Monday, December 31, 2012

Explosive Upside

When will the Bears learn, right? Fake out move from Friday (futures -26) will leave some UBER or NEWBIE Bears licking their wounds.

Why would the market rocket? Light volume, and the cliff has been spoken so many times, fiscalclifffiscalclifffiscalcliff......that it doesn't mean anything anymore.

Know what does matter? Impression that traders have and constantly repeat "Fed has this thing BACK STOPPED, there is no other game in town for returns with interest rates near zero. There is little downside to worry about, China is improving....real estate is improving...etc etc"

I have not heard heard from ANY noted stock gurus except the Prechter's stuck on doom and gloom (not me of course!) prognostication where there is much to fear from being fully invested. And I have heard many on the "shows" hair cafe' and Bloomberg discuss high beta risk on sectors the way to go, not defensive.

Where is the road less traveled and when is it good to have everyone pile onto the same end of the investment ship? (TITANIC?)

For now, sip your Mia Tia's put your feet up and enjoy the Bull ride, bumpy or not.....don't look in the mirror, fear the future of the man behind the curtain, and don't worry about the cliff or even the hill.....they got your back stop....until they don't.


Saturday, December 29, 2012



What JUMPS off these pages to me,  is how "US leveraged loans jumped 24% from 2011 to $465bn, lending volumes below only 2006 and 2007 levels"  "Sales of high yield bonds $354bn jumped 23% above previous 2010 record" This refers to high yield (JUNK) bonds I suppose.

Global corp bond sales surpass previous 2009 record and so on.

What is going on is unprecedented, and under NORMAL circumstances should have ignited an inflationary spiral the likes we've never seen. That just hasn't been so as of yet......end demand is NOT THERE and capacity is WELL below smoking.....are we not in the clutches of a DEFLATIONARY SPIRAL the likes of which we cannot escape, and where bonds will continue to outperform?

Here , where not enough jobs are being created, and corporate profits and contracting from (record levels?), the markets have surely decoupled from fundamentals. Unless long term investors believe in unlimited CB support, that will finally win the day, it would seem the prudent thing to do is prepare for the worst outcome imaginable.


Friday, December 28, 2012


WASHINGTON (AP) — A person familiar with the details says President Barack Obama is not making a new 'fiscal cliff' offer at his high-stakes meeting with congressional leaders at the White House.
Obama instead is spelling out again a plan he says can pass the House and Senate, said the source, who spoke on condition of anonymity because he was unauthorized to speak publicly about the private meeting.
Obama wants a bill to halt looming tax increases on all families making $250,000 a year or less and would extend unemployment insurance to many people about to lose it. His proposal would also cover other issues as the Jan. 1 deadline nears.
If he does not get a counter proposal that can pass both chambers, Obama will press for a straight up-or-down vote on his idea, the source said.

The SPX fell 15 points today from hwere it was near flat before the 3 PM talks began. SPX futures currently down another -24 AH



Reading is about half where it should be after 4 years of recovery. We sit near 60 which is the lowest reading since 2002 fear lows.


Thursday, December 27, 2012


Twice in the last 10 years the Government and the Federal reserve system deemed it an emergency to help bail out the US and economy, each time more dramatic efforts were undertaken to resuscitate an ailing economy and monetary system.

Y2K was the first scare and because of the actions of the federal reserve, we had an explosion of asset prices in the tech sector and then in 2000 that bubble popped from excessive risk taking and exhaustion.

The ensuing Recession would have been rather mild, did not include the Banking Sector, and would have passed on it's own. However, the FED in 2001- 2003 began to force interest rates lower as the Fed Funds rate fell to 1%, 911 was also used as an excuse.

What ensued was an EXPLOSION of home buying that quickly pulled the stock market to new highs and the economy ran with it. But for some reason, no one was looking at the INSANE speculation, flipping and building that was taking place? Prices for homes, even those not yet constructed rose at the speed of light, it seemed like everyone was getting in on the action. THEN...POP went that weasel.

Instead of a reasonably mild recovery from the tech bubble bursting, we now had a FINANCIAL/BANKING SECTOR FIASCO, that threatened our economic system to the core. WHO among our leaders other than Ron Paul, asked what role the Federal Reserves 1% interest rate policy and those in charge of protecting us from the abject wild speculation that followed?

