ROBERT SCHILLER DISCUSSES THE DOUBLE DIP POTENTIAL

Robert Schiller speaks about the possibility of a double dip recession.   I'm not sure if I can agree with any of his prescriptions for "New Deal" type plans to foster growth since it clearly requires more misguided government intervention.  Haven't they done enough?  About when did they become the solution for anything.  Perhaps Robert should read my take on the government myth here - GOVERNMENT MYTH

I get the sense that like most economists Schiller really doesn't know how to answer the question, "How would you fix it?" because his comment is prefaced with"it is really complicated".  The first suggestion he makes is to spur hiring by the state and local governments with a thought to hire millions of teacher's aides and get them in the classroom.  Interesting idea, but not realistic and not gonna happen.  Also, creating more government agencies to waste money is not the trick.

I think it would be almost cleaner and simpler if all businesses were awarded 100% tax credits for all expenses related to new employees for a year or two.  First, it would not involve a new or another government agency.  Second, it would get businesses focused more on growing and utilizing a "no cost" employee.

Second, I'd keep all the Bush tax cuts in place for at least 2 more years.  This would give us a few more years before uncertainty comes back into play.

Finally, I'd halt the Health Care Reform Act measures.  Just to make things realistic and doable, I'd keep all items that have come gone live already, but would kill the rest of the bill making the 2014 date a non-event.

If a company would be in a position to hire today, they would have no reason to not hire based on uncertain economic times.

At around 8:33 in the video, Schiller discusses an uncertainty with CEOs and he says that they really can't describe why they aren't ready to move forward with growth plans.  Normally I like Schiller, but it seems as though he doesn't want to state the obvious which is the Obama Administration's policies are damaging to business.

We should be worried about Schiller's thoughts on housing prices as he says that there is a real concern that prices could go down for the next 5 years based on the pricing curve that was in place over the last decade.  It seems as though he doesn't agree with forecasters in his Case Schiller Market Survey. (15:45 in the video).

Finally, Schiller discusses Japanese style deflation around 17:25.  My read on his comments here is that he thinks we are repeating the Japanese outcome (he didn't say it, I'm simply trying to discern what he is not saying).  Also, this fits too with his statements about a bond bubble in his closing remarks in 17:40 where he tends to agree that there is not a classic bubble where folks are excited about the potential returns for an investment.  He does seem a bit conflicted here because he does back off from that statement at the end.




There are some good tidbits in the interview overall, I like his analysis, but don't like his "solutions".  I think they involve more of the same that you get from economics professors and Utopians rather than pragmatic business leaders.  Jobs are the key to solving the problem, but government is not the mechanism for the implementation of creation with the exception of the tax legislation to get it going.
Enjoy -   If the video has trouble loading simply click on this link to go directly to the hosted site (ROBERT SCHILLER WSJ)

GOATMUG

New Trading Tools - Thanks to Iggy I've found more charts to occupy my time

Here is what I'm working on to identify very short term trades (meaning 30 minutes or less).  I've officially dubbed it the Baconator after Iggy's other true love (other than Mrs. Iggy of course).  If you want to check it out, you can go to http://www.freestockcharts.com/ and create your own charts and indicators.  (No, I have no affiliation with them!)

5MIN VIEW

1 MIN VIEW

GOATMUG

GOOOOOOD MORNING GDP!

Just wanted to make a quick post reminding everyone that tomorrow morning we'll have a release by the government stating the second quarter's revised GDP report. As you can tell by how the market has been trading, there are now lowered expectations for growth. In the last month expectations have dropped from 2.5% to now somewhere around 1.4%. So needless to say, the market has a lot of emphasis put on this one information release.


A print of greater than expectations would probably goose the market higher right at the open while a print in the low 1.0% area will all but deliver a final body blow to those that have been suggesting that we are not going to double dip. Don't you recall back in April when you were hearing people say that there was no chance of a double dip? I sure do, I got a few emails stating that I was always emphasizing negative data and we weren't going to have another peek at recession.

As I mentioned to them, they were probably correct, but only because it was evident that we didn't ever come out of one.

Anyway, since the expectations in the market have been so managed and the tone in the market is pretty negative it may pay to at least think through the contrarian view. I almost expect to see any large gap down met with buying if the number is nasty (1% ish..).  If the number comes in above the managed expectations, we may see a jump, but I think we'll sell off after the fact as people will realize that the market is bouncing because it is happy about a less bad horrible scenario.  The only thing that holds me back here from getting long if we have some upward momentum is that we did close under 10,000 again, we still have really negative technicals, we are entering the September and October period which is usually more horrible than other months. In addition, we closed very poorly as folks crowed out to get out of the way of the GDP report. This clearly wasn't an end today with positive conviction.

