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.


Saturday, March 08, 2014


Household Net Worth inflated a staggering $8.184 TN in 2013, or 11.8%, to a record $80.664 TN. For comparison, Household Net Worth jumped $7.089 TN during 2006 and $6.023 TN in 2007. Over the past five years, Household Net Worth inflated $23.484 TN, or 41%. In five years, Household holdings of financial assets surged 43.5% to end 2013 at a record $66.949 TN, or a record 399% of GDP. For comparison, Household holdings of financial assets ended 1995 at about 300% of GDP before peaking at 385% of GDP to end 2007. 

It is pretty obvious from the above stats, that the FED' S efforts to inflate household net worth has been a rousing success. Inflating stock market values and recovering home prices have added together to bring net worth to a new record.

Was this just accomplished by healing sentiment? Or perception of our world? Removing risk? 

But is this not a recovery which has shown anemic growth in wages? 0% returns for savers? A now falling workweek hours? Consumer Sentiment well below normal for a recovery?  

Nearly $4 trillion was created out of thin air by the Federal Reserve, and with keeping rates at 0% it has created a " can't lose attitude within the risk taker community. Overall the avg citizen rides the tides of these cycles, coming out on top in the LONG RUN. And sometimes many jump ship near the bottom never to return to risky assets or only begin coming back after years of gains lure them back. Thinking is they cannot lose. Hardly do we see even a 5% correction.

What you don't see, I see. A massive selling spree from insiders. Look at any popular stock, under armor, tesla, Facebook, or netflix ....look up insider selling and see how YOU are making the insiders wealthy beyond the avg mans dreams. You get peanuts as the INSIDERS get untold wealth.

Everyone does not and cannot make money in the stock market, as there must be someone buying what the other is selling. Someone wins, and someone loses. Maybe as the stocks can only rise, we only get winners and more winners.

Do you understand what a PONZI scheme is? ONE day, this bull cycle will end. And it will be very difficult to run for the exits. Consider the historic rise in stocks from 2009.

Like a casino! all your gains are on PAPER until you cash out. The Insiders are cashing out big time. The little is set up AGAIN to be the bag holder.

" .....pigs get slaughtered". Again, this is just my opinion , stocks are very inflated and overvalued. Revenues are slowing, profits are at or near a peak. Many companies using their cash for stock buy backs, instead of for productive means of investment. The face of retail has changed as many big box stores close locations and online sites abound.....losing many jobs and putting values of commercial real estate at risk.

The FED continues to slow its BOND QE purchases. They suggested to finally begin raising rates in 2015, some 6 years after bringing down to 0%!

What happened after FED left rates at only 1% for about 3 years beginning in 2003?

Need I say more, that this experiment may be the most dangerous game with unknown exit results in the history of money.

Sunday, February 23, 2014

THINGS ARE not what they seem

What does this mean? Markets keep rising to new highs, as FED policy SLOWLY tapers down the stimulus and free money that got it there. It is possible and even likely NEW new highs are coming! but my guess is no more than 10% from current levels! more likely a slopping around. And then one day......the FED WILL finally raise the funds rate from 0% and my guess also is the RICHY RICHY crowd will have slowly been hitting the exits leaving everyone else holding the bag. This repeats every single time a cycle summer turns to fall

Sunday, February 16, 2014

Financial game of Chicken

From Doug Noland at

"There was a crucial policy debate from the late-twenties that has become increasingly pertinent, especially for Beijing and Washington. In the “Roaring Twenties” there was recognition within policy circles that heightened speculation was fostering financial excess including Credit financing speculative trading and other ventures. At the same time, heightened economic vulnerability and downward pricing pressures had policymakers searching for ways to direct Credit into productive investment and away from speculation. Yet, at the end of the day, the intensity of 1927-1929 “terminal phase” speculative excess ensured that liquidity and Credit flowed disproportionately to inflating market Bubbles. Thoughts, efforts and hopes that policy measures could redirect finance away from market Bubbles and to the real economy ended in complete and utter failure. "

There is much talk about how Fed policies and QE have not created Bubbles in assets, and how inflation is barely visible . Since 2011 wages have increased at a stagnant 1% a year! but health care has soared! meat prices and other food costs have also rose close to 20%. It is harder for the middle class to stretch their budgets, they are falling behind and lucky if they are running in place.

Monetary policy , as it did in 1929 era, has fallen short of influencing the real economy , but instead the flows have gone directly into risky asset classes. Without this flow, prices would be nowhere close to where they are now. Artificial sweetness are just that, and come with side effects.

After a week or two of correction , the VIX fear index has fallen back like nothing happened. The momo stocks didn't even correct much during this time. It is hard to predict the ultimate top of any market, but there are enough signs now to warrant caution.

