RSS Feed for This PostCurrent Article

Are We Having a Blowoff?

By Larry Doyle on November 18, 2009 at 9:30 AM in Economy, Sense on Cents (Larry Doyle blog)

Blowoff“If you can keep your head when all about you are losing theirs…”

Retail sales rebounded strongly this month posing a 1.4% gain. Good news, right? In an attempt to provide a degree of sanity to what has become an extremely volatile report, let’s break this report down a little bit further.

Recall that our automotive sales have bounced around tremendously over the course of the last three months due to the Cash for Clunkers program. Auto sales soared in August given Uncle Sam’s handout. Once Uncle Sam shut that spigot off, auto sales dropped like a stone in September. In October, auto sales had a respectable bounce. All this said, there is no respected economist who doubts that the Cash for Clunkers program pulled demand forward. In the process, it has skewed the overall retail sales readings. What is the American consumer doing away from the auto sector? Let’s navigate.

Retail sales ex-autos posted a 1.0% increase in August, a .5% increase in September, and a .2% increase in October. That trend line does not look all that positive to me. Against that backdrop, holiday sales for retailers remain a major concern.

The retail concern combined with issues within housing and labor present major hurdles for our economy, but apparently not our markets. What gives? Our equity markets seemingly discount all bearish news and rally higher on any hint of positive news. Is this rational behavior? I am no psychologist or psychiatrist, but it strikes me that our markets are entering into a dynamic not commonly seen but not to be discounted. What is it? Welcome to a blowoff. What is a blowoff?

This large and dramatic price movement is generally seen at the peak of a market or stock. The idea behind the bearishness of a blowoff is that it signals the activity of the most irrational and overly exuberant market participants, who, wanting to take part in the rally, momentarily push up the already-overvalued stock.

What is likely to happen in a blowoff? Expect an increase in the number of solicitations from brokers and financial planners to get into the market. Expect stories of quick and easy money to flourish. Expect day trading ads to become prevalent once again. A blowoff can occur over a protracted period.

What is one to do? Keep your head. In fact, is there ever a time when one should lose his head? Of course not.

The virtues of discipline, patience, thrift, focus, and family never go out of style although they do not necessarily align well with those who would solicit active trading and investing based on positive price action in the markets.

Thoughts, comments always appreciated.

LD

  • Patience

    LD, I’ve already noticed some brokers on TV exhorting people to get in on the action. I wish I could remember the name of one particularly intense fellow I saw the other day on CNBC (not Kramer) — he reminded me of a carnival barker.

  • lark

    You can analyze all you want, I for one know that the numbers that come out every month, month after month are lies. They tamper with the numbers all the time. One month is one thing, the next month another.

    Let me give you a simple example of hundreds of examples.

    Suppose that most products are downsizing. A lot of them are. Instead of a 32 oz bottle now they sell a 24 oz bottle. For the same price of course. Then it would be obvious that consumers would have to shop more frequently for those products, no? Alas higher retail sales in the neighborhood of 1.whatever percent.

    That’s beside the point that Microsoft purposely does several things to induce computer users to upgrade. What’s the point of mentioning a laundry list of sins. The fact is that Windows 7 is out and sales for that stuff will be moving the numbers up. But what if what looks as a positive, say Windows 7 sales are up is counterbalanced by the fact that if Vista would have been an honest product people would not have a need for Windows 7. Then we are talking about massive consumer loses due to spending good money after bad.

    And that’s the real picture, no? The losses. Good manufactured in China hardly last any expected length of time. Throwing money away, that is, no? Cars that don’t last, most of everything is dubious quality; lying to the consumer by deceptive advertising of benefits that hardly ever are realized. So, what does all that means?

    It means that the numbers mean nothing. The fact is that the American society is sinking sharply by the amount of waste it is producing. Consumption rises but it is mostly on account of waste and deception and illusion. It is mostly like sales of cigarettes; purchase smoke with good hard earned cash. And there is no turning back.

    I bet you 10 dollars that the solar panels they are manufacturing won’t last more than 2 years without being covered with mold and mildew. It’s okay because the cost of servicing those panels will add to the economy and we will all be so much happier.

  • Murray

    That explains why our company’s 401k broker, who hasn’t dared show his face, all-of-a-sudden held a meeting with us last week to exhort us to buy more stocks, especially in Chinese and other foreign products/companies.

    Thank you, LD.

  • lark

    Take for example a battery powered skill saw. Manufactured in China, of course; or Mexico.

    The day is purchased. [It adds to the economic data.]

    The days it sits stored while the battery is being charged to overflows that resulted in large waste of electricity and the deterioration of battery life.

    The eventual throw away item it becomes once the battery is depleted of its charge capacity. Because only a minority will spend 50 dollars to buy a new battery.

