russell 2000 small-caps had to come off the tracks -- it always does. It's just a matter of time and timing.

The important thing to remember is that after a three-year run of low volatility without as much as a 10% reaction, a break of support will likely play out into a decline over time as much as in price. In other words, even if price targets are reached relatively quickly, this decline/consolidation phase, or whatever it turns out to be, should play out over a minimum of six to seven weeks. It should eat up time even if the damage is relatively benign.

Although the monthly swing chart has turned down on the Russell 2000, it has not yet turned down on the S&P 500. Moreover, the angle of attack is sharp, suggesting the quarterly swing chart on both indices may turn down.

On the S&P 500 for this quarter, the index needs to break below the January low of 1245.75 to turn the quarterly swing chart down. On the Russell 2000, for the quarterly chart to turn down, it would have to break the January low of 666.58.

It is important to remember that the quarterly swing chart could hold up into the third quarter (which I suspect is what will occur), indicating a break of whatever low is put in during the second quarter won't occur until the third quarter.

(Pullbacks at A, B & C all found support on a trendline from the January low (X), as the S&P undercut the important 50-day moving average. Will (D) be a repeat? The cycles suggest a more serious reaction.)

---

CHART: SP-500

A look at the Nasdaq 100 shows that the index knifed below its 200-day moving average without as much as a pause. Note the Rule of Four breakdown as the Nasdaq 100 (NDX) broke triple bottoms from January, February and March. Note also that the recent waterfall came from a third lower high (my Power Surge Pattern) put in on May 8 as the Street was cheering the "breakout" in the S&P and the "obvious" move by the Dow Jones Industrial Average to new all-time highs. The market was talking.

A chart of the Semiconductor Index (SOX) (not shown) shows that it dropped below its 200-day moving average without hesitation -- not a good omen.

A big question that traders will soon have to grapple with is whether the big, aggressive hedge fund money is going to short a retracement rally in the golds and oils. Any rally in oil back to the breakdown point of approximately $69 to $70 a barrel will carve out a third lower high in crude. That's important because if a plunge in oil plays out, it will put more pressure on the commodity names and take more point count out of the S&P as psychology shifts from buying the pullbacks in the heretofore strong energy names and the "safety" of the mega commodity bull run, to protecting profits.

At the same time, gold shows an Island Top and Breakaway from the $729/$730 level. A move in gold up to $703, should it occur, should provide substantial resistance. In my view, by the time the train is ready to leave the station again on gold, which I believe will occur sometime this summer, most traders will be gun-shy and will no longer subscribe to the notion of $1,000 gold.

Conclusion: Yesterday we stated that Tuesday would likely see an up open with a test toward Monday's lows -- a little up and a little down. I think more backing and filling is due on Wednesday prior to a potential retracement rally attempt sometime Thursday/Friday.

SP-500 fällt ist jetzt unter 1280 gefallen -> Kursziel laut Cooper: 1240

"Der Markt will einfach nach unten", sagte auch Fidel Helmer, Leiter Wertpapierhandel bei Hauck & Aufhäuser. Nach der überraschenden Rally der vergangenen Wochen sei die Unruhe groß. "Wir waren überkauft. Es musste mal eine kräftige technische Reaktion kommen. Die haben wir jetzt." Nach Bekanntgabe der US-Daten war der Dax zunächst bis auf gut 5750 Punkte abgerutscht und fiel dann deutlich unter diese Marke. Zu Handelsschluss notierte er mit einem Minus von 3,4 Prozent bei knapp 5663 Punkten. Der europäische Soxx 50 gab 3,4 Prozent nach, der französische CAC 40 3,2 Prozent und der britische FTSE 2,9 Prozent.

"Riesige Gewinnmitnahme"

"Die Angst vor schwächerem Wachstum und steigenden Zinsen ist der entscheidende Grund für den Kursrutsch", sagte Gérard Piasko, Chief Investment Officer Private Banking bei Julius Bär. Noch dazu trübe der starke Anstieg von Europas Gemeinschaftswährung die Stimmung: "Wenn der Euro um sechs Prozent steigt, kann das Konjunkturklima nicht auf den vorherigen Rekordständen bleiben." Daher zögen Anleger die hohen Erwartungen des Markts auf steigende Unternehmensgewinne zunehmend in Zweifel.

Alain Bokobza, Leiter Europäische Aktienstrategie bei Société Générale, sieht in dem Kursrutsch gar die Umkehr eines seit 2003 anhaltenden Trends: "Die Phase in der europäische Aktien die US-Titel überflügelt haben ist vorbei. Es ist Zeit, US-Aktien höher zu gewichten und bei europäischen Werten vorsichtig zu sein." Der Hauptgrund dafür sei die Rückkehr der Inflationsangst, sagte Bokobza: „Das ist das Ende des Goldilocks-Szenarios von Wachstum ohne Inflation. Der Markt preist dieses Ende ein.“

"Das ist eine riesige Gewinnmitnahme raus aus Europa in die USA", sagte Ralf Elgeti, Leiter Europäische Aktienstrategie bei ABN Amro. Obwohl die US-Inflationszahlen den Crash der Aktienmärkte auslösten, verloren europäische Aktien und Anleihen stärker als die Titel in New York und sogar stärker als viele Papiere in Schwellenländern Südamerikas und Osteuropas.

Natural-resources mutual funds have returned a handsome 48% over the past year, according to investment research company Morningstar Inc.

In his note, Roach expressed concern that unlike previous bull markets for commodities, the current boom is taking place in a low-inflation environment.

"Perspective is key: In the midst of a slightly subpar upturn in global growth, a low-inflation world is experiencing the sharpest run-up in commodity prices in modern history," he said. "If that's not a bubble, I don't know what is."

Yet some commodity bulls maintain that globalization and the rise of emerging economies, particularly China, will fuel demand for oil and energy. Roach thinks this argument is overblown though as China improves its commodity efficiency and reduces consumption.

"Great at copying and now pressured to do so by higher input prices, China's appetite for industrial materials is likely to diminish in the years ahead," he said.

Although Roach noted speculative bubbles normally go on longer than investors think they can or will, history shows the party must always come to an end. "Like Nasdaq, irrationally exuberant commodity markets will also be taken by surprise," he said. "Play the commodity bubble of 2006 at your own peril," the economist warned.

John Spence is a reporter for MarketWatch in Boston.

Wenn aber angeblich ALLES abgesichert ist, ist am Ende NICHTS mehr versichert: Passiert in diesem wechselseitigen System der Risikozuweisung etwas Unvorhergesehenes, werden die Stillhalter dieser Future-Geschäfte "im Schadensfall nicht mehr leisten" können. Das Kartenhaus der "Überversicherung" bricht dann zusammen.

Das ist genau jene Zeitbombe, die Warren Buffett meinte, als er Derivate potentielle "Massenvernichtungswaffen des Finanzsystems" nannte.

---

Hedging against the house

More derivates coming based on home prices in major metro areas
By John Spence, MarketWatch
Last Update: 6:15 PM ET May 21, 2006

BOSTON (MarketWatch) -- Exchanges are rolling out more futures and options that allow jittery home owners to hedge against a decline in the value of their houses.
The new financial products, which are tied to various indexes tracking home prices in major metropolitan centers, are launching as it appears the housing bubble is finally winding down.

