5 Investment Recommendations From PIMCO's Bill Gross [View article]
What if he is wrong and yields climb as bond and equity values fall?
What if deflation is the outcome as we fall into recession and deleveraging is forced on a market that has been particulary resistant to deleveraging?
Gross seems to smart to be calling for delveraging as he is doing and expecting inflation at the same time. M2 will shrink if a delevarging enviornment takes hold and deflation will be the short term reality.
Assessing My Recommendations In 2012, Plus My Top Pick For 2013 [View article]
Thomas
Be interesting to see how this long term buy and hold fares over the reamaining 4 months. Of course if the market sells off and tests the '09 lows as it is likely to do as we enter global recession in 2013 the portfolio may still do OK when measured against the S&P.
I wonder how it will do when measured against a 100% cash postion though.
I'm reminded of that joke about the guy who is in a flood and the police come and tell him to evacuate. He says God will take care of him. As the flood waters come a guy in a boat comes by and offers to take him to safety. He says God will take care of him. Then as the waters reach the rooftop and he is perched at the top of the roof a helicopter comes by and he remains insistent that God will take care of him. When he dies in the flood and gets to heaven he asks God why he didn't take care of him and God responds by telling him he sent him a police officer in a car, a man in a boat and a helicopter.
This market has provided ample opportunity to make a lot of money since the recession lows. Today it is a market in complete denial at close to all time highs as we continue to wrestle with irresolvable problems. 20 plus million out of work and desperately needed to support GDP as the entitlement checks stop coming. Banks that are to afraid to lend. A debt to GDP ratio that is at all time highs. Consumer confidence falling. Businesses hoarding cash like crazy. A Fed easing policy that has failed. Over 20% of the nations mortgages under water. A global economy in serious contraction. Labor participation rate at 50 year lows. M2 velocity at 50 year lows. And now we prepare to raise taxes and cut spending virtually guaranteeing a 4% contraction to GDP that is probably at 1.5% now leaving us with a negative 2.5% in 2013. That is recession folks.
Stunning levels of complacency and virtually no substantive data that supports higher stock prices other than the higher stock prices themselves. The trends your friend huh?
The Era Of Buy And Hold Is Over - Using Trade Structure To Play The Swings [View article]
tom
I don't know your perspective on market direction. Mine is DOWN and I am short tech stocks including Apple, crude oil at 97 and financials. All but the financials are profitable today.
Mt point was that I would have done even better on positioning had I used the strategy outlined here.
"Cash and/or bank CDs may be the more appropriate investment"
You got that right. And cash is an investment asset despite opinions to the contrary in that it moves inversely and in direct proportion to the asset you are considering.
The odds are very high that all asset classes will fall in 2013 and those in cash will be rewarded. Why sacrifice 20-30 or 40% of your principal for a 2-3 or 4% return.
I was perplexed by the incredible recovery on Friday. Your perspective on a last minute resolution seems to be the prevailing sentiment amongst investors.
I am reminded of the debacle that ushered in the "fiscal cliff" arrangement last year. Oh, and how the "Super Committee" managed to come together on spending cut measures - not.
If the House couldn't clear the $1,000,000 deal I am puzzled as to how they will come together on anything. I see this as a hard stand by the House Republican/Tea Party/Norquist crowd.
The real fireworks start next month anyway with the debt ceiling debacle - Chapter 2. Obama tells us he won't allow it to be used as a bargaining chip. I wonder how he is going to accomplish that. I think the line is drawn in the sand and I can't begin to imagine how all this works out in the end but it will be really ugly.
Obama, Boehner, Bernanke, Geithner and most of the rest of the politcal class along with a good number of Wall Street heavy weights already know the outcome. This whole process is nothing but political theater. My guess is that a very, very small debt ceiling increase gets approved - enough to buy us another few months at best - in January. No agreement on spending or taxes and the very modest debt ceiling increase will be delayed to the last minute.
