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The Last Three Times the Market Flashed This Signal Stocks Fell off a cliff

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unemployment fund
Image by USDAgov
From across the horseshoe shaped town of Pikeville, KY, various buildings, parking lots, temporary walkways, and above ground construction of the Pikeville Medical Center (PMC) expansion project, on Tuesday, July 12, 2011, in Pikeville, KY. After months of infrastructure construction and rain delays, one of Kentucky’s largest American Recovery and Reinvestment Act (ARRA) projects is under way. The .6 million Community Facilities Loan will finance construction of a new medical office building and parking garage. The new medical office building will house outpatient surgery, endoscopy, surgical support and provide exam, waiting and office space for 23 primary and specialty care physicians. It also will contain a medical research center to support existing research – in conjunction with Pikeville College – on health disparities, genetic research related to the prevalence of cancer and other areas, including drug and treatment trials. The new parking garage with more than 1,000 spaces will be built adjacent to the new medical building, eliminating the need to shuttle patients back and forth from remote parking areas. The new garage will provide closer and easier proximity to medical and hospital services for all patients.
Wayne Rutherford, County Judge-Executive for Pike County, says funding from ARRA is a boon for his county because it will create jobs.

“This is great for Pike County’s economy. We know we have a great hospital, and with this support, it will be even better,” said Rutherford. “The unemployment rate here is above the state average and this will stimulate jobs. There will be construction, which means lots of jobs on the front end – and even more once it is built.”

Pike County is one of Kentucky’s persistent poverty counties and the current medical facility provides health care services for a rural population of more than 68,000. This project will create 1,430 direct and indirect construction jobs, in addition to 97 long-term jobs. It is scheduled to be completed in December 2012.

“This project is a prime example of the ARRA monies being utilized for much-needed health care facility expansion in an economically-depressed region of Eastern Kentucky and Appalachia,” said Tom Fern, State Director for Rural Development in Kentucky. “This hospital has received national recognition for its quality of care, and this money will allow them to expand and build upon their success and continue providing quality health care services to the region.”

PMC was named National Hospital of the Year by the American Alliance of Healthcare Providers in November 2009. The hospital was among 400 elite health care facilities to apply for this prestigious honor. To earn this recognition, PMC competed against more than 400 hospitals, including the Mayo Clinic, the John Hopkins Hospital, Cedar-Sinai Medical Center, the Cleveland Clinic, Duke University Medical Center and Vanderbilt University.

Pikeville City Manager Donovan Blackburn said the medical center is the largest employer in Pikeville and contributes nearly million to the city through the payment of occupational taxes. He went on to say that Pikeville Medical’s success is also the city’s success because as other cities struggle with dwindling revenues, Pikeville has actually seen growth.

“This is a regional medical center that is very important to the city. Pikeville is a legal, financial and education hub for Eastern Kentucky and a gateway to rural communities in Virginia and West Virginia. There are half a million within a 50-mile radius – so it’s not just local people that depend on this facility,” said Blackburn. “From a regional standpoint it adds volume from a jobs standpoint. Everybody in this county knows someone or has family that works for Pikeville Medical Center.
“People in this area used to have to go out of the area for good jobs and quality medical services, but Pikeville Medical has changed that,” added Blackburn. "And it has impact on other parts of the city’s economy – hotels, restaurants and retail. It increases the quality of life tenfold.”

The Recovery Act was designed to spend money gradually over time in order to sustain a true recovery – with peak spending to occur early this year. While the experts agree that ARRA is already responsible for creating or saving approximately two million jobs, about 75 percent of recipients that reported on their Recover Act spending indicated their projects are less than half complete, meaning there is even more job impact from those dollars to come.
USDA Photo by Lance Cheung.

Last week, investors got more happy news. The Fed announced it would keep printing $ 85 billion a month to buy Treasury and agency mortgage-backed bonds.

By printing money and buying bonds (aka monetizing debt), the Fed is going to keep shooing investors out of bonds and into stocks… funding government spending… and pushing up inflation rates to make outstanding debt easier to pay back.

And not only that, but it’s also going to keep doing so until the unemployment rate becomes “acceptable” again – in other words, as far as the eye can see. The one thing that has not responded to the Fed’s credit and cash deluge is the unemployment rate, which is still at 7.7%.

Against this backdrop, stocks have been rallying. And the big question everyone is asking is: Should they join the party?

