There Is Plenty to Fear in This Market

by: Bill Cara April 27, 2008    

Bill Cara

About this author: By this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

The markets are being manipulated by hedge funds probably a little more than usual. Thursday’s move in the Cara 100 US-traded ADRs in India were given a huge boost, and Friday the BSE 30 (India’s main equity index) was up +2.42% to 17126. The same thing occurred with the main US-traded Japanese stocks, and Friday the Nikkei 225 of Japan was up +2.38% to 13863. Yet, the consumer and business confidence is tracking the economic and corporate profits lower.

Friday morning I watched with amazement as Bloomberg trotted out some old-timer money manager to say he thought that GE (GE) was in fine shape, headed to 50. I saw the same thing in 1999 at the market top.

I do not accept market leadership from Financials or Consumer Discretionary (many of the US retailers really popped Thursday) during an extreme credit market contraction, particularly when inflation is roaring, and the housing industry sinking. I suspect that these markets are being promoted while organized networks of bankers and their Friends and Family are selling and shorting.

I have said all along that the world’s other major G-7 economies of Japan, Europe and the UK are in dreadful shape and that when the news started to sink in, the Euro would sink against the US dollar, causing a massive sell-off of commodities. We have seen that last week in precious metals.

Gold stocks are the caboose in the market train and the last car over the roller-coaster peak. The Toronto Composite index took a hammering last week, down Thursday -103 (-0.74%) to 13966 and the Toronto Venture index was even worse, falling -38 -1.50% to 2479.

Some of the junior miners have been beaten up, and the picture is no different than the stock charts of 1981-2. I suspect it will get worse, and the high-cost, high-burn rate, weakly-financed juniors are in for more downside. This is the time in the market when even stock promoters for the juniors have to look themselves in the mirror and decide to stop drinking their lemonade. I wouldn’t want to be in many of these stocks without (i) confidence the picture was going to change, and (ii) my margin was cleared, and my outlook was long-term.

That’s how I see it anyway. I only point this out because I cannot stand to see another brain-dead or massively conflicted Wall Streeter tell the TV audience there is nothing to fear in this market. I think the NASDAQ has about -15% downside risk and the DJIA possibly double that.

That’s just one person’s view.

Related Articles

This article has 46 comments:

  •  
    Apr 27 08:11 AM
    Let's be careful out there.
    Reply | Link to Comment
  •  
    Apr 27 08:24 AM
    Lots of opinion and essentially no reason given for the opinions. Just more noise added to the environment.
    Reply | Link to Comment
  •  
    Apr 27 08:30 AM
    WOW! Down .74% and 1.5% or so in a week! Are you serious? Those percentages hardly register!

    Jim
    Reply | Link to Comment
  •  
    Apr 27 08:48 AM
    this is a man with experience talking...the public
    would be wise to listen to him
    Reply | Link to Comment
  •  
    Apr 27 08:49 AM
    Perfect! Now the market can "climb the wall of worry!"
    Reply | Link to Comment
  •  
    Apr 27 08:55 AM
    Yep -- another verbal diarrhea post.
    Reply | Link to Comment
  •  
    Apr 27 09:30 AM
    "... I do not accept market leadership from Financials or Consumer Discretionary ... during an extreme credit market contraction, particularly when inflation is roaring, and the housing industry sinking."

    Makes sense. But how would you determine when the credit contraction is over, other than waiting 6 months or so and looking at the historical numbers, and be able to say, "See? It ended THERE!"

    Housing I think we can pretty well say what will happen -- it will continue sinking so long as the ARM resets continue to bury the lenders with foreclosed properties that there is no market to re-sell into. The ARM resets are now past the peak and falling off, and after 90-120 days we should see a letup in foreclosures (unless inflation continues to push people out of their homes). But that will be pretty much past the major selling season for this year, so I do not expect housing to show any signs of life before late spring 2009.

    It may well be that one can align the credit contraction completely with housing, but I don't think so. My guess is that the credit contraction will have toppled the consumer credit domino (credit cards), and that will be the next problem area for the banking system. Sure the Fed will not accept uncollectible credit card balances as collateral for bank loans from them!

    So I'm left still not knowing when the credit contraction is likely to end, or how I can tell it has ended without resorting to hindsight. The ratings agencies seem to be of little help in all this, being more a part of the problem than the solution.
    Reply | Link to Comment
  •  
    Apr 27 09:33 AM
    I do get so tired of posts with nothing more substantial than generalities.

