Where was the PPT today?
I have never been a big believer in the Plunge Protection Team (PPT). The 78% drop in the Nasdaq from 2000 to 2002 was my proof.
So while some will ponder their presence (or lack thereof), let us instead review the recent activities on the Street of Dreams:
-Derivative woes have forced a number of hedge funds to blow up.
-The economy is slowing, as Consumer spending has significantly softened and Hiring continues to be weak.
-Easy Credit was formerly a source of lift to the markets, contributing to stock buybacks and M&A, and LBOs. Elvis has left the building.
-Technically, we have seen the first monthly reversal in a long time. Both the Dow and S&P July monthly close were below the June close -- I believe this is the first time this has occurred since the cyclical bull began in 2003.
-Dow Transports have broken below 4994, and are now confirming a Dow Theory Sell Signal
-And, all the fun in Housing -- ARM resets, defaults and foreclosures, CDO issues, hedge fund blow ups -- are still far from done. ARM resets won't peak isn't until Q4 this year . . .
>
The Financial sector, as a whole, looks to me like it has a lot further to go. So too, believe it or not, do the homebuilders. I
expect to see the same misguided and erroneous defense of the financial
sector that we saw on the homebuilders at the very first sign of any
oversold bounce.
Things are really starting to get interesting now . . .
>
5 year Dow monthly chart
1 year Dow Transports Chart
>
>
(Please keep it civil in comments)
Friday, August 03, 2007 | 04:51 PM | Permalink
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But fortunately the subprime problem is well contained.
Posted by: GerryL | Aug 3, 2007 5:18:31 PM
My fear is that we're going to go replace the easy credit with government hand-outs if people scream about it enough.
With the rapid rise in asset values over the past several years, more and more people in the US (and other countries) are getting the idea that you don't really have to work for your money.
That's a very dangerous sort of psychology that causes a nation's human capital to decay.
Posted by: super-anon | Aug 3, 2007 5:21:17 PM
Homebuilders are toast. It isn't just subprime being cut off, now it's Alt-A and even jumbo prime. Inventories of homes for sale are huge and the vacancy rates for single-family homes are 50-75% above even recent historic norms, and craploads of condos will be completed over the next 12 months.
The only thing that will save housing , even in the intermediate term, is if Ben B. decides to earn the helicopter moniker and watch the dollar swoon.
Posted by: Bob_in_ma | Aug 3, 2007 5:21:56 PM
It looks like investors aren't bidding much for the AAA mortgage-backed bonds anymore. The ABX charts just went over the cliff at markit.com. Regardless of how much buyers are willing to pay for houses, sellers won't be getting their asking prices as long as the funding charade breaks down.
Posted by: Will T | Aug 3, 2007 5:22:53 PM
I just saw Bob Mcteer former president of the Dallas Fed. He said that other than housing the economy is in good shape.
But other than that, Mrs. Lincoln, did you enjoy the play?
Posted by: GerryL | Aug 3, 2007 5:30:27 PM
Larry Kudlow,
Why are you so anxious for the Fed to contribute liquidity?
You've been preaching world liquidity for months. It's your raison d'etra. Why not let it sop up the liquidity problems for the U.S.?
You want your cake and want to eat it too, right?... In other words, you're a free-market capitalist until the free-market dumps you, right?... Then cry, run to Dr. Anke for help, frightful child.
Let unrestrained free-market capitalism handle this. It'll do a nice job. It'll make Adam Smith proud.
Posted by: Eclectic | Aug 3, 2007 5:33:30 PM
I think that the PPT was in full force during 2000-2003. However, the NASDAQ didn't respond because (1) why would investors go right back into a market that they were burned in?, and (2) the retail investor started throwing their money into housing hence our current situation.
Posted by: W.Edwards | Aug 3, 2007 5:44:50 PM
Yesterday I commented on how only the PPT/Fed's have the money and motive to engineer a 30 S&P point gain in the last 30 minutes as happened Wednesday. Maybe I'm wrong but another observation I've made and heard it commented on is that we never seem to have three down days in a row before mysterious buying enters the market. Could that be the PPT game plan? I don't know but if Monday is down, then prices should rebound out of nowhere Tuesday.
Posted by: phil | Aug 3, 2007 5:53:23 PM
I am not sure if Elvis has actually left the building, but I am fairly certain that Goldilocks has departed.
Posted by: Hans1 | Aug 3, 2007 5:55:21 PM
Are you looking at the same charts I am? My charts showed both the dow (DJX) and SPX with a lower monthly close for February, June, and July of this year and May of last year. I didn't look back further than that, but I think there were other times too.
Posted by: jkw | Aug 3, 2007 6:00:54 PM
You gotta wonder about the value of Dow Theory at this point.
Richard Russell, the Dean of Dow Theory guys, flipped from superbear to super-bullish at exactly the wrong moment thanks to Dow Theory. Now Dow Theory is giving a sell signal?
