It Goes Uppity Up, Up

[Daveparts]

It Goes Uppity Up,Up
By David Glenn Cox
http://theservantsofpilate.com



The last pillar of faith is a fanatical belief. Despite all logic, is this reliance on some unseen guiding force that will rescue us. It will strike down schoolteachers with illness so that we may have another day to study before the big test. It guides rescuers to find the lost. The rescued give praise, all praise above while the rescuers just scratch their heads.

As the investment banks and brokerage houses advertise their strict adherence to market fundamentals and mathematical projections. The Stock Market falls prostrate and shouts praises to his Holy name. The market soars up 300 points, “We are saved,” they shout, Citigroup earned a profit in the first two months of the year. “Maybe I can buy that house in the Hamptons after all, maybe they will bring our bonuses back! Oh, praise his name we are saved!”

Citigroup’s stock had risen to a $1.41 by twelve o’clock a 34% increase in one day. It’s a good sign; maybe this is the bottom for financials? Bank of America’s stock also rose, sure, why not? If Citi made a profit then I bet Bank of America could just as easily. GE is up 16% as is JP Morgan Stanley and Wells Fargo oh, hallelujah, praise his name!

Castaways on desert Islands see phantom ships sailing across the horizon; those lost in the desert see water mirages. It is that belief that we will be saved in the face of all logic and reason. So it is only logical for stockbrokers and pundits to behave as if the second coming is upon us. Their world is broken and fractured into a million shiny pieces. Those working on Wall Street today will never ever live long enough for those good old days to return, so we can excuse them if they behave exuberantly when the clouds clear and they strain by moon light to see if Tara is still standing.

They are living in a fantasy; Citigroup sold for $57.00 a share a year ago. So its rise from a buck and a nickel ain’t no great shakes. But they made money! They made money in the first two months of the year! How did they make all that money? They started by laying off 52,000 workers, that always helps the bottom line. Then they sold off Smith Barney Brokerage for 2.7 billion dollars then they sold off Primerica Financial Services for another $7 billion dollars. It is as if Citigroup is having a yard sale and yelling. “Look Ma! I’m rich!”

Citi has also sold its stake in the Japanese brokerage house Monex and has closed branches in this country. Citi has lost money for five straight quarters; just last week Republican Senators called for an end to bailing out failing banks, coincidence perhaps? Now this blessed news Citigroup made money in the first two months of the year. Citigroup was a sinking ship throwing off her cargo to try and stay afloat and now it appears that she might make it into port but what does she have left to deliver?

This Holy News was in the form of an internal memo by CEO Vikram Pandit that the bank was profitable in the first two months of the year. Pandit expressed disappointment with Citigroups stock price, which he wrote, was based on misconceptions about the banks future.

“If we’re not at a bottom, we’re a pretty close,” said Michael Binger, Minneapolis-based fund manager at Thrivent Asset Management

Bloomberg, “You have to be a little suspicious of what these major financial leaders say because some of the things they’ve said in the past haven’t been forthcoming,” said Randy Frederick, director of trading and derivatives at Charles Schwab & Co. in Austin, Texas. “Citigroup is the poster child for this whole financial meltdown.”

“Global stocks rose Tuesday on optimism over the global economy as top U.S. officials on Monday urged other countries to step up spending to combat recession. But experts interviewed on CNBC see this rally as fragile and short-lived.”

Makes you wonder how NASA ever let that bunch get passed them. Citigroup has sold off it most prestigious and in the good times prosperous assets at fire sale prices then on a leaked internal document stocks soar? Did they forget so quickly? Citigroup has received $30 billion in bailout cash; that the US government and the US taxpayers are on the hook for 306 billion dollars more in loan guarantees.

Only a trip to Lourdes could bring about a greater belief in miracles. Pandit’s claim that Citigroup has been profitable is a naive ruse. Making money for two months is not how you gauge your future, farmers only make money one or two months a year. You can’t just pick two months at random and say, “See how good we’re doing?” It’s “The Little Engine That Could” strategy, “I think I can, I think I can.”