    I've invested in the troughs of the 70s, the 80s, the 90s, early 2000s, and now the present trough (but look at the long term S&P500 chart!...between the troughs is a mountain of gains (which is why it is sometimes called a "mountain chart" -- and each of those troughs are only blips!). Over the last 40 years, we were told the "manipulators were the investment banks, the mutual funds, the insurance companies, the pension funds, the hedge funds, and the soverign funds.

    Bill Cara, and those who came before him, point a finger at the boogyman of the day and shout "manipulator"... they NEVER provide specifics to prove their charges of market minipulation (names, dates, stocks, number of shares/% of volume, etc.).

    Markets go up, and down...we all look for facts. It seems to me that people like Cara onlypretend to fill the vacuum.
    Reply | Link to Comment
  •  
    Apr 27 09:56 AM
    I'm with Bill here. One more good hard pull and then I'll get real interested in equities. In the meantime, a good allocation to cash and bonds ain't a bad place to be. This isn't over, in my opinion.

    In answer to this post,

    Makes sense. But how would you determine when the credit contraction is over, other than waiting 6 months or so and looking at the historical numbers, and be able to say, "See? It ended THERE!"

    David, here's a link I happened upon from another blogger on seeking apha.

    markit.com

    If you browse the site a litttle you'll find some of these bond funds that are selling for 60 cents on the dollar in black and white. Frankly, I was looking for the same thing, namely a site where I could actually see some of these selling for fire sale prices.

    There's probably a few more of these out there, but this is the first one I found so far. I stop in every couple weeks and may download some of the prices into a spreadsheet to keep track of the pricing looking for a bottom or some positivity.

    From this laymen's perspective, I would think that when most of these bonds are selling for better than 90 cents on the dollar we should be out of the woods so to speak, in the credit markets.

    Reply | Link to Comment
  •  
    Apr 27 10:37 AM
    "From this layman's perspective, I would think that when most of these bonds are selling for better than 90 cents on the dollar we should be out of the woods so to speak, in the credit markets."

    And that is exactly when the equities market would PEAK too as the FED would then feel comfortable to start raising rates aggressively. The smart money (read Hedge Funds) are buying equities now while the 'laymen' are waiting for the perfect signal to know that the credit contraction is over!!
    Reply | Link to Comment
  •  
    Apr 27 11:19 AM
    buy solars, short Bill Cara and the commodities.
    Reply | Link to Comment
  •  
    Apr 27 11:21 AM
    Say "moonscape" (or is that moonscape?), could you repeat that?
    Reply | Link to Comment
  •  
    Apr 27 11:56 AM
    I'm still averaging in into the Large Caps with VV, MGV, and SPY, but I do feel like this rally in the past 2-3 weeks have been nothing but short covering. But this is a time in the market where you stick to your strategy. If the market does turn back down for another leg down, then I will still average in.

    But to say this whole credit crisis, housing crisis, inflation crisis, unemployment "crisis" is over in 6 months is wildly optimistic.
    Reply | Link to Comment
  •  
    Apr 27 12:11 PM
    "I've invested in the troughs of the 70s, the 80s, the 90s, early 2000s, and now the present trough (but look at the long term S&P500 chart!...between the troughs is a mountain of gains (which is why it is sometimes called a "mountain chart" -- and each of those troughs are only blips!)."

    The complacency in this market for "buying on the dips" (or holding through the "troughs" as the writer puts it) is both normal and natural for everyone in it, since their entire investment history has been in a generally rising market, especially post-1982.

    Have a look at charts going back to the late 1800's, which will also encompass the late-'20's and early '30's. There is a "mountain chart" with the proper two sides. The market today is down over 50% since in terms of early 2000 in terms of what it will actually buy in "things"; ie, gold, silver, oil, wheat, copper, cement, gasoline, etc. Forget the "nominal" market. Focus on real money. If you think the Fed can solve the problem of liquidity, credibility and trust you can forget about it. The mood of the country toward risk-taking has changed and no amount of bailouts, injections or rate cuts is going to change it.

