Why the surge in the stock market lately?

[JEDI]

Interesting opening monologue on Jim Cramer's Mad Money this evening (should be up on CNBC website in about an hour).

His thesis is shorts got crushed today and can't afford to stay short going forward.

Just wanting return of capital, not return on capital, is now being replaced by relative performance chasing by "money managers" (probably better to call them what they are, asset gatherers who collect plumb management fee, whether or not they make money for their clients) who don't want clients to pull money from them.

He said buy all dips into year end.

May end up being true (catching a falling knife may be being replaced by stepping in front of a freight train)

i caught a falling knife (bought BIG when the market dropped 5%, which was the day b4 the market briefing dipped into bear market territory) and came out +30% ahead!

so start buying on dips till end of year?
um.. i'll buy on dips till begining of Nov, then sell by mid nov b4 the super-committee fails at end of nov and automatic budget cuts happen.

 

[mshan]

I believe Michael Steinhardt of Wisdom Tree fame (it was him or some other very well established hedge fund manager during some CNBC hedge fund summit this year or last year, I forgot) said something like all short sellers eventually go bankrupt (he was on CNBC quite a while ago).

Kind of seems like we, at some point this year, might retest this year's SP500 highs of 1350 - 1370, and Thomas Lee of JP Morgan Chasehas was projecting possible test of 1450 - 1475 (he was using what happened after Asian Financial Crisis was resolved as his template and these forecasts were before today's framework of European deal today).

 

[FoBoT]

the the market will rise again when congress votes to delay the auto chops till after the 2012 election.

not sure enough freshman Tea Party reps will go along with that for it to happen, guess we'll see

 

[mshan]

Jim Cramer's rant this evening about risk of getting steam-rolled into year end:

http://video.cnbc.com/gallery/?video=3000053786

 

[RbSX]

Jim Cramer's rant this evening about risk of getting steam-rolled into year end:

http://video.cnbc.com/gallery/?video=3000053786

Have you looked at Cramer's record? It's not good.

By the way, word has it that the Greeks have given a massive middle finger to this proposal already.

 

[mshan]

Jim Cramer is an opportunistic trader, so you have to know what his exact entry and exit points were to really gauge his track record.

Problem is he is very careless about his buy and sell recommendations on Mad Money, never asking what purchase price and planned exit point is, and all of his commentary is within the (implied) context of everything he has learned trading through so many years in the business.

Yes, he was lucky to be in cash during 1987 crash, and his record ended before crash of 2008, but I do think he has a credible long-term record as hedge fund manager.

It is just that it is hard to replicate his particular trading strategy without knowing all of the stuff he learned through the years; you have to truly understand his total trading philosophy / system to actually benefit from his buy seller recommendations consistently, over time. Me, I stick with my well-established, experienced, and disciplined mutual fund managers who truly have a contrarian growth or deep value philosophy and can take advantage of all of this short-term volatility and hot, dumb money chasing this or that on any given day. That and VTSMX for the long-run (decades, not years) in taxable accounts.

I usually only watch Cramer's opening monologue to see what The Street's narrative on what happened that day (not any projections going forward) were during a particularly volatile day, up or down...

 

[mshan]

Greece could default and it, in and of itself, would be inconsequential to the world's financial markets.

It is risk of contagion to Italy (too big to bail out, possibly even for China) and Spain that has always been the issue... (they need to roll over tremendous amounts of debt near end of year or early next year)

 

[dmcowen674]

Why the surge in the stock market lately?

2 weeks ago, the S&P dipped into bear territory (20% drop from it's 52week high).
then we had a surge of positive days. heck, nasdaq hasnt closed negative since then. (8 straight days)

2 out of the 3 major indexing are back to break even and the 3rd one is almost there.

so europe is getting a better handle on it's debt crisis.
but why would that cause such a HUGE surge not seen since 2009?

The market is nothing but a Monopoly game for the rich.

Do you play in it?

 

[RbSX]

Greece could default and it, in and of itself, would be inconsequential to the world's financial markets.

It is risk of contagion to Italy (too big to bail out) and Spain that has always been the issue... (they need to roll over tremendous amounts of debt near end of year or early next year)

You are forgetting Portugal, and a lot of this is contingent on France maintaining it's triple A rating.

