Sunday, July 20, 2014

OVER STAYING YOUR WELCOME

Excerpt from Doug Noland at CBR in PrudentBear.com

Importantly, the willingness to adopt an open-ended approach to the third round of QE has been viewed throughout the marketplace as the Fed (in concert with the global central bank community) having adopted a regime of boundless securities market support. This has profoundly affected market perceptions, hence securities pricing, with the greatest impact upon the traditionally higher-risk segments of the corporate and “structured finance” securities markets. 

Stated somewhat differently, the collapse in risk premiums – risk asset price inflation – is this inflationary cycle’s greatest market distortion. Indeed, I would strongly argue that unprecedented liquidity injections coupled with implied (ok, explicit) central bank market backstops has inflated the biggest Bubble yet. Any semblance of a “neutral rate” – or a stable securities market “equilibrium” – would require that central banks extricate themselves from the securities market liquidity and backstopping business. Good luck with that."

The mispricing of risk assets poses a greater threat than a slow down in economy . 5 years AFTER the financial crisis and the FED will not raise the FED funds rate?

This back stopping the stock market has led to a can't lose investor mentality. The VIX, volatility index, on a monthly basis is near record lows, showing little fear of an impending market top or losses.

It's been awhile since I last posted, mostly as the tune hasn't changed, mine and theirs, and my own business has been bombing. Perhaps I should thank the FED, and not criticize.

If a new crisis does arise before the FED has brought back interest rates to a more neutral stance, they will have little in the way of bullets to use to help ease the pain. And just look back and see how much faster prices fall, than rise.

Buyer at these levels beware.

D

Saturday, June 07, 2014

" GOOD LUCK WITH THAT"

Excerpts from prudentbear.com credit bubble report Doug Nolan

From Nolan

"The Fed did succeed in rejuvenating strong Credit growth. Q1 2014 NFD was reported at a Seasonally-adjusted and Annualized Rate (SAAR) of $2.113 TN – with NFD growth now above my $2.0 TN bogey for two straight quarters. Considering the degree of Credit expansion, the performance of the economy has been most unimpressive (Q1 GDP up SAAR $11.7bn). I’m further troubled by the composition of the recent Credit expansion. Over the past six months, the $2.0 TN bogey has been achieved with federal debt growth of SAAR $1.1 TN and total Business borrowing at about SAAR $940bn. I would argue that large federal borrowings coupled with corporate debt funding M&A and stock buybacks (“financial engineering”) provide the real economy little bang for the Credit buck. Indeed, the massive inflation of Fed Credit has chiefly fueled dangerous speculation and runaway Bubbles in securities and asset prices. The divergence between inflated asset prices and deflating fundamental prospects now widens by the week."

And " good luck with that"

"The European Central Bank’s plan is to lend to banks specifically to finance loans to business and the real economy. Good luck with that, with feeble return prospects in the real economy paling in comparison to outsized speculative returns so easily achieved in manic securities markets. "

**** let me add! nothing wrong with playing along with their game! making money long! but key point for us I do believe , is we have known from the get go how this would be achieved , and furthermore understand price to pay when party is over. That none of this is real, and all the ammo 
used to even get what we have, is sad because as stated, the money doesn't get into then REAL economy, good luck with that.

So when music stops, has it already in Europe....go ahead lower rates to below zero....good luck with that.

Sunday, May 25, 2014

BUBBLE REPRISE

So here we are, now well into 2014 and the S&P500, Dow, and Transports are at new all time record highs. Only the Utility Index has been lagging behind, diverging can we say. Not much to worry about , right?

It's not my place to recommend stocks , or if you should be long or not. All I can doesn't lay out the landscape I see and ponder what might be next. I can see a SPX at 2200 by years end, or I can also see  a top to market InThe Sept/ Oct timeframe. But even at new highs, the market is a beneficiary of the FEDS money printing schemes. And those who keep bidding the market higher feel invincible to any serious decline. The FEAR,or the wall of worry to climb don't exist.

The moves have been beyond historic, in 2009 the Transports were at 2100, now near 8,000. ThereHas never been another 5 year period like this.

All good things do finally come to an end, and I still believe that a large part of this bull mkt will be retraced.

