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Brian McMorris

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  • Assessing The Recent Stock Market Damage [View article]
    Yes, there are two possible outcomes due to Fed experimental policy: 1) Fed lets go of its policy initiative and allows economy to normalize; rates will shoot higher crushing bonds; stocks may initially take heart in normalization, but find out the price of normalcy is the Fed selling its $4T of excess debt into the market which will be the most severe tightening in history and cause a lenghy and deep recession; stocks will fall significantly during the deep recession;

    Or 2) continue QE endlessly, perhaps reducing the rate of purchase of debt, but not stopping debt purchase; when the economy eventually weakens below trend which is now around 2.5% (and it will) Fed must increase QE beyond $85B per month; balance sheet of Fed explodes higher; interest rates collapse towards zero further zombieizing the economy; creates a deeper debt trap from which there is no return; This is the Japanese outcome;

    The second is the more likely outcome by a wide margin due to statements of Yellen and other Doves on the FOMC (we heard again on Wednesday); Yellen says she can exit the strategy whenever she wants, but how? who will buy all the debt and at what price? exiting equals tightening and when will the economy withstand an all-time record tightening? there is political and public pressure to take the easy way out; all of this plays out very slowly and this reality certainly is no market timing tool; but it does put a premium on yield and will aid stocks that can reliably provide dividends;

    The problem with option 2 is there is an end date due to the continuously increasing debt as percent of GDP; as central bank debt takes up more and more of the economy, it wipes out animal spirits and encourages a carry trade whence the CB loses control of the exchange rate ala Japan; the carry trade causes a too strong currency which suppresses exports and unbalances the balance of trade; eventually the CB has to create inflation at all costs and so destroys its own currency to end the carry trade and force down the BOT imbalance; it is a self-immolation strategy as Japan will soon discover and perhaps America if it does not change direction; BTW....I work for a Japanese company and do not look forward to the country's end game
    Apr 17 06:39 AM | Likes Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article] is how I see it, with reasoning:

    Stocks - Secular Bear Market, but cyclical bull orchestrated by Fed makes it very hard to see; end of bull cycle at hand?

    Commodities - Secular Bull that started in 2000; in Elliott Wave terms, just ended the first leg down (2008-13) after the first leg up (2000-08); starting second leg up (2014-??);

    Bonds - Last leg of Secular Bull Market; interest rate suppression will continue for some time to come; 3% rates in Spain guarantee that; Japan redux?

    Emerging Markets - Beginning of Secular Bear; if mere threat of ending QE can do in the EMs, what will actual reduction of Fed balance sheet do to them? Global unrest (Russia, Turkey, Brazil, Syria, Egypt, China v Japan) can be directly connected to Fed policy reversal: Taper Tantrum; why? capital outflow which crushes sovereign budgets, creates deflation and raises unemployment, social unrest;
    Apr 16 01:02 AM | Likes Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article]
    As I have said elsewhere, Salmo, the "Big Boys" are the transmission mechanism for Fed policy. This is by the design of the Federal Reserve System, not some lunatic conspiracy theory. This worked fine until Glass Steagall was overturned. At that time, the money center banks (Big Boys) were allowed to trade for their own account. So, the Big Boys now receive the Treasury reserves from the Fed on one hand, and lend or invest them in the market with the other, with the execs making a nice cut for themselves along the way. What could go wrong!?
    Apr 16 12:41 AM | Likes Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article]
    "These trends (forecasts), can of course be impacted, even reversed, through upcoming policy changes (e.g., changes in the volumes of the FRB-NY's "trading desk" open market operations - purchases & sales). "

    Aye, there lies the rub. The Fed has so thoroughly distorted the economic picture that markets no longer work according to their own principles, but to the unknown group-think of the FOMC. The whole world watches
    Apr 15 03:02 PM | Likes Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article]
    Funny! I am no conspiracist, but SOMEONE or group of buyers stepped in for sure. And given how every index responded exactly the same way and time, there was synchronized and massive buying. Had to be institutional for that kind of move, but with whose money? That is the big question
    Apr 15 06:20 AM | 2 Likes Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article]
    Thank you have a lot to offer with your very broad market knowledge (admittedly more than me, and I know a lot). If you can be supportive rather than attack those with a different perspective, it will enhance your credibility. You really have more than 400 investments? That is really impressive that you can research and track all of that.
    Apr 14 02:31 PM | Likes Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article] really seem to have a fragile ego. Anyone who disagrees with you, your response is "I will just ignore your comments from now on and will simply refrain from responding to anything that you have to say." (as if those people would care)

    I have seen that almost as a boiler plate quote a couple of times now. Try and embrace opposing opinions. You will be stronger for it.
    Apr 13 11:38 PM | 2 Likes Like |Link to Comment
  • The Greatest Danger For Stock Investors Today [View article]
    South....I respect your knowledge of the investment world. You would enhance your credibility by researching thoroughly those things you don't know or understand. If you will read Hussman's annual reports, starting in June 2001, you will see that he destroyed the market averages for several years running (posting 22% returns in 2000-01 and 2001-02, while the market averages were struggling and declining). He had good balance of longs and shorts during that period. He held his advantage up until 2008. He was overly long in 2008, by his own admission. He should have seen the crash coming and didn't. Then, like many of us, he became over concerned about a continuing decline in 2009 and did not get as aggressive as he should. He also acknowledges this mistake and has adjusted his models. I did not start buying his fund until late 2010, BTW