An Analysis Inspired By Grantham And Hussman On Profit Margins [View article]
waditude
You are correct and your conclusion poses a problem going forward. Corporate top line sales haven't suffered much due to $1 trillion plus in annual stimulus to the unemployed along with other entitlement payments while costs have fallen due to massive lay offs. The take away - reasonably strong profits.
As more lay offs are being announced one must wonder what is going to sustain GDP levels that allow for continued corporate profits - more borrow and spend I guess. The imbalance in consumers earning a check vs those subsidized by government is becoming a real problem.
Current high profits are clearly transitory and negative forward guidance on future profits is likely to prove overly optimistic. We have reached a tipping point and analysis based on historical data seems useless to me as a method for predicting profits going forward in light of this unprecedented dilemma that is simply not reflected in any historical data set.
An Analysis Inspired By Grantham And Hussman On Profit Margins [View article]
Tom
I appreciate your response. I think your view is shared by most in the industry and is certainly driving stocks at the present time. It is clearly a market that wants to focus on the positive and discount the negative.
My recent article on 3 long term metrics - labor participation rate, excess bank reserves and M2 velocity are just a few of the things I look at that suggest we have a problem never before experienced and no historical perspective to draw from on how things will work out.
I hear everyone attacking Congress for incompetence and I hear no one offering a viable solution. It is neither fair nor well informed on the part of the critics in this instance as there is no real solution.
My reason for saying we are in a unique situation is based on the fact that we have never before in history been so interconnected economically and it has worked to diminish or fully negate the impact of traditional Keynsian solutions. I would have hoped that the Fed's policies could have achieved the desired end but they haven't.
I just have a hard time getting enthusiastic about buying stocks at close to all time highs as debt and deficit is the only thing that has kept us above water on GDP since the recession ended. If you extract the debt financed stimulus from the economy as we are about to do we are going into recession. It is just math.
Thanks for your views and again my compliments on the depth of your analysis and your response to my questions.
An Analysis Inspired By Grantham And Hussman On Profit Margins [View article]
Tom
I am very impressed with your analysis but note that you mentioned above that Gratham expects "some small degree of austerity out of the budget and debt ceiling debate."
I struggle to see how the austerity ends up being small in degree and wonder if you give serious consideration to the macro implications here. I get the idea that you view the bearish argument as not particularly relevant.
I am probably the most bearish of all contributors on SA and see the macro picture as very negative going forward. I continue to defend Congress against their critics in that I see their most immediate problem - averting the fiscal cliff - as a problem that has no viable solution.
I'm just curious as to how you see the debt and deficit spending situation and if you give any consideration to these macro dynamics in your investment decisions.
I ask as I think you are very thorough in your analysis and therefore value your opinion.
Catch-22 For The Stock Market And The Cliff [View article]
Kevin
"much like the fire-bug who sets fires that he can fight,"
I was going to comment on that statement before the stakes were raised last night. Now, I think my arguments premise is much stronger,
The lack of agreement on the fiscal cliff is likely to get much worse with the debt ceiling debate added to the mix. I can't say this irrational bull is over yet as it is not based on anything fundamental but just a giddiness for the party to continue by those remaing at the party. Those wanting to party on in their drunken stupor might keep this thing afloat a while longer Who knows.
My guess is that the hedge funds have been waiting to slam this market and just waiting for an excuse and will start with ferocity today. January is not going to be a good month. Remember the aftershock of 2011 when Congress last visited this issue.
Fiscal Cliff: Let's Call Their Bluff [View article]
speedipursex
The ones screwing the working class are those borrow and spend proponents in DC. Consider that the extended unemployment benefits authorized under Obama's "American Recovery and Reinvestment Act" were funded by taxpayer money - public debt - and passed through to the unemployed who spent the money with America's major corporations while those corporations managed to make substantial profits by cutting costs, i.e., lay offs.