It is in fact a cynical ploy, a rainmaker promising rain in a drought, a snake oil salesman selling a miracle cure to the terminally ill. Trying to change the dynamic through placebo prescriptions. So today they party like its 2005 but soon. Tomorrow maybe, reality will set back in, Tara is gone. There is no ship on the horizon, there is no water to drink and there are no more good times on Wall Street or on Main Street.

It is a market that no longer operates on fundamentals it operates on fear and hope alone. It is a refugee status, maybe we will be saved or maybe we are all doomed for tomorrow it goes downdity, down, down. They run in fear and bluster in faith they boast just to convince themselves because all they have left is hope and fear and fear is just the absence of hope.

[debbierlus]

1. Excellent - What a mind f$@# this is...

But, it ain't just Wall Street

[Warpy]

2. Oh, gosh, this is a beautiful description of the process

that leads to the exuberance that creates bubble markets.

The market stopped operating on fundamentals during the dotcom boom in the 90s, when huge gains in the NASDAQ spilled over into blue chips as people took the bubble money they made in hours on IPOs and put it into things that appeared a little more stable. That led to people thinking the key to investment was growing a net worth by an ever inflating portfolio value and they neglected to look at what the stock was paying in terms of dividends. A lot of companies stopped paying dividends, pushing the notion that their ever rising stock price should be enough profit for anybody.

Well, surprise surprise, bubbles are inherently unstable and will always pop. While the tax cuts supported unrealistic Dow numbers for 7 years, they couldn't do so forever, and that's about where we are now.

We're left with a system in which no one knows what has intrinsic value and what is essentially worthless, from the balance sheets of institutional investors to the working stiff looking at his now 201K report.

I'm more than ready for the old order to die an ignominious death, even though I inherited a shocking net worth that's now barely middle class. Some of us are always aware that the bubble will pop, the bottom will drop out, and that the rugs will always be jerked out from under us and when they are, it's almost a relief.

However, even if our basic financial institutions will probably be returned to some semblance of sanity, people will always be suckers for bubble markets from tulip bulbs to Beanie Babies. Let's just make sure they don't have the capacity to do as much damage the next time.

[paulsby]

3. ignorant tripe

first of all, the market doesn't solely operate on fundamentals. NEVER has, never will

i often daytrade/scalp (as well as long term invest), and any trader knows you trade the market's (emotional, chaotic, complexity theory) REACTION to news, not the news itself.

"It is a market that no longer operates on fundamentals it operates on fear and hope alone."

and that's true of all asset classes - stocks, real estate, bonds, oil, gold, corn, orange, juice, etc.

the market has dropped (depending on which proxy you use - dow, S&P, SPEWI, etc.) about 60%.

we are going to see all sorts of radical swings. that is to be expected.

"There is no ship on the horizon, there is no water to drink and there are no more good times on Wall Street or on Main Street."

in every single market crash, the naysayers come out and say THIS TIME IT'S DIFFERENT and that wall street is done for, capitalism is over, etc.

they've been wrong dozens of times, but they have exactly zero historical perspective.

much like during every bubble, we hear "it's different this time" , when it isn't. ALL bubbles pop.

again, no historical perspective.

with markets off 60%, there is a lot of smart money seeking value and.or speculative gains.

lord knows, i am.

and 5, 10, 15 yrs from now given the next bull market, the other side of the fence will be saying "it's different this time" at exactly the ... wrong time.

[DemReadingDU]

4. All bubbles pop, some historical bubbles

We currently are in a very huge bubble. It's anybody's guess when it's going to pop with a firesale of assets.

Some other historical bubbles from Wikipedia...

Stock Market Crash in 1929
http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

Panic of 1873
http://en.wikipedia.org/wiki/Panic_of_1873

Panic of 1837
http://en.wikipedia.org/wiki/Panic_of_1837

South Sea Bubble in 1720
http://en.wikipedia.org/wiki/South_Sea_Bubble

Tulip mania in 1637
http://en.wikipedia.org/wiki/Tulip_mania


Some might even think the Dow is a bubble, that it too will 'pop'. Who knows what form of asset market will be around in 100 years?

