Bill Fleckenstein Says You Can’t Trust S&P PE Multiples As All The Financials’ Earnings “Are Pure Nonsense”
by Zero Hedge - June 30th, 2010 1:12 pm
Courtesy of Tyler Durden
A casually dressed Bill Fleckenstein was on Bloomberg TV bursting assorted myths and bubbles. First, Bill discusses how the market is no longer a discounting mechanism, noting that “after having completely ignored the bursting of the dot com and the real estate bubbles, i think this a function of the fact that since Greenspan took over the Fed and serially bailed out bigger and bigger problems with more and more easy money, the market evolved into much more of a speculative casino, and a lot more momentum type traders began to operate and everything always resolved itself on the upside… We have had much more of a speculative market that seems not to discount problems.” As for Bill’s forecasts: the big bounce off the lows has run out of gas, the economy is sputtering, the real estate market is still in trouble, the Fed will find a way to print more money which will give the market a bit of a boost, yet this will be offset by problems in Europe and domestically. “I don’t see how the market can go up and make new highs” says Bill. As for the allegedly cheap 13x that the market is trading on, and that David Kostin likes shoving down every Goldman client’s throat on a daily basis, Fleckenstein says, “13 times is only cheap relative to the last decade and a half. In the 70s and 80s, the market was trading at 8x and dividends were double where they are. I don’t know how much of those S&P earnings are due to financials: all the financial earnings are pure nonsense, they are making it all up, we don’t know where assets are priced necessarily and they are bailed out on the back of the Fed putting rates at zero. So I don’t believe the earnings and I don’t know what the multiple’s going to be. It could easily trade at ten times.”
h/t Jing
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DiggWhat’s Next? The Obvious Take
by Zero Hedge - June 30th, 2010 1:06 pm
Courtesy of thetechnicaltake
The “fat pitch” that was looking good has fizzled into a stinky, foul ball. In all likelihood, we are looking at a bear market.
{to see larger images click on charts}
Unemployed In Britain? Just Proceed To The Magical Land Of Jobs
by Zero Hedge - June 30th, 2010 12:48 pm
Courtesy of Tyler Durden
And you thought our own Christina Romer was somewhat “out of touch” with reality for noting that the higher unemployment gets, the worse the economy is, the more people stockpile on spam and pitchforks, the better a job Obama is doing. The Brits once again prove that when it comes to Keynesian reality shifts, they still have no equal.
From The Daily Mash:
UNEMPLOYED TOLD TO CLIMB DOWN RABBIT HOLE TO MAGICAL LAND OF JOBS
THE unemployed are to be relocated to a magical land full of talking animals and cute, furry jobs, the government has confirmed.
Welfare secretary Ian Duncan Smith has opened a rabbit hole portal to the realm of Bilbon where delightful, waistcoat-wearing mammals form lifelong friendships with wise old trees.
In echoes of a speech given in the 1980s by his dad, Mr Duncan Smith said that jobseekers who were not prepared to leave this dimension were being ‘unrealistic’.
He added: “The people of Bilbon are crying out for hard-working humans to perform any number of well-paid whimsical fairytale tasks, such as working in the floating castle where dreams are made, or picking and processing the cartoon fruit that run around on little human legs getting up to all sorts of hi-jinks.
“It is the diametric opposite of Sheffield.”
Jobseekers who refuse to relocate to Bilbon will have their benefits stopped until they are forced to squat in the dreary council house they have been defiling for the last 20 years.
Unemployed man Tom Logan said: “I’ve been out of work for so long I’ve started referring to certain episodes of Murder She Wrote as ‘classics’. Plus I keep catching hepatitis from the touch-screen monitor in the job centre. Sorry, ‘Job Centre Plus’.
“Anyway, I’m ready to try the annoying-sounding fairy place. I don’t relish the prospect but on the other hand I’ve always quite fancied the Caramel rabbit. I reckon she’d be very bendy.”
However Bilbon pensioner and pipe-smoking badger Bill McKay, said: “Despite being a talking animal with half moon spectacles perched on the end of my nose, I have unremittingly strident views on immigration and you’ll find that many of my fantastical friends feel the same.
“Bilbon is only a magical…
The Stock Market’s Scary Day and Almost Magical Close
by Chart School - June 30th, 2010 12:45 pm
The Stock Market’s Scary Day and Almost Magical Close
Courtesy of John Nyaradi
Midweek commentary from Wall Street Sector Selector
No doubt today was scary as the markets opened down sharply and traded mostly lower all day in one of the most volatile of recent sessions. The reason given for the sell off was an economic slowdown in China and worse than expected consumer sentiment.
So it was a scary drop but the most interesting part of the day came at the close when the S&P 500 almost magically closed above the all important 1040 level. For technical traders, 1040 is something of a magical number because it represents significant support and a level that is now being tested for the fourth time this year.
