Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
F&G
You are not alone in your view and I respect that. I don't agree with it but I respect it. Considering we are all time highs I would guess it won't be to much longer before one of us is proven right and one of us is proven wrong.
If there weren't differences of opinion there wouldn't be a market as it takes a buyer and a seller to make a market.
Idiot's Guide To Surviving A Raging Bull Market [View article]
"That's how simple it is, in my opinion. If you find it difficult to justify buying a stock (not holding it, buying it), then do yourself a favor, punt it."
It really is that simple isn't it.
Great advice and much more useful than the standard punidit call that goes like this - "the market could go a lot higher but we are in a danger zone so be careful as it could really crash too."
You get a thumbs up from me at least on this article.
The Wedge Between Perception And Reality [View article]
One things for sure - you won't have to worry about the tax consequence if that 10 stock that went to 50 returns to 10 as there isn't a tax if there isn't a profit. It would seem prudent to protect those gains with a hedge at least - especially at these levels - even if you don't sell the stock.
The 'Twitter Crash' Is 'Flash Crash' Redux [View article]
I agree that bogus information is a huge problem but there were other single stock flash crashes not blamed on bogus information - google and symantec.
Those crashes were single stock crashes and based on the size of the orders. Google was 57,000 shares and Symantec was 500,000 shares.
Could it be that there is just no interest in the buy side and the bid gets pulled rapidly lower on sizable orders? I think so but it is always blamed on HFT's and algo's - not a simple lack of buy side interest sufficient to absorb a sizable order.
It's a shame that a market is manipulated to a level where the imbalance between buyers and sellers is so extreme that large traders can't take a profit without crashing the market.
Why A Stock Market Bubble Is Forming Right Now [View article]
James
Great article. You made this statement:
"For example, when the economy gets worse the demand for liquidity by households and businesses tends to rise for precautionary reasons and because access to credit becomes scarce"
I just want to note that the same applies to sovereigns who choose to hold dollar denominated assets for protection - a sort of inusrance against just the condition you describe. Jose Ocampo makes that point in his paper on why we are in need of a non-sovereign reserve currency. Ocampo makes the point that in times like we are in today there is a high demand for the reserve currency which creates a deflationary bias on a global scale.
I think this is coming and very soon as it is becoming glaringly obvious that we need a new global monetary system that is designed to accomodate a one world economy. There is a lot of global support for a central bank's central bank and a new monetary system.
Personally I think the strange price action in gold has something to do with a global reallocation of gold in anticipation of a new global fix relative to a non-sovereign reserve asset - probably the IMF's Special Drawing Rights.
Just thought I would throw that out to get your thoughts if you have any on this subject.
Just 2 'Recession' Indicators: Shamelessly Spinning The Data [View article]
Doug
I am not in disagreement with your assesment that the Zero Hedge presentation works to emphasize the negative but shameless - I don't know. It seems to me one of the most shameless presentations of data come from the main stream, industry biased bulls whose income depends on presenting the bull side bias.
The truth is the government has manipulated the data on unemployment with consistent drops in the participation rate. They apparently did the same last month with GDP by flipping the deflator from 2.1 to 1.2.
You have pointed out on your long term secular chart that the odds are we have another down leg in the secular bear yet to come - at least that is how I interpreted your comments.
My point is this - both sides of the argument can manipulate data to support their own agenda and I think to be fair if you attack the bear case you also need to point out the deception that occurs constantly on the bull side.
For instance the notion that the recent jump in housing prices is indicative of a recovery and could lead us into a real recovery. I just don't see how that happens with about 20% of mortgages underwater. As price moves these mortgages to breakeven the magnitude of the inventories that come on the market will once again crush prices. Furthermore, even in the best of circumstances housing would only contribute 7% to 10% to GDP.
That is just one example. The biggest example is the idea that QE is somehow inflationary and therefore positive for equities when in fact most of the Fed's balance sheet expansion remains trapped in excess reserves. That is a blatant and serious falsehood that is almost never challenged by anyone including the Fed who chooses to allow investors to operate on the false assumption that QE is doing something it flatly is not doing.
