Crash Buyer

A good summary from Babak. We hear alot about incremental demand from China and India, but what about potential withdrawal of demand growth from OECD nations? To me it's just looking at one side of the coin. I don't buy the paradigm shift at all. Or maybe Gordon Brown abolished the commodity supercycle instead of the UK business cycle by accident?

I think that the 4000 Dow low also ties in closely with Grantham's expected 400-500 on the S&P; there are certainly close parallels between their predictions for a 'lean' period up to 2016-ish. Buy-and-holders could be in for a rough ride. I must admit, I was originally quite sceptical about the commodity supercycle, but really it can just be regarded as a logical extension of the Kondratieff cycle. Therefore I'm against Grantham's commodity paradigm shift - as Grantham readily admits, the forecast sounds a bit too much like "its different this time". On the next low, my interpretation is that as the 33 year period is broken into 17 years sideways and 17 years with rocket pictures required, that the latter part of the first 17 years would be tending towards higher lows (it looks that way from the other chart, as below). If only I had the patience for buy and hold. Well, at least there should be plenty of long/short action in the interim period!

Thanks RK. This certainly caught my attention, especially the bit from 2006 to 2010. Projected Dow trends using 1968-1982 historical data. http://www.zealllc.com/c2002/Zeal032202B.gif So don't bother with buy and hold for next 5 years! Commodities I presume are inversely proportional. Especially now that two years of sharp rises in equities have conditioned short-termist investors to expecting a continuation (extrapolation), courtesy of the Fed, or whoever. Of course it's different this time.

I'd consider it for short term trading only (so the tracking error is not as noticeable) - it looks like funds / equity ETFs are the better option. Personally I wouldn't bother with any of the (non-physical) commodity ETFs due to the roll problem.

On the long side, I think Nadeem recommended a trust in last year's e-book (I can't remember and don't have it handy, but if you can't find it let me know and I'll post it). The only one I could find online from Nadeem was First Trust ISE-Revere Natural Gas ETF (NYSE: FCG) in the link below. http://www.marketoracle.co.uk/Article15238.html Most funds tend to track the Henry Hub, where prices have been struggling, I would have preferred NBP (UK) or TTF (Holland) as European prices have been much more bullish. Edit: Formatting

Two words: "option roll" Just compare that chart to Henry Hub prices to see what's wrong with this picture. I've traded these before and would not again.

Thanks RK. I suppose this is the logical extension of Part 1 - higher commodity prices for an extended period would lead to under-performing equities for an extended period. Let's see how far the retail investor can push it before it finally bursts. & QE3 etc.

Thanks for this, always an excellent read. On your post above: In the last newsletter, JG argued that we were heading towards another financial collapse, the inevitable conclusion to the "hair of the dog" treatment (my way of describing the drunk going for another round of debt to solve his problems) that the Fed is providing. Indeed, the argument was that by this autumn, the bull would be exhausted and we should go to cash. Now, given the correlation between equities and commodities, surely this would create the buying opportunity outlined above? Of course if we consider that given we are already maxed out on fiscal debt, the logical get-out clause would be further (and massive) QE that would threaten seriously high inflation and therefore support the purchase of any hard assets that can preserve value. Just trying to join the dots.

Which Adam thinks is unlikely (for the record), we shall see. The whole QE1/QE2 thing is ridiculous IMO, so surely anything's possible.

Last summer Adam nailed the silver low to the DAY. For the past couple of month's Adam's been expecting an SPX correction of at least 10% (and commodity corrections along with it) and is sticking with it despite the continued strength in equities. The argument in the latest essay is that end of QE2 in Jun will be preceded by the long-awaited correction.

I just think it needs to get back to the 60 area sharpish and that we're now coming to the weak seasonal area for gold. On the specifics of the silver market, I thought it was going to correct in the 30's.

Even within the world of PMs, silver looks irrationally exuberant. http://www.bespokeinvest.com/thinkbig/2011/4/21/the-truly-remarkable-run-of-silver.html

Recent posts from Nadeem and Adam Hamilton, backing up the "correction is not over yet" side. http://www.marketoracle.co.uk/Article27634.html http://www.zealllc.com/2011/spxcorr2.htm

Agreed - the consensus view is that impending rate rises will be negative for stocks, suggesting expectations of weak equities ahead. So if one was able to move the market, one might well do the opposite.

Nadeem's 2011 Dow forecast posted a couple of days ago (well the remaining 9 months anyway). Up, up and away to all time highs, apparently. http://www.marketoracle.co.uk/Article27334.html

I think it was discussed briefly, although IMO there was a lot in there that will already be familiar to regular Nadeem readers. Looks like Nadeem is finally formulating a 2011 stock market forecast (well, its only March): http://www.marketoracle.co.uk/Article27240.html http://www.marketoracle.co.uk/Article27246.html

A bit more on VIX (well VXO actually). Funny what difference a week makes.

Thanks for that HAM, looking at sentiment I would tend to agree that it increasingly seems that was it. Maybe the presidential cycle and monetary stimulus are just too strong at this stage. http://www.ritholtz.com/blog/2011/03/has-the-all-clear-been-sounded/

I certainly hope so - if the bounce is going to run out of steam then it should do around now. It just seems that everyone is turning bullish, that Japan-led falls were 'overdone' and Libya is not an issue anymore. In other words, the obstacles to a resumption of the uptrend are being put away. Where's that 10% correction I was promised?

Well I'm still waiting for the rest of the house price crash. We've viewed some houses but everything is so over-priced (to a crash buyer, that is). IMO prices have crept back up to 2008 levels (just 1 year off the peak). Although with rising inflation, any real price falls would be limited. If you want another opinion, I'd offer Jeremy Grantham of GMO, who continues to warn that UK and Australian house prices will correct.

From the last Jack's Wrap (Monday) S&P 1257. Bring on the 10%-er.

Oversold? http://www.bespokeinvest.com/thinkbig/2011/3/16/sp-500-most-oversold-since-june.html Kind of oversold? http://www.bespokeinvest.com/thinkbig/2011/3/16/26-of-sp-500-stocks-currently-above-50-day-moving-averages.html Oversold enough for a short term bounce only? http://quantifiableedges.blogspot.com/2011/03/spy-gap-partial-fill-pattern-suggesting.html Well I'm still waiting for the long-promised 10%-er. Edit: Links added

Latest post http://www.zealllc.com/2011/silvtop2.htm In a previous episode http://www.zealllc.com/2011/spxcorr.htm Market crash - check Short silver - check

On your energy hedge, have you considered Shell or BP shares instead? No option roll and they pay dividends (BP still re-building payouts though).

http://www.bespokeinvest.com/thinkbig/2011/2/28/first-trading-day-of-the-month-another-1-gain.html "First Trading Day of the Month: Another 1% Gain?" Well, no.