On this weekend, my last thoughts go out to all those who have friends or family in the military and to those who have lost someone in battle . Thank you to all those who fight for our freedom and who have the ultimate sacrifice.

D

Saturday, May 03, 2014

Musical Chairs Continue

"I see ample ongoing confirmation of the “Granddaddy of all Bubbles” thesis. The stock market is reminiscent of 1999 – except today’s excesses are more broadly based (and the risks much greater!)

But with central banks still pumping and speculators still leveraging, the mirage of unending cheap liquidity (and central bank backstops!) ensures everyone buoyantly dances the night away. I’m convinced that the ’08/‘09 crisis would have been less damaging had markets begun discounting the changing environment back when subprime first faltered in early-2007. Instead, Fed accommodation spurred another year of “terminal phase” excess and attendant distortions.

These days, “accommodation” doesn’t do justice to ongoing unprecedented monetary stimulus, which ensures that manic equities and Credit markets completely disregard major fundamental changes in the global landscape. China doesn’t matter. Ukraine and Russia don’t matter. A conspicuously underperforming U.S. economy doesn’t matter. The approaching end to QE doesn’t matter. An alarmingly deteriorating geopolitical environment doesn’t matter. As they say, “It doesn’t matter until it does.” Yet, through it all, don’t lose track of an important fact: They all matter – and together they will matter a great deal.  "
http://www.prudentbear.com/2014/05/serial-booms-and-busts.html#.U2Tn5dq9KSM

As Doug writes, nothing matters until it does. There is no fear in the market and no options for investors. 

D

Sunday, April 27, 2014

Trickle down and QE easing has worked misracles?

"According to research from Redfin, a Seattle real estate brokerage firm, only 49% of homeowners say they are in a "financial position to sell" their homes right now. That leaves 51% who aren't ready to sell, for a variety of reasons.

NEW YORK (TheStreet) -- Eyebrows were raised all over Wall Street this week, and likely on Main Street, too, after the U.S. Commerce Department released its single-family home sales figure for March.
The news wasn't good for the real estate market, as sales fell by 14.5% for the month, and 13.3% against March 2013 figures.
Economists had estimated March residential homes sales at 450,000, but the market saw only 384,000 homes move from seller to buyer.
http://finance.yahoo.com/news/home-sales-fall-because-sellers-150000710.html
The BULL S market may have longer to run, higher to go. But from above stats, and others like people dropping out of the labor force to keep record low participation rate.....things may not be what they seem.

Even the new Pontif in Rome commented on the " trickle down" economics which he questioned was bringing equality to the world. NO, the current environment is bringing the largest gulf between the haves and nots and I think something is going to give down the road.
For a large percentage of people, maybe it seems like it is business's as usual. There is nice activity in certain sectors, but at same time many retail stores are closing locations, pulling back.
I think all the actions, now 5 years in, are part of a GRANDE experiment perpetrated by just a few people. Zero int rates still leave 50% of those wanting to sell their homes unable to do so.
Mortgage rates of 4.3% are said to be HIGH, and a culprit to slower sales.....need I add more?
Duratek

Sunday, April 20, 2014

History tends to repeat

From weekend  Doug Noland

"It would be appropriate these days for the Fed to be under intense scrutiny. But with securities prices basically at all-time highs and “The Street” again showered with “money,” there will be no tough questions from the Big Apple crowd. I was struck by the following sentence from Yellen’s talk: “Fundamental to modern thinking on central banking is the idea that monetary policy is more effective when the public better understands and anticipates how the central bank will respond to evolving economic conditions.” It’s a ruse to suggest “public” understanding. Monetary policy has evolved over the years to pander directly to Wall Street and the financial markets. Everything – talk of unemployment, inflation, QE, forward guidance – revolves around maintaining market confidence"

Since the end of 2008 into 2009 the FED adopted a ZERO RATE policy in attempt to bail out financial markets and the banks. Now, here it is into 2014, and the " recovery" is NOT strong enough to begin to normalize rates?? 

Once tagged to unemployment rate, the FED recently disavowed that connection as a timeline to begin to normalize their rate policy, as we are within .2% of reaching their goal.

I have said before, and will again, how in the longer run, will forcing " everyone into the pool" of risk assets in desperate searched of returns, be a prudent policy when all is said and done? There is no free market that I see, and any mention of normalizing anything sends stock holders to the exits.

