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« Weighing the Week Ahead: Central Bankers take the Spotlight | Main | How to Predict Policy Decisions -- Focusing on Europe »

December 15, 2011



woolybear1 -- I don't mind disagreement on the evidence and conclusions. Mike is on a mission, and that is OK. His statement that I am "completely uninformed" was incorrect and a rhetorical excess. As he said, he did not mean it as an insult, and the dialog continues.

I am looking at the same information as everyone else, and I see the process of incremental policymaking that is typical of governments.

What constitutes a good point is usually a matter of what reaffirms the readers' perception. I am challenging that perception, so I expect that most will think my points are "not good."

We have another six months or so to monitor this:)



Mike makes very good points and he is not insulting Jeff as far as I can tell.

Mike Mazzolata

Don't wait for a 20% stock market decline; here are 10 signs of a bear market:

1. The market begins to start up in price in the morning only to end up closing lower each day for multiple days. (Check)
2. Previous stocks that were leaders are struggling at their 50 day moving averages, many below. (Check)
3. The market as measured by the SPY is trading below its 200 day simple moving average and the 200 day is sloping downward. (Check)
4. There is a lot of uncertainty about the future in the broad economy. (Check)
5. The total market along with individual stocks keep having trouble finding support at specific levels but continually have very defined resistance levels in price. (Check)
6. The market is making lower highs and lower lows. (Check)
7. Their is a lot of fear about some event that may or may not happen and their is a wait and see attitude. (Check)
8. Money is flowing out of mutual funds and into bonds in large amounts. (Check)
9. Talking heads are trying to convince people to buy stocks, that they are now a great ‘value’. (Check)
10. Consumer staple type stocks start being the best performers, Wal*mart, McDonalds, and dollar stores. (Check)

Currently, all ten sings are positive for a bear market.

Also, according to the Trader's Almanac, Santa's failure to show tends to precede bear markets (bulls only have a week left to find Santa).

Moreover, the current Wall Street consensus groupthink for next year is almost identical to December 2007 groupthink (the month when the last recession started).


But wait, there is more...
Felix Zulauf, Interviewed by King World (a terrific interview)


Mike -- It is true that I have more confidence in democratic leaders and democracy than most people commenting on financial markets. My conclusion is based on observing thousands of decisions over several decades, as well as working directly with decision makers. More recently I have worked with corporate leaders and traders, so I have a sound basis for my conclusions about all groups.

Since I have written hundreds of articles over six years, it is pretty easy to do a search and start cherry-picking. I suggest that interested readers not rely on the specific quotations you have selected, but instead read the entire articles you cite.

More importantly is your selection of articles. Since I am open to new information, I openly change my viewpoint when appropriate. I constantly review my investing methods as well as conclusions. Regular readers know that I have added new risk measures and carefully analyzed how the current situation compares to 2008.

With this in mind, here are a couple of specific points to consider.

The biggest knock on Bernanke was his "containment" comment about subprime. I examined this issue here:

I also explained why nearly everyone who actually used data underestimated the problem:

The Fed actions were unprecedented in speed and size. Even more was required, and leaders in both parties did what was needed. The stock market, as usual, over-reacted, something that we are also seeing now. Even the best leaders can make mistakes or may not have the best tools available. Democracy takes time.

Your recession comment is particularly unfair. In late 2007 no one knew that it was a recession, including the NBER, which took a year or more to decide. The NBER needs a strong signal from several indicators and then it goes back and picks the most recent peak as the start of the recession. The Lehman situation was the trigger, and then they went back to the peak. In April of 2008 I wrote a balanced article on recession forecasting and predicted that the Nov-Dec 2007 time frame could be the winner in a prediction contest.

People are free to disagree with my conclusions, but you are wrong to call it "blind religious faith." This is no more correct than it would be to tell a chemistry professor that he had "blind religious faith" in reactions.

I have enjoyed clarifying these positions, but it is time to turn to my weekly article. If you read that for a while, you will see that it always reflects changing data.


Mike Mazzolata


I am not trying to "insult" you, just stating the facts.

Contrarily to your bullish convictions in December of 2007 and religious faith in magical abilities of the central planners, selling banks and "fighting" the clueless Fed (Bernanke) was the correct investing strategy for 2008 -- the "traders" and “bloggers” were correct in December of 2007, the Fed was severely behind the curve, and the country was entering a severe recession in December of 2007.

It is just the fact that Jeff Miller was completely wrong in December of 2007, nothing personal.