Chart courtesy of StockCharts.com
In the chart we can see how 1040 on the S&P represents the February, flash crash and June lows and so this is the fourth retest of that all important level. Everyone “knows” that if the index breaks decisively through this level that lower prices are likely ahead and so one can only marvel at how, after trading as low as 1035 in the late going, the index made a last minute move back above this all important psychological level.
Also on the top display, you’ll notice that RSI is approaching “30” which is widely considered to be “oversold” and the technical sentiment measurements I follow point to extreme pessimism (after today’s action, who isn’t pessimistic?) which as a contrarian indicator could indicate higher prices ahead for the short term.
So we stand at a most interesting crossroads. From here, if the market recovers and holds the 1040 lows, it’s quite likely we could see a rebound rally as we’ve seen three times so far at this level this year. A break below could lead to further deterioration and significantly lower prices ahead.
I don’t have a crystal ball, just as no one does, and I can’t foretell the future, but we can make an estimation of probabilities; if 1040 on the S&P holds, the most likely probability based on technical indicators is for higher prices over the short term.
There’s the bearish side of the market and the bullish side of the market, but as the old saying goes, “the only side that matters is the right side.”
Visit Wall Street Sector Selector
John’s disclosure: EWW,TUR, FXI, IYR, SPY Call Option
With $1 Trillion In Loans, The ECB Is The Biggest Guarantor Of European Banks
by Zero Hedge - June 30th, 2010 12:35 pm
Courtesy of Tyler Durden
Today’s lower than expected interest in the 3-month LTRO operation was supposed to indicate a sign of stability for European banks. Nothing could be further from the truth. In an article which recaps a variety of data points presented here previously, the FT summarizes that European banks continue to exist solely due to a record and unprecedented $1 trillion in emergency loans issued to Europe’s commercial banks. In turn, almost 40% of this liquidity is then recycled, and stored back with the ECB, as the very same banks have no trust whatsoever in any of their peers. In short: no matter what the Stress Tests indicate, the European financial system is now in a worse condition than ever in history, including the days just after Lehman.
From the FT:
The ECB is currently lending close to €900bn ($1,098bn, £728bn) to eurozone commercial banks, jumping to near-record levels since the creation of the central bank 11 years ago. This now matches cross-border lending between commercial banks in the 16-nation currency zone, according to JPMorgan.
Although lending between domestic banks represents the lion’s share of the estimated €6,300bn market, the ECB has become essential as a lifeline to the weaker of the 3,000 banks in the eurozone.
At least some people still have the guts to laugh in the face of JCT’s propaganda:
Paul Griffiths, global head of fixed income at Aberdeen Asset Managers, says: “Without financial support many banks would struggle. It would take a brave man to turn the ECB taps off.”
Summarizing just how critical the ECB’s role is in the proper functioning of European banks:
Since Lehman Brothers collapsed in September 2008, lending by the ECB to eurozone banks has risen sharply as it has offered unlimited loans and extended its liquidity operations. This has seen the sum it lends to the banks rise from about €500bn before the Lehman crisis to today’s near record levels.
As well as the offer of unlimited loans, the ECB has bought €55bn in eurozone government bonds and €60.2bn in eurozone covered bonds in an effort to revive the eurozone economy and boost sentiment.
However, fear still stalks the markets. Interbank dealers say credit blocks remain on Spanish and Greek banks
…
The Stock Market’s Scary Day and Almost Magical Close
by ilene - June 30th, 2010 12:31 pm
The Stock Market’s Scary Day and Almost Magical Close
Courtesy of John Nyaradi
Midweek commentary from Wall Street Sector Selector
No doubt today was scary as the markets opened down sharply and traded mostly lower all day in one of the most volatile of recent sessions. The reason given for the sell off was an economic slowdown in China and worse than expected consumer sentiment.
So it was a scary drop but the most interesting part of the day came at the close when the S&P 500 almost magically closed above the all important 1040 level. For technical traders, 1040 is something of a magical number because it represents significant support and a level that is now being tested for the fourth time this year.
Chart courtesy of StockCharts.com
In the chart we can see how 1040 on the S&P represents the February, flash crash and June lows and so this is the fourth retest of that all important level. Everyone “knows” that if the index breaks decisively through this level that lower prices are likely ahead and so one can only marvel at how, after trading as low as 1035 in the late going, the index made a last minute move back above this all important psychological level.
Also on the top display, you’ll notice that RSI is approaching “30” which is widely considered to be “oversold” and the technical sentiment measurements I follow point to extreme pessimism (after today’s action, who isn’t pessimistic?) which as a contrarian indicator could indicate higher prices ahead for the short term.
So we stand at a most interesting crossroads. From here, if the market recovers and holds the 1040 lows, it’s quite likely we could see a rebound rally as we’ve seen three times so far at this level this year. A break below could lead to further deterioration and significantly lower prices ahead.
