We’ll Be Up Here All Night
August 16th, 2008 by 
reality
There’s a hoary old shaggy dog story about an airplane travelling across the Atlantic from Europe to America. About halfway across, the pilot makes an announcement: “I’m sorry to tell you that we have had to shut down one of our four engines due to a mechanical issue. The aircraft is quite safe with three engines, but unfortunately it does fly a little slower, so we will be about an hour late into New York.”
A little later the aircraft jiggles a little and the noise of the engines changes. Sure enough, the pilot is back: “Well, unfortunately we have had a very rare second shutdown. The aircraft is certified to fly with two engines, but we will now be two hours late into New York.” The passengers grumble, but go back to sleep.
Then the descending whine of another engine being shutdown is heard, and the apologetic pilot announces: “Well as I imagine you have heard, we are now operating safely on a single engine, which the airplane is designed to do. However, we will now be three hours late into New York.”
One passenger turns to another and says: ” We’re getting later and later. One more of these announcements and he’ll be telling us that we’ll be up here all night.”
That’s how I feel about the attitude of most pundits to the markets and the economy. They are quick to call bottoms and unwilling to look at realities. They just don’t understand the situation. Meanwhile, the supports are being knocked away one at a time. The credit markets remain in a turmoil, securitized credit is dead. New loans of any kind are hard to come by. Real incomes are falling, unemployment is rising. The recent announcements of economic slowdown in the US’s major trading partners have now demolished the myth that the US will be able to export its way out of recession. Of the four memes that I identified, only two remain credible and neither of them are pretty. When will markets recognize this?
Posted in Strategy & Scenarios, The Economy | 
August 17th, 2008 at 12:08 pm
Your predictions were back on april 7th. Clearly, we’re not in #3. We haven’t had negative GDP yet (2 quarters in a row). Here’s a follow up on my predictions on the April 7th post. [FWIW - I don't expect very much market action before the election now.]
homebuilders have seen their bottoms - TOL at $15.50 ($23.32 for 50% gain)LEN at $12 ($11.82 for 1.5% loss)
US Automotives have seen their bottoms - F at $5 ($5.11 for 2.2% gain) GM at $17.50 ($11.18 for 36% loss)
Financials/Banks have seen their bottoms - Bear at $2 (I sold at $8), C at $18 ($18.50 for 2.7% gain), UBS at $22 ($19.98 for 10% loss)
tech might have seen their bottoms - aapl ($150 to $175.74 for 17% gain), goog (7% gain), csco (flat), ebay (19% loss)
the tax rebates will delay the bottoms for retails until late summer (sept/oct are always a good time for lows) - WMT is currently approaching its all time high at a very steep slope. (7% gain. Wow. Americans can shop, can’t they?)
This time next year, everyone will be bullish again with a new administration and lower oil. Our even bigger gov’t will be upping the hand outs in an attempt to keep the economy humming. (FRE FNM bail outs. Obama wants to mail more checks to all those that don’t pay a lot of taxes.)
20 years from now, the US looks like the rest of Europe and Canada…..Socialized health care, high taxes, no reward for risk or innovation. GOOG-type start ups are localized in India’s Software Valley. Hong Kong overtakes the US as the financial capital of the world. (still on track here. You’ve mentions several tax increases on your site since April 7th. I haven’t heard of any tax cuts. lots of articles similar to this http://economictimes.indiatimes.com/News_by_Industry/VW_plans_research_centre_in_India/articleshow/3369418.cms )
August 17th, 2008 at 2:00 pm
We’ll see. As I have said, the world is full of bottom-callers. I think they are (mostly) premature.
August 17th, 2008 at 4:29 pm
I do want to clarify I have 2 predictions….
1. What should happen
2. What will happen.
I was responding to #2, in April and now. This is most important to me if I want to make money trading (I agree with you that investing is no longer really an option given the control of gov’t, wall street and the fact that computer programs generate most of the trades every day)
90% of the stakeholders in the financial community want the stock the market to go up (including Big Ben). After trying to be a bear and mostly shorting since 2003, I do realize - if you can’t beat them, join them. I look around and think - doesn’t everyone already have their huge new house with granite countertops, their SUV, their iPod, iPhone, flat screen with cable(FIOS) TV, nice clothes, international vacations, beach house, yacht, and kids in private school? And since everyone is borrowing $ to support this lifestyle, isn’t the great depression just around the corner? [And, like you, I have been wondering this since 2003]
Because this SHOULD happen, I would double down on my shorts on really big upticks, and still lose $ because the market would continue to go up…unbelievable to me because it really SHOULDN’T.
In the past 18 months, I am making much much much more $ trading when I can separate my chicken little side of me on what SHOULD happen and try to focus more on predicting what WILL happen. Statistically (no emotion), the market goes up most days and goes down many fewer days. For example, by buying IWM (http://stockcharts.com/h-sc/ui?s=iwm) a month ago (2x leveraged), I’ve make more in 30 days than all of the days I spent shorting from 2003-2005.
I continue to read and benefit your insight because I do agree with you on #1 - what SHOULD happen. [FYI - I'm buying IWM out of the money puts tomorrow]. I just process #1 - what SHOULD happen - more as entertainment and don’t let it impact my investment (ahem, trading) decisions because predicting what WILL happen has much bigger impact on my wallet.
August 18th, 2008 at 2:30 pm
r,
you are so wrong. no way the USA looks like europe, ever. europeans are well educated and involved in their govt. the govts in europe fear their populace and cannot control them easily. people will strike and protest and remove politicians.
americans are fat, stupid and lazy. they have no clue how their govt. works or what they can do about it. they just want their handout. USA is the ultimate predator state built by the ultimate predators. The citizens are just cattle.
August 18th, 2008 at 2:32 pm
oh and btw, we are nowhere near a bottom and don’t forget about the massive inflation that will happen once the current deflation ends due to the US Govt. nationalizing massive private debts and spending like crazy. The banks cannot lend or get anyone to borrow but the govt. can spend and nationalize debt. which is how they will print their way out of this crisis. massive inflation will follow as some point.