Frankly, this is a terrible question. I can virtually guarantee that if this is the way you think about investing, you’re going to have a miserable time in the markets over the long run.

Here’s how my friend and legendary resource investor Rick Rule put it recently (with my own emphasis added):

Speculating on the events that are certain or almost certain to occur is almost always more profitable than gambling on a long shot, unlikely occurrence. Make investments based on unlikely scenarios only when the potential risks and rewards are disproportionately in your own favor and you can afford the loss that you may incur.

This is the only question that matters: Are the potential risk and rewards disproportionally in your favor?

Usually that happens when you can buy a stock… or other investment asset… at a price that is below its intrinsic value. It certainly doesn’t happen when you rush out and buy something because: (a) everyone else is buying or (b) because you think you can find a “greater fool” to buy something that is already overvalued.

So are the risks and rewards of following the crowd into U.S. stocks disproportionately in your favor right now?

To answer that question, let me share with you an observation made by bearish fund manager John Hussman recently. Then you can decide for yourself.

[Two weeks ago], Investors Intelligence reported that the percentage of bearish investment advisors has declined to just 18.8%. The last time bearish sentiment was below 20%, at a four-year market high and a Shiller P/E above 18 (S&P 500 divided by the 10-year average of inflation-adjusted earnings – the present multiple is 23) was for two weeks in May 2007 with the S&P 500 at about 1,525.

The next instance before that was two weeks in August 1987 (bearish sentiment never dipped much below 27 approaching the 2000 peak except for a reading of 22.6 in April 1998, just before the Asian crisis). The next instance before that was for three weeks of a five-week span in December 1972 and January 1973, which was immediately followed by a 50% market plunge.

Now, I realize this isn’t the kind of analysis you’ll find on CNN Money or CNBC. But it’s vitally important because it shows you what has happened in the past when we have had the same kind of market setup we have today.

Here’s a chart of what happened after the most recent instance of this same setup – in May 2007.

S&P 500 2007-2009
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I am not saying that stocks are destined to plunge again. They may or they may not. I’m simply pointing out that the kind of sentiment readings we’re seeing today mixed with the kind of valuations we’re seeing today have not been a recipe for profits in the past.

The risks and rewards, in other words, have NOT been disproportionately in investors’ favor.

Forewarned is forearmed, as they say.

Good investing,
Chris Hunter

Chris

Kansas Secretary of Labor Jim Garner Talks about the Kansas Unemployment Fund
Video Rating: / 5

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2008 Market Crash Recap

Matteo Lucchetti
unemployment fund
Image by Marc Wathieu
PROJECTION & DISCUSSION : "ON SOCIAL METAMORPHOSIS" de Luigi Coppola, vidéo, 13:45 min. (2012).
Jeudi 14 juin 2012 à 18h30, galerie de l’Erg (Ecole de Recherche Graphique), Bruxelles.
Curatrice : Francesca Chiacchio.

SCREENING & TALK : "ON SOCIAL METAMORPHOSIS" by Luigi Coppola, video, 13:45 min. (2012).
Thursday June 14, 2012, Erg gallery, Brussels.
Curator : Francesca Chiacchio.

Projection de ON SOCIAL METAMORPHOSIS de Luigi Coppola et discussion entre lʼauteur et Matteo Lucchetti.

ON SOCIAL METAMORPHOSIS de Luigi Coppola, vidéo, 13:45 min. (2012).
Ce film, conçu pour le projet expositif Enacting Populism in its Mediæscape de Matteo Lucchetti, analyse l’aspect émancipateur des dynamiques populistes, autour de l’idée de la transformation des mythes à l’aune du climat populiste. On social metamorphosis est né d’une collaboration entre Luigi Coppola et l’économiste et anthropologue belge Paul Jorion. A partir de la section "utopie réaliste" du célébre blog de Paul Jorion, ils ont travaillé sur un texte qui rassemble à la fois les propositions écrites par les internautes, qui ont participé collectivement à cette section, et des textes de Louis Antoine de Saint Just, John Maynard Keynes et Franklin Roosevelt. Luigi Coppola a ensuite mis en scène ce nouveau script sous la forme d’un chœur grec classique, de manière à articuler un parallélisme entre les demandes et les propositions formulées dans le texte et la voix d’un "peuple".
"La révolte peine à trouver la parole" remarque Luigi Coppola, qui suggère le masque comme outil symbolique de fédération et de protestation. Conçus par l’artiste avec des pages de journaux économiques, les masques ouvrent la bouche du peuple. Les visages de la métamorphose sociale ne se cachent pas, ils se reconnaissent au contraire les uns dans les autres: le masque leur procure la puissance de la multitude.