The Chicago Mercantile Exchange on Monday plans to introduce cash-settled futures and options based on real-estate prices in 10 large cities: Boston, Miami, New York, San Diego, San Francisco, Washington, D.C., Chicago, Denver, Las Vegas and Los Angeles. The indexes were co-developed by Standard & Poor's and economics professors Karl Chase and Robert Shiller, whose popular book "Irrational Exuberance" chronicled the stock-market bubble of the late 1990s.

The CME says the planned futures would be priced at the housing index level times $250. As an example, at the end of the second quarter of 2005 the indexes for Denver for Los Angeles stood at 133 and 245, so the contracts would cost roughly $33,000 and $61,000, respectively.

[Die Hausblase ist schon größer als die Aktien-Blase - 21,6 Billionen Dollar! :]

Citing data from the Federal Reserve, S&P notes the value of the U.S. housing market at the end of 2005 stood at $21.6 trillion, or more than the stock market.

"Reliable and timely information on the U.S. housing market is extremely important, considering that, for many Americans, their home continues to be their biggest asset," said David Blitzer, chairman of the index committee at S&P, in a statement.

Last year online derivatives exchange HedgeStreet Inc. introduced so-called hedgelets, which are contracts priced as low as $10 each, that allow investors to play a rise or fall in single-family homes in Chicago, Los Angeles, Miami, New York, San Diego and San Francisco using data from the National Association of Realtors. Last week the exchange, which allows traders to speculate on the likelihood of future economic events and indicators, announced it expects to add contracts for Boston.

Additionally, Chicago Board Options Exchange earlier this year said it plans to launch futures contracts based upon median prices in the NAR's existing-home sales data.

[Ist ja wunderbar: Dann können Hedgefonds long Immobilien-Futures in Kalifornien gehen und sich durch Shorten des Durchschnitts-Immobilien-Future gegen Wertverluste absichern...]

Exchanges are scrambling to unveil the housing-market derivatives as more signs point to an end of the multiyear real-estate boom. Former Federal Reserve chief Alan Greenspan, speaking at an event in Washington last week, said there has been a slowdown in investment demand for housing, but that he sees a soft landing rather than a collapse in prices.

"We have just experienced one of the most impressive housing cycles on record, but it has quickly come to an end -- so much so, in fact, that housing starts have fallen at a 56% annual rate over the past three months, a turndown of sudden proportions that we have not seen since the opening months of 1991," cautioned Merrill Lynch (MER) North American Economist David A. Rosenberg in a recent note.

Adding to the bearish news, an index that measures sentiment at home-building companies showed managements in May turned negative on the housing market as the benchmark slipped to its lowest level in 11 years.

Rising interest have helped take some of the steam out of the housing market. In its latest weekly survey, Freddie Mac (FRE) said the 30-year fixed-rate mortgage averaged 6.6%, up from 5.71% at the same time last year and its highest level since June 2002.
Through Friday's close, the Dow Jones U.S. Home Construction Index (DJ_HOM) , which measures public building companies, was down 21% year to date.

John Spence is a reporter for MarketWatch in Boston.

[ATM (= automated teller machine) sind Geldautomaten bei der Bank. Mit "housing-ATM" ist gemeint, dass Amerikaner zur Bank gehen und immer neue Hypotheken aufnehmen, so als wäre ihr Haus ein Geldautomat. Bei fallenden Immobilienpreisen geben die Banken jedoch kein frisches Geld mehr: Der Haus-ATM funktioniert dann nicht mehr... - A.L.]

The recent drop in new home sales provides further evidence of the slowing in the housing market. Combined with reduced mortgage equity withdrawals, this will almost certainly slow the economy at some point and it is one of the factors that the Fed implicitly referred to in its most recent policy statement. It mentioned the lagged effects from housing as justification for a pause. While the home equity data are weak, overall bank lending data are strong. This should limit the impact of the drag from housing.

Given the sharp decline in the equity markets over the past few days, and the constant commentary  we hear in the media in reference to the 4 year cycle,  we thought it would be a good idea to share our thoughts about the subject.

Below is  an 8 year chart of the SP500  showing the two previous 4 year cycle lows in 1998 and in 2002 as they relate to the RYDEX asset ratio, along with the assumption that the SP500 is near the top of a slightly rising channel; the distance  from top to bottom is roughly 400 SP points.

In 1998 the 4 year cycle bottom was marked by a 300 point decline in the SP, and the asset ratio around 2.5. In 2002  the 4 year cycle low was marked with a 400 point decline in the SP and the asset ratio again around 2.5.

Currently the ratio is at the same levels that in the past 3 years have marked the bottom of minor market  declines,  followed by rallies to marginal new highs and thus,  one can not rule out that perhaps we will see one more marginal recovery high before the wheels for the 4 year cycle low are set in motion.

If our assumption about the existence of the channel is correct, then there is a valid  possibility--but of course not the certainty--of a 400 point decline between now and October.  If the SP doesn't rally over the next few weeks back up towards the 1300 level, then the  level to watch for is 1200. If the SP  can't hold support above 1200, the next stop will be 1100, which we consider  to be "the line in the sand."  The only real support below 1100 is between 900 and 800. 

From a trader's point of view, if  there is a 400 point decline in the SP going into the four year cycle low, then one wouldn't want to miss such a move.  We do not know what may cause the SP to decline 400 points, but we can not think of  anything that may cause the SP to rally 400 points between now and October.  Therefore, this  is what we have been doing  in our own accounts and in  qualified managed accounts. We have been selling short the SP Dec06 1475 calls (SXZLO) and we have been using the proceeds  to buy the SP Dec06 975 puts (SXBXO) for a net credit.

Chart Courtesy: DecisionPoint.com

QQQQ AND THE 4 YEAR CYCLE

The chart below is the weekly chart for the QQQQ showing the previous four year cycle low, the mid-point of the current cycle, and the two 2 year cycles  that make up the four year cycle, along with the channel  that has contained the price action over the last 4 years and the fib retracement levels  for the entire advance from the 2002 lows to the 2006 highs.

The QQQQ advanced from point A to point B in roughly 15 months, and then it spent the next 8 months declining from  the 2 year cycle top  at  point "B" to its 2 year cycle low at point  "A1," which also marked the starting point for the current 2 year cycle. The QQQQ followed the same pattern in the current 2 year cycle as it did in the previous one. It spent  16 months rallying from the bottom at  point "A1"  to the top at point "B1." Subsequently,  it has spent the last 5 months declining as it is headed  into the next 2 year cycle low which coincides with the 4 year cycle low.

Notice that in the previous 2 year cycle  it did not decline straight  down from point '"B" to point "A1." Instead it made two interim lows--one of them marked as point "c" before the final low at point "A1."

At the moment--in terms of time--the QQQQ is  at "C1," which  is identical to  point "C" in the previous cycle. Hence, if it continues to follow the same pattern and the current cycle  plays out as the previous one, then sometime within the next 2 weeks we should have a rally  lasting about 5-7 weeks, taking the QQQQ back to 40-41; from there it should turn down and head lower for another 6-8 weeks going into the 4 year cycle low  somewhere in the 34-32 zone,  and perhaps 28.

With regards to  trading, in  the next 2 weeks  we will know if the QQQQ is still following the same pattern. If that turns out to be the  case, we would expect it to top out sometime in  late July. At that point we will begin  to  build  a  sizable short position in our managed accounts.

Ike Iossif

---

Copyright © 2006 All rights reserved.

