Comments on: What If Wall St. Threw A Party, And Nobody Came? http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html Freshly squeezed market commentary & analysis Sun, 21 Mar 2010 12:20:54 +0000 http://wordpress.org/?v=2.0.2 by: wayne http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-57177 Sat, 14 Nov 2009 17:10:06 +0000 http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-57177 A couple of comments. 1) First on Sentiment. As far as sentiment is concerned, if P then Q does not mean if Q then P. The majority of market tops have occurred when sentiment was high, but if sentiment is high, it does not necessarily mean a market top. Sentiment can go to high levels and stay at high levels for a long period. This is a common technician mistake when using indicators that are range bound between say 0 and 1 vs a market that is not. The underlying indicator can approach it's maximum level and stay there as the internals rotate. A recent example of such, taking new highs vs (new highs plus new lows). As we pointed out here,, this indicator went to 1 several months ago, certainly as high as it can go, but that didn't mean the market couldn't go higher as only 5% of stocks were making new highs at that time and that number can theoretically continue to rise. But back to sentiment, I think the important measures in sentiment are the smart money vs the money with not such a stellar track record, and as the studies on retail investing and the work by Jim Stack at Investtech suggest, those measures are still fairly constructive. 2) Bond yields. I've heard a lot of people in the last 12 months, state that they are not going to own bonds because interest rates are at zero and can't lower. I'm not predicting such, and don't mean to be contrare, but consider for a moment the possibility that short term interest rates go up a couple of points over the next couple of years without much change in the bond rates. For example, throughout history the average spread between 30 yr bonds and Tbills is around 1.5-2% (I did this study many yrs ago and would have to look it up to get the exact #). Right now, there is a very wide 4-4.25% spread or yield curve. And of course there have been a few occasions where the yield curve actually inverts (which has usually been an ominous sign for equities). A 4% spread is on the very high end of the historical yield curve and suggest there is much room for contraction, which one would have to figure will come from higher short term rates Again, this started out as a comment and has turned into a study for my todo list. But my intention was to not make a prediction for bond yields, but to simply provide food for thought. It is certainly a possibility that at some point in the future, that short term rates go up, stocks go down and substantial amounts of the cash coming out of equities finds its way into the longer end of the yield curve. Does this make any sense? A couple of comments.

1) First on Sentiment.

As far as sentiment is concerned, if P then Q does not mean if Q then P. The majority of market tops have occurred when sentiment was high, but if sentiment is high, it does not necessarily mean a market top. Sentiment can go to high levels and stay at high levels for a long period. This is a common technician mistake when using indicators that are range bound between say 0 and 1 vs a market that is not. The underlying indicator can approach it’s maximum level and stay there as the internals rotate. A recent example of such, taking new highs vs (new highs plus new lows). As we pointed out here,, this indicator went to 1 several months ago, certainly as high as it can go, but that didn’t mean the market couldn’t go higher as only 5% of stocks were making new highs at that time and that number can theoretically continue to rise. But back to sentiment, I think the important measures in sentiment are the smart money vs the money with not such a stellar track record, and as the studies on retail investing and the work by Jim Stack at Investtech suggest, those measures are still fairly constructive.

2) Bond yields.

I’ve heard a lot of people in the last 12 months, state that they are not going to own bonds because interest rates are at zero and can’t lower. I’m not predicting such, and don’t mean to be contrare, but consider for a moment the possibility that short term interest rates go up a couple of points over the next couple of years without much change in the bond rates. For example, throughout history the average spread between 30 yr bonds and Tbills is around 1.5-2% (I did this study many yrs ago and would have to look it up to get the exact #). Right now, there is a very wide 4-4.25% spread or yield curve. And of course there have been a few occasions where the yield curve actually inverts (which has usually been an ominous sign for equities). A 4% spread is on the very high end of the historical yield curve and suggest there is much room for contraction, which one would have to figure will come from higher short term rates Again, this started out as a comment and has turned into a study for my todo list. But my intention was to not make a prediction for bond yields, but to simply provide food for thought. It is certainly a possibility that at some point in the future, that short term rates go up, stocks go down and substantial amounts of the cash coming out of equities finds its way into the longer end of the yield curve.

Does this make any sense?

]]> by: Senta http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-57120 Sat, 14 Nov 2009 04:24:03 +0000 http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-57120 Great article. The wall of worry really is the dry powder on the sidelines. It is really stupid to overweight bonds right now - interest rates cannot go any lower and have to go higher - that means bond prices will go down. Slowly but surely the equity market will suck up the money now in bonds and cash. Great article. The wall of worry really is the dry powder on the sidelines. It is really stupid to overweight bonds right now - interest rates cannot go any lower and have to go higher - that means bond prices will go down.
Slowly but surely the equity market will suck up the money now in bonds and cash.

]]> by: dacian http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-56960 Tue, 10 Nov 2009 22:00:32 +0000 http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-56960 Another thing: the stupid retail guy, like me, isn't showing up because it probably had enough of buying Wall Street stories within the last 10 years. The dumb retail investor needs to repair its balance sheet and make a living; he also refuses to buy on margin - credit is contracting for the 8th consecutive month, the biggest contraction since 1943. What if this thing will finish in a pro-bloodbath? Another thing: the stupid retail guy, like me, isn’t showing up because it probably had enough of buying Wall Street stories within the last 10 years. The dumb retail investor needs to repair its balance sheet and make a living; he also refuses to buy on margin - credit is contracting for the 8th consecutive month, the biggest contraction since 1943. What if this thing will finish in a pro-bloodbath?

]]> by: dacian http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-56959 Tue, 10 Nov 2009 20:14:02 +0000 http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-56959 Babak, for the bullish arguments (or why the retailers aren't showing up like before), here is a simple explanation: they have no money; demand for everything - look at credit - will be lower, stocks included. Maybe they are dumb people and Wall Stret is waiting for them to appear at the party so that they can dump the garbage, but is these retail people who are giving money to professionals and fund managers to invest. Regarding bond market inflows, look who funded Japan's public debt over the last 20 years ;-) Babak, for the bullish arguments (or why the retailers aren’t showing up like before), here is a simple explanation: they have no money; demand for everything - look at credit - will be lower, stocks included. Maybe they are dumb people and Wall Stret is waiting for them to appear at the party so that they can dump the garbage, but is these retail people who are giving money to professionals and fund managers to invest.

Regarding bond market inflows, look who funded Japan’s public debt over the last 20 years ;-)

]]> by: Babak http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-56949 Tue, 10 Nov 2009 12:33:42 +0000 http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-56949 David, yes, others have mentioned that. I wanted to present the bullish arguments. Next I'll cover the bearish ones which includes the point you raise and much more. David, yes, others have mentioned that. I wanted to present the bullish arguments. Next I’ll cover the bearish ones which includes the point you raise and much more.

]]> by: david http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-56941 Tue, 10 Nov 2009 08:06:04 +0000 http://www.tradersnarrative.com/what-if-wall-st-threw-a-party-and-nobody-came-3206.html#comment-56941 Not sure the data is a good contrarian indicator. In the second half of 2007 at the top of the last bull market investors were selling US equity funds too. That was not a bad decision. Not sure the data is a good contrarian indicator. In the second half of 2007 at the top of the last bull market investors were selling US equity funds too. That was not a bad decision.

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