Luigi Coppola (1972) est un artiste italien, il vit et travaille à Bruxelles. Il travaille principalement dans le domaine de la performance. Sa recherche artistique se concentre sur les dynamiques relationnelles, mettant l’accent sur les aspects conceptuels de l’ordre dans les mécanismes sociaux. Sa pratique artistique émane d’une combinaison de différentes expériences professionnelles et pédagogiques. Il a une double formation de scientifique (Ingénierie Environnementale, Doctorat en Analyse du Risque) et d’artiste (Arts Visuels et Performatifs).

Matteo Lucchetti (1984) est historien, critique d’art et commissaire d’exposition indépendant. Après des études d’histoire de l’art contemporain à l’Université de Florence, il a obtenu un Master d’arts visuels et études curatoriales à la NABA (Nuova Accademia di Belle Arti, Milan). En 2010, il était accueilli comme chercheur en résidence à BAK, Utrecht, où il collabore encore en tant que rédacteur au projet Former West. Ses projets curatoriaux incluent : Practicing Memory – in a time of an all-encompassing present (Cittadellarte – Fondazione Pistoletto, Biella, 2010; DEPO, Istanbul, 2012). Il est co-commissaire avec Judith Wielander du Visible project, initié par la Fondazione Pistoletto et la Fondazione Zegna.

L’exposition Enacting Populism in its Mediæscape (Paris, 18 février – 22 avril 2012) a été conçue par Matteo Lucchetti pendant sa résidence à Paris à la Kadist Art Foundation. Elle résulte d’une recherche sur les relations possibles entre des pratiques artistiques et une forme de populisme véhiculée par les médias qui dénote du climat politique européen actuel. Dans l’exposition qui se déroula durant les deux derniers mois de la campagne présidentielle française, l’espace ressemble à celui d’un bureau de parti politique lambda, devenant ainsi un environnement ambivalent dans lequel les œuvres peuvent à la fois être perçues comme appartenant au champ de l’art contemporain, ou comme des éléments relatifs à la préparation d’une campagne. (Alterazioni Video, Heman Chong, Luigi Coppola, Danilo Correale, Foundland, Nicoline van Harskamp, Steve Lambert, Oliver Ressler, Jonas Staal, Société Réaliste, Anna Scalfi Eghenter, Superflex)
www.enactingpopulism.org

50°49’19.50"N 4°21’25.53"E galerie de l’Erg
rue du Page 87, 1050 Brussels
contact : francesca.chiacchio@erg.be

"Enacting Populism in its Mediæscape" at Kadist Art Foundation, Paris.

Populism seems to be on everybody’s mind in Europe, no more so than in the lead-up to the French presidential elections in May. The term ‘populist’ popped up day after day in the headlines to denounce the political agendas of politicians as far apart as Marine Le Pen, Jean-Luc Mélenchon and Nicolas Sarkozy. More a political style than an ideology, populism can exploit latent fears about anything from the rise of globalization, European Union enlargement, migration and unemployment to social insecurity, offering one-dimensional responses to a complex situation.

To use populism as a way to better understand democracy was the starting point for curator Matteo Lucchetti’s ‘Enacting Populism’, a research project that started in Antwerp at the end of 2010 and culminated this spring in an exhibition featuring 12 artists and collectives at the Kadist Art Foundation. The initiative was undoubtedly timely, scheduled to take place two months before the first round of French elections, mirroring populist strategies and profiting from the feverish campaign atmosphere. Lucchetti further echoed this effect by transforming the gallery space into a fictional campaign office, with the walls painted in an administrative green and Soviet furniture borrowed from Paris’s Communist Party headquarters.

The show essentially resembled a discursive space more than an exhibition, presenting art works that comprise or mimic forms of documentation such as posters, extracts of political speeches, pseudo-political administrative documents and flyers. As its titled suggested, ‘Enacting Populism in its Mediæscape’ played itself to a certain degree by acting out the role of a populist exhibition. However, this effect was rapidly exhausted, as it reached the inevitable limit of endlessly re-enacting the grammar and imagery the show claimed to denounce.

