Tuesday, October 28, 2008

From my friend, G. C. Selden

I absolutely adore Selden's Pscychology of the Stock Market. And though I refer to it many times, I always find that picking out a passage never fails to reinforce something important.


It is generally more difficult to distinguish
the end of a stock market
boom than to decide when a panic is
definitely over. The principle of the
thing is simple enough, however. It
was an oversupply of liquid capital that
started the market upward after the
panic was over. Similarly it is exhaustion
of liquid capital which brings the
bull movement to an end. This exhaustion
is shown by higher call money
rates, loss of the excess of deposits over
loans in New York clearinghouse
banks, a steady rise in commercial paper
rates, and a sagging market for
high-grade bonds.

5 comments:

nice said...

'Nice reference'

The point about "oversupply of liquid capital" is very salient IMO.

I've been stunned how one guru after another has been soiled in this market... and I wonder if this is the point they missed.

For example, Ken Fisher over at Forbes always based his market views on 'the supply and demand of stock'...

I really can't fathom why he remained bullish the past 15 months given that the overhead supply of stocks would be massive should there be a credit crisis and everyone needed liquidity.
And he remained bullish once the liquidity crunch became apparent.

Also it has been baffling to me how many other resource oriented bloggers such as Bill Cara etc... would have recommended oil and gas and speculative gold and silver miners during the largest market correction since the depression.

During a large market correction such resource stocks are really treated like toilet paper - a quick way to rasie capital.

Plus many miners just shut up shop because they can't get credit.

The 'Inflationista's as you have called them Leisa have indeed been very wrong... perhaps they missed the significance of the 6 year cycle which recently ended and how it is very deflationary... or perhaps they missed the obvious ramifications that a severe credit crisis IS deflationary.

Also as others have pointed out - I begin to wonder if in fact Bernanke is in fact a 'closet Deflationist'?
--

Going forward however, the cycles point to another attempt at reflation to elevate markets through 2009 before the real 'troubles' set in.

The so called Trade of the Generation (dump bonds) probably begins in 2010 or so IMHO... as thats after the final down phase of the deflationary cycles end.

In the meantime - all this liquidity will eventually seep back into the markets I guess -

How 'bout NASDAQ???

It is now near a monthly trendline that runs all the way back to 1991...

Long the QQQQ's for some punishment LOL

nice

nice said...

Pumpin 'er ahead of the Fed meeting.. not taking any chances
since we've sold off after every intervention to date...

Outta generate a few technical signals for the line and squiggle followers...

Plus there is that large crowd (Stock Almanac) that buys seasonally like clockwork Oct 27-30- so that buying could be a buffer against those still struggling to get out.

Mathematically speaking however, for those that have held gold stocks and ultralongs since the summer for whatever reason - it may be mathematically impossible to make that money back due to large share overhang (in the case of the gold stocks) and the expoential loss in the ultralongs (some ultralongs down 87%)...

Could be a good entry point into ultralongs if we get a weekly signal at some point...

nice

Glenn_in_MA said...

Fast, furious and prone to failure...classic bear market action! Perhaps the set-up for a "sell the news" day tomorrow.

Nice "ultra" move on the SSO!!

sysin3 said...

Glad you re-upped on RM.

You add a lot of smarts and class to the joint !

Leisa said...

Nice: I think that gold will have its day again....but not just yet. Jim Puplova has been recommending oil stocks and gold for so long. I cannot imagine the beating that he has been taking. Each time he gets a technician on, he brings up peak oil etc. Most don't bite. I'm glad that I kept my ultra longs from a couple of weeks ago. The beauty of hedges becomes more apparent to me every day. It keeps me from getting scared out of positions that need to "ferment"!

Glenn: I'm going to guess this: No failed rally! (I'm often wrong!)

Sysin: YOu are very nice to say. Thank you. I do not plan to post all of my trades there anymore. I will share some of what I'm doing here selectively. But when I took my first hiatus, I found it very freeing to not feel that pseudo obligation.

I'm listening to GaryK now, he is saying that he took a probe here even though it is day one off the low1