    To the extent that nobody thinks that stocks can fall 75% from here is the extent to which they can when the deflation that is coming finally gets here around 2012. Cash will be King.
    Reply | Link to Comment
  •  
    Apr 27 12:30 PM
    If there's fear in the markets, why did the VIXX take another leg down to 19.59? Complacency? Maybe?
    Reply | Link to Comment
  •  
    Apr 27 12:37 PM
    Bill is a perma bear just like that other poster Grace Chen who can not admit they dont know what they are doing.
    You go bill- Keep fearing the market while I keep making money
    anyone listening to you the past 3 years really has much to fear
    why dont you just go back to your fishing boat and quit being so scared
    Reply | Link to Comment
  •  
    Apr 27 12:38 PM
    Thanks for your insight Bill, I share your concern. As of April 12, 2008
    fourteen major banks, UBS, Citi, Merril, Morgan Standy, Deutsche, Bank of America, Royal Bank of Scotland, Credit Suisse, Goldman Sachs, Lehman Brothers, Barclays, JP Morgan, Bear Sterns, and HSBC, have written off 133 billion in subprime mortgage loans, and leveraged loan comitments and the end is no where in sight. And yet the value of thier stock continues to increase. For example last Friday this group had an average increase of 3%.

    When a company cuts dividends, sells assets, and issues new stock, it is clear that that company is in trouble and the value of thier stock should go down. But when the oposite happens, one can only surmise that someone is doing something to achieve this result. So, I'm like you, I just don't this market.......especiall... the financials.

    Respectfully,

    Bill W.
    Reply | Link to Comment
  •  
    Apr 27 12:52 PM
    To rdial 54...........Amen........ "do it to them before they do it to us. That seems to be the name of the game. Always has been and always will be. A lot of people make a living (?) apparently by being doomsday advocates while true "Bears" will generally find the HONEY wherever it is.
    Reply | Link to Comment
  •  
    Apr 27 12:58 PM
    Dear richjoy (and other optimsts)
    Never before in history has energy been this expensive compared to wages. Energy will go much higher because demand is skyrocketing and no new oil production has been brought on line for 4 years. The world has changed forever. Notice that there is no volume in this rally. The trader sharks know what is happening. This "rally" is a giant setup that will not end happily for retail investors. The human brain has a difficult time with epochal changes. The first time you drive by a gasoline price sign and it starts with a 5 you will begin to get the picture.
    Reply | Link to Comment
  •  
    Apr 27 01:33 PM
    Bill, u r a straight shooter and all those adverse commentators are either "dreamers" caught in the down drafts and is hoping the big boys will shine a torch for the ride up to cut their losses or like lambs following the wolves for the ride-up.

    I am a active trader over 15yrs and I have never seen a credit crunch where world bankers are shivering behind close doors. A healthy economy requires stability in currencies, commodities, energies, wages and favorable trade balances. R we going to achieve any of the above anytime soon? To think that the Fed can wave a magic wand and it will turn rosy in 6 mths u can count me out. How do u solve the problem of the American consumer relying on home equity as their ATM machine before the credit crunch and now is face with relying on credit cards financing because their line of credit is either max out or cut off? Dropping interest rates to near zero and Uncle Sam free monies r not enough to pay off the mountain of consumer debts and USA debts to the rest of the world.

    Banana Republics in the past only happen in South America and the Caribbeans and not Uncle Sam country. But, hey, time has changed.
    Brazil is the "darling" today and the envy of all develop nations. So goes Russia, India, China and emerging markets.

    Be afraid, very afraid, that if Uncle Sam continue to do stupid things
    it will be a Banana Republic before we r gone for good.

    As for todays markets we all know it's in a trading range. Unlike lambs following the big boys sounding GE at $50 where it's trading under $35, I am a patient trader and wait for them riding their high flyers to a short-term tops and hope to take lambs with them before
    I do a short-term shorts when the steam at the high gets too hot even for them and it comes tumbling down on more bad econ news.

    Bill is right. I have never see big boys sounding their pet stocks at the bottom. It's always after a decent runup by them and they r finding resistance in pushing it higher when they ask us "sucker" lambs to get it for the last stage.

    Good luck, lambs and dreamers
    Reply | Link to Comment
  •  
    Apr 27 03:04 PM
    Bill w - How do you explain the insiders in the banks are buying millions of shares in their own banks? BAC,WB, Wells Fargo, BMO, RY, and BNS are examples.
    Reply | Link to Comment
  •  
    Apr 27 03:11 PM
    Well said, and dead-on.
    Reply | Link to Comment
  •  
    Apr 27 03:26 PM
    Did I miss a memo? Is Seeking Alpha only for windbag "columists" with a permanent negative outlook on everything?

    Always the same sad sack crepe hangers that should be required to make a disclaimer their shorting the market and have reasons for always being so negative or maybe Bill, aka Papa Bear has a grossly enlarged prostate or not enough fiber in his diet he's constantly throwing cold water and NEVER backs up a damn thing with something totally foreign to him... FACTS. Just some self-important threadbear fearmongering recycled over and over. I'm sick of it.
    Reply | Link to Comment
  •  
    Apr 27 04:35 PM
    To the "Voice":

    What are you smoking?! (Well - maybe not smoking - as that's pretty hard with your ostrich head so far up - er - down in the sand.

