Before and After....

[soup]

Machine: Second! That was one of the best posts I have read in all my years. Keep it simple. Those are true words of wisdom. everyone should read that post 3 times. ( Like jimi, I need to read it 5 times as I am a little slow.)

[Silky_Xlax]

Shorty,

 

Wonderful post. Always a pleasure reading you.

 

There is just one caveat - bear market rallies are short but furious - like Apr-2001 or May-02. Sometime, if one is able to identify those turns, it is better to step aside for a short while and let the fire burn out.

[wndysrf]

Thanks for the excellent post, shorty......

 

Here's the bearish case for the SPY:

 

Looks like we might consolidate and form somewhat of a bear flag right above the 200 day to relieve the DoverSole conditions.

 

There will be an effort to tape paint next week, but its likely that all the money thrown at the market to jam it up will be met with sellers, thus resulting in an upward sloping consolidation.

 

Same with the bond market. Once the bonds start their next leg down after consolidating, then the stocks will crash through the 200-day with force.

 

They key will be to watch the stocks which continue to hold up. When and if they crack, that will confirm the next major leg down in a new bear market.

 

To quote BobBrinker:

 

"When the sherriff backs up the paddy wagon to the house of ill-repute, everyone goes, including the piano player"

 

This is his translation that in a true bear market, all stocks are sold and there are no places to hide.

 

[wndysrf]

And, of course, we need to watch The Economy.

 

Should swup up towards the top of the trading range, then roll over.

 

The consolidation has been going on for months, so a measured move to the downside should be substantial.

 

[wndysrf]

Of course, there are always fresh high volume breakout stocks.

 

FMC makes farm, construction, and mining equipment.

 

Additional confirmation of the commodity boom.

 

[wndysrf]

From today's WSJ:

 

Bond Investors Curb Appetite For Risky Debt New Inflation Fears Spur Many To Seek Higher Rates, Safer Bets; Worries Over Hedge-Fund Moves

 

By CRAIG KARMIN and GREGORY ZUCKERMAN

 

For much of the past year, investors around the globe have piled into the bond market's riskier plays, from emerging-market debt to junk bonds and mortgage securities.

 

But a couple of events -- worries about inflation reignited by the language that the Federal Reserve used when it raised interest rates this week, and last week's downbeat earnings forecast by General Motors Corp. -- have combined to send investors sprinting to the sidelines. Along the way investors have dumped all kinds of bonds and thrown the credit markets for a loop. Their actions also have prompted concerns that some even-riskier trading strategies that large investors have flocked to could come undone, causing widespread pain.

 

The yield on the 10-year Treasury note stood at 4.6% yesterday, up from 4.3% just over two weeks ago -- an unusually large move in what had been a quiet market. As recently as last month, the note yielded 4%.

 

At the same time, yields of riskier bonds are climbing in relation to those of super-safe Treasurys, a sure sign that bond investors are getting nervous and are now demanding more compensation for taking more risk. High-yield, or "junk," bonds have tumbled 2.5% over that period, the biggest two-week drop since October 2002, according to Merrill Lynch.

 

The J.P. Morgan emerging-market bond index, meanwhile, fell 5.1% since March 7. Emerging-market bonds yield 3.9 percentage points more than Treasurys, up from 3.3 percentage points a little more than two weeks ago. A sign of emerging-market concern came this week when Indonesia postponed an offer of as much as $1 billion in new debt.

 

The selloff has sparked losses for bond investors of all stripes, many of whom have enjoyed an impressive bull market for the past few years as prices of investment-grade bonds, junk bonds and other riskier bonds all jumped.

 

"You're seeing a reduction in demand for the riskier securities because of a heightened sensitivity to credit risk," says Jim Sarni, managing principle for Payden & Rygel Investment Management, a Los Angeles bond manger.

 

Still, U.S. corporate balance sheets and emerging-market economies are in much better shape than they were a few years ago. And few anal cysts are predicting the sort of rout that bond markets experienced during the 1997 and 1998 financial crises, when bond yields for developing countries sometimes doubled over a matter of days.

 

But with Treasury yields rising, yields for junk and emerging-market bonds also must rise to compensate investors for the greater risk.

 

In part, rising rates for emerging-market bonds reflect the fact that the rates had nowhere to go but up. They had shrunk to their lowest levels since J.P. Morgan began publicly tracking them in 1997, on the back of a vast improvement in emerging-market credit quality: Where only 10% of the benchmark index was investment grade in 1998, that figure is around 50% today.

 

Emerging-market bond funds have seen record inflows of new money this year. anal cysts also note that many pension-fund managers and insurance companies have been buying junk-rated emerging-market bonds for the first time, taking even more risk because higher-quality bonds weren't offering up enough yield.

 

Some large investors correctly had been expecting yield spreads between blue-chip and riskier bonds to widen and had positioned their portfolios in anticipation. But most have seen losses.

 

Mariner Investment Group Inc., a $5 billion New York hedge fund, is closing down a $200 million investment group that specializes in a certain type of credit trading after small losses this year, acknowledging the market for riskier bonds has become much more challenging, according to people close to the firm. A Mariner representative wouldn't comment.