    But the economy is growing, no?

  • Tricia

    I wonder also what holiday shopping will be like.

    I notice many of my friends becoming creative with the economic situation. Those who have enough are giving to charities in the names oftheir loved ones. My husband and I are not exchanging gifts, but are buying supplies for local underserved schools (that feels even better than getting a present and we are still feeding the economy a little).

    A new one is to purchase gifts at charity auctions or sales–a great double-duty opportunity. There are so many opportinities now. I “won” some great gifts for Mom, sister, and son that way.

    I must say that this economy is forcing many of us to rehtink our values–a silver lining of sorts, at least in terms of morality. I never realized how much stuff I have that I do not need. Furthermore, if I never bought another piece of clothing I still wouldn’t go naked–ever!

  • Pennsylvania Caucasian

    I’ve noticed gold pushers on the radio, they buy airtime in 30 minute blocks, right after the RE pushers. There is a guy – Adam Bold (?) who pumps the Money Store, he is promoting a Market Re-entry program for investors scared off by autumn-winter 2008 – 09. I have to confess I regret having not purchased some stocks of companies I’d been researching, but at this point I believe that it’s too late. The P-E ratios are once again way out of whack, and even though folks are rushing to gold as a hedge against inflation, I get the feeling PMs are being pumped in anticipation of a pretty spectacular dump.

  • Pennsylvania Caucasian

    I forgot to ask my question:
    LD – what is the place of PMs in the Blowoff?

  • lahana

    The economy is not getting better. My daughter who works part time for a discount department store just got her hours cut — just as the Christmas rush is supposed to be starting.

  • http://noquarter foxyladi14

    a lot of folks are buying online too.

  • FrenchNail

    OH DO I AGREE WITH YOU.!!!

    I have stopped most of my spending because I am tired to be sold junk. I bought a brand new Toshiba notebook end of July, It has already been out for repair (screen light went out) once, and the Acer mini notebook I got for traveling is pure junk. (both were made in China)

    I bought some cashemere sweaters (expensive) for the season, one already has a hole in it, because the label was badely sawn (made in China).

    So I have decided to buy a Mac on the computer front and to buy only quality proven and essential products from now on. And IF I CAN, everything made in China stays on the shelve.

    I have enough of being lied to and therefore of thrawing my money away (not mentioning all those wasted products end in our landfills).

  • Obamastolemycountry

    I usually attend a Christmas play and lunch outing with several friends each December. We also have done a small gift exchange. I was putting off buying the tickets this year because I just have not had the money. I emailed the group to see if they still wanted to do it, or skip this year. Everyone wanted to skip it this year and said maybe next year, too.

    I have been telling friends and relatives that we should not buy gifts this year because I think we are all going to need to save as much as we can for food, and necessities, all of which will soon skyrocket. They have all been relieved that they do not have to worry about a gift for me and they have been considering sending the message to their friends and relatives to just have a little holiday gathering without gifts. just based on the people I know who are cutting back for this holiday season, I will be shocked if there is much of a holiday sales bump for any retailers this year.

  • Galt goes to Hollywood

    Great, and dear leader is off gallivanting around Asia. There’s some “change” for ya.

  • James

    The price of gold has run up so fast it’s got to be a bubble. There’s way too much advertising. A bad sign.

    Big investors are going to suddenly cash out and take huge profits, starting a slide that will badly badly hurt anyone who’s gotten in recently.

    Those who have been buying for a long time have likely put their buying on hold. They’ll buy again when it briefly plunges below a reasonable value.

    So the guy at the pawn and coin shop tells me.

  • NomNomNom
  • Ellen D

    Something doesn’t add up in the car business.

    This past year year I was trying to get a line of credit for a small business. It soon became apparent that the banks were lying in their teeth about small business lending. They were all pulling back despite their protestations of increased lending.

    This month I was given the task of buying some expensive stuff for another business. One of the items is a new car with complete specifications taken off the “build-your-car” part of the manufacturer’s website. I faxed off the specs to six dealers with requests for quotes for this car telling each dealer that I wanted to buy it right away and would pay cash.
    Crickets.

    OK – this doesn’t jibe with the hype on the news. Does anyone know what is going on here?

  • elaine

    NomNomNom, just for kicks I ran ABX, THM, KGN, & IAG, through the free analyzer at stoxline. Only KGN was a buy, the others were neutral. I’ve never been much of a goldbug but have been dabbling a bit. Stoxline still says GLD is a buy & yeah it could all turn on a dime but what can’t?

  • cheap computers

    Besides that vista is a imperfect OS, the hardware is very nice and the battery life is good.

    http://www.electrocomputerwarehouse.com/

blog comments powered by Disqus