Finally, if GDP announcements weren't enough, the Fed's round table meeting in Jackon Hole, Wyoming will wrap up and if the GDP number is very negative, expect our Fed Chairman to come out with unusual and extraordinary doses of financial shock and awe! I'm guessing that he'll admit things are slowing and suggest that the Fed has lots of ammunition to deal with the decline in growth. Of course all the measures won't really be effective and will not really produce any meaningful improvement long term. The issues are still cemented in place and we won't see any REAL improvement until they are attacked. Just so we have a handy list, here they are;
1) People don't have jobs
2) Because people don't have jobs and they've been without one for a long period, they are losing their homes to foreclosure...
3) Because people don't have jobs, they can't buy these foreclosure homes left by their neighbors.
4) If people have a job and still have a decent credit score, they might be able to refinance, but if they do refinance, they are using that to pay down debt, not spend more. (The Fed has wanted more spending not paying down debt).
5) Having said that, most people with jobs don't have a decent credit score, and therefore cannot refinance their mortgage.
6) Many others not buy houses either because they don't have 10% or 20% to put toward a down payment.
7) Without buyers, housing won't be fixed and banks have begun actually enforcing and processing foreclosures which will add more inventory to the huge backlog of unsold homes.
8) Against this backdrop, Mom and Pop have stopped spending and are now believers in paying down debt and bragging about how little they paid for clothes at Target and Wal-Mart.
9) Businesses cannot sell products to people that don't have jobs, don't have large houses they never really couldn't afford in the first place, and sell fewer products to people that are bragging about how little they spend now.
10) Businesses now face a working environment where they do not have certainty about their future sales, tax, and regulatory environments. In other words, they are pretty sure that their sales are stagnating, taxes are going higher, and they will be forced to pay more for health benefits for their staff and any new people that might be added. Since they have convinced themselves that this is highly likely they are not attempting to add staff (expenses) when their sales are flat to declining.
11) Because business profits are declining, tax revenues for cities, states, and the federal government are horrible.
12) Because cities, states, and the federal government have become accustom to ever increasing taxes they have been devastated for their long term mismanagement of our dollars. They have overspent on useless projects, promised free benefits to everyone, and richly compensated themselves with healthcare and pension plans that are without match in the private sector. These shortfalls of revenues for the second year will add to layoffs of government workers and reductions in benefits (if we tax payers are lucky).

And to fix all of these problems our Administrations, Congress, Treasury Department, and the Federal Reserve have attempted to rescue us by issuing more debt and even gone so far as to buy more of our debt with our own money.

My guess is that Ben Bernanke will tell us tomorrow that he's got it all covered. He'll stimulate the economy, get jobs growing, get banks lending, and do it all through the power of financial engineering and monetary policy. Call it QE (Quantitative Easing), call it debasing the dollar, call it outright purchases of stocks and bonds, no matter what he calls it, it will be an attempt to cover up the core problems and its real impact will be to destroy the value of our currency and further drive us into an oblivion of unpayable debt.



Cross your fingers, tomorrow will be interesting.

GOATMUG

CROSS OF 15 DAY EMA UNDER 40 DAY EMA - LONG TERM SHORT SIGNAL

Here is something to look at from a longer term perspective.  In this weekly view of the S&P 500 we are specifically examining the exponential moving average of the index.  We chart the 15 day EMA and the 40 Day EMA.  The cross of the shorter EMA below the longer EMA tells us that prices are falling, but this also is an indication that a new and significant trend may be in place. 

In fact, when we see this signal, it tells us that we should consider looking to short the market and go long treasuries (not sure if I'd do the treasury part). 

I have found an article by one of my favorite bloggers on the subject (way at the bottom where Chris Puplava discussed the cross).  Please find a more in depth view in this link. - Chris Puplava Article

Here is a direct quote of his material from his 2/10/2010 article.  In the article he is highlighting the cross and also the need for the RSI to be below 50 for a confirmation of a sell signal. 

"Cyclical Bull/Bear Market Signals




To finish off today’s article, a quick peak at some indicators that have helped identify turning points between bull and bear cyclical markets to see if any signals have been given after the swoon to last week’s lows in the market. Looking at the S&P 500 15/40 weekly EMA signal system as well as the stock/bond ratio 15/40 weekly EMA signal system shows that no sell signals have been given and the trend remains bullish until proven otherwise. Additionally, bear markets are often associated with the 14 week RSI dipping into bear territory below 50 (red boxes below), and last week’s lows never saw the 14-week RSI on the S&P 500 dip below 50, with the 50 mark acting as support. The January 2010 top may in fact prove to be THE top for the March 2009 cyclical bull market, but it is perhaps wise to wait for confirmation before ringing any bear market alarm bells. A break of the 15 week EMA below the 40 week EMA for the S&P 500 and the stock/bond ratio, along with a decline below 50 on the 14-week RSI would provide solid corroborating evidence that the present cyclical bull market is over. However, if these indicators hold in bullish territory the bulls have the upper hand and the recent correction would prove to be a buying opportunity rather than the start of a new bear market. "

Current numbers as of 8/24/2010 - 9AM CST
15 Day EMA - 1089.38
40 Day EMA - 1090.40
RSI - 43.60  (Below 50)

This would show a confirmation of a sell signal.

GOATMUG

HOUSE OF CARDS

I wanted to provide a link to the House of Cards video that CNBC and David Faber put together.  Just the other night this was on and I watched a few minutes of it again since I had posted the interviews with Kyle Bass. Kyle is featured in this video and it is truly amazing how he rejected and told he was crazy for suggesting that the mortgage industry and CDO's were doomed. 

As usual, conventional wisdom gets you blown up. 

I want to put together a larger post about how troublesome the whole situation is regarding bubbles.  So many people in the House of Cards videos stated that they knew something was wrong, but they felt like they had to participate because they were going to be left out.  Others I think felt like they would be able to exit in time because they were fast or just smarter than the rest of the market participants.  I think the smartest guy in the room was Kyle Bass. 

I normally would embed this video, but it is almost 2 hours long.  Here is the link at CNBC.
HOUSE OF CARDS VIDEO - CNBC

Enjoy.

GOATMUG