Doch den beschriebenen 4-Jahres-Zyklus gibt es tatsächlich - auch die Präsidentschaftswahlen sind ja alle 4 Jahre, und die Tiefs fallen immer in die Mitte der Legislaturperioden. Dieser 4-Jahres-Zyklus ist empirisch über die Charts nachweisbar. "Regeln" gelten an der Börse freilich nur so lange, wie sie noch nicht allgemein bekannt und "anerkannt" sind. Sobald sie Gemeingut sind, werden sie ungültig. 4-Jahres-Zyklen prägen sich bei Börsianern allerdings schon deshalb nicht so gut ein, weil ihr Erinnerungsvermögen meist nicht viel weiter reicht als der 3-Monats-Zyklus der Unternehmensberichterstattung.

---

Börsen-Zyklen:

Zyklen-Arten

...

- Wahl-Zyklus

Nach einem bekannten Sprichwort haben politische Börsen kurze Beine. Doch tatsächlich hat die Politik einen ganz erheblichen Einfluss auf die Börsenentwicklung. Rund um den Globus machen Politiker vor den Wahlen große Versprechungen, von denen nach den Wahlen nicht mehr viel übrig bleibt. Daher sind Anleger im Vorfeld der Wahlen optimistisch, worauf nach den Wahlen wieder die Ernüchterung folgt. Eine Unterteilung der Kurshistorien in die einzelnen Regierungsjahre zeigt ein klares 4-jähriges zyklisches Muster, sowohl für den Dax, wie für den Dow Jones. Für die Börsen in den USA verlaufen Vorwahljahre und Wahljahre sehr erfolgreich, in Deutschland sind es die beiden Jahre vor den Neu-Wahlen.

- Der Zyklus der 4-Jahres-Tiefs

Der Dow Jones hatte das Tief der riesigen Baisse im Oktober 2002 gefunden. Wahrscheinlich erinnern Sie sich auch noch an den vorangegangenen wesentlichen Tiefpunkt von 1998 im Zuge der Hedgefonds- und Asien-Turbulenzen. Dass beide Tiefs 4 Jahre auseinander liegen ist kein Zufall, sondern ein ganz erstaunlicher Zyklus, der sich über mehr als 100 Jahre zurückverfolgen lässt. Natürlich kann auch dieser Zyklus keine 100%ige Trefferquote haben, doch es ist erstaunlich, wie viele bedeutende Index-Tiefs in den Jahren entstanden sind, in denen ein solches 4-Jahres-Tief zu erwarten war.

...

- Technologie-Zyklen

Beim Begriff der Technologie-Zyklen denken wir automatisch an die neuesten PC-Innovationen, die durch die permanente Weiterentwicklung der Speicher-Chips ermöglicht wurde. So sind heute z.B. für alle in den 80ern und 90ern Geborenen Handys, Klingeltöne, Notebooks, Spielekonsolen, das Internet und neuerdings der iPod völlig normal. Wir befinden uns inmitten einer technischen Revolution und damit im sogenannten Informationszeitalter. Doch solche Technologie-Schübe hat es seit Menschengedenken gegeben. So begann die sog. „industrielle Revolution" mit der Erfindung der Dampfmaschine in der zweiten Hälfte des 18. Jahrhunderts. Darauf folgten die Eisenbahn, die Elektrotechnik und das Automobil. Einige Zukunftsforscher, wie z.B. Harry Dent, sehen nun eine überragende Parallelität zwischen der Entwicklung des Autos, dem großen Technologie-Schub zu Beginn des letzten Jahrhunderts und der Entwicklung des Internets. Beide Zyklen liegen gut 80 Jahre auseinander und tatsächlich ergeben sich ganz erstaunliche Übereinstimmungen zwischen dem damaligen Verlauf im Dow Jones und der Index-Entwicklung seit 1997.

Am Ende sind die Shorts die einzigen, die den Markt überhaupt kaufen.

ja auch immer mit "Reversal-Kerzen" nach oben: Hypernervöse Shorts "überschlagen" sich beim Covern und zahlen JEDEN Preis.

Die umgekehrte Situation gibt es bei Tiefs. Kleinanleger, Taxifahrer, Witwen und Hausfrauen, die irgendwann zu Höchstkursen gekauft hatten, ertragen den Anblick der täglich schneller fallenden Kurse nicht mehr. Am Crash-Day X rufen alle gleichzeitig ihre Bank an, dass sie ihre Fonds verkaufen wollen, "bestens". An diesen Tagen erhält man die schönen Reversal-Kerzen nach unten. Sie markieren ideale Einstiegszeitpunkte für mittel- bis langfristige Anleger.

Meinst du die Korrektur hat jetzt ihren Boden gefunden, und es geht wieder aufwärts?

Die alten Hochs werden wohl nicht mehr erreicht werden. Der SP-500 könnte bis 1300 gehen und sollte dann wieder zurückfallen, weil die Shortseller dann wieder aktiv werden. Wenn ein Markt technisch so angeschlagen ist wie dieser jetzt, gibt es meist keine V-förmige Erholung (sowas gibt es allenfalls bei 3-Jahres-Tiefs, nicht aber nach 3-Jahres-Hochs).

Wie weit die Märkte bei dem der technischen Erholung folgenden Abverkauf fallen werden, ist "anybody's guess". Es könnte eine Seitwärtsbewegung auf tieferem Level werden, aber auch ein immer steilerer Abfall mit Kapitulationstief im Herbst (20 bis 30 % Korrektur).

volle Zustimmung. Nächste Woch klart das bild eventuell schon auf...

Deshalb ging der Ausverkauf in allen Emerging Markets GLEICHZEITIG vonstatten. Es ist also kein punktuelles Vor-Ort-Problem (wie z. B. 1994 die mexikanische "Tequila-Krise", die den mex. Peso halbierte, oder 2002 der Staatsbankrott in Argentinien), sondern eine global wirkende externe Ursache: der von der Bank of Japan initiierte Liquiditätsentzug, der den Hedgefond das "Spielgeld" entzieht.

Daher ist auch nicht mit einem schnellen Ende dieses Ausverkaufs und einer Rückkehr zur "Goldilock"-Gemütlichkeit an den Aktien- und Bondmärkten zu rechnen.

Wir leben in der Ära global operierender Hedgefonds, die mit geliehenem Geld (dazu noch "leveraged") nach Belieben Blasen aufpumpen und "entlüften". Die Spielregeln haben sich dadurch verändert.

---

Investing
How Japan Sank the Market
By Jim Jubak
MSN Money Markets Editor
5/24/2006 7:20 AM EDT

Trying to make sense of the global stock market selloff that began on May 13?

Remember that old Wall Street saying, "Don't fight the Bank of Japan"? If you want to know what has rattled stock markets around the world and when you can expect it to end, study the Bank of Japan.

What's that? You thought the saying was "Don't fight the Fed"? How yesterday. Right now the Bank of Japan, not the U.S. Federal Reserve, is the most important central bank in the world. It's the Bank of Japan that's calling the tune for the world's equity markets.

Slip-Sliding Away

Over the last week, you've heard all of the talking heads focus on the U.S. Federal Reserve in their effort to explain the selloff that began on May 13. The market decline, which reached a temporary crescendo with the 214-point tumble of the Dow Jones Industrial Average on May 17, is a result of worries that U.S. inflation is in danger of spinning out of control and that the Federal Reserve will have to raise interest rates at its June meeting and beyond.