Without the triple A rating, it's part of the EFSF is not eligible to be leveraged or loaned out.

 

[mshan]

From what I've read, Portugual, like Greece and probably Ireland, is also inconsquential in grand scheme of things.

Italy, and to a lesser extent, Spain, are the issues. I forgot what actual statistics are, but I think Italy has something like 1.9 trillion of debt and may need to refi 800 - 900 billion around end of year. I think it is not even certain that China, even if it wanted to, could bail them out.

Unlike Greece, they are rich countries that can eventually grow their way out of their problems, but they have a lot of debt to refi near end of year or next year and their bond yields are already rising.

Why do you think bears / short-sellers and other relative performance chasing asset gatherers are trying to talk market down; they need to talk market down to give them decent entry points so they will still be in business next year (their clients will pull all their money when they get reports about how badly they lagged broad indexes early next year).

 

[AlienCraft]

It's rigged to suck money out and move it upward.

 

[RbSX]

From what I've read, Portugual, like Greece and probably Ireland, is also inconsquential in grand scheme of things.

Italy, and to a lesser extent, Spain, are the issues. I forgot what actual statistics are, but I think Italy has something like 1.9 trillion of debt and may need to refi 800 - 900 billion around end of year. I think it is not even certain that China, even if it wanted to, could bail them out.

Unlike Greece, they are rich countries that can eventually grow their way out of their problems, but they have a lot of debt to refi near end of year or next year and their bond yields are already rising.

Why do you think bears / short-sellers and other relative performance chasing asset gatherers are trying to talk market down; they need to talk market down to give them decent entry points so they will still be in business next year (their clients will pull all their money when they get reports about how badly they lagged broad indexes early next year).

You have a lot of reading to do on economics my friend, developed mature countries can't grow at the rate currently required to service their debts in the long term, hence why the lenders are having to take a hair cut, and the debt is being restructured.

 

[mshan]

My understanding:

- Greece's debt is too great for size of it's economy and it is impossible for them to grow out of problem (even without austerity), even over time, so that it is why it is a given that they will default in some form or another.

- Same is not true of Italy and Spain. They are very rich countries and probably can grow / save / cut budget their way out of these problems, it's just that speculators attacking European Union don't want to give them that time.

-- I believe these speculators assumed they couldn't get their act together (greater fiscal union, not just monetary union?) and are predicting eventual demise of Euro / Northern & Southern Euro / etc. (that could still happen, just not now).



I learn from threads such as these, so if you have good links to info that can enhance my understanding, I would welcome that additional info.

 

[RbSX]

My understanding:

- Greece's debt is too great for size of it's economy and it is impossible for them to grow out of problem, even over time, so that it is why it is a given that they will default in some form or another.

- Same is not true of Italy and Spain. They are very rich countries and probably can grow / save / cut budget their way out of these problems, it's just that speculators attacking European Union don't want to give them that time.

-- I believe these speculators assumed they couldn't get their act together (greater fiscal union, not just monetary union?) and are predicting eventual demise of Euro / Northern & Southern Euro / etc. (that could still happen, just not now).



I learn from threads such as these, so if you have good links to info that can enhance my understanding, I would welcome that additional info.

I would recommend reading sites like zerohedge.com and seekingalpha.com

When your 10 year bond yields at creeping up at 6% and your GDP growth is 1-2.5%, there's no way to service your debt (except through austerity, which inevitably reduces the GDP growth, or artificially spending to increase GDP, which is never enough))

You also have it backwards, developing economies can have STUNNING growth rates (See Brazil/China) but mature economies struggle to grow at a significant rate. This is not normally a problem, however, because their bond rates are normally low.

But when risk starts to appear and their bond rates exceed their GDP rates, holy shit that's a problem.

 

[mshan]

"You also have it backwards, developing economies can have STUNNING growth rates (See Brazil/China) but mature economies struggle to grow at a significant rate. This is not normally a problem, however, because their bond rates are normally low."

Aren't speculators the ones that may be pushing up Italian and Spanish bonds yields so high now, trying to trigger / profit from collapse of Euro more so than genuine long-term concerns about their ability to actually service the debt over time?