Obama's "protect the middle class" policy is creating a major public debt burden - the people's debt - while corporate America fills their coffers with the cash from that debt and they sure aren't investing that cash. To the contrary, they are acclerating lay offs as they prepare for the inevitable conclusion in this chapter of the continuing saga on the destruction of America.
Obama and the rest of the "wealth redistribution" group are indeed making a mass transfer of wealth but it is from the working class - the taxpayers - to the major corporations.
Time to connect the dots, or better yet, follow the money. The banks buy the bonds, the government pays the money through to the unemployed, the unemployed pay the money through to major corporations for goods and services, the major corporations continue lay offs to cut expense and accumulate cash (which they hold) and the taxpayer gets to pay the debt off.
That is indeed "wealth redistribution" but it's from the middle class to the banks and major corporations, not the other way around as so many think.
Fiscal Cliff: Let's Call Their Bluff [View article]
Ellen
Your big government can take care of us agenda is based on what? Consider that it is government that created this mess with their fiscally irresponsible actions dating back for decades.
We can start with the Secondary Mortgage Enhancement Act that decided MBS’s would be equivalent to US Treasuries and acceptable investments for private sector banks. That was in 1984.
Then 8 years later – in 1992 - government passed the Housing and Community Development Act of 1992. That Act established that GSE’s (Fannie and Freddie) had affirmative obligation to facilitate the financing of low income housing.
These low income loans were bundled – MBS’s – and banks invested in them since our politicians deemed them equivalent to US Treasuries.
Then GSE’s were required to meet quotas on low income loans – first their total would be 30% and by 2007 that number was raised to 55%. Gradually, these MBS’s – by government mandate – were relegated to the level of junk bonds but remember, they were still equivalent to US Treasuries since our government said they were back in 1984.
Then we repealed Glass Steagall that allowed banks to speculate in high risk assets.
The result of these irresponsible moves brought us to the brink of a systemic collapse of the banking system and the after shock of these political blunders still plague us 5 years later.
All of this is the result of political expediency – a give the people what they want so they will vote for us agenda.
In the beginning we had a government that was formed – not as a democracy – but as a republic. The idea being that a democracy - based on majority rule - would result in the destruction of the country in time.
Our politicians are not, or should not, be elected to give us everything we want as we are not sufficiently informed collectively to know the consequence of a political class that tries to give us everything we want.
The fiscal cliff is very real and very serious and very much an unsolvable problem. It is the result of fiscal irresponsibility spanning decades. Any suggestion that it not serious or that more of the same is the solution is sheer insanity.
Breaking Down The President's Proposal [View article]
Labor loss is almost all of the problem. Where would GDP be with 25 million more people working. GDP would be up close to $1 trillion and the deficit would be lower by that amount.
Breaking Down The President's Proposal [View article]
Lawrence
Support for my major premise in this case is simple math. If we grow debt at the rate of 6% a year and the economy at 2% a year where are we in 10 years or 20 years? By the way we will never find out as we will correct this imbalance in months, not years or decades.
Notwithstanding that point, if we reach a point where debt cost climbs to offset the perceived risk then what? Carry cost is slowly beginning to reflect increased risk.
Just extend the debt and GDP out for 10 or 20 years at current rates and tell me what you see at that point. We are a global economy and we sure are not Japan. The world can tolerate Japan's failed policy. It cannot tolerate much more of this same failed policy approach in the US before the globe implodes.
We are at a very serious tipping point and I think you see that too.
Breaking Down The President's Proposal [View article]
Lawrence
Well, perhaps I'm more optimistic than most in that I still believe we can do better.
As to Japan's currency not being destroyed, if we fall off the cliff and into a protracted recession as I think we will, our currency will do exceptioanlly well if you measure that by the strength of the currency. The US dollar will gain in value in a period of deleveraging as money is sucked out of the economy. That doesn't mean we will be a health or vibrant economy though.