Core inflation -- that is, inflation without volatile food and energy prices -- hit an annual 2.3% in the April Consumer Price Index numbers reported on May 17. That's perilously close to the 2.5% inflation rate that many think is the top of the range that the Federal Reserve will tolerate. After those numbers came out, the odds of a June 29 interest rate hike, as indicated by prices in the fed funds futures market, climbed to 50% from 35%.

That's not a huge shift -- to 50/50 from a 35% chance. And you'd think that while the stock market wouldn't welcome another interest rate increase -- higher interest rates, which increase the attraction of alternative investments such as bonds, are never great for stocks -- it would have gotten used to them by now. A rate increase in June would be the 17th quarter-point hike since the Fed began raising short-term interest rates in June 2004. The stock market has proved itself perfectly capable of rallying while the Federal Reserve raises interest rates. Before this recent selloff, the Dow was up 12% since the Fed began raising interest rates from 1% on June 30, 2004.

It certainly wasn't enough to send the U.S. bond market into a swoon. Bonds actually rallied on some days when stocks were sinking. On May 18, for example, when the Dow Jones industrials fell 77 points and the Nasdaq Composite fell to its lowest level since November 2005, the 10-year Treasury note actually climbed in price by 0.75%. The yield on the 10-year note, which moves in the opposite direction to prices, at 5.07% on May 18, was very little changed from where it stood at 5.12% on May 10, the day the Fed announced its latest hike in interest rates.

Gold also behaved oddly. The metal is the classic inflation hedge, and yet gold sold off on these inflation worries -- if that's what they were. The metal, which had been selling at $700 an ounce on May 10, closed at $657.50 an ounce on May 19. That's a drop of 6% when gold should have been climbing -- if the financial markets were focused on the U.S. Federal Reserve and heightened fears of inflation.

And finally, there was the strange behavior of the U.S. dollar. If worries centered on the U.S. Federal Reserve and concern that the Fed and its new Chairman Ben Bernanke had lost control of U.S. inflation, you'd expect the dollar to sink against other global trading currencies as investors sold dollars to find safer havens in euros and yen. But instead, the U.S. dollar has actually stayed steady against these currencies. The U.S. dollar sold for 110.6 yen on May 10 and for 110.7 yen on May 18.

Not the Fed, but the Bank

This is where the Bank of Japan comes in. You can't understand why some asset prices have tumbled and others have stayed solid if you don't know what the Bank of Japan has been doing over the last few months.

As good as its word, the Bank of Japan has been taking huge amounts of liquidity out of the global capital markets. In an effort to reinflate the Japanese economy and end the years of deflation that had kept the country mired in a no-growth swamp, the Bank of Japan pumped billions into the country's banking system. Now that the economy is finally growing again and prices aren't sinking any longer, the Bank of Japan has given two cheers to the return of inflation and has started to remove some of that cash from the financial markets.

In the last two months, the bank has taken almost 16 trillion yen, or about $140 billion, in cash deposits out of the country's banks. The country's money supply has fallen by almost 10%. The Bank of Japan isn't finished pumping out the liquidity that it had pumped in. That should take a few more months. And when it is finished, the Bank of Japan is expected to start raising short-term interest rates.

No More Cheap

This sign of the return of economic and financial health to Japan is, however, bad news to the speculators who have used cheap Japanese cash to make big profits by buying everything from Icelandic bonds to Indian stocks. The momentum in many of the world's riskier markets was a result of ever-increasing floods of cash -- borrowed at 1% in Japan and multiplied by leverage as speculators turned $1 of capital into $3 or more of borrowed money.

For example, India's Mumbai stock market, up 21% in 2006 and 70% over the last 12 months, has seen an inflow of $10 billion in overseas money. That wouldn't be enough to move a market like the $14 trillion (market cap) New York Stock Exchange, but it's a bigger deal on the $742 billion Mumbai market. Although $10 billion isn't enough to move a market by itself -- that took improving fundamentals in the Indian economy -- it is enough to increase upside momentum once the ball is rolling. (The Indian market's benchmark BSE index plunged 10% Monday before trading was halted for an hour. It ended the day down 4.2%.)

Hot-money investors know new inflows of cash are needed to keep the momentum going, and it looks like the supply of money flowing into these markets might diminish. The moves to date by the Bank of Japan aren't enough to radically diminish global liquidity, but they are enough so that the investors who have fed some of the world's riskier markets understand that the trend has turned.

It's one thing to invest in five-year Indonesia government bonds paying 12.13% when cash is flowing into the Jakarta financial markets, keeping the rupiah strong against the dollar and pushing Indonesian stocks ever higher. It's something else entirely when it looks like investment flows might be drying up. Speculators aren't about to wait until they actually see signs that cash flows are dwindling. They take profits at the first sign that the trend may be changing. That's why the Jakarta market can drop 5.3% in a day, as it did on May 18.

What we've witnessed since May 13 is a global flight out of more leveraged and more speculative investments. Speculators attracted by the momentum of the gold, copper and silver markets have sold -- and are still selling -- rushing to get out before other speculators could liquidate their positions. Emerging equity markets have sold off for the same reason: India's Bombay Sensex index dropped 6.8% on the same day the Jakarta market fell. High-yielding bond markets have collapsed as prices dropped, sending yields soaring and currencies skidding. The central bank of Iceland has raised interest rates to 12.25% in an effort to prevent the further fall of the krona as hot money flees the country.

Risky Investments Look Riskier

What the Bank of Japan has done is set off a global resetting of investors' risk tolerance. With Japanese interest rates so low and Japanese cash so abundant, speculators, traders and investors have been more and more willing in the last few years to take on risk at increasingly low premiums.

It isn't amazing that anyone would buy Indonesian bonds. It's amazing that they would buy them when the yield was only 12%. And given what we know about the direction of U.S. interest rates, the likely course of U.S. inflation and the size of the U.S. trade deficit, it was amazing that so many investors flocked to buy 10-year U.S. Treasury notes that they drove the yield in July 2005 to less than 4%. On July 10, the 10-year Treasury yielded 3.97%. By locking up your money for eight fewer years in a two-year note, you could get 3.62%. That's 0.35 percentage points in yield for taking on eight more years of risk.

Risk tolerance doesn't get reset in a day. The Bank of Japan is only halfway through removing liquidity from its domestic and global markets. Interest-rate hikes are likely to follow that, with the first increases coming in the second half of 2006. At the same time, the European Central Bank is raising interest rates.

All excess liquidity has, by no means, been removed from the global financial markets. But the speculators know that money is gradually getting more expensive. Rallies can count on less hot money to fuel their final stages. Getting out earlier in rallies starts to seem wiser. Some risks are just not worth taking.

The correction that began on May 13 is part of the process of resetting risk tolerance and recalibrating risk premiums. It's not likely to last terribly long. Frankly, I think the turn in this correction isn't that far off, and it's probably time to look for a buy or two. And it's likely to be followed at some distance by another bout of speculative momentum, which will be followed by another correction. Markets move from one equilibrium point to another by a messy process of overshooting on each extreme of the swing until they find a new center.

That's where I think we are now, and that's what you can expect to see for the rest of 2006 as the Bank of Japan continues to force a recalibration of the risk tolerance of global investors. The volatility that results can be scary, but it doesn't mark the end of the world. It's rather just the way that, in the short term, the financial markets adjust to new fundamental conditions, such as a change in global liquidity.

---

At the time of publication, Jubak did not own or control any of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column.

Der weltweit größte Hedgefonds "Man Group" soll hohe Verluste mit Derivaten (Futures etc.) gemacht haben (siehe News unten). Dies nährt die Sorge, dass es den vielen kleineren Hedgefonds womöglich noch schlechter geht...