I prefer to stick to the fundamentals.
Posted by: speedlet | Aug 3, 2007 6:09:27 PM
I went all cash today. Going down further, Dow will test 12,500. Have fun, I'll be enjoying myself with an escort this afternoon.
Suge
Posted by: Marion Knight | Aug 3, 2007 6:17:03 PM
Suge,
Is her name Goldilocks?
Phil
Posted by: phil | Aug 3, 2007 6:19:20 PM
Phil,
I can't afford Goldilocks, not after today's market action. All I can afford is a cheap motel ($40 for 4 hours), 2 wine coolers (for her), a 40oz Miller Light bottle (for me) and a cheap $3 cigar. Porn is free at the motel. I'll dedicate the first money shot to you my friend.
Suge
Posted by: Marion Knight | Aug 3, 2007 6:23:46 PM
There's a nice base on the XLF at $32 and an even bigger one at $30. I don't see a disaster where it goes much below $30. Remember that the financials really haven't participated much in the rally over the last few years.
Posted by: bjk | Aug 3, 2007 6:34:02 PM
There's a nice base on the XLF at $32 and an even bigger one at $30. I don't see a disaster where it goes much below $30. Remember that the financials really haven't participated much in the rally over the last few years.
Posted by: bjk | Aug 3, 2007 6:36:00 PM
I feel like I need a shower after reading that...
Posted by: zot23 | Aug 3, 2007 6:38:21 PM
Hey, check this out:
http://theimbreport.com/wp-content/uploads/2007/08/month-end-format_report_073107.pdf
Posted by: GRL | Aug 3, 2007 6:38:24 PM
"And, all the fun in Housing -- ARM resets, defaults and foreclosures, CDO issues, hedge fund blow ups -- are still far from done. ARM resets won't peak isn't until Q4 this year . . ."
Yeah, but the corporate INSIDERS are buying like crazy! LOL! Sure feels good to not be long anything right now ...
Posted by: winjr | Aug 3, 2007 6:57:11 PM
Listen folks, I don't have a Phd in Economics but in this case it doesn't matter. The market is going lower whether the whole subprime mess is overdone or not. Take your money first and ask questions later. If you're a short, then congratulations. Glad to get out solvent. Look at AHM shareholders and I bet you'll fell better about yourself. I'm on my way to see my favorite escort. Screw the market (I'll be screwing the escort, LOL).
Suge
Posted by: Marion Knight | Aug 3, 2007 6:57:16 PM
No Corporate insiders are buying. Are you smoking crack? (pardon my French).
Suge
Posted by: Marion Knight | Aug 3, 2007 7:00:02 PM
"I am not sure if Elvis has actually left the building, but I am fairly certain that Goldilocks has departed."
Nope, she's chained to the stove, making porridge for Elvis.
Posted by: KirkH | Aug 3, 2007 7:01:02 PM
I thought Elvis was having his way with her in the back room, since he wasn't concerned hence all his royalties. I also heard he was going on Itunes anyways...
Posted by: BuffaloT | Aug 3, 2007 7:23:21 PM
Isn't the old adage "buy when there is blood in the streets"? Well, after we fall for the next two weeks (about a 12% correction on the S&P, taking it 5% or so negative for the year), we will get a bounce and then a stabilization. You have to remember this is all about getting the Dems elected in '08 and a market collapse about now will be just the right RX for Hillarycare (with her running mate B. Hussein Obama) and her other socialistic agenda.
It strikes me a bit odd that with fundamentals so good and valuations relatively low (15x trailing earnings) this is a completely different type of crash/correction than we had in 2000 where valuations across the board were much, much higher.
Funny thing about valuations is that when they are high, bears cite them as the reason stocks are expensive and are ripe for a fall. When they are low, bears say that current P/E's dont' matter and that all that matters are forward P/E ratios (which obviously can't be known). The argument is a win-win for them.
Barry, didn't you say you would tell us when it was time to short? We about there? Have you lightened up your international positions since the overseas correction has been just as sharp as ours here at home?
~~~
BR: wrong across the boards:
1) "Blood in the streets?" We are still w/i 7% of all time highs!
2) Yes, clearly Hillary & Obama control the markets. Your insight astonishes
3) Fundamentals are decaying -- retail sales? Housing? Job creation? Consumer spending? Please, get yourself a clue.
4) Valuations are at fair value for the SPX -- assuming profits say at these record levels (a big assumption). Valuations for the Nasdaq and the Russell are much higher than the 15X next years estimates.
5) What makes you think I would tell you when to short?
Posted by: Jdog33 | Aug 3, 2007 7:36:56 PM
Everyone, welcome to 1937, the year when markets dropped hugely in a very short time. Didn't the Dow lose like 50% in 4 months back then? It's deja vu all over again.
Posted by: Johnny V. | Aug 3, 2007 7:42:54 PM