Just saying if you are going to attack shameless reporting of data you could be fair handed and point out the fact that it occurs on both sides of the bull/bear argument.
You may be right that massive liquidity injections spur stocks to new highs but the question I have is why should it if these new liquidity infusions remain trapped in excess reserves as most of the previous infusions of liquidity through QE have?
Here is how QE has worked to date. Fed credits private sector banks reserve account at the Fed and debits the Feds bond account. At the private sector bank the bond account is credited and their reserves account is debited.
That means the private sector banks have more excess and unused reserves parked at the Fed than they did before. No expanison in M2 occurs with this transaction and therefore no inflation and no GDP stimulus. The Fed's print is psychological meaning it works to motivate equity buyers into creating an even greater divergence in the economy vs stocks.
In other words as top line sales and profits shrink; as unemployment remains flat or deteriorates; as inflation moves toward disinflation; as GDP moves lower; as the recession in the EU continues to drag on global economies - in other words as economic metrics continue to reflect worsening conditions across the spectrum stocks just keep on moving higher because the deception about what QE is doing continues to be promoted by virtually everyone including the Fed.
Again, you may well be right that stocks move higher even as the economy crumbles at our feet but it remains a deception of epic proportions and will not end well. I see this as a tragedy and I remain stunned that investors don't seem to understand what happens to the Fed's newly created money.
One thing for sure - if we do have a crash as we most certainly will at some point the banks have unprecedented cash reserves to withstand a massive bank run. I think M2 is around $10 trillion today - give or take a few billion - and excess reserves are about 17% of that amount. Add another 10% for required reserves and the banks have what is surely a record 27% of M2 in cash reserves.
At times I suspect the Fed is more concerned about bank solvency than anything else and is simply shoring up reserves in anticipation of a major economic collapse.
Sorry, Doomers, The Stock Market Isn't Divorced From Reality [View article]
Tack
I tend to agree with your view that QE has not driven profit growth. What has driven profit growth is fiscal stimulus financed with deficit spending combined with corporate cost cuts.
The consequence of cost cuts have been for the most part in the area of labor costs and it is an inconvenient truth that as labor costs are cut the consumer pool shrinks producing a contraction in GDP. We have avoided that contraction to date as the fiscal stimulus has acted as a backstop mitigating much of the damage that would have occured had the fiscal stimulus not been there.
The truth is the economy can't grow without fiscal stimulus which is running at about 4% of GDP while producing only a 2% GDP - in other words without fiscal stimulus we are in negative territory by about 2%.
The Fed has managed to keep the cost of deficit spending in check but little else. I do get tired of hearing that the Fed is printing and that is bullish for stocks. It is based on the belief that the money is actually moving into depositor accounts and being spent but the truth is it is simply sitting in excess reserves at the Fed.
Fiscal stimulus has been useful but monetary policy not so much and only to the extent that it has kept the carry cost of massive debts low.
What Happens When Liquidity Disappears? [View article]
zero
No I don't think he will stop - at least for some time. I just don't think it will matter. .
The Fed has managed to orchestrate a nice recovery in stocks but not the economy. Main street doesn't feel so giddy over what Bernanke has done - unlike stock traders.
Keep in mind we have had 2 market crashes this century which is still in its infancy and the Fed was on the job at those points as well as they are today. We still crashed though.
We are still in a secular bear market and I think we have a lot of deleveraging to deal with before we can see real growth again.
As I have said before and will say again - Bernanke isn't omnipotent and all attempts to corner a market have failed - every one.
What Happens When Liquidity Disappears? [View article]
dw
I don't know what I said that gave you the idea I was making $16,000 a month. More like $16,000 a year - actually better than that but certainly no where near $16,000 a month.
What I said was that my company took half of my paycheck for a year but I didn't mean to imply that paid off a $100,000 note as it didn't. My trader rescued me at the end of the year by paying off his deficit and I thereafter got my money back and paid off the note at the bank.