I don’t have a crystal ball, just as no one does, and I can’t foretell the future, but we can make an estimation of probabilities; if 1040 on the S&P holds, the most likely probability based on technical indicators is for higher prices over the short term.
There’s the bearish side of the market and the bullish side of the market, but as the old saying goes, “the only side that matters is the right side.”
Visit Wall Street Sector Selector
John’s disclosure: EWW,TUR, FXI, IYR, SPY Call Option
How Policy Errors Cause Depressions (and how “in isolation” some things Krugman says make sense)
by ilene - June 30th, 2010 12:15 pm
How Policy Errors Cause Depressions (and how "in isolation" some things Krugman says make sense)
Courtesy of Mish
It is easy to pick on Paul Krugman. So easy in fact, that it is not even fair sport.
However, if you can separate the wheat from the chaff, sometimes there are nuggets of truth in what Krugman writes.
For example, please consider The Third Depression.
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.
And this third depression will be primarily a failure of policy.
I completely agree with those statements.
Moreover, if I take partial sentences I can find more things to agree with, such as
- "governments are obsessing about inflation when the real threat is deflation"
- "And who will pay the price …"
- "The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again."
That last bullet point was a compete sentence, the last sentence in his article. The problem is the rest of the article is loaded with Keynesian claptrap regarding policy errors.
Nonetheless, Krugman is right on the key point – policy errors cause depressions. We simply disagree as to what those policy errors are.
Krugman Also Correct About Inflation
Interestingly, most of the Austrian types mock Krugman about inflation, but on this point Krugman is essentially correct.
There is no credible inflation threat at this juncture. Hyperinflation is a complete joke. Those who get this wrong simply do not understand the role of credit in a credit-based fiat economy.
The destruction of credit and especially credit marked-to-market on the balance sheet of banks and lending institutions is immense.
By my definition we are back in deflation now. "Deflation is a net contraction of money supply and credit, with credit marked-to-market".
Price watchers are not only missing the boat, they also fail to take housing prices in their calculations.
The Price We Pay For Budgetary Murder
The reason I say Krugman is essentially correct regarding the inflation/deflation debate is that deflation is not a threat, it is a necessity as
…
Senator Reid Says No Vote On FinReg Until After July 4 Recess
by Zero Hedge - June 30th, 2010 12:03 pm
Courtesy of Tyler Durden
In the meantime, the market is perfectly ok, and 8 thousand shares can never trade through Reg NMS, and put a hold on billions of shares of Citi traded daily. Of course, what this does allow is some very serious horse trading over the next several weeks, to strip FinReg of any actual regulations.
Goldman Technician Says To Short Market Unless S&P 1083 Is Recovered Today
by Zero Hedge - June 30th, 2010 11:48 am
Courtesy of Tyler Durden
Courtesy of reader Apocalicious, we present the following piece of technical analysis from Goldman’s Tony Pasquariello. According to the technician, a critical level to watch is the 12-month moving average, which many consider a critical indicator of upward (or downward momentum). According to Goldman, “unless S&P recovers the 1083 level today, we will have crossed down and through the moving average. On this simple basis, the technical signal is to be short the market.” In any other market we would say a 40 point ramp in the S&P on a day such as today when the ADP came in so far below expectations would be simply insane… But not in our market. After all, the best traders taxpayer money can buy reside at Liberty 33. And they are on a mission.
Full note from Pasquariello:
this is a monthly chart of S&P back to 1994. the purple line is the 12-month moving average. as mentioned before, historically a powerful signal occurs when S&P crosses through the moving average at month end. based exclusively on this metric, the strategy would have gone short in late ’00 and caught the post-tech bubble selloff … it would have gone long in early ’03 and it would have stayed long through ’07 … it would have gone short in early ’08 pre-BSC collapse … and it would have gone long in Jun ’09. the only false signal over the past 16 years was a short at the end of Aug ’98 during the Russia/LTCM crisis – but that position would have reversed by the end of Sep ’98.
at the end of May, S&P approached this moving average – then around the 1070 level – but thanks to a month end rally it ultimately held. unfortunately, with June soon to be officially in the books, the chart is clear: unless S&P recovers the 1083 level today, we will have crossed down and through the moving average. on this simple basis, the technical signal is to be short the market.
I’ll reiterate my normal disclaimers: (1) I’m not a trained technician; (2) we expect some buying of S&P in the next few days related to quarter end; (3) as a colleague pointed out, in each of the last 2 violations of the 12-month MA, it was also at a time when
…
RANsquawk US Afternoon Briefing – Stocks, Bonds, FX etc. – 30/06/10
by Zero Hedge - June 30th, 2010 11:46 am
Courtesy of RANSquawk Video
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