Our Gov't INSISTED banks make loans to those less fortunate, minorities and the like, that home loans be made to them.What followed were piggyback loans and liar loans, no doc loans.....anyone with a face could get a home was SO CHEAP.....the High School janitors formed clubs to flip condos.....prices went to the moon.

But guess what, the avg Joe, the working schmo also needed housing, families wanted to buy their dream homes, and even though some prices had DOUBLED in 3-4 short years, with rates SO LOW.....people bought in droves.

Then as ALL BUBBLE DO, the housing bubble popped. BUT this time, even after the amazing BIG BEN BERNANKE when asked if he was worried about the housing situation in 2008, replied " ME WORRY? HOUSING HAS NEVER FELL IN VALUE YR/YR"

Guess what, Housing fell YR/YR, and those innocents along with the speculators were trapped. PRICES FELL and have fallen by more than 40% in some areas, recovering lately only slightly. Now 25% of those who won homes find themselves underwater, their homes worth less than what paid.

NOW, the FED has lowered FED FUNDS RATE TO 0%, and it has stayed there for 4 years!!! YES a group of a few men, one in particular have control of the world's interest rates. If 1% brought us the last CRISIS, what will 4 PLUS YEARS OF 0% BRING US?

 They have targeted illegally, and have openly targeted ASSET PRICES for appreciation. Guess what it has worked, the market more than doubling off the 2009 lows in Historic, dramatic fashion. THESE ACTIONS WILL, HAVE LED to the forming of another more dangerous bubble, a BOND/ GOV'T DEBT BUBBLE and another ASSET BUBBLE, A PREFERRED STOCK BUBBLE.....

People have been FORCED INTO RISKY ASSETS because their savings, the BEDROCK on investment give them 0% returns. NO ONE can live off interest paid on savings.

This I find VERY worrisome. We have a herd mentality in the stock market, people have been left with little other choices to gain a return, any return on their hard earned after tax incomes.

In the meantime, back at the ranch, our Government seems to have access to free money paying as little as 1.6% for 10 years and can borrow into the tsratosphere with ever widening federal deficits current and future piling so high each year equal or greater than 10% of our entire GDP and accumulating current deficits nearing 100% of GDP. But don't worry, long term rates are still near 1.7%.....this could go on forever......

But now we reach the Fiscal CLiff, or so it seems, between rock and hard place. DO we have Gov't spending cuts or raising taxes or both?

To attract investors companies have raised their dividends adn many like APPLE have begun paying one, this diverts investment into Capital equipment and research and investment, which help drive earnings and hiring, all GOOD for the economy.

Companies are not hiring like they used to, there is great uncertainty in the land, worry about the Health care law, raising the cost of workers, and what the coming policy changes will do to business. We head into 2013 with a lot of unsettled things and US deficits soaring above $1 TRILLION a year.

LOTS OF US $'s have to be minted, new $'s can be created of less value (or no value) to pay off the OLD DEBTS when the same $'s had more value, as their were less of them.

YOU CANNOT keep up with this printing, devaluing. What you have been forced to do is almost anything for a return on your money, and for now that means the stock market.

No one else finds this troublesome? Markets can function and cleanse themselves, reset when mostly left alone, then when it gets fiddled with those adjustments, malinvestments become MUCH LARGER to deal with, we are in uncharted territory.

That doesn't seem to keep Ben Bernanke up at night, when this one pops, the fingers will go a pointing, but no one will be charged, no one will pay the price except the avg American who will be left with the price tag and the consequences.

What debt have you ever had, where you can just keep getting new loans to pay for the old ones? What debt do you have where you never have to pay it back?

Our Governemnt is acting as if HISTORIC LOW interest rates to fund it's debt will go on forever, what happens if the cost of funding this never ending debt goes up?

They cannot collect fromt hose who cannot pay, so whoever is left standing will be the target of their attention, and its now just begun.

The economy cannot function without 0% FED interest rates? for 4 years and counting?

Something is very wrong, any solution might get hyped, but I guarantee it will be LIP SERVICE to the real issues and problems, another kicking of the can, it will address next to nothing in the NEAR TERM, and offer MINIMUM solutions spread out over 10 years or more that do nothing to REDUCE the ACCUMULATING DEFICITS, but might take a nip at todays.