What Happens When Liquidity Disappears? [View article]
bjarne
Excellent post and my thanks to you for sharing. I do agree with virtually everything you said. You really need to write that article on SA. Fed policy is not helping main street and the 80 year experiment will fail I think.
We have reached an inflection point this time that suggests that counter cycle deleveraging is inevitable and will occur no matter what. The law of diminishing returns is a point I make over and over and the excess reserves chart, debt to gdp chart, unemployment chart and other metrics indicate that we have gone into turbo charge mode with Keynsian policy and we didn't get anything out of it this time.
That is a really big problem going forward. Couple that with massive unfunded liabilities and major population demographic shifts and it all spells big trouble. This isn't a problem that we can kick down the road anymore as fiscal and monetary policy is failing in spite of the massive proportions of the inputs relative to prior periods.
What Happens When Liquidity Disappears? [View article]
S
Experience is a great teacher and I have some of that. Your point stated here brings to mind some of that experience:
You said:
"I will tell you that right now I have my client in 50% cash. And I can tell you that they are not happy about it"
In 1973 I had a very aggressive futures trader that ran $2,000 into $250,000 from late May to early September. I have never seen anything like that since but it didn't end well. My boss - one of the best analysts that ever lived in my mind - advised me to get my trader out of the market. He too was "not happy about it" but relented and took off about 1/4 of his trades.
The market continued higher for about 2 weeks and he angrily ordered me to put his trades back on. One week later the buy side liquidity evaporated and almost all futures contracts started moving limit down. He could no longer get out and when we finally did get him out he had lost the $250,000 and was $100,000 in deficit.
He didin't have the money nor did I but I was liable and my boss took me to the bank and co-signed a $100,000 note for me. They extracted 50% of my paycheck for 12 months as payment toward that note until the trader finally paid off the loss about a year to the date after it was incurred.
That incident always comes to the front of my thoughts when markets move into irrational mode. I would much rather be out a little early than repeat that incident by being a little late. Deep in mind $100,000 in 1973 isn't the same as $100,000 today.
What Happens When Liquidity Disappears? [View article]
Mark
"For example, if BoA sells bonds to the Fed, then BoA will probably attempt to replenish its bond inventory. So some part of the QE then gets credited to some checking account of some bond seller."
If BoA does in fact replenish their bond inventory and they do that to some degree then you are right. The question then becomes what does the recipient of the bond proceeds do with the money. My guess is he reinvests it rather than buy goods and services with it so it is still not doing a lot to help GDP - rather it ends up inflating risk assets even further.
Good point though and I do agree with it.
By the way it is not my "idea" that sentiment is overwhelmingly bullish if you were directing that comment to me.
Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
You are not alone in your view and I respect that. I don't agree with it but I respect it. Considering we are all time highs I would guess it won't be to much longer before one of us is proven right and one of us is proven wrong.
If there weren't differences of opinion there wouldn't be a market as it takes a buyer and a seller to make a market.
JS
Idiot's Guide To Surviving A Raging Bull Market [View article]
It really is that simple isn't it.
Great advice and much more useful than the standard punidit call that goes like this - "the market could go a lot higher but we are in a danger zone so be careful as it could really crash too."
You get a thumbs up from me at least on this article.
JS
The Wedge Between Perception And Reality [View article]
An Asset Is Worth What A Buyer Will Pay When You Try To Sell [View instapost]
I like your reply to your own comment. All good points.
JS
The 'Twitter Crash' Is 'Flash Crash' Redux [View article]
Those crashes were single stock crashes and based on the size of the orders. Google was 57,000 shares and Symantec was 500,000 shares.
Could it be that there is just no interest in the buy side and the bid gets pulled rapidly lower on sizable orders? I think so but it is always blamed on HFT's and algo's - not a simple lack of buy side interest sufficient to absorb a sizable order.
It's a shame that a market is manipulated to a level where the imbalance between buyers and sellers is so extreme that large traders can't take a profit without crashing the market.
