Impressed By The Bear Market Rally

[Lysglimt]

You have to be impressed by this bear market rally. It has now gone more than 10% from the bottom in a matter of days. Our expectation is that it will subside rapidly, sometime next week we expect a major pullback. We could be wrong, but we cannot see this lasting. What saves us is being [...]

More... (http://www.farmann.no/impressed-by-the-bear-market-rally/)

[goldfinger]

You have to be impressed by this bear market rally. It has now gone more than 10% from the bottom in a matter of days. Our expectation is that it will subside rapidly, sometime next week we expect a major pullback. We could be wrong, but we cannot see this lasting. What saves us is being [...]

More... (http://www.farmann.no/impressed-by-the-bear-market-rally/)

I have to admit that the stock market is really wearing me down. I feel the psychological impact of loosing money is actually quite strong, when it takes place over some time, and losses pile up, not only in the stock market, but in the real estate market, at the same time, the impact of knowing people loosing their jobs works as well to compound that effect. Is it a bear market or a bull market? I guess it depends on insanity, as it's only a new bubble or resumption of the old ones that could make this into a bull market. We have been in a bubble for as long as I know of, at least since 1987, I think that's the case for most. Who knows how a normal market looks like? I don't think they are that many.

On gold. It's certainly have it's prospect's, however I have sold my gold. What really worries me about gold, is that the liquidity, that have driven gold through 03-2001- 03-2008 have really been the same kind of leveraged, and unstable beast of liquidity that have driven more or less everything else.

Compare the chart of GLD, and railroad CNI and NSX
http://finance.yahoo.com/echarts?s=GLD#chart8:symbol=gld;range=5y;compare=c ni+nsc;indicator=volume;charttype=line;crosshair=c ross;ohlcvalues=0;logscale=off;source=undefined

It's the same "flow", however, after the Chinese Olympics, that must be seen as the peak of the unsynchronized boom in China, things changed. Gold become an asset to have, because of the fear in the market's, and railroad did not. Why the change, did the long term fundamentals of these different asset's really change. I don't think so. One only got more expensive, while the other got cheaper, gold increased because short term fear boosted the price, while rails got hit by temporary weaker fundamentals . I assume they will cross on the graph at some time in the future. I refuse to think that gold will fare any better than railroad, however, gold is now selling at a premium. Rails are less than 12 times it's 1920 price, not to mention they have much less debt, while gold have advanced far more than that.

Does this mean I think you should by railroad? No, I don't know. But I think it will outperform gold, if both assets are purchased at todays price, and we get a inflationary cycle that will take the dow gold to 1:1.

However, if this cycle instead turns deflationary, without central banks managing to pump up inflation, then I assume, that gold will outperform rails, as I think this deflationary environment are followed by lots of fear and even worse bank failures, and failures all over the board, causing gold to turn into a mania asset.

[geir]

I don't believe for a second that 666 is the bottom for the S&P. But I'm short-term bullish, since I have been expecting a bounce off of the severly over-sold levels. I'm currently long XLF, which is the financial sector ETF. I expect we will rally a bit more before it rolls over. Around 800 in the S&P 500, I will take off my bullish positions and sit in cash. If we get closer to 900, I will get aggressively short.

I wouldn't be buying puts or shorting from here. The easy money has been made. You can make more money, but that is risky money. It's like going all in with a low pair in poker. You can end up winning, but the odds are not that great. If you're patient, and the S&P hits 900, it's more like having three aces, and you can go short with some confidence. Maybe you miss out. That's the price you pay for risk-management. But in the long run, you will be destroyed if you bet your money on low pairs.

If you want to practice trading with no risk, and potentially winning money prizes, I can recommend Equitrader (www.equitrader.com). I spent a year trading those contests before I started trading with real money, and it has saved me a lot of money making those mistakes with virtual credits instead of hard-earned cash. As of today, I'm the top rated trader (dark_lord) at that site, and have made more than US $2300 in prize money with no risk at all. Sometimes, there really is such a thing as a free lunch! One more piece of advice if you choose to use a virtual trading site to learn the basics of trading: Trade as if it was real money, or you will learn nothing. Evaluate what you did, what went wrong, and what worked.

Another tip I have is to go to www.tickerforum.org and spend $20 to get access to the daily videos. After you've listened to enough of those technical analyses, you will know a lot more of how traders think, and where to set stops and limits when you enter into a trade. Much of the technical analysis ends up being self-fulfilling since a lot of traders believe in it. Of course, news trumps technicals, and fundamentals will win in the end. But why buy all your gold at $900 if you can buy it at $700 later? You say it doesn't matter, since gold is gold? You still get MORE gold if you buy at $700...

