The Sound of Something Bad Not Happening...Yet [View article]
It's all about alternatives isn't it? If we agree that 3% Treasury yields don't offer any value then earning 1% or less in cash is no more attractive and, by default, equities are the best place to put your money. Even in a flat economy companies will still make profits.
Consumer Metrics Institute: A Fresh Look in Advance of Friday's Revised GDP [View article]
On the surface this index looks like complete nonsense, suggesting recession since early 2010. But maybe it is telling us that the recovery has been based on government spending, inventory building, and capex, while the consumer remains weak. And in turn maybe that tells us that once fiscal stimulus comes to an end and the inventory cycle weakens the economy will pull back sharply. If that turns out to be the case it will have been very useful indeed.
I'm going to go with Bill Gross on this one. With the Fed stepping back as the buyer of the whole Treasury supply, Japan likely turning net seller, China's reduced trade surplus requiring them to be less active buyers, interest rates going up around the world, inflation well above the level of yields etc, who is going to buy all those Treasury auctions in the months to come?
Feel free to denigate my economic qualifications all you like, the supply demand equation in the bond market is really, really bad.
This catasptrophe in Japan is a game changer. The global economy was already at a tipping point due to inflation, policy tightening, higher oil, political unrest, European debt (etc) on top of structural weakness, and this event pushes us over the edge. Deflation comes back on to the agenda and sentiment is crushed as we realize that zero interest rates, huge budget deficits and QE have all failed. Over the coming months we are going to see a final revulsion from the equity asset class – people are fed up with getting kicked in the teeth by this rigged casino.
Why Market Aftershocks Will Continue [View article]
What is happening in Japan is a game changer. The global economy was already at a tipping point due to inflation, policy tightening, higher oil, political unrest, European debt (etc) on top of structural weakness, and this event pushes us over the edge. Deflation comes back on to the agenda and sentiment is crushed as we realize that zero interest rates, huge budget deficits and QE have all failed. Over the coming months we are going to see a final revulsion from the equity asset class – people are fed up with getting kicked in the teeth by this rigged casino.
Market recap: Stocks continued to march higher, as investors ignored China's rate hike and chose to buy the dip. Short-term Treasurys fell again, pushing yields to their highest levels since April, after a tepid response to an auction of three-year notes. Precious metals rallied, and oil prices slipped a bit in volatile trading. NYSE advancers led decliners nearly three to two. [View news story]
I am beginning to wonder if markets will soon move to a new phase in the stock / bond relationship. Instead of the familiar bonds down = stocks up we may be moving to a point where yields are getting high enough that a weak Treasury market is going to start to drag on stocks.
Beware Most Market Studies, They're Mostly Misleading, Often Incorrect [View article]
Congratulations to the author. It is much easier to garner popularity by coming up with spurious models that appear to work than by properly analysing indicators which often leads to the rejection a seductively attractive system. A article appeared on SA on 15th September which correlated the S&P with the number of nine year olds in the population. It worked perfectly looking backwards but forecast the S&P below 1000 by now. The fact is that most models that appear to work are little more than data mining, and it is amazing how people continue to be blind to the fact that the indicators they have found workED, past tense only.
Be Contrarian; Believe a 'Real' Bull Market Is Starting [View article]
The world is full of people articulating supposed consensus viewpoints so that they can be contrarian against them. It would be just as easy to collect a set of bullish observations and be contrarianly bearish as a result.
The individual investors and newsletter writers no doubt suffer from the kind of endemic short termism that pervades the market. When surveyed they will reflect the most recent move and portray it (even to themselves) as something they had foreseen.
Although sentiment rabidly chases short term market movements around it does seem much more prone to jump aggressively bearish on any market setback, while taking much more dragging by steady upward movement to move to a bullish stance. So maybe this squares the circle - the authors correspondents are longer term and more thoughtful than those surveyed. And maybe more genuinely reflective of market sentiment as a result.
As usual it is difficult to disagree with the author's clearly articulated view. A couple of points are worth making though. Inflation is no longer restricted to commodity prices. Prices of many day-to-day items are moving higher, sometimes by substantial percentages for low cost items. Policy makers as far apart as Euroland and Hong Kong have commented on rising inflation pressures in the last 24 hours.
The second point is more elusive, and related to sentiment. The author is basically bearish and his case for that position appears watertight. Yet for the short term he overrides this negative view. This rather uncomfortable juxtaposition comes after the S&P has risen over 22% from the lows of late August 2010. My sense is that this is representative of market sentiment, with many long term bears being forced to throw in the towel as the market has ground steadily higher over the last 4 1/2 months.
If sentiment has turned bullish economic forecasts will have been pushed up to levels where data is likely to disappoint going forward. This is a common pattern. And with inflation now clearly in the system and being recognized as such, the markets are set up for a crushing disappointment here.
