Dow at 14k

irvinehomeowner

irvinehomeowner

Well-known member
First time since 2007... how is this possible? No jobs, Obama still in office, shadow inventory, FCBs not saving real estate... gah.

This is probably why Panda isn't visiting TI anymore. He'll post once one of 3 things happen:

1. Dow falls below 13k
2. Georgia has better weather than Orange County
3. John's Creek becomes the next Irvine
 
[youtube]http://www.youtube.com/watch?v=X8PyTo6NyXA&feature=share&list=PLFC44F013CAAF0617[/youtube]
 
1. Dow at 14,000
2. Irvine condos at $400/SF+
3. Wells Fargo cold calling to give equity loans
4. No down-payment loans back in the market.

Savers, hope you are ready to take care of the spenders, again :)
 
irvinehomeowner said:
First time since 2007... how is this possible? No jobs, Obama still in office, shadow inventory, FCBs not saving real estate... gah.

This is probably why Panda isn't visiting TI anymore. He'll post once one of 3 things happen:

1. Dow falls below 13k
2. Georgia has better weather than Orange County
3. John's Creek becomes the next Irvine
Click to expand...

We are in a rangebound market that started when the dotcom bubble burst at the turn of the century.  Don't be surprised if the Dow revisits 7,000 in the next 2-3 years.  I correctly called Dow 14,000 on this blog a year ago based on the rangebound nature of the past 13 years.

http://www.ritholtz.com/blog/2013/02/is-the-secular-bear-market-ending/
 
It's going to be hard for investors to cope once the Fed starts to withdraw support from the economy.  QE-Infinity is taken for granted right now and when they try to pull the plug the market will react violently.  It's really hard for me to see which asset classes won't be affected negatively. 
 
Liar Loan said:
It's going to be hard for investors to cope once the Fed starts to withdraw support from the economy.  QE-Infinity is taken for granted right now and when they try to pull the plug the market will react violently.  It's really hard for me to see which asset classes won't be affected negatively. 
Click to expand...

Liar Loan - what kind of events do you think would trigger the fed to stop printing? 
 
invest in firearms if Dow is halved to 7000.

Liar Loan said:
It's going to be hard for investors to cope once the Fed starts to withdraw support from the economy.  QE-Infinity is taken for granted right now and when they try to pull the plug the market will react violently.  It's really hard for me to see which asset classes won't be affected negatively.
Click to expand...
 
qwerty said:
Liar Loan said:
It's going to be hard for investors to cope once the Fed starts to withdraw support from the economy.  QE-Infinity is taken for granted right now and when they try to pull the plug the market will react violently.  It's really hard for me to see which asset classes won't be affected negatively. 
Click to expand...

Liar Loan - what kind of events do you think would trigger the fed to stop printing?
Click to expand...

Well, I'm just taking them at their word: 

http://money.cnn.com/2012/12/12/news/economy/federal-reserve-stimulus/index.html
The end date for all this easing? Bond buying will continue until the job market improves "substantially," and rates will remain at historic lows until the unemployment rate falls to 6.5%, or inflation exceeds 2.5% a year.

Wednesday was the first time the Fed has issued an exact target for the unemployment rate, and it marked the end of the Fed's calendar guidance, which previously stated it planned to keep interest rates low until at least 2015.
Click to expand...

The Fed's biggest worry is that people will panic once the free money goes away.  To prevent the markets from crashing when that happens, they are telegraphing their moves way in advance to give investors time to adjust.  I don't think it will matter.  Investors are still going to throw a tantrum once the free money is taken away.  There could be other catalysts, such as a war or a financial crisis in Europe or China that could trigger our own market to crash.

It's interesting how many people don't want to believe this could happen even though it did happen 4 years ago, and again 6 1/2 years before that.
What is it about our economy that has gotten so much healthier since those previous two market crashes?
 
I think the difference is in each of the previous crashes, there was something else that busted too (the dotcom bubble and the real estate bubble).

But I'm assuming that you are pointing to an "interest rate bubble" whose burst will cause the same downturn in the market as the previous two.

I can see that... I'm just not sure that it would be in such a short time frame and that severe... but the premise does make sense now.
 
irvinehomeowner said:
I think the difference is in each of the previous crashes, there was something else that busted too (the dotcom bubble and the real estate bubble).

But I'm assuming that you are pointing to an "interest rate bubble" whose burst will cause the same downturn in the market as the previous two.

I can see that... I'm just not sure that it would be in such a short time frame and that severe... but the premise does make sense now.
Click to expand...

Yes, interest rates are the lowest they've been since our nation was founded.  It's going to affect every single asset class when this trend reverses.  The real estate bubble was the Fed's remedy for the dotcom bubble, and interest rates (bonds) have been the Fed's remedy for the real estate bubble.  I don't know what they can do for an encore other than let people experience some of the pain that has been put off for 10+ years now.
 