As excessive as the stimulus has been, when it does reverse course, it might suddenly and viscously.

I am watching the transports, for now laggards , and gold prices are on rise, usually seen as a safe haven. Core mining such as copper which always rise in a recovery are in a downtrend.

China's runaway freight train bubble is on its last legs, a bursting there to the worlds second largest economy would have serious ripple effects across the world.

Not time to fall asleep in this game of musical chairs.


Saturday, February 08, 2014

The Future Is Tomorrow

On a quick note, I will begin posting on a regular basis again every Saturday, so if interested in my blog and disappointed I have not been regularly posting, this is the schedule I will work hard to keep.
I have mostly for the last 3 years been growing my business to provide for my family. The news is there is very encouraging , going into my third year my sales approaching $1 million and volume has grown about 25% over the previous year! even as my top customers volume dropped from 60% of my total sales to about 30%!

Let's turn our attention to the markets and economy.

Friday we got govt data showing unemployment rate has dropped to 6.6%, at the same time fewer jobs are being created and the participation rate remains near the lowest in history. This could mean a horde of early baby boomer retires and or people dropping out of the hunt for a job and are no longer counted. Do we have a vibrant economy or just a vibrant stock market thriving in a world of liquidity?

The recovery continues at the slowest rate in history from a recessionary period. It is proven that all this liquidity , Fed action has of course led to this monster "cyclical bull market", but also shown there is little correlation between rising stock prices and consumer spending. But as the Fed slowly backs away from QE, at has not as yet sent investors to the exits. In the face of receding liquidity, any market convulsion could be greatly exacerbated with a lessening back stop. The Fed backstop has protected players for 5 years and counting.

It is my belief we are finally in the later stages of forming the top from the 2009 lows, stock buying is slowly becoming more selective, less and less stocks rising to new highs with the market. I have been hearing from a few conservative market gurus that think place to be is in the 30 year bond as disinflation is more likely than inflation. One on Bloomberg yesterday thought yields were headed to 2.5-3%.

Odd things persist in China as investment in housing continues as hordes of developments lay vacant, but buying and building continues. The Chinese stock market last made a high in 2011.

Aapl bought back $12 billion in shares to improve EPS, as growth slows. ACA has been anything but that , raising the costs of healthcare for millions of Americans and businesses. Most. US home owners are reluctant to use their homes as ATM machines to supplement spending, or cannot. Wage growth is stagnant, so where is the growth in Consumer spending going to come from? What is the next have to have product?

When liquidity is high is naturally flows into the easiest places it can go, almost always benefitting stocks. It looks like we have entered into a long term cycle of Booms to Busts, occurring since the late 90's. There are many pundits who continue to claim, buy the dips as we are in a Secular, long term Bull market that will last for many years, usually 10 or more.

Bear markets that follow 20 year plus bull markets have been known to last for up to 16 years. Since 2000 market top , we have had 3 year bear, 4 year bull, 2 year bear, now 5 year bull. IMHO we are at the latter stages of another cyclical bull , which resides inside a monster Secular Bear Market.

Inability to create inflation with record liquidity and intervention, money printing like never before. Inflation had been thought of as too much money chasing too few goods, like in late 70's, but the worlds producer China has fixed that.

But there are pockets of " inflation" risky assets like stocks and now pockets of real estate again! Energy prices and no affordable health care. Food prices also in some case affected by other things like draught in California . Stagnant wage growth, inability of many retailers to raise prices along with sluggish demand and tons of excess capacity keep other consumer prices in check.

We have slower profit growth for companies, so many like AAPL are using hordes of cash for non productive stock buy backs , many others borrowing to buy back stock to make their EPS look more appealing.

Little efforts from the FED have coerced companies to invest in plant and equipment, capital investments that help to create jobs. Stock buy backs do nothing to create jobs. Bubble in stock markets do little to create jobs . Govt policies do little to help create jobs. With ACA many small businesses are reluctant to hire. Taxes are rising for many groups including the middle class.

Under the Obama Administration, and fed chair Ben Bernanke, we have experienced the greatest gulf between the top wage earners and everyone else. The top 1% or so have left the other 99% in the dust!

At the same time we have large segment of the population entering the golden years and retiring, this period normally sets the stage for even more conservative investing, cannot find a safe yield anywhere. The FED holding discount rate to Banks at 0%, effectively takes short term rates out of the game and leaves 10 year yields at currently around 2.69%, Money Markets effectively yield 0%.

One of my past reliable indicators was about to trigger a Bear Market high alert warning, until this weeks rally held it at bay. A break of SPX 1700 could bring that about.

