Switching To Bear Status

[scepticus]

well done chaps. missed the point I see?

I am not arguing for the existence of risk free securities, and certainly not arguing in favour of buying such fictional items except at opportune moments of collective insanity.

I'm just saying why they are getting deleted, and why they have been on the bubble for 40 years. Arguably, for 300 years as far as her brittanic majesty is concerned.

What we need to figure out, is where the 'wealth' currently stored in them will end up, or if not what the manner of its demise will be.

OK.

[ParticleMan]

What bothers me (some would say characteristically) is not the real world implications of anything Sceppy says, but just that he has got the basic principles wrong.

Preference is a slippery fish.

If folk start throwing in things like "infinitely prefer a risk free return of..." then one starts to wonder why there would ever be any sellers?

A net seller of such an instrument (I'm not talking about those able to get inbetween net buyers and net sellers) is taking a gamble that maybe you won't be in business by Wednesday.

Some of the more rambling threads on HPC have helped bring me closer to the basics - like why some people grow rice, why some people trade it, and why some people just eat it.

These things seem to matter.

Forcing markets to follow valuation systems never worked - in part, because preference and even identity mutate.

Even if I have a piece of paper documenting my claim to your Florins, I doubt I could get a court to honour it these days.

How old is the universe again? And how much older are we expecting it to get?

Edited November 8, 2010 by ParticleMan

[mirage]

well done chaps. missed the point I see?

I am not arguing for the existence of risk free securities, and certainly not arguing in favour of buying such fictional items except at opportune moments of collective insanity.

I'm just saying why they are getting deleted, and why they have been on the bubble for 40 years. Arguably, for 300 years as far as her brittanic majesty is concerned.

What we need to figure out, is where the 'wealth' currently stored in them will end up, or if not what the manner of its demise will be.

OK.

This is very confusing to me. You are not arguing for their existence, they are fictional, yet you are arguing for buying them at moments of insanity.

They are fictional but they are getting deleted and they have been in a bubble.

Right.

How are we doing on that admission of error? The error where you said that such hypothetical instruments offering any positive rate of real return would be priced at aleph-null?

In the mail, is it?

You would have had mine half a dozen posts back were the situations reversed. Ho Hum and goodnight.

Edited November 8, 2010 by mirage

[scepticus]

Forcing markets to follow valuation systems never worked - in part, because preference and even identity mutate.

quite, which is why you can't have nominal bonds and a yield curve.

and by extension, why you can't, in the end, have money.

[ParticleMan]

and by extension, why you can't, in the end, have money.

You can have money just so long as you have people willing to gamble.

I'd argue while you have people at all you've met that condition.

Where things get tricky is where claims on production (bets gambling on delivery net of bets gambling against it) exceed our actual ability to improve productivity (something which is only apparent after the fact).

Which leads off on to an interesting tangent.

This recession would already be much more sharply felt if it weren't for so many rubes losing such large bets daily, on the short side.

[scepticus]

You can have money just so long as you have people willing to gamble.

I'd argue while you have people at all you've met that condition.

No. The only thing that can ensure the willingness to gamble is to ensure there is no money.

a unit of account.

but no money.

a unit of account must earn 0 by definition, because it is not scarce.

between a sovereign government and a private sector willing to gamble on lending at least some nominal units of account, the above is achieved.

if the units of account become scarce they will be replenished.

then people will build the track ahead of us, ad infinitum.

Where things get tricky is where claims on production (bets gambling on delivery net of bets gambling against it) exceed our actual ability to improve productivity (something which is only apparent after the fact).

entropy.

the entire currently extant exercise in ******** that is economic wisdom coupled with the talking heads of the financial markets are an attempt to convince someone who matters entropy does not exist.

it does exist and all human endevaours are subject to the laws of thermodynamics and therefore so should our monetary system be.

information gets lost, regardless of what controls we put in place.

that information loss is only expressed as loss of deferred purchasing power, defined as the whittling away of long term wealth whether it be through default, debasement or simple theft through violence.

