Thursday, September 18, 2014

I'm All A Twitter

http://davidstockmanscontracorner.com/dot-com-bubble-2-0-lunacy-by-the-numbers/

You can't say the markets are driven by easy money, more like free money. With stocks at nose bleed all time highs, employment rocking( so they say) already reaching the FEDS targets. They cannot even change the language in their statements as to WHEN this insane ZERO RATE policy will end!

" well, if you listened to all the naysayers, you would have missed 28% gains in the last year"
That may be so, but I will repeat for the hard of hearing, if you overstay your welcome on this imaginary market not based on fundamentals, it will cut you in half.....a big WHEN the music stops.

D

Sunday, August 31, 2014

You can't print your way to prosperity

"Monetary policy promised way too much back in 2012. As I’ve written repeatedly, at this stage of a most spectacular and protracted Credit cycle, monetary inflation can only make things worse. Where does it end? And not for a minute do I believe the alarming rise in geopolitical risk and instability is unrelated to years of prolonged global monetary disorder. Mismanagement of the world’s reserve currency is replete with huge consequences. Mismanagement of all the world’s major currencies is a complete fiasco. " Doug Noland of prudent bear.com

Stock markets that defy gravity with Central Bank promises of forever zero interest rates and liquidity. But this mother of all trickle down tricks has not trickled down to anyone that isn't in the top 1%. So it should come as no surprise, that wages have not grown with the expense of everything else.

Volume has dried up and now there is ample evidence that there is another group of buyers who have come in to replace those who have left. And they are the Central Banks themselves. What kind of fair market system has the central banks buying  s and p futures??

We already know our own Fed has bought near $4 trillion in us gov bonds, and we have the slowest, weakest recovery from Recession in the history of keeping those records.

With volatility near non existent, did you ever stop to wonder how " odd " that is? Even with world unrest, all seemingly is going unnoticed. Seemingly. Hedge Funds for the most part have done very poorly in this environment, because they are a " hedge" against volatility. But here we have none.

This period of immunity from declines will come to an end. The gaming accord of the central banks is said to end this year. I feel volatility will return in the not too distant future, and with it much lower stock prices.

At some point, there will be reversion to the mean, and the mean is nowhere in sight!

D

Saturday, August 09, 2014

Market Oversold

The market is due for a rebound, but there has not been the type of selling that usually mark short term bottoms. The VIX has also not shown the kind of fear that would suggest a washout has occurred.
Though Fridays rebound was welcomed, I don't think this is the start of a new advance to higher highs.
Let's keep an eye on the Transports, as they have fallen faster than the Dow or SPX. Any return to new highs that doesn't bring all along would be reason for additional caution.

The same markets in  California that got overheated are at it again. Partly could be due to less inventory.
Several radio ads run all day for seminars showing you how to FLIP HOUSES!!! De ja vous?

As long as interest rates remain low, that leaves little competition for stocks . I am unsure if this will remain a backstop as FED continues to back away from the QE. Usually interest rates rise in a  bull market showing strength in the economy and demand for credit. And also re supplies the ammo needed to inject life into a flagging economy.

Not so this time.

Sunday, August 03, 2014

IS IT TIME TO WORRY?

Has the long awaited correction finally come?  Is the Bull Mkt Top in?

I am not sure if there isn't one more strong  push to try to make new highs left. But I am pretty sure a correction of at least 10% has begun. August is usually not a great month for stocks historically.

As the market had made its new highs, the % of stocks following along had continue to drop. The VIX did not show any fear at the new highs, so there was plenty of complacency and there certainly was not any wall of worry to climb. No bull mkt let's all ride for free like this seems to have most of the way except at its early inception back in 2009.

My own indicators have signaled extreme caution as they have risen to new extremes, but a sell signal has not been given. Nothing is full prof, but the backdrop now has then FED backing away in its bond purchases and we are into our 5th year of zero interest rates. It is interesting the FED continues to signal this policy will continue for a long period of time even as we reach employment goals they had set out and recent GDP showed 4% robust growth. What's the worry still ?

My worry, is and has been, that continued market and interest rate manipulation will have its backlash day. And as valuations have risen to near extremes, It points to me it may be time to switch to a more defensive strategy.

I agree is does not make any sense to try and time a 10% correction! or any correction in an ongoing Bull Mkt, but when one starts to show its age, when a Bear Mkt is upon us, declines will exceed 20%.

With the FED already sitting at zero rates , I also worry when the time comes to assist the market and economy, they will be sitting there with no arrows to shoot!

D

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