    Hussman has remained an outstanding stock picker throughout the past 14 years of his career. I presume from reading him extensively, that he is learning from his hedging errors and will become more deft over time. I know from experience that getting the hedge right is not easy. I am myself a contrarian. I like buying funds that have done poorly (one star) but where the manager has had previous success. Bill Miller was awful for several years during the tech bust. But he will go down long term as one of the best. Chuck Royce was ripped for his value investing style in the late 1990s and almost closed his fund. Warren Buffett also was criticized during the late 1990s. Many other great funds (Magellan) have had their problems, but have adjusted and come back stronger. I only ask that an investment manager stick to his guns and not change his style as it is likely to come back into favor at some point.
    Apr 13 01:30 PM | 1 Like Like |Link to Comment
  • The Greatest Danger For Stock Investors Today [View article]
    You are missing the point, Tack. I am not talking about velocity, I am talking about the indirect, but more important effects of interest rate suppression policy. It zombie-izes the economy by leading corporations to non-economic decisions that hurt employment and economic growth (but decisions that definitely favor the corporate chieftains and Wall Street). It also forces investors, including pensions and such, to pursue only one investment class: equities. This is dangerous and almost guarantees a crash at some point as there is no gradual rotation from one investment class to another, as happens normally as money seeks the better value. Like I said: unintended consequences because of course it is velocity the Fed wants but it is economic growth suppression it gets.

    The same has happened in Japan. It is not like there is no model to show what will happen. But the Fed, in its arrogance, thought it could side-step the negative consequences of its policies. Guess not.
    Apr 13 01:11 PM | 1 Like Like |Link to Comment
  • The Greatest Danger For Stock Investors Today [View article] is another study on mean reversion by Credit Suisse that seems very fair and balanced.
    Apr 13 11:51 AM | Likes Like |Link to Comment
  • The Greatest Danger For Stock Investors Today [View article]
    Monetary policy is intended to push money into corporations and does so very well. Money is the lifeblood of business. Anything which makes money cheaper, easier, benefits the corporation. That is not debatable. It is begging the question. The methods of transmission are through low interest rates and easy money for big companies allowing debt to be issued for buybacks and low interest expense on the income statement. Low interest rates also drop the threshold for investment (through IRR and other metrics) meaning acquisitions and mergers are easier to execute. These are just a few ways the Fed policy affects corporate decision making. All of this financial engineering substitutes for real business investment and growth policy requiring the hiring of employees.
    Apr 13 11:42 AM | Likes Like |Link to Comment
  • The Greatest Danger For Stock Investors Today [View article]
    Not 100% of the problem, to be sure, but a large part. You are correct, Tack, that other business-unfriendly policies from DC have also contributed to the issue of declining real wages as has global competition (i.e. China). But Fed policy is a significant contributor. The Fed certainly does have tremendous financial power. Otherwise, why does the Fed even bother to implement its policies?
    Apr 13 11:38 AM | 1 Like Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article]
    TP...I agree entirely. Even though some here think I am a perma-bear, I am very far from that. I loved March 2009 and really piled on from the middle of March to the middle of April when I was about as fully invested as I have ever been. I really didn't care if the market went on to 5000 or 4000 (as technician Louise Yamada suggested at that time) She would have been right had the market been allowed to run its course. But the Fed (and Congress by forcing FASB to reverse its position on market to market) cut off the correction.

    I also was buying heavily in summer 2002 into mid 2003. I was selling in 2006 and 2007 and even shorting mortgage bankers in late 2006, including Countrywide (my first experience with stock shorting). The only knock on my stock picking performance has been I tend to be very early, sometimes by years (I was buying value stocks and REITs in 1997, three years before it was the correct strategy). I have a long term point of view and see storm clouds where others are caught in the current trend, and vice versa.

    I am looking forward to the next collapse, and there will be one whenever the Fed is forced to change its very accomodative course, and will be ready to get 100% in when fear is reaching its peak.
    Apr 13 11:23 AM | Likes Like |Link to Comment
  • The Greatest Danger For Stock Investors Today [View article]
    A corollary to "Ironic that unfreezing banking liquidity would subsequently freeze up the free market (the competition that would drive down margins)", is that Fed policy which has frozen the free market has also put downward pressure on real wages. Protecting corporations with its policy has allowed corporations to drive out costs, including labor costs.

    What is the mechanism? Competition causes businesses to compete on service as much as on price. The more businesses compete on service, the more employees they must hire, the better they must train and the more they must pay to retain those employees. As Fed policy has removed the burden from corporate executives to compete on service, but instead has bolstered balance sheets and profit margins, companies have avoided adding labor cost. Fed policy intended to increase employment instead has increased unemployment. Unintended consequences!
    Apr 13 11:10 AM | Likes Like |Link to Comment
  • The Greatest Danger For Stock Investors Today [View article]
    South....just read this reply. It was lost in this endless string from last month. I always try to reply when requested.

    James Montier is a thoughtful analyst at GMO. He is one of Jeremy Grantham's heir apparents. He has written frequently on mean reversion both questioning and defending it. Here are some of his posts:

    From December 2010

    From July 2013

    From February 2014

    Like JUGS...I think that even if we accept the "post-industrial" level of mean profit margin as higher than pre-1980 (a case of "this time it's different", which never seems to hold upon further review), there is a mean below today's record levels of margin. Today's high margins are likely an "artifact" of the 2008 crash and Fed hyper-activity to stimulate recovery. Pushing money into the market and therefore into corporations and into their profit margins has frozen the free market. Ironic that unfreezing banking liquidity would subsequently freeze up the free market (the competition that would drive down margins). But that is what has happened. We see it everywhere. Market participants and citizens also see it or feel it and it is what keeps a lid on the economy and foments social unrest, IMHO.
    Apr 13 10:26 AM | Likes Like |Link to Comment