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Friday, June 13, 2008


batten down the hatches

well observed by the lowry letter, which i never wish to quote at any length, particularly as regards proprietary data -- go subscribe. it's the best market timing newsletter.

One factor that makes this bear market somewhat different than most, is that it includes a recently ended two month rally. A review of only those bear markets during the past 80 years that included a rally lasting two months or more (1929-’32, 1946-’49, 1969-’70, 1973-’74, 1981-’82, 2000-’03) reveals that those bear markets have commonly contained a number of multi-month rallies (false starts) before reaching their final bottoms. These bear markets also tended to last longer and produced deeper losses than the average of all bear markets. We recognize that, as Mark Twain said, “history does not repeat, but it often rhymes.” Even if the present case simply rhymes with the past 80 years, investors may have to get accustomed to a strategy of narrowly structured equity portfolios in an atmosphere of intermediate rallies followed by new lows.

this rally is fit for fading, it seems to me. it's further interesting to note that bond market problems have returned, via across the curve.

Conversations with Treasury traders tell me that a degree of illiquidity has crept back into the treasury market as well as other markets. One factor worth noting is that we are approaching June 30 quarter end and traders will be enjoined to keep the balance sheet sleek and spare. The practical consequence is that traders can not and will not hold positions. Bid to offer spreads have elongated and when a trader gets hit or lifted, he quickly resolves the trade in the brokers market. I have heard similar comments from a salesman who actively hawks derivatives and this morning a mortgage portfolio manager at a state fund noted that the improvement in liquidity post Bear Stearns had evaporated. It is not quite as bad as it was in March but the significant improvement in trading capabilities has faded.

stir evenly, apply medium heat and then add a `Big Nose Dive' in Consumer Spending, as forecast by gary shilling via bloomberg and barry ritholtz. "we're looking for the biggest decline in consumer spending of any recession since the 1930s." serves all of us, i fear.

particularly enlightening is shilling's equation (in the last 30 seconds) of china today with japan 1989, where once everyone in the western world was frightened mindless of japanese world domination. sign me up -- i think china remains an excellent short even following a massive decline.

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nice posts - - thanks.

here's some scary truth back at ya:

(excerpt) Central bank body warns of Great Depression -

The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s. In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.

from: Run for the Trees-BIS and the Black Swans by John Needham, The Daniel Code Report | June 13, 2008



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