5 Investment Recommendations From PIMCO's Bill Gross [View article]
What if deflation is the outcome as we fall into recession and deleveraging is forced on a market that has been particulary resistant to deleveraging?
Gross seems to smart to be calling for delveraging as he is doing and expecting inflation at the same time. M2 will shrink if a delevarging enviornment takes hold and deflation will be the short term reality.
Assessing My Recommendations In 2012, Plus My Top Pick For 2013 [View article]
Be interesting to see how this long term buy and hold fares over the reamaining 4 months. Of course if the market sells off and tests the '09 lows as it is likely to do as we enter global recession in 2013 the portfolio may still do OK when measured against the S&P.
I wonder how it will do when measured against a 100% cash postion though.
I'm reminded of that joke about the guy who is in a flood and the police come and tell him to evacuate. He says God will take care of him. As the flood waters come a guy in a boat comes by and offers to take him to safety. He says God will take care of him. Then as the waters reach the rooftop and he is perched at the top of the roof a helicopter comes by and he remains insistent that God will take care of him. When he dies in the flood and gets to heaven he asks God why he didn't take care of him and God responds by telling him he sent him a police officer in a car, a man in a boat and a helicopter.
This market has provided ample opportunity to make a lot of money since the recession lows. Today it is a market in complete denial at close to all time highs as we continue to wrestle with irresolvable problems. 20 plus million out of work and desperately needed to support GDP as the entitlement checks stop coming. Banks that are to afraid to lend. A debt to GDP ratio that is at all time highs. Consumer confidence falling. Businesses hoarding cash like crazy. A Fed easing policy that has failed. Over 20% of the nations mortgages under water. A global economy in serious contraction. Labor participation rate at 50 year lows. M2 velocity at 50 year lows. And now we prepare to raise taxes and cut spending virtually guaranteeing a 4% contraction to GDP that is probably at 1.5% now leaving us with a negative 2.5% in 2013. That is recession folks.
Stunning levels of complacency and virtually no substantive data that supports higher stock prices other than the higher stock prices themselves. The trends your friend huh?
Buy and hold if you want too. It is your money.
JS
The Era Of Buy And Hold Is Over - Using Trade Structure To Play The Swings [View article]
I don't know your perspective on market direction. Mine is DOWN and I am short tech stocks including Apple, crude oil at 97 and financials. All but the financials are profitable today.
Mt point was that I would have done even better on positioning had I used the strategy outlined here.
JS
Seniors Screwed By Fed Policies [View article]
"Cash and/or bank CDs may be the more appropriate investment"
You got that right. And cash is an investment asset despite opinions to the contrary in that it moves inversely and in direct proportion to the asset you are considering.
The odds are very high that all asset classes will fall in 2013 and those in cash will be rewarded. Why sacrifice 20-30 or 40% of your principal for a 2-3 or 4% return.
JS
Fiscal Cliff Notes: Plan B Edition [View article]
I was perplexed by the incredible recovery on Friday. Your perspective on a last minute resolution seems to be the prevailing sentiment amongst investors.
I am reminded of the debacle that ushered in the "fiscal cliff" arrangement last year. Oh, and how the "Super Committee" managed to come together on spending cut measures - not.
If the House couldn't clear the $1,000,000 deal I am puzzled as to how they will come together on anything. I see this as a hard stand by the House Republican/Tea Party/Norquist crowd.
The real fireworks start next month anyway with the debt ceiling debacle - Chapter 2. Obama tells us he won't allow it to be used as a bargaining chip. I wonder how he is going to accomplish that. I think the line is drawn in the sand and I can't begin to imagine how all this works out in the end but it will be really ugly.
Obama, Boehner, Bernanke, Geithner and most of the rest of the politcal class along with a good number of Wall Street heavy weights already know the outcome. This whole process is nothing but political theater. My guess is that a very, very small debt ceiling increase gets approved - enough to buy us another few months at best - in January. No agreement on spending or taxes and the very modest debt ceiling increase will be delayed to the last minute.
