May's Big Sell-Off Could Be Just the Beginning. WSJ.
Too many people have simply assumed that the last 14 months have been the start of the next boom. But it may have been a typical "bear-market rally" doomed to fall flat on its face.
That's what stock-market historian Russell Napier says. He thinks we're in a giant, generational slide that began in 2000 and has several years still to run.
We forget that the stock market moves in long, decadal swings. Slumps like those in the 1930s or the 1970s, or in Japan after 1990, weren't simple, straight-down affairs. They were punctuated by huge "sucker" rallies that eventually faded away. But, over all, the market bounced along sideways, or down, for a decade or two.
The slide that began in 1969 didn't end until 1982. The slump after 1929 didn't give way until the late 1940s. Japan's gloom is still with us.
In general, the bigger the bull-market boom, the bigger and nastier the bear market that follows. The bull market of the '80s and '90s was the biggest on record. So expect the bear that follows to be ugly and tenacious.Mr. Napier has studied the big stock-market grizzlies of the past. Generally speaking, they took a long time to die, and didn't do so until shares got really, really cheap. March 2009? Not even close. He fears Wall Street could fall by half, or worse, over the next four years before this bear is finally slain.
But that was evidently not a sufficient lesson. As soon as the surface appearance of the problem was covered up by an expensive and opaque band-aid of government bailouts and suspension of accounting transparency by the FASB, investors went right back to using those unconditional probability estimates. Indeed, until the spike in credit spreads that began a few weeks ago, the amount of additional yield investors demanded for taking credit risk had fallen back to the lows of 2007. We've had a major credit crisis, we have failed to restructure the debt underlying that crisis, and yet investors are approaching the market as if the debt has simply been made whole and we can continue along the former path.
Knowing that the cash flows from mortgage payments cannot possibly be adequate to service the original debt, that delinquencies continue to hit new records, and that there is an enormous overhang of nonperforming debt and unforeclosed homes - it seems utterly naive to assume that the problems we saw over a year ago have been adequately addressed.....
Of course, investors hope to ignore the solvency problem to some extent, since the FASB has obscured accounting rules to allow Madoff-like disclosure. Even if the latest proposal by the FASB to restore mark-to-market survives the outcry of the banking industry, it would not be implemented until 2013. Why should we care if banks actually are solvent as long as they tell us they are solvent? This is an open question, but only if one can be certain there is a greater fool available. We prefer not to make that assumption....
In my estimation, there is still close to an 80% probability (Bayes' Rule) that a second market plunge and economic downturn will unfold during the coming year. This is not certainty, but the evidence that we've observed in the equity market, labor market, and credit markets to-date is simply much more consistent with the recent advance being a component of a more drawn-out and painful deleveraging cycle....
As of last week, the Market Climate for stocks was characterized by unfavorable valuations, and unfavorable market action, with a leadership reversal coming just off of an overvalued, overbought, overbullish syndrome, and accompanied with heavy downside breadth. This type of event has produced fairly benign outcomes about 20% of the time. The remaining instances have been hostile, on average, and in the majority of cases were observed at the beginning of steep market declines. It is difficult to review that record with equanimity about what may occur in the present instance, but again, about 20% of those outcomes were fairly benign.
the banks have been serially under-reserving for losses in order to show headline profits, despite non-performing assets (NPAs) that continue to rise. We expected a similar story in the current quarter, and indeed we are told that provisions fell in the first quarter in the face of increasing NPAs. In fact, for the first time since 2005, provisions didn’t even cover charge-offs for the period.Later in the year.... is now! Christopher Pavese, View from the Blue Ridge.
“Look, President Obama as well as his successors followed the advice of economists — who continually called for more fiscal austerity, much like the misguided physicians used to bleed patients to death. They were, and still are, clueless. I promise you that I will ban all economists from my administration. I will not seek, nor will I follow, advice from economists.”BP's behaviour in the Gulf is appalling. But our thirst for oil is the real issue. The Guardian
Whatever the courts may find about BP's culpability the real cause is our demand for oil and our refusal to pay its true price. Right now, everyone in America wants to do something to fight the spill. However, if you suggest that perhaps we should double the price of fuel and use the revenue to rebuild our transportation network, the general response is suspicious silence.
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