Womöglich ist "Man Group" als smarter Big Player auch schon längst von long auf short umgestiegen und nutzt die mit der geschickt lancierten News kreierte Panik, um nun - nach satten Long-Gewinnen - profitabel auf der Short-Seite wieder nach unten zu fahren. Auf Kosten der Kleinen, versteht sich.

Fazit: Es ist ein Haifisch-Teich.

---

THE INDEPENDENT
25.5.2006
Man heightens hedge fund fears

Flagship fund losses fuel fears for smaller players.
Bolton warns correction could take months
By Andrew Dewson


Man Group, the world's largest quoted hedge fund manager, fuelled fears yesterday that some of its smaller competitors may be in serious trouble after revealing that some of its futures funds have made substantial losses this month.

The disclosure prompted speculation in the market that some smaller hedge funds may be suffering even greater losses and could be forced to unwind highly leveraged positions, causing share prices to spiral lower.

Die folgende Liste zeigt, in welchem Maße die Emerging Markets den amerikanischen S&P-500 seit Anfang 2003 "outperformt" haben. Der S&P-500 stieg seitdem um 52,8 %. Alle unten aufgeführten Märkte stiegen stärker.

Bezugsgrundlage sind die in USA gehandelten Index-Tracking-Stocks der jeweiligen Länder (von iShares). Die zugehörigen Charts kann man sehen, wenn man bei www.bigcharts.com das jeweilige Ticker-Symbol eingibt, das in Klammern hinter den Ländernamen steht. Da es sich um US-Tracking Stocks handelt, geht der jüngste Kursverlust des Dollars, gepaart mit etwaigen Währungsanstiegen in den Ländern (z. B. Brasilien) mit in die Kurse ein.

Blasen-Erster ist Brasilien mit 433,95 %.

---

May 17, 2006 Foreign iShares Since 2003

Foreign markets have been the place to be. Here's how several foreign iShares have performed since the beginning of 2003:

Brazil (EWZ)....................433.95%
Austria (EWO).................275.42%
Mexico (EWW).................242.81%
Sweden (EWD)................174.01%
Australia (EWA)...............165.13%
South Korea (EWY)..........162.61%
Canada (EWC)..................161.36%
Belgium (EWK).................151.58%
Spain (EWP).....................143.78%
Germany (EWG)...............139.12%
Italy (EWI).......................116.39%
Japan (EWJ).....................109.14%
France (EWQ)..................107.73%
Switzerland (EWL)............98.81%
Hong Kong (EWH)..............97.52%
U.K. (EWU).........................89.00%
Netherlands (EWN)............82.27%
Malaysia (EWM).................68.05%
Taiwan (EWT).....................67.08%

By comparison, the S&P 500 Spyders ETF (SPY) is up just 52.81%.

Technical Analysis
The Market May Have Bottomed
By Alan Farley
Street.com
5/30/2006 12:33 PM EDT

The major indices look more stable after last week's uptick. I believe that a bottom may now be in place that lasts well into the summer months, and we could see the market climb a wall of worry and return to this year's highs by August.

Don't expect a V-shaped recovery that shoots prices back to the highs immediately: We're likely set for a rocky journey that tests the wills of players on both sides of the market.

First we need to test the unstable rally that ended last week's trading. With a little luck, the next decline will find strong buying interest above recent support.

My positive attitude is based on the weekly chart of the S&P 500. Bull-hammer reversals just don't get any prettier than the one printed on the weekly chart by last week's recovery.

This "big" low will be an obstacle to traders planning on selling rallies as the market tries to move higher.

It is a strong sign that short-side crowding will keep that strategy from paying off well into the summer months.

Excess bearishness right now reminds me of April 2005, when the major indices had sold off for two months and convinced everyone that another sharp decline was just around the corner. But the market had other plans. After several feints to the downside, the indices turned tail and started one of their biggest rallies of the year.

It was, after all, a new era yet again! But as investors learned in May, it created a false sense of security.

A vicious cycle was created as the appetite for risk turned into its own bubble. Generally speaking, investors (especially of the fund-of-funds kind) cared little about how returns were generated. Rather, they focused solely on the level of the returns that were generated.

And hedge funds complied by stacking cheap debt upon their equity bases in all sorts of carry trades (funding longer-dated assets with shorter-term liabilities). Many hedge funds even stretched reason by selling tons of volatility -- after volatility had fallen to record low levels.

Then, almost overnight, return on capital (appetite for risk) was replaced by concerns regarding return of capital (risk aversion), as uncertainty relating to the Federal Reserve's actions, coupled with tightening around the world, created a panic in the hedge fund's crowded carry trade and the bubble was pricked.

Once the weakest investors starting selling -- at the margin -- similarly correlated asset classes began to drop. It is noteworthy that the May panic was not accompanied by any fundamental change or, as in the past, a financial crisis, but by the perception of a change in liquidity.

Many (myself included) have cautioned that the growth and size of the hedge fund industry represents a significant bubble-like market risk.

I have repeatedly written that bubbles are almost always based on the same set of conditions:

1. Debt is plentiful.
2. Debt is cheap.
3. The egregious use of leverage becomes commonplace and accepted.
4. A new and growing asset class raises asset prices.

The above circumstances led to the Internet stock bubble in the late 1990s, to the real-estate bubble in 2003-2005 -- and, as we shall soon find out -- the bubble in hedge funds (and their appetite for risk).

I would now add the explosion in hedge funds, and the risks to their disintermediation, to my secular market concerns.

Caveat emptor.  

Dass die normalerweise für ihren diplomatischen Ton bekannte europäische Notenbank so explizit vor einer Hedge-Fonds-Krise warnt, zeigt das Ausmaß der Sorge über die Lage an den Finanzmärkten. Die EZB-Experten tauschen sich mit den Notenbanken aller großen Volkswirtschaften aus.

Wegen der lange Zeit weltweit niedrigen Zinsen sind Investoren hohe Risiken vor allem in Schwellenländern eingegangen - um sich dort hohe Renditen zu sichern. Jetzt, da die Notenbanken in den Industriestaaten ihre Zinsen anziehen, bestehe die Gefahr, dass Mittel schnell umgeschichtet werden, schreibt die EZB. Dies könnte zu drastischen Kursverlusten in den betroffenen Anlagekategorien führen. Die Korrektur drohe besonders solche Investoren hart zu treffen, die wie Hedge-Fonds mit geliehenem Geld spekulieren und daher ihre Gläubiger ständig bedienen müssen.

Die Flucht aus Risikopapieren hatte bereits in den vergangenen Wochen den Absturz der Rohstoffpreise sowie der Aktien- und Anleihenkurse vieler Schwellenländer ausgelöst. An den Finanzmärkten kursierten Gerüchte, ein größerer Hedge-Fonds stehe vor der Pleite.

Krise vermeidbar

EZB-Vizepräsident Lucas Papademos betonte bei der Vorstellung des Berichts zwar, das Finanzsystem sei robust, und die Bilanzen der Banken seien gesund. Das Hauptszenario der Notenbank sei deshalb, dass eine Krise vermieden werden könne. Allerdings hänge "der Ausblick an einer delikaten Balance". Die Warnung der EZB ist besonders brisant, da ein vertraulicher Bericht des EU-Wirtschafts- und Finanzausschusses kürzlich zu dem Ergebnis gekommen war, dass die Euro-Zone für einen Finanzcrash schlecht gerüstet ist. In dem Ausschuss sind die Notenbank, die Brüsseler Kommission und die Finanzministerien vertreten.