One of the consequences of that approach was that the art works required a great deal of time, attention, reading and additional explanation to be consumed, going against populism’s principle of appealing to people’s emotions through simple and effective communication strategies. One exception was a video by Oliver Ressler, which was only visible at night, when it was projected onto the closed façade of the gallery space. The footage in Robbery (2012) literally shifts from ‘night time robbery’ – images of shops being looted during England’s social unrest – to ‘daytime robbery’: Sarkozy and Angela Merkel misappropriating government funds to save banks. The connection needs no further explanation.

Other works also stood out. Danilo Correale’s project Re-designing Fear – People’s Party Spectacular (2011) worked around the recurrent populist discourse of hope for change. The artist introduced 5,000 scratch-cards into circulation in Antwerp, which, when scratched off, revealed familiar xenophobic slogans. A video installation and publication by the collective Foundland, entitled Simba, The Last Prince of Ba’ath Country (2012), formed an archive of pro-Al-Assad propaganda images that shows how a country’s political imagination can be falsified through the Internet.

Did ‘Enacting Populism’ manage to go beyond simulation and live up to Lucchetti’s aim of trying ‘to articulate positive and emancipatory means through images’ to create a potential social change? These are ambitious goals and not many of the projects on view were able to successfully develop this activist potential. Ernesto Laclau introduced the exhibition with a lecture and an interview published in Le Monde in which he moved beyond negative connotations linked to the xenophobic European populist discourse, highlighting its positive outcomes in Latin America. Claiming that ‘without a certain dose of populism, democracy is unthinkable today’, he provided one of the exhibition’s theoretical goals of finding positive populisms. But Laclau’s ideas created expectations that went somewhat unfulfilled, as there were no examples in the show of populism’s ‘positive antagonisms’. I would have liked to see works that were more conscious of their own involvement in the dynamics of populism, over-complicating rather than dismantling and analyzing its discourse.

In spite of these unavoidable shortcomings, ‘Enacting Populism’ remained a thorough investigation of a theme that can be endlessly re-enacted through exhibitions and in the public debate. In 2005, together with Lars Bang Larsen and Nicolaus Schafhausen, I tried my hand at dealing with populism through the prism of contemporary art in the exhibition ‘Populism’. I was struck then by the claim that the 21st century was destined to be the ‘populist era’, much like the 20th century had been the ‘totalitarian era’. The interest aroused now by this new show suggests that the topic is becoming increasingly timely and that populism is here to stay.

Cristina Ricupero.

www.frieze.com/issue/review/enacting-populism-in-its-medi…

2008 is over at last. It has been an extremely turbulent year and everyone’s swept under its currents such that it was hard to see what actually happened, so, here’s a recap of what happened in the stock market in 2008.

Summing up, the Dow lost a total of 4488 points this year, down 33.84%. The Nasdaq composite lost a total of 1075 points, down 40.54%. The S&P500 lost a total of 565 points, down 38.49%. The more volatile Nasdaq Composite became the loss leader this year just as it is expected to be the gain leader in a rising market, so, no surprise there. Both the Nasdaq Composite and the S&P500 went lower than the low of the last crisis in 2002. Only the Dow managed to stay above the last crisis level marginally. I had expected it to also make a lower low but it did not.

How did it all begin? Indications of this 2008 market crash actually started showing up as early as July of 2007 when short term bond yields begun yielding higher than long term bond yields in a bond yield curve that is almost perfectly horizontal above the 4% yield line. Such a bond yield curve indicates excessive optimism in the capital market as the 20yr bond hit an all time low price (relative to recent years). Bond prices go down when demand for bonds goes down. Demand for bonds goes down when capital gets reallocated, usually into the equities market (for simplification sake), resulting in high bond yields. At that time, the Dow was trading well above the 13000 points level, just one step from the 14000 level resistance which marked the beginning of the 2008 market crash. At the same time, foreclosure rates had been and continued to rise nation wide, putting pressure on the value of the most complex derivative instrument ever created amongst investment bankers, CDOs or Collateralized debt obligations.