And isn't U. S. ultimately in same situation, down the road, if we don't get out intermediate to long-term fiscal house in order (growth, budget cuts, and tax increases?) Seems like we have all same issues of high debt and low projected growth, except our bond yields are very low, at least for now (deep, liquid Treasury markets that can't be found elsewhere right now, and flight to safety parking spot as you wrote below).

Any counter-arguments to Jim Cramer's opening rant on Mad Money this evening?: http://video.cnbc.com/gallery/?video=3000053786




(Websites are appreciated, but do you have specific links to specific articles? Or are their particular authors on those websites who have been consistently prescient, over time, in what they have written?)

 

[RbSX]

Aren't speculators the ones that may be pushing up Italian and Spanish bonds yields so high now, trying to profit from collapse of Euro more so than long-term concerns about their ability to actually service this debt over time?

And isn't U. S. ultimately in same situation, down the road, if we don't get out intermediate to long-term fiscal house in order (growth, budget cuts, and tax increases?)



Websites are appreciated, but do you have specific links to specific articles?

This is where my knowledge gets a little bit blurry, basically the % yield rises to compensate for the risk of not being paid.

E.g. The rougher the shape countries are in financially, the higher the yield they have to pay (ironically making it harder for them to come out of their tail spin, it's very counter intuitive for financial health perspective).

To answer your question about the USA, inevitably, yes, however there is one thing saving the USA right now. It's perceived as a 'safe haven' (or relatively the most stable country in the world to keep money safe).

Until a viable alternative comes about, the bond yields shouldn't go up until risk starts to become apparent.

So far as articles are concerned, give me a moment.

 

[FoBoT]

http://www.businessweek.com/news/20...reek-bond-haircut-would-be-default-event.html
Fitch Says 50% Greek Bond Haircut Would Be Default Event

Oct. 28 (Bloomberg) -- European leaders’ agreement on a 50 percent haircut on Greek bonds may create an event of default if investors accept it, Fitch Ratings said in a statement today.

“The 50 percent nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its Distressed Debt Exchange criteria,” the statement said. While the accord is “a necessary step to put the Greek sovereign’s public finances on a more sustainable footing,” Greece will face “significant challenges” including ratios of government debt to gross domestic product at “well over 100 percent even in a positive scenario.”

European officials concluded their 14th crisis summit in 21 months early yesterday in Brussels with an agreement that persuades investors in Greek government bonds to write down half their holdings. Fitch said today that more details are needed on the accord, which includes an increase in the region’s rescue fund to 1 trillion euros ($1.4 trillion).

“It’s highly likely that all three rating agencies will classify this restructuring as a technical default,” said Padhraic Garvey, head of developed debt-market strategy at ING Groep NV in Amsterdam. “Even if it’s voluntary, investors are left with a product that’s lower in value to what they originally agreed.”

 

[Imp]

http://www.businessweek.com/news/20...reek-bond-haircut-would-be-default-event.html
Fitch Says 50% Greek Bond Haircut Would Be Default Event

Sounds fair enough.

Apparently the EU leaders have their fingers crossed hoping that once the "default" event is declared", investors won't file claims to get their "default insurance"...

Honest to god, I was expecting a crash yesterday in the back of my mind because the deal doesn't really solve anything. See "US debt crisis" deal... I stupidly bought in that morning and lost 5-10% within 2 days.

 

[manly]

Aren't speculators the ones that may be pushing up Italian and Spanish bonds yields so high now, trying to trigger / profit from collapse of Euro more so than genuine long-term concerns about their ability to actually service the debt over time?

And isn't U. S. ultimately in same situation, down the road, if we don't get out intermediate to long-term fiscal house in order (growth, budget cuts, and tax increases?) Seems like we have all same issues of high debt and low projected growth, except our bond yields are very low, at least for now (deep, liquid Treasury markets that can't be found elsewhere right now, and flight to safety parking spot as you wrote below).

Any counter-arguments to Jim Cramer's opening rant on Mad Money this evening?: http://video.cnbc.com/gallery/?video=3000053786




(Websites are appreciated, but do you have specific links to specific articles? Or are their particular authors on those websites who have been consistently prescient, over time, in what they have written?)