JS
An Analysis Inspired By Grantham And Hussman On Profit Margins [View article]
My respect for your views just went up. I very much appreciate your objective assesment of your own analysis. That speaks tons to me.
JS
An Analysis Inspired By Grantham And Hussman On Profit Margins [View article]
You are correct and your conclusion poses a problem going forward. Corporate top line sales haven't suffered much due to $1 trillion plus in annual stimulus to the unemployed along with other entitlement payments while costs have fallen due to massive lay offs. The take away - reasonably strong profits.
As more lay offs are being announced one must wonder what is going to sustain GDP levels that allow for continued corporate profits - more borrow and spend I guess. The imbalance in consumers earning a check vs those subsidized by government is becoming a real problem.
Current high profits are clearly transitory and negative forward guidance on future profits is likely to prove overly optimistic. We have reached a tipping point and analysis based on historical data seems useless to me as a method for predicting profits going forward in light of this unprecedented dilemma that is simply not reflected in any historical data set.
JS
An Analysis Inspired By Grantham And Hussman On Profit Margins [View article]
I appreciate your response. I think your view is shared by most in the industry and is certainly driving stocks at the present time. It is clearly a market that wants to focus on the positive and discount the negative.
My recent article on 3 long term metrics - labor participation rate, excess bank reserves and M2 velocity are just a few of the things I look at that suggest we have a problem never before experienced and no historical perspective to draw from on how things will work out.
I hear everyone attacking Congress for incompetence and I hear no one offering a viable solution. It is neither fair nor well informed on the part of the critics in this instance as there is no real solution.
My reason for saying we are in a unique situation is based on the fact that we have never before in history been so interconnected economically and it has worked to diminish or fully negate the impact of traditional Keynsian solutions. I would have hoped that the Fed's policies could have achieved the desired end but they haven't.
I just have a hard time getting enthusiastic about buying stocks at close to all time highs as debt and deficit is the only thing that has kept us above water on GDP since the recession ended. If you extract the debt financed stimulus from the economy as we are about to do we are going into recession. It is just math.
Thanks for your views and again my compliments on the depth of your analysis and your response to my questions.
JS
An Analysis Inspired By Grantham And Hussman On Profit Margins [View article]
I am very impressed with your analysis but note that you mentioned above that Gratham expects "some small degree of austerity out of the budget and debt ceiling debate."
I struggle to see how the austerity ends up being small in degree and wonder if you give serious consideration to the macro implications here. I get the idea that you view the bearish argument as not particularly relevant.
I am probably the most bearish of all contributors on SA and see the macro picture as very negative going forward. I continue to defend Congress against their critics in that I see their most immediate problem - averting the fiscal cliff - as a problem that has no viable solution.
I'm just curious as to how you see the debt and deficit spending situation and if you give any consideration to these macro dynamics in your investment decisions.
I ask as I think you are very thorough in your analysis and therefore value your opinion.
JS
Catch-22 For The Stock Market And The Cliff [View article]
"much like the fire-bug who sets fires that he can fight,"
I was going to comment on that statement before the stakes were raised last night. Now, I think my arguments premise is much stronger,
The lack of agreement on the fiscal cliff is likely to get much worse with the debt ceiling debate added to the mix. I can't say this irrational bull is over yet as it is not based on anything fundamental but just a giddiness for the party to continue by those remaing at the party. Those wanting to party on in their drunken stupor might keep this thing afloat a while longer Who knows.
My guess is that the hedge funds have been waiting to slam this market and just waiting for an excuse and will start with ferocity today. January is not going to be a good month. Remember the aftershock of 2011 when Congress last visited this issue.
Js
Fiscal Cliff: Let's Call Their Bluff [View article]
The ones screwing the working class are those borrow and spend proponents in DC. Consider that the extended unemployment benefits authorized under Obama's "American Recovery and Reinvestment Act" were funded by taxpayer money - public debt - and passed through to the unemployed who spent the money with America's major corporations while those corporations managed to make substantial profits by cutting costs, i.e., lay offs.