JS
Why A Stock Market Bubble Is Forming Right Now [View article]
Great article. You made this statement:
"For example, when the economy gets worse the demand for liquidity by households and businesses tends to rise for precautionary reasons and because access to credit becomes scarce"
I just want to note that the same applies to sovereigns who choose to hold dollar denominated assets for protection - a sort of inusrance against just the condition you describe. Jose Ocampo makes that point in his paper on why we are in need of a non-sovereign reserve currency. Ocampo makes the point that in times like we are in today there is a high demand for the reserve currency which creates a deflationary bias on a global scale.
I think this is coming and very soon as it is becoming glaringly obvious that we need a new global monetary system that is designed to accomodate a one world economy. There is a lot of global support for a central bank's central bank and a new monetary system.
Personally I think the strange price action in gold has something to do with a global reallocation of gold in anticipation of a new global fix relative to a non-sovereign reserve asset - probably the IMF's Special Drawing Rights.
Just thought I would throw that out to get your thoughts if you have any on this subject.
JS
Just 2 'Recession' Indicators: Shamelessly Spinning The Data [View article]
I am not in disagreement with your assesment that the Zero Hedge presentation works to emphasize the negative but shameless - I don't know. It seems to me one of the most shameless presentations of data come from the main stream, industry biased bulls whose income depends on presenting the bull side bias.
The truth is the government has manipulated the data on unemployment with consistent drops in the participation rate. They apparently did the same last month with GDP by flipping the deflator from 2.1 to 1.2.
You have pointed out on your long term secular chart that the odds are we have another down leg in the secular bear yet to come - at least that is how I interpreted your comments.
My point is this - both sides of the argument can manipulate data to support their own agenda and I think to be fair if you attack the bear case you also need to point out the deception that occurs constantly on the bull side.
For instance the notion that the recent jump in housing prices is indicative of a recovery and could lead us into a real recovery. I just don't see how that happens with about 20% of mortgages underwater. As price moves these mortgages to breakeven the magnitude of the inventories that come on the market will once again crush prices. Furthermore, even in the best of circumstances housing would only contribute 7% to 10% to GDP.
That is just one example. The biggest example is the idea that QE is somehow inflationary and therefore positive for equities when in fact most of the Fed's balance sheet expansion remains trapped in excess reserves. That is a blatant and serious falsehood that is almost never challenged by anyone including the Fed who chooses to allow investors to operate on the false assumption that QE is doing something it flatly is not doing.
Just saying if you are going to attack shameless reporting of data you could be fair handed and point out the fact that it occurs on both sides of the bull/bear argument.
JS
Buy In May And Stay To Trade? [View article]
You may be right that massive liquidity injections spur stocks to new highs but the question I have is why should it if these new liquidity infusions remain trapped in excess reserves as most of the previous infusions of liquidity through QE have?
Here is how QE has worked to date. Fed credits private sector banks reserve account at the Fed and debits the Feds bond account. At the private sector bank the bond account is credited and their reserves account is debited.
That means the private sector banks have more excess and unused reserves parked at the Fed than they did before. No expanison in M2 occurs with this transaction and therefore no inflation and no GDP stimulus. The Fed's print is psychological meaning it works to motivate equity buyers into creating an even greater divergence in the economy vs stocks.
In other words as top line sales and profits shrink; as unemployment remains flat or deteriorates; as inflation moves toward disinflation; as GDP moves lower; as the recession in the EU continues to drag on global economies - in other words as economic metrics continue to reflect worsening conditions across the spectrum stocks just keep on moving higher because the deception about what QE is doing continues to be promoted by virtually everyone including the Fed.
Again, you may well be right that stocks move higher even as the economy crumbles at our feet but it remains a deception of epic proportions and will not end well. I see this as a tragedy and I remain stunned that investors don't seem to understand what happens to the Fed's newly created money.
One thing for sure - if we do have a crash as we most certainly will at some point the banks have unprecedented cash reserves to withstand a massive bank run. I think M2 is around $10 trillion today - give or take a few billion - and excess reserves are about 17% of that amount. Add another 10% for required reserves and the banks have what is surely a record 27% of M2 in cash reserves.