Papademos wies solche Bedenken aber am Donnerstag zurück. Die bestehenden Strukturen ermöglichten es, "eine Antwort auf mögliche Folgen einer Finanzkrise zu geben", sagte er bei der Vorstellung des Berichts.

Die Analyse der EZB stößt mitten in eine Debatte über eine bessere Kontrolle der bislang weitgehend unbeaufsichtigten Hedge-Fonds. Die Bundesbank hatte jüngst eine freiwillige Kontrolle durch Rating-Agenturen vorgeschlagen. Auch die US-Börsenaufsicht SEC hat zuletzt die Zügel angezogen. Papademos sagte, er unterstütze Bemühungen um mehr Transparenz.

die mittelfristige Tendenz. Entscheidend bleibt aber für Sie, nicht vorzeitig
verfügbare Liquidität einzusetzen.Die Wirtschaftsdaten und sonstigen Meldungen haben in dieser Situation so gut wie keine Wirkung. Ich schaue heute gar nicht erst hin.
Merkwürdig auch: Der obige Sachverhalt ist bisher in keinem Kommentar einer
Bank oder eines Research-Büros bzw. in deutscher Sprache erschienen.
Das mag Zufall sein oder auch nicht."

Bernecker ergänzte gestern noch wie folgt:
"Turbulenzen erledigen sich nicht in wenigen Tagen. Wenngleich sie auch wie
nach einem Regen frische Luft schaffen. Das konnten Sie gestern während des
Tages nachvollziehen, was ein typischer „Intraday reversal“ war. Mindestens
ist damit das größte Risiko raus. Daraus darf man folgern:
1. Die an sich überfällige technische Korrektur wird kommen. Ob jedoch vor
  Pfingsten (noch 2 Handelstage), ist etwas zu bezweifeln. Bekanntlich ist
  am Montag Europa geschlossen oder nur bedingt offen.
2. Nach Pfingsten ist dann auch die Weekly-Basis im Trend so weit. Die zeige
  ich Ihnen morgen, um möglichst nahe dran zu sein.
3. Die Unterstützung kommt von New York mit der gleichen Technik.
In allen 3 Fällen unterstelle ich stillschweigend, daß der größte Teil der „Variance- Swaps“ abgewickelt sind. Welches Volumen darin steckte, konnten Sie aus den
Umsatzzahlen vom Dienstag erkennen. Sie lagen doppelt so hoch wie am Montag
und waren der Ausverkauf. Der Kurswert allein im DAX schnellte von 2,5 auf 6,6
Mrd. E. hoch. Anteil von Xetra 96,4 % gegen 2,5 auf dem Parkett.

Das müßte es eigentlich gewesen sein, aber den Jungs in London traue ich nach wie
vor nicht so recht. Das ist mein einziges Problem."

"„Dem Morgenrot einer Idee geht es wie dem Morgenrot überhaupt: Es findet die
meisten Menschen schlafend.“ (Peter Sirius)" pardon fuzzi8,aber interessant

In dem Thread, erschienen gestern (Freitag, d. 2.6.06), gibt es auch noch andere Kommentare zu anderen Topics, die ich aber der Übersichtlichkeit halber weggelassen habe. Kommentare in eckigen Klammern und fette Hervorhebungen sind von mir.

---

Columnist Conversation  [Freitag, 2. Juni 2006]


NFP Day -- Abandoning the Over? [hier geht es offenbar um eine Analogie zum football]
Barry Ritholtz
6/2/06 7:33 AM EDT

[erschienen VOR den schwachen Job-Zahlen: Um 8:30 h (EST) wurden nur 75.000 statt der erwarteten 170.000 neuen Stellen (ex-agrar) gemeldet]

In April, I deviated from the longstanding "under" gamble and took the "over." It was a winning bet.

Last month revealed that April's release (for March jobs data) was a mere exception to the rule. All the Katrina relocatees were finally caught up with by BLS. Like GDP, they reflected a surge, which was really a push forward from Q4 2005.

The overall trend remains soft. While I have no particular feel for this month, the Bloomberg consensus for 170,000 (Reuters survey is for 175,000) shows that perhaps the Dismal Scientists have finally figured out that job creation is not what it is typically at this phase of a recovery. (Look for a big New York Times story on this subject Sunday).

I'm tempted to take neither the Over or the Under -- perhaps they (collectively) got it "right" this month ... (And by right, I mean plus or minus 10,000).

Position: None


Handicapping Market's Reaction to NFP
Richard Suttmeier
6/2/06 7:48 AM EDT

CNBC shows consensus of 180,000 for the nonfarm payrolls report. Two street economists I follow show 150,000 and 125,000, so I have to take under.

Handicapping Yields: Look for weakness to hold monthly support at 5.197 on the two-year. If the 10-year fails to hold its monthly pivot at 5.131, the two-year should test 5.197, if not today, then next week. Resistance on a decline in yields is my monthly resistance at 5.126 on the 30-year.

Handicapping the Dow: Today's support is 11,215. This month's resistance is 11,350, but a close today below 11,267 shifts the weekly chart profile to negative indicating risk to quarterly support at 10,883.

Handicapping the Nasdaq: Today's support is 2182. This month's resistance is 2275, and a close today below 2270 keeps the weekly chart profile negative.

Position: None


Few New Jobs
Steven Smith
6/2/06 8:33 AM EDT

Nonfarm payrolls added only 75,000 new jobs. That is way below forecasts of 180,000 new jobs.

The unemployment rate came in at 4.6%. [erwartet war: 4,7 %. Schwache Zahl der neuen Jobs "passt nicht" zum Rückgang der Arbeitslosigkeit]

Hourly earnings rose 3.6%.

Stocks and bonds are rallying sharply.

Position: None


Job Growth -- Past and Present
Cody Willard
6/2/06 8:52 AM EDT

Surely, Barry, you're not seriously trying to rekindle your argument about "job creation is not what it is typically at this phase of a recovery."

That statement has been a cornerstone of your bearish rants for the last couple of years. Yes, I know you've been a "trading bull" and whatnot, and rightly so, but this economic argument of yours has been, in my view at least, wrong for the last few years and now that job creation is finally starting to slow -- years after your repeated flagging of how this "recovery" (do you still call this a "recovery" by the way? I'd call what we just went through a boom that might still be heating up ... but I digress) somehow wasn't measuring up to whatever statistically insignificant metrics you've measured in past "recoveries." It is what it is, and there have been millions of jobs created and the economy has been in a huge boom.

We've argued this point about job creation two years ago, last year and here. And now this year here in this post.

On a similar note, I can't wait to have you as my first Wall Street guest in my new offices today! Somehow I expect this topic will come up.

Position: None


Economic Data
Robert Marcin
6/2/06 9:28 AM EDT

The numbers sure look like a material slowdown to me. Something I had tried to warn the Fed about for some time. Sloppy car sales, declining home sales and slowing retail purchases suggest that too much growth is not our problem.

And the Fed is still hiking interest rates into a topping economy. With sincere apologies to Brittany, "Ooops, they did it again!"

Position: Short Moskow's 1% inflation target


Early View -- Futures Move Higher After Jobs Numbers
Christopher Edmonds
6/2/06 9:37 AM EDT

Good morning. Futures are nicely higher after a lower-than-expected jobs number keeps inflation fears in check. S&P futures are up 6.70, Dow futures are up 48 and Nasdaq futures are higher by 14 points.