(not to put words in his mouth but) I think RbSX is actually agreeing with your (optimistic) assessment. If a developed G8 economy figures out how to grow at close to 4% annually, its debt load problems become much more manageable with some discipline. We're not implying 4% is actually easy, but the problem today is that the U.S.' meager 2.5% growth in Q3 is actually decent compared to Italy's.

6% yield at auction for 10-year notes. So RbSX is right the current track is unsustainable, and I think you're right that if they have to roll over half their long-term debt soon, the interest will be crushing.

Greece defaulted back in July when bondholders agreed to a 20% haircut. Its economy is about the size of Georgia's, 8th among U.S. states. The crisis has always been about what happens to French and German banks if PIIGS countries bonds turn toxic.

 

[FoBoT]

Honest to god, I was expecting a crash yesterday in the back of my mind because the deal doesn't really solve anything.

maybe no one believes the Greek Govt will accept (be able to accept, i.e. social unrest/riots, etc) the deal

 

[uOpt]

The decisions in the EU wrt Greece are basically sane. This wasn't expected. They make the banks bleed quite a bit so that they don't continue cashing in on interest on loans for countries without ever carrying a risk. At the same time they continue high pressure on countries like Greece that had turned into a government-only economy living off loans that had low interest since the banks expected bailouts for Greece or themselves.

The path chosen now looks like a good compromise between not having the banks' plan (to collect interest but have taxpayers take care of risk) work out, not supporting the concept of an "unemployed country" but at the same time don't risking a ripple effect crashing the European (or world) banking system.

Even some banks are in favor of it, because some of the smarter banks actually want a proper benefit/risk calculation to apply for loans to countries.

 

[FoBoT]

http://www.latimes.com/news/europ-b...mostviewed+(L.A.+Times+-+Most+Viewed+Stories)

In a particularly troubling sign, yields jumped Friday on Italian and Spanish government bonds. Those are the Eurozone countries that the rescue plan is meant to save from Greece's fate.

But on Friday, investors failed to give Italy the benefit of the doubt as the country's treasury sold $11.2 billion in bonds and paid more than expected. The market yield on 10-year Italian bonds surged to 6.02%, up from 5.88% on Thursday and the highest since early August.

The yield on two-year Italian bonds rocketed to 4.75% from 4.43% on Thursday, and now is the highest since 2008.

 

[mshan]

Rick Santelli on CNBC a few days before the European plan for a plan was agreed to was asked what he thought would indicate that markets believed that a credible deal was in place.

He said 10 year U. S. Treasuries were in a range, 2% or so (forgot exact figure) on the low side and 2.28% on upside. He said breaking above that range to him would confirm markets believe plan is credible.

U. S. 10 year Treasury yield skyrocketed through that 2.28% top of trading range on Thursday and has stayed above 2.28% since then:

(http://finance.yahoo.com/echarts?s=^TNX+Interactive#symbol=^TNX;range=5d)

I would watch whether yield breaks down back into that lower sub 2.28% trading range, definitively, to confirm return of real concerns about Euro meltdown.

People were piling into Treasuries when there was real fear in the market (fear about return OF capital, not return ON capital, and I think very short term U. S. Treasuries were actually negative yield temporarily - people paying to park their money in what they view as safest option in world for now) and U. S. stock market jumping in conjunction with U. S. bond yields continuing to go higher may indicate reallocation of funds out of safety of bonds and into risk assets such as stocks.

If this European plan for a plan debt deal holds up as credible to markets, as Cramer said yesterday, money managers that have delevered and derisked and are lagging broad indexes badly will be worrying about another type of return of capital - return of their current assets under management next year after they have to send out performance reports and commentary to their current clients.

Short-term self-preservation may end up being a very powerful incentive, so hopefully the markets can party like it is 1999 till end of year, and then worry about the bill next year (some other talking head said nationalization of European banks will be deflationary, so maybe another round of quantitative easing will be back on table next year?)

 

[RbSX]

maybe no one believes the Greek Govt will accept (be able to accept, i.e. social unrest/riots, etc) the deal

Basically, that's what they've already said.

 

[RbSX]

http://www.latimes.com/news/europ-b...mostviewed+(L.A.+Times+-+Most+Viewed+Stories)

This is the scariest part at all, this rally literally lasted ONE DAY. ONE DAY. That was it.