 

Hedge funds specializing in debt trading "have had a tough time over the past two weeks," says Justin Dew, senior hedge-fund specialist at Standard & Poor's.

 

"What I worry about is: Hedge funds are so much larger today, and banks do so much business with them, if one big fund has liquidity problems it could cascade," says Stanley Jonas, managing director of Fimat USA, the derivative arm of French bank Soci?t? G?n?rale SA. Mr. Jonas says most hedge funds aren't taking great risk lately, however.

 

Popular trading strategies also could cause losses for more investors if the market continues to have problems. For example, investors who bought long-term bonds on a bet that the difference between yields of short-term and long-term debt would narrow -- so-called curve-flattening trades -- have suffered.

 

Also, some of the most popular emerging-market bonds also have come under selling pressure. Many fund managers had been buying high-yielding Brazil bonds due in 2040 while simultaneously selling Brazil's shorter-term debt. But over the past two weeks, traders have fled the long-term Brazilian bond, and it has fallen to a dollar price of $108.75, from $118.60.

[wndysrf]

Shorty:

 

Forget the S & P.

 

You should short these instead.

 

About 3x the downside.

 

 

[wndysrf]

"The US Federal Reserve is behind the curve and scrambling to catch up. Inflation risks seem to be mounting at precisely the moment when America?s current-account deficit is out of control. Higher real interest rates are the only answer for these twin macro problems. For an unbalanced world that has become a levered play on low real interest rates, the long-awaited test could finally be at hand."

 

Roach's Latest

[BeerMarket]

Chipmakers' Options Accounting Needs More Work

Merrill Lynch surveyed the underlying assumptions in its semiconductor coverage as options expensing regulation draws near. "There is more variability to key model inputs such as the risk-free rate of return and historic volatility than we think is reasonable," Merrill said. ... "Some resolution may come when the FASB adds clarification to the initial 123 rule," Merrill said. "We thought that the initial rule left too much latitude when it came to determining model inputs." The research firm said more work needs to be done "before investors can use GAAP numbers including FAS 123 options expensing to value companies reliably.

 

in the meantime just go with pro-scamma i guess?

[fxfox]

shorty,

 

that was an excellent post. Very balanced too. I absolutely agree that one mustnt short things like MSFT, INTC and some other "core investments". and yes i say those two are core investments. Of course they also skyrocked in the internet bubble, were overpriced and all that, but which tech stock wasnt during that time? MySaft and rotINhell will at least be baught with both hands when they reach their long term uptrends, they will always be strong bids for stocks like these at lower levels. I dunno if it would be wise to short the market leader and the Mafia and Italotell are not only leaders, but quasi monopolists. So my advice: hands away from them. There is so much crap out there which screams day after day "short me, shorty!

 

i think one example for a gigantic shithole is Yaaaaaahooooo! Are they a leader? Not really. Are they a quasi monopolist? No. Have they a business model which is unique and the investment cost is o high that no other firm can gain significant market share? Nope. So why not short they living crap out of that thing?

 

YHOO weekly, 50 SMA already broken, next stop at 200 EMA weekly which served once as res then as sup

[machinehead]

"The US Federal Reserve is behind the curve and scrambling to catch up.  Inflation risks seem to be mounting at precisely the moment when America?s current-account deficit is out of control.  Higher real interest rates are the only answer for these twin macro problems.  For an unbalanced world that has become a levered play on low real interest rates, the long-awaited test could finally be at hand."

 

Roach's Latest

<{POST_SNAPBACK}>

After estimating that a 'neutral' Fed Funds rate would be 5.75% (a full 3.00% higher than today), Roach concludes --

 

Should the Fed fail to deliver on the interest rate front, I believe that the US current-account correction would then be forced increasingly through the dollar.? And that would redirect the onus of global rebalancing away from the American consumer onto the backs of Europe, Japan, and China.? Call it a ?beggar-thy-neighbor? monetary policy defense -- pushing the burden of adjustment onto someone else.

 

Roach is right. Long before the Fed Funds rate hits 5.75%, some highly-levered component of the Ponzi economy is going to snap. The Fed will go into 'rescue mode' -- flooding the economy with liquidity. And that means sacrificing the dollar.

 

By sacrificing the dollar, the US can 'socialize the cost' onto the rest of the world.

 

Death to the dollah!

[BeerMarket]

i keep losing track of the "good times" stocks - the ez credit rip-offs - payday loans, etc. probably shouldn't have, check out crash america CSH

[BeerMarket]

AACE near the bottom of its one year range so looking at 2 years, it might be worth watching for a drop out of that range - would have been a good short and hold the last 3 mo

 

[Bear With Me]

SMOKED !!

 

 

 

Good for 2+ pts short yesterday daytrade...

[wndysrf]

Still think that the biggest downside juice is going to be in the subprimes.

 

They haven't cracked yet, consolidations could still be construed as bullish.

 

These better break off soon. Its a glaring positive divergence, given the bond market troubles....

 

But when they let loose to the downside, its going to be a doozy...