Edited November 8, 2010 by scepticus

[scepticus]

People know they have to go into T-bills in the end, but their competitive nature means they want to ride the bubbles with everyone else. Finally, the bubbles must pop, and there will be a phenomenal rush to T-bills - a bit like musical chairs with only so many seats. Conservative people will already be sitting in those seats. (But having foregone lots of the bubble gains, they might only have skinny little bottoms. )

If, instead, the Fed does go for option 1) then all the "bubbles" will not have been bubbles, and will come good, and the Fed and its like will be gone. No matter how short-termist they are, I can't see them doing it - but you never know. If they do, it will be a world without dollars or paper money of any worth. (All the conservative people, sitting in their T-bill seats, will have starved to death, 'Zimbabwe-style'.) Even a tiny amount of PMs will be a king's ransom. (Thus the tiny PM hedge.)[/indent][/color]

that's pretty much it.

I don't believe t-bills will be the 'last thing standing' because that implies the market never works out for itself what the landscape will look like after there are no t-bills left.

it is certainly true that the attempt to bid up commodity prices is going to fail because consumers won't stand for it and will simply turn off the spending, initiating a new round of QE. At the end there will be no tbills and while western consumers will be facing higher prices because they'll have to share more with the developing nations, they will not be facing higher prices as a result of either the QE or investors having bidded up commodity prices to try an extract rent from them.

[LuckyOne]

that's pretty much it.

I don't believe t-bills will be the 'last thing standing' because that implies the market never works out for itself what the landscape will look like after there are no t-bills left.

it is certainly true that the attempt to bid up commodity prices is going to fail because consumers won't stand for it and will simply turn off the spending, initiating a new round of QE. At the end there will be no tbills and while western consumers will be facing higher prices because they'll have to share more with the developing nations, they will not be facing higher prices as a result of either the QE or investors having bidded up commodity prices to try an extract rent from them.

A genuine question.

Does the argument change if the price of commodities are not set by consumers in QE nations?

What happens if (and it is a huge if) places like the BRICs mature to a point where their internal markets grow large enough that they now longer need to export?

[scepticus]

A genuine question.

Does the argument change if the price of commodities are not set by consumers in QE nations?

but that is already the case. that is why oil got to its 2007 highs.

We are certainly going to see retrenchment in the west - people will spend less and save more, and the BRICs (apart form russia which is going to implode demographically quite soon) will spend more. So yes a fall in standard of living.

QE is a big meh as far as that is concerned - people in the west will just save in 0% bank deposits or 0% bonds while the brics live it up. It will just happen without any hyper-deflationary holocaust in the west.

What happens if (and it is a huge if) places like the BRICs mature to a point where their internal markets grow large enough that they now longer need to export?

all economies need to export and import. Not everything needed can be produce din one nation, not even china.

But yes, if the brics go through a fast financial deepening it will require a lot more abstention in the west. But that still does not imply destructive deflation in the west. What I do forsee is japan type asset deflation as money formerly in UK/US/EU assets like housing flees east and south in search of yield.

eventually they either raise capital controls to stop that (and western assets go back up) or the bubble in the south and east is fully inflated to peak BRIC-debt and then yields equalise everywhere and the capital flows die off.

Likewise the logic of this future means that while the brics might earn more and be getting more prosperous, they are still likely to be subjected to negative real rates of return on money as this happens, which would make saving in these BRIC assets only slightly less impossible than saving in western assets, not least because western money will seek out and kill off every little bit of yield in the brics PDQ.

[LuckyOne]

but that is already the case. that is why oil got to its 2007 highs.

We are certainly going to see retrenchment in the west - people will spend less and save more, and the BRICs (apart form russia which is going to implode demographically quite soon) will spend more. So yes a fall in standard of living.