    Can you not read all the glaring/blaring signboards? It's as if you're driving down the financial superhighway completely oblivious to (or, more probably, in complete disbelief of) each billboard you pass...Warning: Rockslide ahead. Warning: 150 car pileup ahead. Warning: Catback turn ahead. Warning: BRIDGE OUT!!! Naawww - can't be...look at all the other lemmings in front of me - they're still petal-to-th'-metal. It's your mentality and behavior on which the real controllers of the markets make their living.

    I'll make a date with you - right here on Bill Cara's post that occurs on or about April 27, 2009. Let's see who shows up and has what to say....
    Reply | Link to Comment
  •  
    Apr 27 05:18 PM
    only a fool will try to predict the future of this market;
    listen to 100 so-called guru's and 100 will tell you a different story;
    let me tell you as an investor from Europe with over 25 years of expierence:
    investing is an art, not a science......

    my advice to the American investor suffering from a very weak UD: buy CSH [pawn shops] and keep an eye on TSL from China [solar].
    Reply | Link to Comment
  •  
    Apr 27 05:25 PM
    Well, there's one sure way to find the bottom. Everyone just sell. Sell it all, everything you have, get out of the market, dump the stocks and get out. Pretty soon, we'll find that bottom. Sound drastic? It is. Stupid, too. Those who are IN when the bottom is reached will make more afterward. Those who wait until they're sure we aren't going down the tubes... will make less.
    Reply | Link to Comment
  •  
    Apr 27 06:41 PM
    It is impossible to nasdaq to be 15% down. It is up 13% from the last bottom in march. So if it goes down, it goes down 50%, but not 15%, because 15% would be a doble bottom and again everybody buying. With current fundamentals there is no bottom at 15% down from todays 1919. I think it will fall before reaching 2000
    Reply | Link to Comment
  •  
    Apr 27 10:23 PM
    Memo to wsigler: I can spot a blowhard when I read his garbage.

    Too many of today's investors...oops I mean wannabe traders pay too much attention to charts trying to find tops, bottoms, reading tea leaves and assorted other witchcraft. I don't.
    Reply | Link to Comment
  •  
    Apr 28 12:19 AM
    Memo to Voice:- Your foul language and mutterings is a disservice to Bill C. Please go somewhere to spill your "rots" because that's exactly what u r. If u disagree with Bill C or any of the bloggers then u should express yourself and lets us judge whether u make more sense than others. No personal attacks please. That's not necessary.
    Reply | Link to Comment
  •  
    Apr 28 08:26 AM
    Agree with Bill completely. The U.S. consumer is resource constrained. S/he has limited access to credit primarily b/c there is no MEW available. As 70% of U.S. GDP and a big chunk of world consumption, we have yet to observe the full impact of this weakness. In addiotna to lack of MEW, banks are tightening lending standards and new regulatory requirements will continue to constrain their ROEs. The effects of the credit turmoil we just experienced will be far reaching. I believe multiples will continue to contract as we are still on our way into the trough. The current rally in U.S. equities is a head fake, as well, and earnings will continue to deteriorate throughout the year. How can they improve with $120/bl oil and other input prices like steel and copper near all time highs. Commodity prices need not accelerate further to continue to place pressure on margins. Again, all of this in the face of flagging consumer demand. The Fed’s hyper inflationary monetary policy will prove to be a disaster, but perhaps it was necessary in order to save the financial system. The opportunities (when they come) will be awesome! Right now, I think patience is the operative word.

    P.S. - Newsflow has clearly been manipulate over the past few weeks.
    Reply | Link to Comment
  •  
    Apr 28 09:33 AM
    340 Trillion reasons & counting! Wow
    Reply | Link to Comment
  •  
    Apr 28 10:44 AM
    Memo to bewise: Chill out. Like I said, If you can't spot the BS coming from the same contributors who are always spreading gloom and doom for what seems at best border line nefarious reasons I truly feel sorry for you and others that are gulliable enough to swallow it unquestioned.
    Reply | Link to Comment
  •  
    Apr 28 10:46 AM
    @voice: as usual you are long voice, short reason.
    @bill cara. appreciate your insights (doesn't mean i agree on each and everything) and i wonder whether those guys branding you "permabear" have ever read more from you than just 2 or 3 articles. funny, indeed
    Reply | Link to Comment
  •