My sweep has been and remains a short term U.S. treasury fund with maturities not exceeding 6 months, most 1 or 3 months. No agency paper of any kind.

Could I guy make a good living just shorting after short squeezes? What is the historic performance of stocks in price directly following squeezes?

Is this the big deflation/bondzilla event coming?

Perahps helpful in this context is a chart JPMorgan put together (made available at Barry Ritholtz's The Big Picture):

http://www.ritholtz.com/blog/2013/01/sp-....

October 2007... I remember it well.

PMI, ABK, MBI amd MTG were all darlings of the incestment clan (i did not spell it wrong).

FNM and FRE were well loved

BAC was king and LEH and AIG were both dominant companies.

Quote:

The worst of this mess is the bubble nature of fixed income -- there is a hell of a lot of money in those instruments that is going to take a monstrous capital loss. This will not be rotation, it will be value destruction when it hits.

There will be rotation alright; -a desperate panicked high-speed 360-degree rotation that seeks an exit/Buyer that will not exist.

Then the false wealth that was sequestered in the blocks of neo-sterilizing/aggregating paper of large denomination Sovereign Debt will implode taking vast amounts of inflation back out of the system as the Shadow Banking System dissolves into Counter-party chaos and credit freezes over...

Triple Top - the last one in a century :)

In 2008 there were still tens of millions of us idiots (and yes Karl warned us all) - and I was one - who stepped in and bought when everyone sold.

Maybe not so much this time. Like maybe none.

I know I will never play the markets again as long as I live, any of them.

If we fall, it would be awesome Schadenfreude to watch all the big boys **** their pants when they realize we no longer exist.

I, for one will be laughing my ass off.

Who's the sucker now asswipes :)

Don't count on it. Everyone is conditioned to expect the Fed to come in a save everyone. It would be hard to argue that they are wrong.

why are the bonds going to make a monsterous capital loss?

CBs don't have the control they that they think they do.

The moment REAL Interest Rates go positive in ANY of the major denominations... KABOOM...

No?

Ok: then tell Me how Japan is gonna pay 2.5% on the outstanding JGBs even if 80+% the Interest payments are recycled back to the Treasury of Japan via one means or another?

IF the BOJ succeeds in stoking 2% in REAL inflation then interest rates WILL react to this.
Push the YEN down? Where are rates gonna go?

Everybody holding Yen and Yen denominated paper is just gonna sit there at NEGATIVE RATES WHILE THE BOJ TRASHES THE YEN???

NO FUKKIN WAY.

How about Spain or Italy or G.B. facing a more traditional interest rate for their Debt?

IF the CBs buy it ALL then there will be no Tier 1 Paper to base a (Re)Capitalization Scheme upon... and the incredibly vast sums of currency/credit required to do so would be mainlined right into an inflationary price wage spiral...

throxxo

new global central bank (or IMF, WB, BIS) with brand new fiat to ride to the rescue

I think the wild card is Japan. Abe needs to make everybody think he has an open cooler full of saki on the passenger seat, the radio blaring and long drive along the coast in the fog. Of course, Central Banks never run into fat tailed risks.... The Maestro himself took a big bet and lost even though he will never admit it.

"I cannot put an exact time on the "kneepoint"; it could be a month, three, six or even a year into the future"

Neither can I.

But consider this chart ... its the 10ema of the daily low tick back to Jan 07.

Line up the SPX tops since then, and they invariably come at LOWER highs in this metric.

And we're just now only making an INITIAL top. IMO, this is more consistent with us soon making a wave 3 high. Not the ultimate high.

If the new national program includes austerity, then demand is down and rates stay down. I see mostly deflation in all things - maybe RE does not take as big a hit since it is way off its highs and in gold dollars, it is 20% of former value.

http://3.bp.blogspot.com/-yrjaidtEOZU/TY....

It's different this time. Wink.. wink..

You could be right but I don't see the likes of AAPL, NFLX, HLF etc. representing the end of anything except a few Daytraders. The average retail investor has nothing to "get out" of so BTFD as usual.

XLF and VNQ look like better "tells" IMHO.

Did we PE ratios this high back in the tech bubble? NFLX and Amazon with PE's in excess of 200. I know we had big valuations on companies with no earnings, but what about the ones that had earnings.

looks like bonds are rotating on bens ass. does s and p have more balls then boner and can kickers in washington guess will find out at 6

Has the Fed ever stimulated during rate rises? I thought Fed lowered and got the hell out of the way when rates rose.

By "Rotation" do you mean the frantic hopping from one investment hoping to dodge losses and maybe if lucky make a few $$?

If so, good luck to those who play this game. I personally am as far out of the market as I can get.

I would not be surprised if the Wall Street firms all have some array of put options and derivites to protect themselves which they have sold off to the public and various pension funds. ****'em one last time you know on the way out the door...

Flap

One of these days I'm going to go back into stocks. I won't be able to stop myself. When I do, I'll let you know. Then sell everything.

The Fed is the $64K question, but in general they are merely converting one asset into cash. More cash won't help what is supposed to help the market. One only need take a look West to Japan (it is a lot shorter to get there going west than east at least with most of the US). They have been pulling the government/Bernanke scam for 20 years and their market is 25% of peak, after a million policy induced rallies. Now they have decided to trash their currency with non-demand inflation. Instead, they will get an even larger bet worldwide against their economy.

