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 ends....like summer turns to fall
Sunday, February 16, 2014
Financial game of Chicken
From Doug Noland at Prudentbrar.com
"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.
Duratek
"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.
Duratek
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.
Duratek
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.
Duratek
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