Bears are Tired if not ready for Hibernation
Guest post by Peter Tchir of TF Market Advisors..
The Only Thing Wrong with the Bear Argument is that it has been Wrong
The bear argument is persuasive. It is well reasoned, makes sense, is supported by fact, yet it hasn’t been working. I was bearish early this year. Too early, but eventually the market did break down from 1,400. Near the end, many bears had capitulated. Many of the most bearish pundits put out “eventually” or “we are right, but maybe not yet” sort of capitulation letters. We haven’t seen that yet, but I think we are getting close. Bearishness seemed to hit its peak (as is typical) after the S&P broker 1,280. Too often we let price action dictate views, and this was a perfect example. Yes, some people were bearish all the way down to 1,280 (I had cut shorts and turned bullish higher than that) but by and large the bear mantra grew after that.
More people jumped on the bandwagon. Some “perma-bears” spent more time trying to recant their prior capitulations than analyzing the market. In any case the bear trade has been painful. We have seen a series of cycles where markets rally on short covering. We hit new levels where the data continues to be weak and shorts get reset as the market stumbles. The bears are nervous but gradually we see some bigger down moves and the shorts fully reset. Then, for whatever reason, something happens that spurs the market to yet another short covering high.
Everybody Stay Calm – A Slight Return
Global lack of leadership, economies, markets and much more. Another must read by the Cravens Brothers.
Interviewer: “What period does this remind you of?”
Economist: ”Last year…the year before that…and the year before that.” – Bloomberg Radio
Recently, I found myself on a plane making an emergency landing, again. I have flown to and from a certain city four times in my life and had emergency landings on two of four occasions (2001 and 2012). I detailed my 2001 adventure in last year’s“Everybody Stay Calm!” The ritual: (i) get on for the ride, (ii) volatile mishap on the way up, (iii) rapid descent, (iv) get out quickly (via fun slide or boring jetway), and (v) wait for indications of what to do next. The violent “accordion-shaped” up and down moves in the commodities and equities markets the first halves of the last three years have left investors similarly “normalized” to the abnormal. This year, the Dow posted the best 1Q performance since 1998 (+8%), followed by the worst May since 1940 (-8%), followed by the best June since 1997, (+4%) – the gain for the first half of the year. Get on for the ride, volatile mishap, rapid descent, and slightly propitious exit.
This year’s odyssey revealed a lack of leadership more awe-inspiring than my first dance with death eleven years ago. Instead of one leader “losing it” (i.e., the pilot), the entire leadership “lost it” (the airline), herding 150 or so passengers around the airport for 5 hours with no explanation, handing out useless taxi vouchers, delaying the replacement flight the next morning for another 5 hours with no explanation, and finally another 2 hours “due to an equipment malfunction” on the plane we hadn’t even boarded yet. Upon hearing this first direct communication from our “leaders” in over 24 hours, two would be passengers flipped out and had to be “escorted” to the “can” by security, ostensibly to be given some literature on how to behave when “Groundhog Day” meets “The Twilight Zone” and one must live through their progeny.
Things that make you go hmmmm
Another must read hmmmm report, courtesy Grant Williams.
Now we reach the part where the truth finally dawns that the words spoken long ago by JP Get- ty are actually not just an amusing motif fit for the front of a t-shirt or a fridge magnet:
“If you owe the bank $100 that’s your prob- lem. If you owe the bank $100 million, that’s the bank’s problem”
The sum total of bailouts offered to Europe’s prodigal offspring is mounting daily, but the Achilles Heel of the entire construct continues to be the Target2 payment system which has been so assiduously ignored by most observers yet followed so closely by my friends at Zerohedge for many months now.
This problem remains below the radar of most observers but, I suspect, will turn out to be the straw that breaks the camel’s back
Creative accounting
A few points on the Whale trade, courtesy Jessie.
“I am making an enemy here when I say something like this, but the Fed should replace Jaime Dimon. They should replace him for utter failure of corporate governance and telling the truth too slowly.”
Janet Tavakoli
They will not get rid of him, they will continue to support him, even idolize him, because he is their partner in la vaste contrée mythique du papier, a grand, mythical kingdom made of paper.
As I said when the earnings results came out, before I even looked at the numbers in detail, JPM raided their loss reserves, along with a few other accounting tricks outlined below, to make the London Whale loss go away and achieve their forecast earnings number to the penny.
When a major event occurs and a company can hit forecast to the penny there are only so many ways to accomplish this, and most of them involve creative accounting. The same goes for companies who make the number exactly, or even more arrogantly plus one penny, quarter after quarter after quarter.
Those are ‘managed earnings.’ And that is a euphemism for the kind of accounting that belies a papier-mâché balance sheet, a scripted income statement, and troubles yet to come when the strong winds of global change start to blow again.
Full must read article here.
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