I agree.  This year will be much like the transitional year 1994 when rates spiked 3% (unexpectedly) in 12 months and the markets contracted.  I remember when the punch bowl was taken away. The markets lost ground.  Bond investors were "shocked"  that they could lose 30% in principal and OC went BK on a stupid carry trade.  We sit at the edge of the same precepice. Undoubtedly in our current media saturated 24/7 world this change in direction will be heraleded as another "armegeddon" just like the debt downgrade, Greece collapse, dollar collapse, fiscal cliff, yatta yatta yatta.  However, there was light at the end of the transitional tunnel.  The economy did well from 1995-1999 as it got used to the tenure of higher interest rates and the recovery of the fianacial crisis (saviing and loan collapse) and the real estate bust.  They don't call them cycles for nothing, so buckle up buttercup
 
My guess is that rates aren't going much higher in the near term mainly due to the fact that Europe is not done yet.  All they did with Europe is kick the can down the road since no major structural reforms were made to fix the problems.  I think we'll get a bit of a scare from Europe this year and when it looks like the sky is falling, it'll be time again to go LONG (or in my case sell a lot of VIX call options).  Currently I'm doing some VIX strangles and some out of the money calls, nothing big.
 
I too have put a hedge trade on with the VIX, and entirely left the long end of the bond market.  We all know the government is running out of steam with QE infinity and that the delusion of 0 inflation is another government lie (I can't eat my I-PAD).  The invisible hand will become a fist and force rates higher, eventually.  I do think this is a net positive intermediate term and will push some inventory back into the housing market.  Clear that overhang and things will normalize faster. The only thing the government has done is blow a ton of taxpayer money "prolonging"  the cycle not "averting" it.
 
Someone has been reading this thread

http://www.cnbc.com/id/100478351

Should Bond Investors Brace for a 1994-Style Crash?

"In the early 1990s bond yields were pushed down by recession, falling inflation and then a jobless recovery. However, the cycle turned aggressively in 1994 after the economic recovery became well entrenched in 1993," he said.

The U.S. Federal Reserve raised interest rates from 3 percent to 6 percent starting in February 1994, while the Reserve Bank of Australia raised the cash rate from 4.75 percent to 7.5 percent over four months from August 1994.

Furthermore, the rise in yields did not only affect the bond market but also pressured equity markets, which lost 8.2 percent in Australia in 1994 and returned only 1.3 percent in the U.S., according to the AMP report

It's never "different this time".  That is why it is a cycle
 
And it looks like QEInfinity is also on the table.  There is dissension in the crowd

http://www.latimes.com/business/la-fiw-fed-minutes-show-concerns-about-bond-purchases-20130220,0,3974436.story

Fed minutes show concerns about bond purchases

Several Federal Reserve policymakers suggested last month that the Fed might have to scale back its efforts to keep borrowing costs low for the foreseeable future.

Minutes of the Fed's Jan. 29-30 policy meeting released Wednesday showed that some officials worried about the Fed's plan to keep buying $85 billion in bonds each month until the job market has improved substantially. They expressed concern that the continued purchases could eventually escalate inflation, unsettle financial markets or cause the Fed to absorb losses once it begins selling its investments.
 
Food for thought...

1936 Redux - It's Really Never Different This Timehttp://www.zerohedge.com/news/2013-03-14/1936-redux-its-really-never-different-time

While chart analogs provide optically pleasing (and often far too shockingly correct) indications of the human herd tendencies towards fear and greed, a glance through the headlines and reporting of prior periods can provide just as much of a concerning 'analog' as any chart. In this case, while a picture can paint a thousand words; a thousand words may also paint the biggest picture of all. It seems, socially and empirically, it is never different this time as these 1936 Wall Street Journal archives read only too well... from devaluations lifting stocks to inflationary side-effects of money flow and from short-covering, money-on-the-sidelines, Jobs, Europe, low-volume ramps, BTFD, and profit-taking, to brokers advising stocks for the long-run before a 40% decline.

Things look eerily similar eh?

20130313_DOWSPX.jpg
Click to expand...
 
The chartsmanship ignores the scale of the swings on a % basis.  The depression-era movements are double those of the modern day's.  That said, I have been thinly invested in stocks with my 401k since 2007 (never more than 40%), and also stepped it into the safest thing I could within the past couple months.  I have maybe 5% remaining in a bond fund, and that ride too is coming to an end for me.  I do not know what's next, and am properly bummed that I finally committed myself to maxing out my 401k contribution this year.  I could have bought some nice toys (or part of 1 really nice toy) instead.
 
morekaos said:
I too have put a hedge trade on with the VIX, and entirely left the long end of the bond market.  We all know the government is running out of steam with QE infinity and that the delusion of 0 inflation is another government lie (I can't eat my I-PAD).  The invisible hand will become a fist and force rates higher, eventually.  I do think this is a net positive intermediate term and will push some inventory back into the housing market.  Clear that overhang and things will normalize faster. The only thing the government has done is blow a ton of taxpayer money "prolonging"  the cycle not "averting" it.
Click to expand...

This is what I meant by the government blowing tons of money prolonging the cycle.  What a waste...

http://www.cnbc.com/id/100914292

Mortgage delinquencies take a sharp turn up

This data follow another read on the mortgage market showing that nearly half of the loans modified in 2009 under the Obama administration's housing rescue program defaulted again.

The Home Affordable Modification Program has helped 865,100 homeowners avoid foreclosure, but more than 306,000 could not keep up with even the modified monthly payments, according to the Special Inspector General for the Troubled Asset Relief Program. The program does not force banks to write down mortgage principal.
 
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