QE is a big meh as far as that is concerned - people in the west will just save in 0% bank deposits or 0% bonds while the brics live it up. It will just happen without any hyper-deflationary holocaust in the west.

all economies need to export and import. Not everything needed can be produce din one nation, not even china.

But yes, if the brics go through a fast financial deepening it will require a lot more abstention in the west. But that still does not imply destructive deflation in the west. What I do forsee is japan type asset deflation as money formerly in UK/US/EU assets like housing flees east and south in search of yield.

eventually they either raise capital controls to stop that (and western assets go back up) or the bubble in the south and east is fully inflated to peak BRIC-debt and then yields equalise everywhere and the capital flows die off.

Likewise the logic of this future means that while the brics might earn more and be getting more prosperous, they are still likely to be subjected to negative real rates of return on money as this happens, which would make saving in these BRIC assets only slightly less impossible than saving in western assets, not least because western money will seek out and kill off every little bit of yield in the brics PDQ.

Thank you very much.

I would characterise the "hyper-deflationary holocaust in the west" as the potential destruction of capital (in the broadest sense) that has been malinvested. QE is preventing this from happening to an extent which means that "smart" capital (again, in the broadest sense) is being denied the opportunity to acquire assets at the right price. I can see that handing over this much power to the "smart" capital is politically and possibly socially difficult.

[scepticus]

QE is preventing this from happening to an extent which means that "smart" capital (again, in the broadest sense) is being denied the opportunity to acquire assets at the right price. I can see that handing over this much power to the "smart" capital is politically and possibly socially difficult.

Smart capital does not require the availability of risk free nominal rent paying assets.

More fundamentally smart capital should not require the existence of an artificially rare money token that confers a rent merely by possessing it.

Once these crutches have been removed we shall be able to see how smart capital actually is and thus sort the men from the boys.

Hence the necessity for QE and permanent peak debt and zirp, to allow smart capital to crystallise from the sloppy mulch which passes for investment these days.

[Timm]

I'm a simple chap.

Are you saying consumers will go a little hungry, resulting in commodity prices being much lower than bet on?

exactly. if investors try to bid up commods to extract rent from consumers the latter will stop spending, destroying the investors attempt to 'protect' themselves from 'monetary debasement'. The prices crash, rates fall, and treasuries rise again. Then, more QE, and no doubt another attempt to corner commodities and extract rent that way rather than via risk free bonds.

I'm going to cover the process by which the so called market is defeated in detail by consumers and the fed in my blog soon, right after I cover the issue of the goose that laid the golden egg in more detail.

the funny thing about the way people talk about the market and the danger of losing 'the confidence of the market, meaning investors.

When of course in a consumer society, especially a democratic one, consumers are the only source of confidence which matters because investors don't spend. Therefore the consumers will ultimately win.

Ahh, you're talking about rent?

Hmm. I guess farmers can't pay more rent / potatoes than they can grow.

You can get them to promise to pay more potatoes though, and then you can sell that promise to some sucker. I guess if you corner the market in potatoes before you sell the promise to provide more potatoes than the farmer can grow, you can get the sucker to pay more for the promise. The farmer goes hungry, the sucker goes broke, you go on holiday (as long as you don't get caught holding an inflated promise come rent day?

So. This is a hot potato then?

[Confounded]

If you are a nominal bear then this is exactly the call you should be backing.

Since last year and the dead cat bounce in property I have been stating November 10 would be a pivotal point. Either we return to the bear market in both housing and equities or the inflation effects caused by QE would be doing the damage in real terms.

I hold the view that central banks can only have any hope of getting us through this if they spread the pain over the next 10-15 years. As Tamara De Lempicka states 4000 is not a collapse of the DOW it is a correction and central banks would still be successful if they achieve this as a natural bottom. Therefore the central banks must avoid hyper deflation and hyper inflation..