Oil is higher on the back of two items: A major refinery fire at Valero (VLO:NYSE) Corpus Christi, Texas, refinery took at least 70,000 bbsd of capacity offline for an indefinite time period. In addition, bandits attacked a Nigerian rig and took eight workers hostage.

While the broader market may move higher on the employment news, housing stocks are likely going to feel the pinch of lower earnings.

Have a great day and great weekend.

Position: None


A Question for All Contributors
Robert Marcin
6/2/06 10:08 AM EDT

Anybody willing to speculate on my contention that we have a period over the next few months where bad news is bad news? Cramer?

With the average stock trading up a ton over three years, valued at 19 times earnings, in a rising inflation/interest rate environment with a slowing economy, bad news just might be greeted with selling.

Position: None


Timing and Placings
Cody Willard
6/2/06 10:20 AM EDT

Bob [= Robert], I won't venture a guess as to whether the timing is measured in weeks or months, but I for one remain concerned that the near-term risk/reward is still not exactly favorable for the bulls. With the rolling dislocations continuing -- how about that ugly intraday reversal of nearly 2% to the downside in the DAX today? -- the economic data and fundamental (especially in low-end retail) news flow getting softer and permabear buddies of mine emailing me about why it's no big deal when companies like F5 (FFIV:Nasdaq) and Juniper (JNPR:Nasdaq) are implicated in stealing from shareholders and getting longer. ...

Well, while I'm sure not turning into an outright bear, neither do I want to be much long and bullish right now. A time and place for just about everything, right?

Position: None


News and Stocks
Robert Marcin
6/2/06 10:53 AM EDT

Cody, I feel the same way. It's tough to get excited with good but deteriorating fundamentals. And, it's difficult to get too short with many stocks down and cheap.

My observation is that for the past year both good and bad news has been greeted with buying. Good news is obvious, but bad because it motivated the Fed to pause.

However, there comes a stage in the mid-cycle pause where the economy slows, rates flatten after having risen, and inflation keeps rising. Equity investors tend to develop a tad more sensitivity to "bad news" in that environment. Wondering if we have to work through that over the summer.

[Gemeint ist: Gute News sind was sie sind, während schlechte Arbeitsmarkt-News, die eigentlich ein Abschwächen der Wirtschaft signalisieren, ebenfalls als "gute News" wahrgenommen werden, weil die Fed dann die Zinsen nicht weiter die erhöhen kann, was pro-forma bullisch ist. Diese Wahrnehmung ändert sich aber, wenn sich die bad news häufen, was diesen Sommer kommen könnte.]

Position: None


Thinking Out Loud
Robert Marcin
6/2/06 11:11 AM EDT

They might still rally into the close. But should they not, today would represent the first soft economic news day that didn't generate a "one and done" rally. [gemeint: noch eine Fed-Erhöhung und dann ist Schluss]. This would not be good. We really need the bulls to take over in here.

Position: None


Bottom Fishing Review
Norm Conley
6/2/06 11:57 AM EDT

...Net-net, I'm hardly doing an end-zone dance, but I do continue to believe that the market is more likely to rally from these levels than it is to crash. If I am right in my assumption, then we will, in hindsight, view this correction as having been fortuitous.

Pullbacks are very painful for most of us. But the vast majority of pullbacks are short-term and shallow in nature. True crashes are quite rare and are definitely much less common than most are inclined to believe. Here's an interesting statistic from Ned Davis, via Bloomberg's John Dorfman: since 1900, there have been 355 corrections of at least 5% in the Dow Jones Industrial Average. In 31 of these 355 instances, the Dow's decline worsened into a bear market (i.e. a decline of 20% or more). So, while it is far from impossible that the stock market will get annihilated in the coming months, the historical odds do not favor such an outcome.

There is no such thing as a sure thing in investing, except the certainty that each pullback will be marked by dire predictions of further declines. In a minority of cases, those wise (or lucky) doomsayers turn out to be correct. In the vast majority of cases, though, boring old bulls end up being right (or lucky).

Let's state the obvious: If you are using inordinate leverage to buy stocks, or if you have money in stocks that you may need in the next several years, or if you have all of your money in a couple of individual names, then you are are being silly and reckless with your money. And you should know that Mr. Market will do his best to make you feel like a complete idiot.

On the other hand, if you are a prudent investor with a long-term view and a diversified portfolio, I believe you should be viewing this pullback in an opportunistic fashion. I am.

Position: None mentioned


Focus on Weakening Weekly Technicals
Richard Suttmeier
6/2/06 12:12 PM EDT

Strength in the Dow and Nasdaq Wednesday and Thursday alleviated the oversold conditions on the daily charts. On Fridays technicians look to the weekly charts, and they have been deteriorating since the peaks in early May.

The Dow tested its 50-day simple moving average (SMA) at 11,274 this morning. A close today below the five-week modified moving average (MMA) at 11,267 shifts the weekly chart profile to negative, which indicates risk to quarterly support at 10,883, which is just above the 200-day SMA at 10,864.

[Der Dow schloss Freitag exakt bei 11274 und ließ somit alles offen]

The Nasdaq tested its 200-day SMA at 2230 this morning, and its weekly chart profile will stay negative on a close today below its five-week MMA at 2270. The risk is back to the May 24 low at 2136.

[Der Nasdaq schloss Freitag bei 2219 - also unter den Trendlinien]

Position: None


NFP Stinks -- and Some People Still Don't Get It
Barry Ritholtz
6/2/06 12:19 PM EDT

Today's nonfarm payrolls number stunk the joint up: 75,000. That's half of the monthly population growth, meaning the percentage of people working (relative to population) actually went down, if we are to believe this data.

Astonishingly, some people, including my friend Cody Willard, still do not understand the data or the context of the weak job growth within this recovery.

Rekindle the debate? Just because you close your eyes, the boogie man doesn't disappear. This job recovery has been weak.

I would welcome anyone to please cite me some data revealing this to be an above-average private sector jobs creation recovery. Hell, I'll take average.

Cody's defense of this job market includes several analytical foibles, but the best way to describe it is it "ignores reality." But a subjective error does not change the objective reality for the rest of us: By any honest measure - e.g., NY Federal Reserve or Cleveland Federal Reserve research -- this has been the worst modern jobs recovery on record.

This is not a meme I am pushing or a Bear story I fabricated. It just "is."

This doesn't mean you run out and short everything; as I wrote last December, one should Never Confuse Economic Analysis With Trading.

But comprehending the reality of the economic situation is important. It's critically important to understand the specifics of how a recovery comes about, and how it compares to prior recoveries. And to know what it means as the massive government stimulus that goosed the economy begins to fade. What happens when the Pig is finally thought the Python?

I expect that as we begin to slow, there ain't a whole lot of fat to get sliced. As unemployment starts ticking up, it will not be pretty. It suggests the next recession will be more severe than the last one.

Yes, Virginia, there is inflation. And yes, Cody, this has been the worst Jobs recovery since WWII. [2. Weltkrieg]

Position: Long Cody


That Rocking Economy From the Past
Cody Willard
6/2/06 12:42 PM EDT

Barry, nice job ignoring the points that you've been trying to make using your repeated bearish rants about how this job growth cycle wasn't up to a handful of other job growth cycles that you've measured using the incredibly silly and faulty data provided to you by a bunch of politically motivated bureaucrats.

