Will History Repeat? If so, SPY @ $52
18:25 UTC 30 Dec 2009 
8 Comments
A lot of happy people out there… or so it seems. The green shoots have bloomed into amazing profits at banks and a 60%+ rally in the market from the dark lows. I’ll admit I’ve been a happy camper as well closing in on a yearly return of 35%+ for the NHF portfolio with only 14 days that trades were made (long/short S&P) is unheard of… well at least for the last fifty years or so. And then Santa Claus came to town to boot. Imagine being invested/locked into a CD for the past year earning a measly 2-3% for the whole year!! yikes.
But even with all of this euphoria surrounding the market you get a sense that there is a ghostly figure hanging around. Why does it feel like history is repeating itself and we are setting up for failure? Maybe its because:…
- TARP (Trouble Asset Relief Program) didn’t get rid of any troubled assets and the money is unaccounted for every time senators ask Ben Bernanke or any his gang.
- The banks that were “Too Big to Fail” are now BIGGER.. this was a problem that was supposed to be eliminated, but it has been enhanced with big banks taking over other big banks. (i.e. JP Morgan taking over WAMU)
- Unemployment is at record levels
- Mortgage Defaults are off the charts
- Liquidity is not happening in the marketplace as banks are hoarding
- The US is incurring astronomical amounts of debt at levels that no one ever thought would/could exist
Just some items that come to mind. So with this thought of history repeating in my head I looked back at a post about the mortgage reset chart that we had and looked at that big double peak of resets. I came up with a crazy idea of overlaying a chart of the S&P 500 that spans over the same time period. And since we are in the “eye of the storm” on the resets I added a copy of the same S&P 500 chart and connected it to where we currently are. Its probably a lot easier for you to look at the chart than for me to explain it, but it was pretty interesting. And as a primer keep in mind that this is just a crazy idea with no basis other than the fact that the mortgage resets are happening in a distinct double peak pattern, which could mean a distinct double dip pattern for the stock market. There are a bunch of caveats that go with this as well… that I will get into later.
Here are the headliners from the chart:
- The low on SPY of $52 (currently $112) would be hit around late 2011 early 2012
- Our current market will peak around July/Aug around $120
- Notice how Option Adjustable loans + Alt A loans blow away the subprime totals from the last few years.
You can click on the chart for a larger view.
One of the caveats off the top .. is that there won’t be as many resets in that a lot of the would be resets have already defaulted.
But there sure are a lot of resets none the less. And the artificial low interest rate may be going away soon.
This would definitely explain why the banks are hoarding
Which leads to another caveat ….that the banks will be better prepared for this wave resulting in a less dramatic pullback.
Thanks… even though the results are extremely scary to me… the creepy part is that the timing of it all seems very logical.
I agree that this could happen exactly as you say; but if teh fed wants to destroy America they can kep on buying their own bonds and pump the market up to DOW 14000 or more. Our childrens future is in their hands – and that is the scary part!
15000 by July sounds about right
Article on the ARMs hitting the foreclosure buzz saw:
http://finance.yahoo.com/news/More-Homeowners-Struggling-As-cnbc-903069736.html?x=0&sec=topStories&pos=7&asset=&ccode=