Someone mentioned the triple tops. What I have been following is the largest rising wedge in history,some 500 points high now on the spx. Resolution is you go back where you start. I'm sure it is going to be near impossible to play, but the fireworks are not too far away. Real bull markets don't produce overlapping movements like this.

You keep hearing stocks are cheap. The proponents are either wearing rose colored glasses or lying, as the general public has no way of knowing what they say to be the truth or fiction. Stocks would be cheap if the SPX was paying a 5% dividend. The trailing 4 quarter dividend payout on the SPX is $31.24 and dividing by 1500, gives a return of 2.08%. This includes dividends paid out in the 4th quarter, much of them using borrowed money, to head off the tax increase on dividends.

The reason I bring this up is the prior 2 long term tops, 1966 and 1929, were met with 3% dividends. 2.08%, which would be closer to 2%, if not for the special dividends paid in the 4th quarter, is 150% of these valuations, based on dividends. You can't hold an stock and benefit from the buyback other than to the extent it would boost the dividend over time. Being the dividend rate has close to doubled since 2000, you could impute a 5% growth rate on a 1% dividend, giving 6% of 1% was actually acceptable. History has proven that anything less than 3% is acceptable. 3% is the risk free rate of return and the growth on stock earnings/dividends is supposed to be added to that return. We were missing 2%, meaning the market was about 20 years ahead of itself in real terms. In any case, you will never get the PV back in your lifetime on a sustained buy and hold basis. We are still 50% overvalued, provided the economy would hold up and the insiders would quit looting the companies owned by others.

The other problem is earnings in relation to the economy are at an all time high. How much home equity is going to be available to sustain this condition? We are just now beginning to see the problems faced with the impossible task of making the economic calculation using the accounting unit produced by the Fed. That is all the various currencies around the world are, accounting units. There is a real difference between demand credit and the kind of credit produced by the Fed, which is bold faced consumption of capital. The money can't go anywhere and the appetite for corporate credit demands that the real savings continue to go into junk bonds and other fixed income securities in order to sustain the current bubble. Junk is at an all time high and I think Karl points this out very well. Corporations, in this kind of environment can only sustain earnings by financing their customers in some fashion.

Once the risk of all this crap becomes apparent, there will be nothing the Fed can do. In fact, the Fed, in intentionally trying to inflate, will throw a new risk into the system, inflation risk. Stocks do well with inflation, as long as the inflation is a result of new demand and new borrowing in order to support the demand. But, inflation eventually shows up in borrowing costs and vendor financing isn't really earnings.

Stocks have been depressed, because stocks aren't priced to produce a real long term gain. At half the current level, all other things equal, stocks would present somewhat of a bargain. But, does the status quo remain much longer? Can governments go on as they are and not suffer the almost certain risk downgrades? Whether the agencies downgrade or not, eventually the market will. Can Bernanke and the other disaster agents continue to stuff the banks full of cash, which is nothing more than the mirror of their current liabilities, money for the most part already on the books and the banks maintain any thing close to decent returns? Will the current fiction be laid bare?

That said, I am probably going to initiate a short on the SPX at the close or early Monday. I probably won't risk over 20 points. Even if this isn't the top, this market has loaned itself to some pretty good shorts, provided the trader didn't try to ram his shorts into the bottoms. That last one gave up an easy 100 points, which is over 100% return on your margin. As long as you don't allow the decline to trade back through your entry, that isn't bad and worth a 20 point shot. The pattern appears near completion.

Agree with Argos and Curbyourrisk. Back in late 2006, if you were watching, you KNEW this was all just a bunch of bullcrap heading for a huge blowup. I read sooooo many articles clearly telling us we were screwed lol. But still that blowup didnt start until a year later than it damn well should have. That's from all the crazy mad money floating around. 2006 should have been the top. Early 2006. But all this cheap money floating around just blew the top off of everything and it just went nuts. Up 200 handles on a frickin clearly topped out housing market? And then an inverted yield curve on top of that? Absolutely nuts. I expect an even bigger episode of mass money madness this time around, given the truly massive quantities of money that can be called in at any moment. How many billions just sitting in bank reserves? Just try and estimate how high equities could go if all that money was forced to go somewhere. 20k DOW could be bought for a pittance of what is just sitting out there. Before this cycle is over, it is ALL going to move.

The blowoff hasnt even begun yet. A lot of people see a technical reason to short here, but the big money (with the backing of the Fed) is just going to eat them alive. This market isnt going to turn until the big BIG money decides the business cycle has turned. They are going to look for an inverted yield curve, and all the other classic signs like margins vs earnings. They will see it quite clearly before the top is put in.

What we really need is a way to see the "true" yield curve. One of the frauds that they have perpetrated with all this money printing is to suppress the yield curve so we cannot see it invert. But you have to figure that each trillion dollars printed represents some percentage to be added to $IRX to get the true adjusted $IRX, ie the true yield. Once you have that you can overlay a $TNX and then find if/when the yield curve has inverted. They have the most precise models and data. But they sure as hell aint sharing it. And even when we do see an inversion of the true yield curve, it will still be a year of insane blowoffs and volatility before a true decline begins.

Mannfm11,

THANKS ! That's a lot to contemplate when I have more time. Ultimately it has to be about dividends (current or future), doesn't it?