That's why I think corporate profits appear to have peaked, may be on the contraction slide of things going forward, other than 0% returns on savings, what LURE for new money will there be for the stock market?

ALL Bull Markets end, some last longer than others, in 1980 we began a 20 year bull market, some argue with a higher high, it ran until 2007, if we have a higher high now then what? But we ALSO made A LOWER LOW in 2009 vs 2003.

If we are in the latter stages of a game of MUSICAL CHAIRS, who wants to be late trying to get out the door to safety, or am I a BEAR crying wolf one too many times for anyone to listen to, or consider what I am suggesting COULD be what is in our future?

If you think you are diversified, and won't worry over a 40% or more haircut, and can hold until prices reach for a new high once again......if we all live long enough....probably true, the market in the LONG RUN seems to always go higher....also remember the ensuing BEAR MKT will take 2/3 as long to work itself out as the previous BULL MKT.....does that put us at an ultimate bottom in year 2016? *(and how does the man on street feel when not one person has been indicted for the worst financial crisis in history? the rich have gotten much more so during the last 3 years...and the rest of us, thenot so connected and well off?)

WE WILL rise again, and it will be glorious, but IMHO we have not purged our system, we have NOT corrected the wrongs, but only added to them and we are at the MERCY of the FED and maybe one man, in his wild historic gamble on monetary policy and Fed actions.


Saturday, December 22, 2012


Most intelligent writer we are lucky to have access to Doug Noland

"I included the above quotes back in a March 2000 CBB titled, "John Law and Alan Greenspan - The Great Inflationists." I could not have imagined at the time that his successor would make Mr. Greenspan appear a most responsible central banker. The monetary theorist John Law introduced paper money to France in the early eighteenth century. As an historic monetary expansion and speculative Bubble ensued, Mr. Law was revered. But when he lost control of the experiment - when his Mississippi Bubble scheme and the French economy later collapsed - Law was run out of the country. The effects of this monetary fiasco lingered for decades. I have argued for years now that the U.S. and world are trapped in another historic monetary experiment run amuck. I believe this framework helps to explain a lot"

As our politicians argue, bargain on the "fiscal cliff" , we continue to hurtle towards the land of no return. The value of our currency is being debased by the continued running of the printing presses to just pay for the interest payments on the "CURRENT" accumulated debt, NOTHING to address total "unfunded" liabilities of SS and MC some say equal $70 TRILLION....not making this up.

SO as "THEY" the dumb and dumber crowd debate how to manage the coming CLIFF, at BEST all it will do is maybe put a cork in the $200B plus in interest payments alone that is part of budget. The military spending is 25% of total receipts coming in, we CANNOT continue down this path.

A debt is monies owed to someone, this is funded by floating notes, Treasury Bills, the FED prints money to buy most of these bills along with a willing, so far Foreign Gov't and investor contingent. Currently floated with historic low interest rates. Let the fun begin.....

See MUSICAL CHAIRS, HEAR THE MUSIC....the music will STOP....the HORDE will make for the exits....and there WILL ne a narrow opening.

You play long when the policies are in your favor, YES rates can continue low for ahwile longer, but at some point the trade of century will be SHORT TREASURIES, might be too early but after VOLKER crushed inflation by raising short term rates to near 18%..Bonds have been in Bull mkt ever since. NOTHING LAST FOREVER.


Wednesday, December 19, 2012


"But since Congress and the White House have waited until the last minute to negotiate, no one expects them to reach a grand bargain with all the details hammered out."

Sunday, December 16, 2012


"Unfortunately, the piling of debt on top of debt can't continue to infinity. We have the locked-in, demographically driven cost increases associated with supporting the large entitlement programs of Social Security and Medicare. Then there's the hundreds of billions of dollars in bad debt bulging under the carpets in the Pension Benefit Guaranty Corporation (PBGC), the FHA, in student loans, the FDIC, etc., etc.
And sooner or later interest rates must begin to return to more normal levels (and probably well beyond). At which point the cost of servicing all the debt – currently about 6% of the US federal government's expenditures – will soar.
Simply, there is no denying that government is firmly caught in a trap from which there is no politically acceptable way to free itself. Thus, for the continuum to remain intact, expect the excess spending to continue and, in all likelihood, get worse."

