 PIVOTAL EVENTS - SEPTEMBER 22, 2008
Signs Of The Times
Bob Hoye
Institutional Advisors
Posted Sep 23, 2008
The following is part of
Pivotal Events that was published for our subscribers Thursday,
September 18, 2008.
Last Year:
"While I was aware
that these [questionable]
practices were going on, I had no notion of how significant
they had become until very late. I really didn't get it until
late in 2005 and 2006."
-Alan Greenspan on "60 Minutes", September
13, 2007
The year before:
"I suspect that we
are coming to the end of the housing downturn, as applications
for new mortgages, the most important series, have flattened
out... I think that the worst of this may well be over."
-Greenspan,
October 1, 2006
This Year:
"Auto Sales Tumble,
But Industry Says Downturn's Bottom May be Near"
-Wall Street Journal,
September 4, 2008
"Russia Falls, But
Help Is Coming"
"Moscow Orders Steps
To Stem Slide"
- That was from Friday's
Wall Street Journal and this is rather interesting. There
is no way that a communist economist would want to bail out a
filthy capitalist system. He would rather use capitalist rope
to hang the speculators. As no experienced trader would suggest
a bailout we can only assume that Moscow has been infiltrated
by liberal economists.
* *
* * *
Stock Markets: The non-bailout on the weekend has
been described as "Bloody Sunday". There have been
a number of "Bloody Tuesdays", or "Bloody Thursdays"
for example but there never has been one such day on a weekend.
This must be an example of market efficiency.
The discoveries of those who
have committed insolvencies continue. The sudden loss of wealth
and of long-standing names in the investment business is an historical
tragedy. Charles Merrill anticipated the 1929 crash and spent
most of that year advising accounts to get out of the market.
Now his legend is being taken
over by Bank of America, whose CEO, Ken Lewis, performed at a
press interview on Monday. His attitude was arrogant as he bragged
"We are very good at takeovers and transitions."
In 2007 he was reported as saying "This is the time,
I think we go for the jugular, really be disruptive and take
market share."
The feature of any post-bubble
contraction is the humbling of aggressive bankers. On the way
up the great mania that blew out in 1772, the Ayr Bank set out
to show old bankers what "new" banking and market share
were all about. Adam Smith used it as an example in his "Wealth
Of Nations", which was published in 1776.
During the bubble Samuel Johnson
observed "The age is running mad after innovation; all
the business in the world is to be done in a new way; men are
to be hanged in a new way; Tyburn itself is not safe from the
fury of innovation."
When speculation crashed, the
diarist, John Evelyn wrote: "The common faith of a nation
is violated. The credit of this bank being broken did exceedingly
discontent the people and never did His Majesty's affairs [i.e.
the country] prosper to any purpose after it."
Well, they bailed out AIG,
which seems curiously arbitrary. Is it too big to fail, or are
they just saving taxpayers money by bailing out only every other
disaster?
In the meantime, this season
of "immediate financial disorder" has been likely to
run into late October. Typically, post-bubble contractions suffer
heavy liquidation in the fall with severe hits into late October.
Also typically, the initial relief pop can be tested in November.
Often, a hard stock market
decline can run for 55 trading days and, using the Nasdaq, this
counts out to late October. There can be some interesting swings
on the way. Once this selling phase is exhausted the market could
rebound into the first quarter. It could be a tradable rally
within a cyclical bear market.
The RSIs are not yet at a level
that would prompt a meaningful rally.
On the bigger picture, despite
unprecedented and widely-touted intervention the senior stock
indexes are decisively setting new lows. This suggests that both
the stock market and policymaking are failing. This could be
summed up as:
- Two-bit interventionist theories
- Gazillions of credit created
out of thin air
- Mother Nature and Mister Margin
are now in control
- Priceless
-Bob Hoye
Institutional Advisors
email: bobhoye@institutionaladvisors.com
website: www.institutionaladvisors.com
Hoye Archives
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