All 3 major indices hit their peak in October of 2007 and begun their long retreat. The retreat didn’t look at all menacing for a start as all 3 major indices backed down to their respective short term support levels and even rebounded slightly, making it all look like a classical pullback in a strong primary bull trend. At that time, the Fed’s still all confused with what to handle, inflation or growth, and talks of Stagflation begun showing up as real GDP went sideways in Q3 2007 and then retreated in Q4 2007. This was when 2 groups of economists; Recession Talkers and Goldilocks, begun their battle of tongues over the major wires. Of course, now we know who knew better. Sensing danger, investors begun taking positions in bonds once again, bringing bond yields down from their previous highs. The Fed also begun taking Fed Fund Rate down from its high of over 5% in August gradually (too gradually, argued by some economists). At this time, a perfect storm is brewing as the more the Feds cut rates, the lower the dollar goes and the higher commodities prices went (as well as prices at the pump of course), putting further pressure on the real economy.

The first warning sign of a recession surfaced in January 2008 as unemployment rate hit 5% for the month of December 2007. 5% is a psychological level that says that something might be wrong in the economy as full employment rate (normal unemployment with minimal cyclical unemployment) is around the 4.5% level (number arrived at from my own research). That was probably one of the catalysts that caused all 3 major indices to break their respective short term support levels downwards in the first month of 2008, threatening the integrity of the primary bull trend that was in place since 2003. At the same time, inflation continued to be a problem as oil continued it march to the $ 140 per barrel level while talks of CDOs becoming worthless due to significant doubt about the fixed income ability of mortgage loans built into them begun hitting the wire. In fact, it was around this time when analysts begun finding CDOs being over-rated by rating agencies (well, like one of the high profile analysts said, they belonged to the same club).

By February of 2008, it has become apparent from the charts that the intermediate term bull trend has been compromised as investors rushed for quality, depressing short term bond yields to almost half of what they were just a couple of months ago. On the charts, however, it could still be argued that the Dow merely made its first major intermediate term correction since the primary bull trend started in 2003. Such a technical correction is also an acceptable argument under the Dow theory as some technical chartists expect the major indices to make a rebound from that level, which, did not happen (even though the Dow did rebound just a little bit for a couple of months as technicians took position). At this time, however, the economy’s already not looking at rosy as it did just months ago with rising unemployment, lowering durable goods order, rising oil price and a dropping GDP. Signs of trouble also begun emerging in the investment banking sector as major investment bankers started changing CEOs and writing off worthless CDOs and subprime loans. By this time, the Fed is beginning to get it that the economy is in real danger but has yet to take major actions on the fed fund nor to take coordinated action with central banks around the world. The dark cloud also spreaded into stock markets worldwide, making it obvious that this is not only an USA crisis but a world crisis.

By July 2008, investors were convinced that the economy is indeed in a recession (at last) and the credit crisis is deeper than most has expected. All 3 major indices made their first significant downwards breakout, totally disintegrating the previous primary bull trend, and stated without a doubt that the bear has arrived. All hell broke loose after that as Lehman Brothers closed down, unemployment rate soared and real GDP went negative. Investors begun rushing for the door, taking major indices down by a greater magnitude each month. The Dow was down 9% for the month of September and over 17% in October. At the same time, as aggregate demand drops in the economy, so did demand for oil as crude oil price dropped like a rock from its high of $ 140 per barrel all the way to below $ 40, taking CPI along with it. The US dollar also took a surprising turn and surged upwards against major currencies for months, wiping out forex traders trading on the “short-the-dollar-golden-strategy”.

Right now, commodities prices are at lows that was not seen for decades, bond prices has formed a bubble waiting to be burst and unemployment rate has reached higher than the previous crisis. Talks of write downs are also disappearing. This is certainly the best time for enterprising companies to take advantage of better prices and start hiring once again. In fact, purchasing by companies are already picking up slightly as indicated by the latest PMI number. All the ingredients needed for economy recovery seems to be in place and I suspect we should see some real signs in 2009. 2008 has done a good job of quickly and mercilessly draining waste from the economy instead of making it a prolonged agony. With stocks this low and bond bubble waiting to be burst, the stock market definitely has a lot more upside potential than downside potential right now. Let’s say a nice goodbye to 2008 and welcome 2009! 🙂

** I am sorry if I did not include many of the other major events that contributed in the 2008 crash as I intend to keep this as short as possible while correlating events in the economy to the stock market.

Jason Ng is the Founder and Chief Option Strategist of Masters ‘O’ Equity Asset Management ( MastersoEquity.com ) and author of an Options Trading education site, Optiontradingpedia.com. He is a fund manager specializing in options trading and his revolutionary Star Trading System has helped thousands.