In 06 it was evident the US housing market was going to cause devastation and be highly deflationary, it took 2 years to convince everyone the FED was going to bail everyone out and gold,oil and commodities peaked. There were food riots around the globe due to the stress of the FED's intervention becoming too great, then they let Lehman Brothers go down and people jumped on the deflation trade. We are nearly 2 years into the reflation trade and we are get dangerously close them loosing control of the inflation trade.

If they are trying to achieve managed deflation, as per my thesis, then we are due a sustained period of controlled deflation.

$600 billion in QE without another crisis would be massively inflationary. What would $600 billion do in the markets if they let the European sovereign crisis play out?

Euro overvalued and capable of taking a hit, check.

They let gold run up parabolically and is ripe for a correction, check

Dollar reaching key levels of support and is being seen as worthless paper, check.

Stock market valuations already in bubble territory and ripe for a corrections, check.

Another round of deleveraging will keep interests rates low for borrows, check

And the big one that Tamara De Lempicka states, every one is in agreement QE2 will take the market higher.

Look at a plot of the DOW and see how they manipulation it higher before the 07/08 crisis took hold, they pump the markets ups 3000 points on no news despite a layperson such as myself selling out of stocks in Jan 07 because of the impending disaster. They bought ground they could afford to loose for nothing.

As I said in one of my later post this is make or break for my managed deflation theory...

[Mikhail Liebenstein]

$600 billion in QE without another crisis would be massively inflationary. What would $600 billion do in the markets if they let the European sovereign crisis play out?

Euro overvalued and capable of taking a hit, check.

They let gold run up parabolically and is ripe for a correction, check

Dollar reaching key levels of support and is being seen as worthless paper, check.

Stock market valuations already in bubble territory and ripe for a corrections, check.

Another round of deleveraging will keep interests rates low for borrows, check

And the big one that Tamara De Lempicka states, every one is in agreement QE2 will take the market higher.

Look at a plot of the DOW and see how they manipulation it higher before the 07/08 crisis took hold, they pump the markets ups 3000 points on no news despite a layperson such as myself selling out of stocks in Jan 07 because of the impending disaster. They bought ground they could afford to loose for nothing.

As I said in one of my later post this is make or break for my managed deflation theory...

I am fairly certain all the current QE will be highly inflationary. I'd say give it another 6-8 months and we might start to see some dramatic effects. 

[Confounded]

I am fairly certain all the current QE will be highly inflationary. I'd say give it another 6-8 months and we might start to see some dramatic effects. 

But that is what all the inflationist say. I was loaded up with gold and was fully in the inflation camp in 08 I then saw the power of the deflating debt bubble (that still has a long way to go before being fully deflated). The printing so far could evaporate in a fortnight if we get a period like 08. This is the whole point of my managed deflation theory. While the central banks are in control we will get periods where they manage inflation expectation higher and then we will get periods when they will allow some of the necessary deleveraging.

[Confounded]

Whilst we over here watch Ireland, over in China the SSEC has fallen 8% in 3 trading days. It is now the 16th and TDL posted on the 6th.

TDL en route for 'guru' status.

http://ftalphaville....nghai-surprise/

Why fallen? I guess a few things....

1. Weakening Euro/strengthening dollar on back of Ireland etc.

2. Levels of inflation and fears of monetary tightening esp. in face of QE2 money flooding in.

This will feed back to us, particularly via the commodities markets.

Definitely looks like the inflation expectations were getting ahead of where the FED/Central bankers would like them to be.

[_w_]

SSEC fell 5% last night. Not bad so far Temara.

+1

The forecast is looking very good.

[Bruce Banner]

I knew I wanted to set myself fully in the deflation camp (with a tiny PM hedge), but, having no view on timing, I knew I might have to bear an unknown length of time whilst the market moved against me, calling on all my reserves of patience and emotional determination.

Instead, TDL's post prompted me to act. To date, he has been proved right exactly to the day and I have had to bear nothing.

TDL, I owe you one, to put it mildly:

e-pint

(You Sir, are a feckin' genius. )

Welcome home .

