Exhibit 1: Gone Daddy Gone - where is the Love?

Buy the dips still?

Maybe. But as US model indicator after model indicator of the scribe's has clicked into bear stance only one (but to many the most important) is now left tottering positive: the main US market stock indexes. A stubborn legacy, perhaps, of a lot of easy money.

Alternatively, the model is shite.

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  1. "Cassandra" // 9/10/2007 02:57:00 PM

    I cannot speak to the author's models, but I do believe the unraveling of the main equity index is happening in slow motion. As part of the topping process, the first bear bounce was wicked, possibly puking med and longer-term trend-followers and other systematics out of shorts. I concur that one should be fading the bounces, especially the Russell 2000 which I think has 700 written all over it for end-of-quarter.

    With uncertainty over official responses high, the pendulum will be swinging between deflationary fear (when the market things they'll stand their ground) and stagflationary fears (when they fear that they'll accomodate and funders of US CA defs will continue ad infinitum).

    In the stagflation scenario, while equities and bonds get slaughtered, the "liquidity sensitive" complex - base metals, gold-mining, ag & commmod related clearly outperform. In the deflationary scenario however, these assets get annihilated too.

    It is instructive to review the markets distinct chapters during the 70s inflation to see how vicious the asset class moves were, and the size of the counter-trend relative performance corrections within the bigger secular moves, all which demonstrated how important asset class selection was to emerging from the era relatively better off.

  2. RJH Adams // 9/10/2007 07:04:00 PM

    Temptation to bail SIVs and their engineers enormous (plus the rest of it all of course); this under cover of systemic rescue move rather than saving the over leveraged from themselves (break out Venn diagram overlaps at this point). US politics making itself felt too.

    Rate futures convinced of cut come 18 Sep Fed decision; but can't help thinking that would look bad given what BB has been saying. Recipe for general unpleasantness dead ahead.

    Or, failing that, just around the corner (good intentions, hell etc).

  3. Charles Butler // 9/11/2007 12:48:00 PM

    Politically speaking, the bailout faction has the advantage of being able to mask the operation as the salvation of the mortgaged American homeowner, be that as it may in reality. This makes that decision almost a no-brainer, unfortunately. BB cannot hold out with elections looming.

    It might not be too farfetched to expect markets too recede with the same lack of conviction with which they rose.


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