Will it be different this time in December of 2011 for Jeff Miller – a reasonable question to ask considering the recent history?

Mike Mazzolata

Jeff, maybe you are "informed", but it is clear you do not understand the problem (otherwise you would never ever recommend JPM, a bank) and continue "doing the same thing over and over again and expecting different results" – you continue having blind religious faith in government officials and central bankers.

Jeff Miller in December 2007 (when S&P 500 was ~1500, before it plunged to 666 ~14 months later):

“Our take is that most US equity traders are not willing to analyze the complexity of the situation. There has been a knee-jerk reaction that the Fed is out of touch.
This is incorrect. The Fed and the ECB are on the case. While the announced initial actions may seem modest, the banks will continue to act until LIBOR responds and illiquidity in mortgage securities has been addressed.
The market has inferred too much from a 25 bp cut versus 50 bp. It was not an indication of commitment. The banks are bigger than traders. Do not fight them.”

Jeff Miller in December 2007, exactly when the actual recession started, but Jeff Miller declared that “those who have long-standing recession predictions appear to be wrong once again”.

“The assessment of recession prospects and the Fed reaction has been one-sided. Whether one reads the mainstream media, blogs, or watches financial television, the popular comment is that the Fed has not acted quickly enough. (If only we could collect royalties on "behind the curve.")
We have tried to emphasize that the Fed is attempting some creative tools in addition to cutting interest rates. Meanwhile, those who have long-standing recession predictions appear to be wrong once again this quarter.”

Now, Jeff Miller in December of 2011:

“My perspective is quite different. Any blogger who thinks that he or she knows more than Merkel or Sarkozy or Braghi (or Bernanke) is posturing for an audience. World leaders are intelligent, well-informed, and aware of the market implications. Market pundits are wrong to underestimate their abilities.”

"Let us revisit JPM and ORCL in a year or so" indeed...


Mike -- Starting a statement by saying "with all due respect" does not give you a right to be insulting.

Since you are obviously a new reader, I'll let it pass for now. Meanwhile, you should consider an alternative hypothesis. As a professional manager who has been studying and writing about this issue for more than a year, I have read everything you have and a lot more.

Part of the alternative hypothesis is that my experience in public policy leads me to draw different conclusions from yours. I try to bring this skill to my investment decisions and also to my readers.

Briefly put, when someone challenges your pre-conceived notions, you should not assume that it is due to a lack of information.

Turning to the substance of your points -- sources that I had already seen -- here are a few thoughts.

Basically, I agree with everything said. Lagarde is exhorting the various players to do what is needed. That is part of the process.

I think there is general agreement about what will happen if nothing is done. You might want to reread my article on this point.

As to Platt -- Did you watch the entire interview? The headline and the interviewers are trying to emphasize the big headline -- insolvency -- and he is bragging about the benefits of short-term trading with leverage, and how well he did in 2009.

Meanwhile, his analysis is simple arithmetic. He says that if everything goes on the way it is, we will have a disaster. I say the same thing.

The difference is that he is an economist, and he does not understand the process of achieving political solutions in democracies. The progress is grudging and maddeningly slow, but it is happening.

If you listen carefully, he also does not describe a disaster for US stocks, but talks about recession impacts -- the same approach I am taking. I think I agree with about 90% of what he said.

I look forward to your continuing comments here, but you can do it while sticking to the arguments.

For starters, why don't you take a closer look at my article. Instead of disagreeing about your perception of the tone, find three points where there is a disagreement between your sources and what I said.

Meanwhile, let us revisit JPM and ORCL in a year or so.....


Mike Mazzolata

Re: "Any blogger who thinks that he or she knows more than Merkel or Sarkozy or Braghi (or Bernanke) is posturing for an audience."


Are you posturing for an audience too, or you think that you know more than IMF's Lagarde or the markets (treasuries in particular)?

With all due respect Jeff, but you are completely uninformed about the magnitude of EU problems, interconnectedness between EU and US banks, and about EU leaders.

IMF’s Lagarde: Europe Crisis ‘Escalating’

Evidence in support of what IMF’s Lagarde said from the markets, "situation is similar to the 1930s".

Also, please watch this interview (he is not a blogger or a perma-bear):

The Founder of one of the world's largest asset managers, the $30 billion hedge fund BlueCrest, Michael Platt, spoke to Bloomberg TV and cut right to the chase, saying most of the banks in Europe are insolvent and the situation in the region is "completely unstable" and "significantly worse than 2008."


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