[Democorruptcy]

After more than 18 months since stumbling across HPC via an excellent article on K Winters and waiting for the various markets to reach potential price targets its finally time for me to switch over to the dark side of Bear Status.

Technically great potential for a reversal from these values, ( if its still a nominal price bear market id say it pretty much has to reverse from these levels)

Sentiment wise although for completely different reasons to 07 the extreme asset price bullishness is about as perfect as it gets for a top

In homage to CGNAO by Mid 2013

Halifax Index 164K to 100K

FTSE 5890 to 2500

Dow 11420 to 4000

Gold 1394 to 500

Silver 2673 to 850

GBP/USD 1.62 to Sub Parity

Well we are three weeks on now since the original post.

What are the "tea leaves" telling you now? Are they set in the bottom of the cup in their original position?

[scepticus]

Well we are three weeks on now since the original post.

What are the "tea leaves" telling you now? Are they set in the bottom of the cup in their original position?

I'm sure the tea leaves are suggestiong - don't post on HPC for a while

[Democorruptcy]

No reply as to the latest readings, looks like Tamara De Lempicka has got a slow boiling kettle.

[Georgia O'Keeffe]

No reply as to the latest readings, looks like Tamara De Lempicka has got a slow boiling kettle.

Ha, i thought this marker was put to bed, not to be reawoken until the targets start getting taken out in a couple of years or not, theres not alot to add to the original post, daily and monthly price movements either way arent of any real relevance to the forecast itself , if you are asking if ive changed my opinion the answers nope, ive been waiting 18 months to stop being mostly bullish and for circa those prices to be reached and they were last month, they may or may not be retested next month but the most important point is that if this is still a bear market and a text book dead cat bounce the indices and sentiment last month reached text book levels, ie theres been no reason to not be price bullish over the last 18 months, now there is from a technical perspective, all short term analysis goes on the "if anyones interested thread" which has quite a few solid market contributors to it

My view has always been, whatever is going on in the MSM at any point in time is completely irrelevant, its a follower not a leader

[Georgia O'Keeffe]

I've buried my prediction in the garden. I'm not expecting it ever to be dug up again things are going to be so bad.

Have you bought a fondue set yet?

[Democorruptcy]

if you are asking if ive changed my opinion the answers nope, ive been waiting 18 months to stop being mostly bullish and for circa those prices to be reached and they were last month, they may or may not be retested next month but the most important point is that if this is still a bear market and a text book dead cat bounce the indices and sentiment last month reached text book levels, ie theres been no reason to not be price bullish over the last 18 months, now there is from a technical perspective, all short term analysis goes on the "if anyones interested thread" which has quite a few solid market contributors to it

My view has always been, whatever is going on in the MSM at any point in time is completely irrelevant, its a follower not a leader

Yes, this was what I was asking.

Make sure you send me a PM if ever the tea leaves change. I think I might spot myself when their predictions come true

[LuckyOne]

Ha, i thought this marker was put to bed, not to be reawoken until the targets start getting taken out in a couple of years or not, theres not alot to add to the original post, daily and monthly price movements either way arent of any real relevance to the forecast itself , if you are asking if ive changed my opinion the answers nope, ive been waiting 18 months to stop being mostly bullish and for circa those prices to be reached and they were last month, they may or may not be retested next month but the most important point is that if this is still a bear market and a text book dead cat bounce the indices and sentiment last month reached text book levels, ie theres been no reason to not be price bullish over the last 18 months, now there is from a technical perspective, all short term analysis goes on the "if anyones interested thread" which has quite a few solid market contributors to it

My view has always been, whatever is going on in the MSM at any point in time is completely irrelevant, its a follower not a leader

I don't think that you are trying to be a market timer within a few weeks or even a couple of months. In addition to your technical view, it does feel like there are some potential catalysts around to resolve the divergence between the price action and the fundamentals in the last 18 months or so.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=153926

I see the market as being at a point of high danger. This is different to predicting a 20% fall within a month or two.