If we haven't reached THE HIGH for this cycle, my guess is we will in next 4-6 months, with an ultimate bottom to this Secular bear arriving sometime in 2016.

I do not know where the ultimate low is going to be, I do not know if 2009 was that low. Nothing is ever 100%. It is too hard to time tops and bottoms, avg investors sells low, buys high. So when using a very long term horizon, it is hard to argue to not ride out the bumps as the market has tended to always make new highs, even if it takes 25 years.

In our current case, it took 7 years from 2000 to 2007 to form a new all time high. We are now entering 2014, 7 years from the last mkt top. From the lows of 2002, it took 7 years to reach the lows of 2009. 7 more years if this 7 year cycle continues has our ultimate low around 2016.
And I think a darn good chance a final high is coming this year, in 2014, 7 years from the 2007 top.

Why do I continue to insist on a Secular Bear market ? One reason is the 2009 low was a lower low than the 2002-2003 lows. I could not find in my research another period where 2 preceding bear markets did that. I also did not see divergences at the lows. So IMHO, this sets up an ultimate test of the 2009 lows at some point. And one of two things is going to happen. We make a new low, a final low that is lower than 2009 but the momo indicators diverge and do not make a lower low. Or we bottom above the 2009 lows where the fear indicators show record fear but this does not push stocks to new lows. That might tell us the sellers are finally exhausted.

I do not think the " system" is cleansed of the debt that built up from 2003-2007 housing/credit bubble , instead it has been hidden, not marked down to market, papered over....shifted around, switched to the FED balance sheet. What mechanisms are left for the FED, now backing away for its backstops, when next rubber meets the road moment comes. Will they go back to what they had already been doing? Will they increase purchases, reverse tapering?

I'm afraid at that point, they would have lost credibility and have few weapons stashed away, like lowering interest rates to try to stem the tide.

Nope, 5 years running, rates stay at 0%, also continuing to batter savers with 0 returns. Savers do spend interest payments too....just not in last 5 years in the BS unbalanced approach. There are those wanting to jump into the lifeboats , but for yield, income are forced back onto the US TITANIC.

You can grow and start anew by cleansing the system, clearing the path to normal organic growth which will benefit a large portion of our country, not just the top 1%, those who hold the most stocks.
Allowing savers to gain a decent return without fear of losing principal.

IMHO, now is not the time to rest complacent, but for me anyway, I am on high alert.


Friday, January 03, 2014


Lower yields have helped fuel a housing recovery, and have assisted the stock market rally. It is widely believed the FED controls interest rates....surprise


Saturday, November 16, 2013

"HEARING JANET YELLEN" Doug Noland's latest.

Neither Ben, nor Yellen saw the housing bubble forming, and now she does not see an equity bubble forming either. So the market and the leveraged privaledge class are ALL IN and THEN SOME.

FED balance sheet rose 35% this year alone ($1T), so have stocks....certainly NO correlation here.

Though I cannot argue I rather have an economy limping along then one in a death spiral, but when does it go along on its own 2 feet? The LONGER everything is supported by the QE and ZERO interest rates, the harder it will be to function without it. And the higher we go, the harder the fall will be.

Is the market "meltup" being supported durectly by FED policy?

"Investors aren’t worrying much about the stock market, and that worries Edward Yardeni. "

I think this current bull market has further to go, and THE END I don't think can occur without one violent zap hgiher in a blowoff top sort of action, where we might get an intraday top and reversal.

And it must go along that the masses, will not see danger, and will continue to sit tight as this mess unravels.

Even Yardini, in the above piece see SPX 2000 plus in 2014. Other measures of this bull mkt show a healthy one, without many of the normal signals it might give that a top is in the near future (up to 6 months out).
It may be long in the tooth, but that doesn't rule out much higher prices, or even a nasty correction is around the corner.

We arrive in November a normal bullish period thru Xmas, with markets already enjoying a helluva year.

I dont care what the FED says or anyone else, the action since 2009 is ALL but supported by the FED balance sheet.

Is it any wonder the FED can create a $1T a year out of thin air, and same time BITCOIN appears, a "VIRTUAL" currency, and it (digitally) is tearing through the roof in value....

I say, and repeat buyer beware, but calling tops a tricky business and at this point, and its backed up by the fear guages....not a lot of worry out there....not at all.

PROBLEM is, sooner or later there will be and we are not talking 1 for 1, players are playing with OPM...and it will unwind and feed on itself, a lot faster on the way down, then it did on the way up.

We ARE in the process of forming a top, but the level that occurs may even surprise me.

How we got here, ignorance to bubble formation, will insure a painful retreat