Finally, it would be a great shame if Edward was forced to stop posting his insights on SA. It isn't possible to follow all of the interesting blogs out there and SA does a great job of being a one stop shop for reading good articles, interesting (if sometimes crazy) comments and assessing swings in sentiment.
Look at the Math: There Was No 'Second Stimulus' [View article]
Once debt reaches a certain level it becomes impossible to implement an effective stimulus because someone will take advantage of the stimulus to try to reduce excessive debt elsewhere. It is why Japan has been in the doldrums for 20 years. This is the essence of the long wave cycle which Bernanke is determined to fight. But with interest rates at zero, budget deficits huge and at the most favourable point of the inventory cycle we have only modest growth that is not generating employment. As austerity begins to bite in Europe and at state level and the economy slips back toward stagnation, QE will be seen to be ineffective and the current complacency in the market will turn to genuine panic.
Japanese Yen: The Mother of All Bubbles? [View article]
You can make just as bearish a case for the USD and the EUR. Being long the minor currencies and the RMB against the majors makes sense, but choosing which of the 3 majors is the most ugly is a guessing game.
Market Sentiment Remains a Red Flag [View article]
Not only is there a strong bullish consensus about the market, more surprising is the conviction amongst economists that growth is strong and improving. From expecting a double dip just a few months ago the market seems to have switched to worrying about inflation and excessively strong growth!
Forget Forecasting - Can Ben Bernanke Actually Read? [View article]
Of course he can read and of course he knows that inflation is already in the system. It is just that he sees his job as doing everything he can to avoid the inevitable ongoing recession / depression. And you can't say he has been doing a bad job at talking things up - all the major Street banks are now forecasting ongoing / strengthening growth and double digit stock market gains ahead.
It seems amazing given the real economic situation but there it is, ready for those with any clarity of sight to take advantage of.
Will the Fed Start Acknowledging Flow of Encouraging Data? [View article]
If the Fed admits recovery it no longer has the justification for QE. Unfortunately there is nobody else left to buy all the auction stock coming our way in the coming months, so absent the Fed yields steeple and kill the recovery. So only by denying the recovery can the Fed do what is necessary to maintain the recovery. Doublethink and doublespeak reflecting the fact that we are between a rock and a hard place.
The Sound of Something Bad Not Happening...Yet [View article]
Consumer Metrics Institute: A Fresh Look in Advance of Friday's Revised GDP [View article]
Beware the Bond Pundits [View article]
Feel free to denigate my economic qualifications all you like, the supply demand equation in the bond market is really, really bad.
Panic Cycle (And Recovery) Ridiculously Foreshortened? [View article]
Why Market Aftershocks Will Continue [View article]
Market recap: Stocks continued to march higher, as investors ignored China's rate hike and chose to buy the dip. Short-term Treasurys fell again, pushing yields to their highest levels since April, after a tepid response to an auction of three-year notes. Precious metals rallied, and oil prices slipped a bit in volatile trading. NYSE advancers led decliners nearly three to two. [View news story]
Beware Most Market Studies, They're Mostly Misleading, Often Incorrect [View article]
Be Contrarian; Believe a 'Real' Bull Market Is Starting [View article]
Where Have the Bulls Gone? [View article]
Although sentiment rabidly chases short term market movements around it does seem much more prone to jump aggressively bearish on any market setback, while taking much more dragging by steady upward movement to move to a bullish stance. So maybe this squares the circle - the authors correspondents are longer term and more thoughtful than those surveyed. And maybe more genuinely reflective of market sentiment as a result.
Cautious Optimism for 2011 [View article]
The second point is more elusive, and related to sentiment. The author is basically bearish and his case for that position appears watertight. Yet for the short term he overrides this negative view. This rather uncomfortable juxtaposition comes after the S&P has risen over 22% from the lows of late August 2010. My sense is that this is representative of market sentiment, with many long term bears being forced to throw in the towel as the market has ground steadily higher over the last 4 1/2 months.
If sentiment has turned bullish economic forecasts will have been pushed up to levels where data is likely to disappoint going forward. This is a common pattern. And with inflation now clearly in the system and being recognized as such, the markets are set up for a crushing disappointment here.
Finally, it would be a great shame if Edward was forced to stop posting his insights on SA. It isn't possible to follow all of the interesting blogs out there and SA does a great job of being a one stop shop for reading good articles, interesting (if sometimes crazy) comments and assessing swings in sentiment.
Look at the Math: There Was No 'Second Stimulus' [View article]
Japanese Yen: The Mother of All Bubbles? [View article]
Market Sentiment Remains a Red Flag [View article]
Forget Forecasting - Can Ben Bernanke Actually Read? [View article]
It seems amazing given the real economic situation but there it is, ready for those with any clarity of sight to take advantage of.
Will the Fed Start Acknowledging Flow of Encouraging Data? [View article]