So, is this zero rate policy a permanent back stop? Will every speech by FED continue to be parsed into single words to extract life changing information .

Maybe too much has been made by HFT, and the anonymous computers that do more than half of the overall volume each day. It seems like the action is rigged for the players , but not for those forced into it with no reasonable alternative.

Being in the market during this back stop period has proved to bed a safe and rewarding decision.but my problem with all this is, artificial means cannot lift all boats for eternity and as always, like in 2000, and 2007, there will be a high price to pay for such historic manipulation and intrusion into free market system.

If from 2000-2003 we thought we saw lowest interest rates since Great Depression and very aggressive FED action to what was at the time a problem  segregated to the tech sector. Became a problem to the overall economy and financial sector as these same FED and govt regulators saw no problems breeding from holding rates down so low for 3 years.

Now we know what happened, this rate fixing and FED unnecessary meddling caused an even BIGGER problem that almost took down the banking system!!!! Worldwide!!!!

How did they respond in 2008-2009? They began an even greater historic intrusion and launched its zero rate policy, QE, and all kinds of games to bring us back from the brink. And maybe it worked to avoid another Great Depression.

But eventually the PIPER must be paid, and you cannot keep the patient on LIFE SUPPORT forever. You cannot create prosperity by printing money.

The top 1% see the FED as god. During this DEmocratic, BS for the people Administration, the divide between those top earners and everyone else grew exponentially.

Still nearly 18% of homeowners are under water in their mortgages. The vast majority of Americans have saved less than $30,000 for retirement.

If those who quit looking for jobs were counted, according to A Gary Shilling, we would have 13% unemployment.

Obamacare has NOT brought down the cost of healthcare, but helped fuel it's increase cost. Allowing  more competition from. State to State probably would have. Then you could update the few positives from ACA into policy and wouldn't need 2500 pages to explain it, or add 10,000 new FED employees to enforce it!!

There is opportunity out there, the economy always has some kind of engine even in the worst of times.OK, give FED credit for helping to avoid the worst of what it could have been back in 2009, but by continuing these policies well into 2014, there is NO doubt here they have LONG overstayed their welcome and like in the last bear market, there will also be a price to pay for all that they have done.

I could not find a time in history, where back to back bear markets separated by a cyclical bull reached LOWER LOWS, like in 2003 and 2009 lows.

IMHO, this suggests a real possibility, we are STILL in a long term, secular, bear market. It will resume with swift, hurtful consequences for the general public who will sit by, as always and do nothing to get out of the way.

We are all waiting for that brave new world, and next GREAT bull market and economic expansion that when the pain is paid and the dust will one day clear. There will be a true next great expansion, probably based on technology and energy advances that lead us into the future .

The trickle down economy, based solely on rising stock prices, will hopefully be once and for all dispelled.

Most small investors buy high and sell low, in the coming months and years, will that be you again?

duratek

Saturday, March 22, 2014

Squeezing the last 10%

From Doug Noland at Prudent Bear . Com

"Everything is just so much bigger than before: The Fed’s balance sheet; PBOC international reserves and the Chinese Credit system; the leveraged speculating community; the big “macro” hedge funds; the powerful “quant” funds; the sovereign wealth funds; the ETF complex; the big mutual fund companies. As history has shown, epic financial Bubbles by their nature spur a concentration of financial power. I often ponder how a marketplace dominated by big players tends to function differently than traditional decentralized marketplaces. Then I contemplate how such a “centralized” marketplace operates with assurances of ongoing central bank support. In my mind – and I see evidence for as much in the marketplace – the markets become more of a game, more speculative and increasingly detached from fundamental prospects."

Though this current Bull market may have further to go, it is more likely that it is in it's final stages of life. And I wonder why the FED feels it necessary to continue with its zero rate policy 5 years after it began, further punishing more conservative savers.

It seems more lucrative for companies to use their cash for stock buy backs , than build plant and buy equipment.

At the same period of time we find the highest level of Millionaires, we also find most citizens do not even have $30,000 saved away for retirement and many don't even have $1,000 in savings.

Things are anything but cut and dry my friends in the real world.

D