Prieur’s readings

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The following are some interesting articles I have read over the past few days that readers may also like to have a look at:

• John Hussman (Hussman Funds): Comfortable with Uncertainty, May 4, 2009.
Are stocks in a bull market or is this still a bear market? Frankly, I don’t put much energy into that question. The S&P 500 has now corrected about one-quarter of its prior losses. Bear market corrections of about one-third are not unusual, but I wouldn’t bank on that. Having failed to do anything effective to mitigate the second wave of foreclosures that is set to begin later this year, and seeing very little sponsorship in trading volume (despite good breadth), my impression is that we most likely are in a strong correcting rally in the context of an ongoing bear market. At the same time, cash-equivalents are yielding next to nothing, so it’s unclear to what extent investors will decide that stocks are their only real alternative, which might allow a continuation of this advance.

• Gillian Tett (Financial Times): Genesis of the debt disaster, May 1, 2009.
In the 1990s, a young team at Wall Street investment bank JP Morgan pioneered a new way of making money – credit derivatives. Within a decade, the market for these exotic securities had exploded to more than $12,000bn – and some people later blamed them for fuelling the global financial fiasco. In the first of two extracts from her book, Fool’s Gold, the FT’s Gillian Tett reveals how the innovation genie was first let out of the bottle – and eventually devoured the system, to the horror of its creators.

• Simon Johnson (The Baseline Scenario): Zombie Oligarchs, May 1, 2009.

• Samuel Brittan (Financial Times): A catechism for a system that endures, April 30, 2009.
The Future of Capitalism: The assumption that the pursuit of self-interest within the rules and conventions of society will also promote the public interest may be succeeded by a mushy collectivist pseudo-altruism, in which jealousy and envy are given a free ride, writes Samuel Brittan

• Martin Wolf (Financial Times): Fixing bankrupt systems is just the beginning, April 28, 2009.
The largest economies have made the fundamental decision to prevent bankruptcy. but this is only the first step on the long road to financial health. Those who hope for a swift return to what they thought normal two years ago are deluded, writes Martin Wolf.

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1 comment to Prieur’s readings

  • Stress-full climb to the high diving platform
    As I pointed out in last weekend’s Market letter, the primary concern now is those stress tests, where reportedly 10 out 19 banks may need to boost their capital, to weather an optimistically projected recession. The hourly Financials index shows you that climb up the diving platform. Since wave 2 (ii) is behind us, we are about to go into wave 3 without any warning ….this is a most serious dive ahead.. What sets Financials apart is that we are going right into wave 3, with many other indices it will only wave1.
    An analysis of Market Bottoms since 1940, done by the Haussman Funds, concludes that enduring rallies are accompanied by a strong rise in volume, after building a base, of about a month or so. In our current situation there was no base at all, instead stocks had just dropped 20% in the prior month, and bounced… What’s more, the bounce occurred with contracting volume. Again contracting volume represents distribution, stocks going from the smart money to hopeful but relatively dumb individuals
    In 1987 the FED thought they had reversed the market crash, after it had stopped dropping on its own…..this gives them false confidence now. It makes sense otherwise these extensions would not be so extreme

    The Fed is buying the market in bed with the banks to prop up stocks….and they cannot win against market forces….please pay attention the reasons I give you and try to understand them…..there can be no equivocation at this point from neither a technical, nor fundamental viewpoint. What you saw in DHI is a preview of what ‘s ahead… the news is rubbish! dont let it influence you or you become just one of the herd, without any sense of direction….just because other people are doing it, does not mean its right. In fact in investing, markets make the big moves usually contrary to popular sentiment. That’s why markets drop when sentiment is high and rally when its rock-bottom.

    Eduardo Mirahyes

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