Dow Jones Industrial Average, founded on May 26, 1896.
http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average

[Daveparts]

5. So...

a 379 point rise on an internal memo is the sign of a healthy market?
Sam Waterston is lying? The market really doesn't need the government bailout money?

"first of all, the market doesn't solely operate on fundamentals. NEVER has, never will"

Is that you Bernie?
Your comments are more damning of the market than mine

"in every single market crash," first is was a mortgage crisis, then it was a banking crisis, then it was detachment, then it wasn't a recession, then it was a recession but a little one. Now it's a big one but not a depression, but it might be a depression according to Bloomberg. Now it's a stock market crash and I'm ignorant?

[paulsby]

6. read what i wrote

"a 379 point rise on an internal memo is the sign of a healthy market?"

but of course i didn't say that.

"healthy" is of course pretty subjective and vague, but generally speaking, i would not call a market 60% off its highs as "healthy"

"Is that you Bernie?
Your comments are more damning of the market than mine"

not at all. the market is fractal on every time frame.

you are assuming that saying the market (especially on shorter time frame) doesn't just operate on fundamentals is a bad thing.

far from it. the market is also dynamic, complex, and prone to emotional responses, since it is the aggregate of all trader decisions on all time frames.

that creates, ceteris paribus, more opportunity.

an efficient market, otoh, creates less.

emotional reactions, overreactions, etc. create more OPPORTUNITY for traders and investors.

"Now it's a stock market crash and I'm ignorant? "

did you write the article? i called it ignorant tripe, yes.

it is just amazing to me how little historical perspective and understanding of capital markets there is , yet that doesn't stop this ridiculous opining.

[Daveparts]

7. Read What I Wrote

They run in fear and bluster in faith they boast just to convince themselves because all they have left is hope and fear and fear is just the absence of hope.

"emotional reactions, overreactions, etc. create more OPPORTUNITY for traders and investors."
Oh, My God!

[paulsby]

8. it's worked for me

for 20 years, not to mention every trader i know.

if the market operated purely on fundamentals and purely efficiently (which was the dominant yet absurdly false theory in academia for years), then there would be no possible advantage in actively investing.

beating the indexes would be pure luck.

let me give you one example of how this works.

when oil was above 130, the "it's different this time" people (the story never changes) said it was a new paradigm. it's PEAK OIL.

our profoundly ignorant seattle p-i said that oil would never go below 90.

lol.

this was a PHENOMENAL shorting opp. and yes, i did short some oil (through the USO etf).

that ONE trade based on fading the "conventional wisdom" and the "it's different this time" hysteria comprised the bulk of my profits over the last year.

there are ALWAYS opportunities in markets.

[KoKo]

9. Yes always opportunities for traders but not for folks forced into 401-K's/Ira's.

When you are forced into that you can't trade and if the market is all about trading....then everyone else is vulnerable who isn't trading.

That's what is wrong. Traders have an unfair advantage when folks are forced into investments by the Government. And many of the the plans one is forced into don't have money markets or CD's as an option if one wants to feel safe. As we learned this time, even some Money Markets were not safe and the Fed has had to temporarily secure some of them.

It's an unfair playing field. I have no love of the Hedge Funds or the Naked Shorters or the other computerized crap that has taken hold in the past 15 years or so.

[paulsby]

10. choices

401k's still offer choice (mine does. actually it's 403(b) cause im a government employee, but the concept is the same).

if there are 401k's that do not offer choice of investment opps', then i am against those. i have never seen any that DON't, but if they exist that sucks.

also, for most investors, dollar cost averaging NOT active trading is the best strategy

there has never been a 20 yr period in history where DCA'ing has not yielded a positive return.

i agree with you on naked shorting, but not the hedge funds. and fwiw, it's not an "unfair advantage". plenty of hedgies and active traders have lost everything and more.