Thursday, September 18, 2008
the heart of darkness
yves smith. thomas palley. albert edwards. a reporting piece with potentially incredible ramifications in the new york times, compounded by brad setser's observations. michael panzner, whose own language but frames the shocking statements of a confidant of ben bernanke. john jansen, who now further gets to report that the commerical paper market -- the real one, not the asset-backed kind that imploded last year -- is contracting on the back of the problems at reserve fund, a few more of whose funds broke the buck last night. ken rogoff, who has the courage now to loudly declaim what has been truth for some time. london banker and karl denninger exploring the altogether-too-real executive power grab the crisis has engendered in an election year, turning congress into a complete afterthought as the agents of the executive usurp all authority. few have protested as the power of the purse has quietly shifted from one branch to the other; good luck getting that authority back, congressmen.
it turned out to be exactly what i feared, and the markets don't seem at all interested in coming up for air. the moment of panic that looks buyable has turned into a week of panic that could turn into two weeks of panic.
This morning we see a number of positive edges, from the reduced number of new lows on Wednesday relative to Tuesday (Rennie Yang's Market Tells service has a nice perspective on that) to the elevated negative sentiment to the non-confirmations I've discussed in recent posts. Readers also know that I consider it useful to identify when markets fail to act on their historical precedents. When markets *should* move directionally based on historical precedent and don't, *that* is also useful information. Something is different in the current market that is outweighing those historical dynamics.
While a number of historical indications of rally potential have been present, the market "tape"--the NYSE TICK, the advance-decline numbers, the money flows--has been tilted to the bears. With important support at the Tuesday and Wednesday lows, it's time for market bulls to put up. We need to see a meaningful rally off these oversold levels or the downside could get sharp and ugly.
amen. i just got off a call with renaissance, which is trying to explain the difficulty they are having with the quant futures fund they established last year. the essence of the problem is that things that had worked for years suddenly aren't, and the time the algorithm takes to adapt is being swept aside in unprecedented movement scale and speed. when jim simons' fortress of Ph.D.'s is scratching its collective head, it is best to be out of the way.
UPDATE: need some chering up?
This is no market for old men," said (Jeffrey) Gundlach, who also manages TCW's flagship Total Return Bond Fund (TGLMX). "This is no market for old-school thinking."
Gundlach based his assessment on a belief that housing prices still face several more years of decline, a protracted slump, he said, not seen since the Great Depression. Moreover, Gundlach said it's possible that home prices could be sluggish until 2022.
"If it's like the Depression experience -- and it sure is shaping up that way -- it could take several years. Maybe we won't see a bottom in home prices until 2014," he said.