Obama's "protect the middle class" policy is creating a major public debt burden - the people's debt - while corporate America fills their coffers with the cash from that debt and they sure aren't investing that cash. To the contrary, they are acclerating lay offs as they prepare for the inevitable conclusion in this chapter of the continuing saga on the destruction of America.
Obama and the rest of the "wealth redistribution" group are indeed making a mass transfer of wealth but it is from the working class - the taxpayers - to the major corporations.
Time to connect the dots, or better yet, follow the money. The banks buy the bonds, the government pays the money through to the unemployed, the unemployed pay the money through to major corporations for goods and services, the major corporations continue lay offs to cut expense and accumulate cash (which they hold) and the taxpayer gets to pay the debt off.
That is indeed "wealth redistribution" but it's from the middle class to the banks and major corporations, not the other way around as so many think.
JS
Fiscal Cliff: Let's Call Their Bluff [View article]
Your big government can take care of us agenda is based on what? Consider that it is government that created this mess with their fiscally irresponsible actions dating back for decades.
We can start with the Secondary Mortgage Enhancement Act that decided MBS’s would be equivalent to US Treasuries and acceptable investments for private sector banks. That was in 1984.
Then 8 years later – in 1992 - government passed the Housing and Community Development Act of 1992. That Act established that GSE’s (Fannie and Freddie) had affirmative obligation to facilitate the financing of low income housing.
These low income loans were bundled – MBS’s – and banks invested in them since our politicians deemed them equivalent to US Treasuries.
Then GSE’s were required to meet quotas on low income loans – first their total would be 30% and by 2007 that number was raised to 55%. Gradually, these MBS’s – by government mandate – were relegated to the level of junk bonds but remember, they were still equivalent to US Treasuries since our government said they were back in 1984.
Then we repealed Glass Steagall that allowed banks to speculate in high risk assets.
The result of these irresponsible moves brought us to the brink of a systemic collapse of the banking system and the after shock of these political blunders still plague us 5 years later.
All of this is the result of political expediency – a give the people what they want so they will vote for us agenda.
In the beginning we had a government that was formed – not as a democracy – but as a republic. The idea being that a democracy - based on majority rule - would result in the destruction of the country in time.
Our politicians are not, or should not, be elected to give us everything we want as we are not sufficiently informed collectively to know the consequence of a political class that tries to give us everything we want.
The fiscal cliff is very real and very serious and very much an unsolvable problem. It is the result of fiscal irresponsibility spanning decades. Any suggestion that it not serious or that more of the same is the solution is sheer insanity.
JS
Breaking Down The President's Proposal [View article]
Does that mean we actually agree on something?
Breaking Down The President's Proposal [View article]
Support for my major premise in this case is simple math. If we grow debt at the rate of 6% a year and the economy at 2% a year where are we in 10 years or 20 years? By the way we will never find out as we will correct this imbalance in months, not years or decades.
Notwithstanding that point, if we reach a point where debt cost climbs to offset the perceived risk then what? Carry cost is slowly beginning to reflect increased risk.
Just extend the debt and GDP out for 10 or 20 years at current rates and tell me what you see at that point. We are a global economy and we sure are not Japan. The world can tolerate Japan's failed policy. It cannot tolerate much more of this same failed policy approach in the US before the globe implodes.
We are at a very serious tipping point and I think you see that too.
JS
Breaking Down The President's Proposal [View article]
Well, perhaps I'm more optimistic than most in that I still believe we can do better.
As to Japan's currency not being destroyed, if we fall off the cliff and into a protracted recession as I think we will, our currency will do exceptioanlly well if you measure that by the strength of the currency. The US dollar will gain in value in a period of deleveraging as money is sucked out of the economy. That doesn't mean we will be a health or vibrant economy though.
JS