Sunday, December 09, 2012


"The media, commentators, and politicians always talk about deficits. This whole fiscal-cliff debate centers around how to reduce the federal deficit. Should we cut government spending, raise taxes, or do both? But a deficit is merely the current shortfall, the government spending more in any given year than it takes in. The true problem lies in the past's accumulated deficits, which collectively add up to the national debt."

"The so-called fiscal cliff the United States now faces is an early milestone in this disastrous process. And sadly, every single major proposal on the table from both sides is a total joke."

Friends, it is my belief that we have the WINDS OF CHANGE blowing directly in front of us, and the fiscal cliff talks, news, etc are but just a smoke screen to the evolving issues that cannot be talked away.

Because of the Federal Reserve interest rate policies, going off the paper of their written official mandate, they have purposely and illegally targeted savers for destruction and pain, and the stock market for manipulation in a stupid attempt to AVOID the DAY OF RECKONING, and a lot of what has ACCUMULATED over the years is DIRECTLY brought about by their reckless interest rates policies, and now outright manipulation of the stock market.

Additional warning signs come from faltering corporate earnings where 63% S&P 500 companies missed estimates, looks like earnings have peaked this cycle. SO do you want to be invested in the stock market lock, stock and barrel because the FED has made sure that stocks are the only game in town?

Other warning signs show PEAK volume in stocks occurred in 2009 and have been falling ever since.

IMHO, we have a manipulated stock market targeted by the Federal Reserve as a way to attack current financial crisis, this is not a substantive, long term answer, and a dangerous one that might have horrible implications to those who remain intoxicated by the current results and LOW FEAR that exists, meaning complacency that current climate will not vanish before their eyes.

But isn't that what usually happens? SO we have a bunch of can kickers trying to solve a VERY complicated situation....good luck with that!


Saturday, December 08, 2012


"From my analytical perspective, the SAAR $299bn contraction of Home Mortgage Credit was the biggest surprise for the quarter. This compares to Q2's $214bn contraction and Q3 2011's $200bn decline. With mortgage borrowing costs having taken another leg down to historic lows - and all the talk of an unfolding housing recovery - I was anticipating a return to positive mortgage Credit growth in Q3 or Q4. But, then again, with negative real returns on savings and such highly uncertain policy, market and economic backdrops, it remains perfectly rational to pay down mortgages and other borrowings. That extreme fiscal and monetary policy measures foster extraordinary uncertainty - thus incentivizing a cautious approach for many individuals and businesses - reminds one of the Law of Unintended Consequences. And a "fiscal cliff" compromise, while perhaps spurring the markets' speculative reflexes, would do little to resolve ongoing uncertainties."

Friday, December 07, 2012


I would just like to touch on today's labor report on jobs. Unemployment fell another .2% to 7.7%. On the surface this appears to be another sign of a strengthening economy, but it may not hold up under closer scrutiny.

The labor participation rate actually fell to one of the lowest readings since they have kept track of it, work week hours were unchanged and by now you would think Sandy is in the mix as to how it has impacted data.

Also there were so many revisions to the prior data, that I don't see how you can come away with any confidence in what the government data is saying or depicting.

The nascent housing recovery is bolstered by lowest lending rates in history, yet sakes are nowhere near their peaks. AT same time the price paid is to those who seek a fair return without risk, and there we have an nasty dilemma, you could have a $Million in saving at the bank or Money Market and barely make enough to make ONE TRIP TO THE GROCERY STORE.

The efforts of the FED, which are outside of its mandate, are to force investors into risky assets like the stock market and junk bonds. This has worked to raise prices of these assets and add to household wealth, but I think a good bit of this is in Retirement accounts, not liquid that would be spent into the economy.

What we have is an economy still 4 years after rates hit 0%, on LIFE SUPPORT. And IMHO these FED policies are adding to the already maladjusted and imbalanced economy, has destroyed the normal levels of investment in plant and equipment that help create lasting good paying jobs.

We have a SMOKE and MIRRORS recovery, that cannot sustain itself where the FED will raise rates even .25%.

Until we regain some balance, and where natural correction can be allowed to take place, more of the same is what we can expect,

The Fiscal Cliff makes for good debates, but even ANY agreement is going to kick that can far down the road and not make much of a difference.

Any substantial rise in tax rates, rise in costs to employers to hire and retain employees....will not go well for the economy and job market.