Nobody's arguing that the results of the way you've bothered to measure job growth show that this cycle pales in comparison to a few recent ones in the past 50 years. And that's relevant to my investing decisions how?

The part that I've always taken issue with and that I continue to take issue with has nothing to do with your use of government data. It's all about your economic conclusions based on that data. Such as, in the post I linked to earlier this morning, when you wrote in April of 2005, "And as I have lamented over and over again on this site, an economy unable to create new jobs at a robust pace -- like this one has failed to -- is not a healthy economy."

It was indeed a healthy economy.

Do I think that today's economy is as healthy as it was last year when we debated its health? No. That's partly why I remain mostly in cash.

Do I think that today's job growth number means that this economy is doomed? No. That's partly why I will be looking to start buying stocks again soon.

The job growth during the last few years was plenty to keep this economy strong and to keep the earnings growth of my favorite stocks going strong. That is what matters, not whether you've found a way of determining that payrolls as measured by the government are growing in the same way they happened to when Elvis or when the Beatles or when Pearl Jam reigned.

Position: None



Now We Get to the Heart of the Matter
Barry Ritholtz
6/2/06 1:19 PM EDT

Ah, Cody, now we get to the heart of our economic differences.

In my analysis, this has been an extremely aberrational, stimulus-driven economy. It's relied on government handouts -- big tax cuts, deficit spending, two wars, ultra low rates -- as opposed to the normal organic growth we have seen under normal circumstances.

You think "It's rocking."

My frame of reference is 1973 [siehe Posting 2 in diesem Thread] (I disagree with those who think the 1929 comparison is more apt). This framework is part of the reason I expect there to be major economic dislocations in the future.

You claim it is "indeed a healthy economy."

The government stimulus during the past few years was sufficient to keep the economy moving forward. Earnings growth has been driven in large part by government spending, by overseas demand, by corporate cost-cutting, improving efficiencies and productivity gains.

The consumer has exchanged 3 trillion dollars worth of home equity [Hypotheken] for assorted "stuff." Their savings rate is negative, and their real income has lost ground.

This is what you describe as a "strong economy."

As to equities, many studies have shown that the ideal entry for stocks is hardly when earnings growth is terrific, but softening. Rather, it's when year-over-year S&P 500 earnings gains are poor, but improving.

Time will tell which of us is correct. I think we will know by January for sure who's right. Dinner's on the loser...

Position: ~


Re: The Heart of the Matter
Cody Willard
6/2/06 1:37 PM EDT

Hey, Barry, don't put words in my mouth there, buddy. I said it was a rocking economy last year when you said it wasn't. That's past tense.

Aberrational? Oh, as if there's some standard of normalcy for the economy? LOL. What I wrote is that you have been dead wrong in lamenting the health of this economy for the last few years. Past tense, see? Yes, I am now worried that this economy is no longer healthy. Present tense, see?

Fun stuff, man. Love the debate.

Position: None.


Potato, Po-tah-toe
Barry Ritholtz
6/2/06 2:21 PM EDT

So we both are now saying the economy is decelerating and heading for trouble?

It appears our differences are what got us here: I say it's been a long time coming, 'cause she never was that healthy to begin with; you say the economy was rocking but is now a cause for concern.

So where do we really differ? I still adhere to the belief of understanding the actual health of the economy beneath the government data. Is this a healthy expansion? Where is the growth? What sectors are doing well and why?

I believe the key to understanding what could happen in the future is how we got to where we are now. Again, my analytical read is because of the government-stimulus-driven strength, any subsequent weakness may potentially be severe. I tend to agree with Northern Trust's Paul Kasriel, who has said, this is an "accident prone economy."

What say ye?

Position: ~


Economic Interpretation in the Eye of the Beholder
Steven Bulwa
6/2/06 2:29 PM EDT

I am enjoying the debate between Cody and Barry. What becomes clear is that events can be interpreted very differently by different people.

The issue for me is just because the economy posted strong numbers over the last few years does that actually mean the economy was strong? I would argue as I believe Barry would is that the answer is no. You have to look at the origin of the strength to provide the proper context.

The economy's recent strength was created by cheap borrowing and paper gains in homes stimulating more borrowing. The demand was not organically derived from improved business conditions or job creation or the greater wealth of the population, the stimulus was applied by offering cheap money and what was borrowed is due back some day. This will be proven over the longer term.

Short-term actions in markets or economies are proof of nothing, just imbalances in supply and demand. If a stock is going higher short term because a big fund is a buyer but in 12 months is down 50%, was the analyst that was negative about that company's prospects during the short period of the stock's ascent wrong? Not in my books.
...


Potatoes ... or Carbs?
Cody Willard
6/2/06 2:32 PM EDT

Barry, that's two posts in a row that you've put words in my mouth. Sigh.

Look, I am concerned about the health of this economy for the first time in a long time. That's far different from being in your camp of (Still, I might add) saying that we're headed for trouble.

Some might say that it made good sense to cash in a lot of chips and allow for these markets and economy to chill out for a little while back when every index in the world was up huge in the last few years and up huge in the last few months.

Position: None
...

Real Estate Keys the Economy
Richard Suttmeier
6/2/06 2:45 PM EDT

I have read an estimate that 25% to 50% of the job creation across America over the past three years can be attributed to the real estate market. A slowdown in housing can lead to layoffs, as real estate agents, title searchers and mortgage bankers lose their jobs.

The homebuilders have been flagging this risk.

Position: None
...


We Do Disagree!
Barry Ritholtz
6/2/06 3:33 PM EDT

I don't want to put words in your mouth, Cody. I am merely inquiring as to where we have key disagreement. I think our discussion today has clarified where we are at odds.

On a related note (and answering Richard Suttmeier's question), a study done by Asha Banglore (also of Northern Trust) back in April of 2005 found 42% of all new private sector jobs were real-estate related.

This has been fun, Cody, and I am looking forward to checking out your new digs next week. Enjoy the weekend, and be sure to catch tomorrow's linkfest (now with more niacin than before!)

Ich bin, unabhängig von Bernecker, zu ähnlichen Schlüssen gekommen und hab meine Aktien-Quote am Freitag auf 50 % zurückgefahren (50 % Cash). Die - überwiegend fundamentalen - Gründe finden sich im letzten Posting (Nr. 223).

Der Chart des SP-500 "riecht" geradezu nach technischer Erholung, der ein weiterer Abverkauf folgen könnte. Daher scheint mir auch charttechnisch das Chancen/Risiko-Verhältnis zu niedrig, um mich dem voll investiert auszusetzen.

bigpicture.typepad.com/comments/2006/06/nfp_stinks_and_.html

Dazu gibt es im selben Link noch interessante Kommentare, z. B. diesen hier:

As Barry implies we need approx. 150K jobs/month to net out zero for new job creation against labor force historical growth + 'natural' long-term growth; or at least that's the figure of merit.

If you are so inclined you can download the payroll data and look at the statistics as far back as you care to. And even graph them courtesy of Exel. Having performed that little exercise I'm happy to say, but very unhappy to know, that new jobs were less than 150K until Q3-2004 and have been oscillating around net new of ZERO since then. If you then look at cumulative net new jobs since then we are still in the hole - that is we've not replaced lost jobs - by approx. 1.8 Million jobs. And people wander/wonder why consumer demand is flattening and headed down ?

As (again) Barry has pointed out this 'recovery' has not achieved organic growth where internal factors self-reinforce increases in spending or hiring.