[goldfinger]

I think the risk is increasing that the US will suffer hyperinflation.

The US have been like Nazi germany in 1932, all the way from 1992-now.
The illusion today is that the dollar is actually worth something. It's crazy that people are hungry for the dollar. With the current panic levels, oil should had been at less than the 1998 level of less than 10 dollar had the market been rational. That oil holds above, is just proof, treasuries is in a bubble, if treasuries are worth more now than in 1998, they should also buy more real goods. Compare the stock performance of the canadian potash company, from 1992-now. Had treasuries market been rational, the price of potash, should had been fairly stable or even falling, instead it have went higher and higher, all since 92. The US is a hollow empty, shell, and the bond market is a disaster waiting to happen.

So Japan made their depression, lighter than the US that was the creditor nation in 1929, through propping up the US. I suppose, the US could had avoided the worst of depression, and suffered more like japan, and avoided WW2, had they propped up german bonds. Perhaps the low interest rates, through the US propping up germany, could had given germany a bubble economy, instead of Hitler.

I think we are entering the era like after 1950, when yields of government bonds head higher. The debt levels of the US are irrelevant to the discussion of deflation or inflation. However the bubble in US debt is causing bargains to appear everywhere else.

The US 1929, Japan 1989
Germany 1932, US 1992
The US booms, when japan had depressions = 1930-s 1940's (with the german bond bubble that never was)
War on terror = WW3, 2001 / 1940
2009, 1949

US bond bull: 1920-1949
US bond bull: 1981-2009

US going into 20 years of japan like depression, and a slow 80 % decline?

That would extend the bond bull from 28 to 48 years. unthinkable.

[Lysglimt]

Great comments.

I surely have been on the wrong side of the market for the last week, the surge in confidence is counter to my view on things.
What has saved me is beeing well diversified.

Gold could fall, down to say USD 700, I agree. Or it could start shooting up.

I believe my bearish view and positions will be rewarded soon enough.

I find it very difficult to see the S&P go to 900, even in a strong bear market rally. I am not a technical analyst, there might be signals in technical analysis indicating such a bullish possibility - but from an Austrian analytical perspective it seems very unlikely.

I agree on the poker analogy, I should be more clear on this. When I advocate moving into physical gold it is because the easy wins are made in shorting. One should move into gold, and stay in gold until things become more clear.
My big question is how much to allocate to diversified cash, and how much to allocate to silver and gold. Treating gold and silver as just another currency to be diversified into I am strongly "overweight" in gold.

The big question is still the inflation/deflation dynamics of the next 6-18 months.

goldfinger - on the physiological part I understand you. I think a good strategy to remain sane is to distance yourself from the madness any way you can. We are all so exposed to the madness we need to protect ourselves from it.

A good strategy to distance yourself is to own a property outright - preferably in the countryside, have a decently safe job or revenue - diversified, a fallback plan, low cost in paper money, and own physical gold for savings. And then on top of that have some speculation in papers. Then you have a "sound" base, to keep sane on, to literally keep sane.

[goldfinger]

Great comments.


A good strategy to distance yourself is to own a property outright - preferably in the countryside, have a decently safe job or revenue - diversified, a fallback plan, low cost in paper money, and own physical gold for savings. And then on top of that have some speculation in papers. Then you have a "sound" base, to keep sane on, to literally keep sane.


How are your outlook for the spanish property market in gold vs euro?

I would really like to own a small house in a mountain village, does not matter really, but somewhere the local people were, and not the tourists, I looked at a nice house in 2001, was around 200 K nok, would like something like that, for that price. I must say I think there could be a effect of seasonal hormones, like sun, spring, those things starting to have their effect on the markets now, especially in the US. I have always thought that it's those factors that cause markets like California, Florida, Spain, to go extra nuts, on the house price front.

[Lysglimt]

That could very well be.
The sun in California has a deep cultural effect.

Spanish property is still heading downwards.
Time to buy is sometime 2010/2011.
Finance with 80%-60% in a long long loan in Euro, in Spain or Norway (not in Germany) (30 years preferably).
The Euro will collapse way before then.

I am considering Gran Canaria myself.

[goldfinger]

That could very well be.
The sun in California has a deep cultural effect.

Spanish property is still heading downwards.
Time to buy is sometime 2010/2011.
Finance with 80%-60% in a long long loan in Euro, in Spain or Norway (not in Germany) (30 years preferably).
The Euro will collapse way before then.

I am considering Gran Canaria myself.

I like Grand Canaria, but I am worried about peak oil, 10-30 years down, and how a location dependent on air travel will be compared to somewhere you can travel by rails, from Norway.