At times I suspect the Fed is more concerned about bank solvency than anything else and is simply shoring up reserves in anticipation of a major economic collapse.
JS
Sorry, Doomers, The Stock Market Isn't Divorced From Reality [View article]
I tend to agree with your view that QE has not driven profit growth. What has driven profit growth is fiscal stimulus financed with deficit spending combined with corporate cost cuts.
The consequence of cost cuts have been for the most part in the area of labor costs and it is an inconvenient truth that as labor costs are cut the consumer pool shrinks producing a contraction in GDP. We have avoided that contraction to date as the fiscal stimulus has acted as a backstop mitigating much of the damage that would have occured had the fiscal stimulus not been there.
The truth is the economy can't grow without fiscal stimulus which is running at about 4% of GDP while producing only a 2% GDP - in other words without fiscal stimulus we are in negative territory by about 2%.
The Fed has managed to keep the cost of deficit spending in check but little else. I do get tired of hearing that the Fed is printing and that is bullish for stocks. It is based on the belief that the money is actually moving into depositor accounts and being spent but the truth is it is simply sitting in excess reserves at the Fed.
Fiscal stimulus has been useful but monetary policy not so much and only to the extent that it has kept the carry cost of massive debts low.
JS
What Happens When Liquidity Disappears? [View article]
No I don't think he will stop - at least for some time. I just don't think it will matter. .
The Fed has managed to orchestrate a nice recovery in stocks but not the economy. Main street doesn't feel so giddy over what Bernanke has done - unlike stock traders.
Keep in mind we have had 2 market crashes this century which is still in its infancy and the Fed was on the job at those points as well as they are today. We still crashed though.
We are still in a secular bear market and I think we have a lot of deleveraging to deal with before we can see real growth again.
As I have said before and will say again - Bernanke isn't omnipotent and all attempts to corner a market have failed - every one.
JS
What Happens When Liquidity Disappears? [View article]
I don't know what I said that gave you the idea I was making $16,000 a month. More like $16,000 a year - actually better than that but certainly no where near $16,000 a month.
What I said was that my company took half of my paycheck for a year but I didn't mean to imply that paid off a $100,000 note as it didn't. My trader rescued me at the end of the year by paying off his deficit and I thereafter got my money back and paid off the note at the bank.
JS
What Happens When Liquidity Disappears? [View article]
It is a pyramid scheme.
JS
What Happens When Liquidity Disappears? [View article]
Excellent post and my thanks to you for sharing. I do agree with virtually everything you said. You really need to write that article on SA. Fed policy is not helping main street and the 80 year experiment will fail I think.
We have reached an inflection point this time that suggests that counter cycle deleveraging is inevitable and will occur no matter what. The law of diminishing returns is a point I make over and over and the excess reserves chart, debt to gdp chart, unemployment chart and other metrics indicate that we have gone into turbo charge mode with Keynsian policy and we didn't get anything out of it this time.
That is a really big problem going forward. Couple that with massive unfunded liabilities and major population demographic shifts and it all spells big trouble. This isn't a problem that we can kick down the road anymore as fiscal and monetary policy is failing in spite of the massive proportions of the inputs relative to prior periods.
Again, thanks for your comments.
JS
What Happens When Liquidity Disappears? [View article]
Experience is a great teacher and I have some of that. Your point stated here brings to mind some of that experience:
You said:
"I will tell you that right now I have my client in 50% cash. And I can tell you that they are not happy about it"
In 1973 I had a very aggressive futures trader that ran $2,000 into $250,000 from late May to early September. I have never seen anything like that since but it didn't end well. My boss - one of the best analysts that ever lived in my mind - advised me to get my trader out of the market. He too was "not happy about it" but relented and took off about 1/4 of his trades.
The market continued higher for about 2 weeks and he angrily ordered me to put his trades back on. One week later the buy side liquidity evaporated and almost all futures contracts started moving limit down. He could no longer get out and when we finally did get him out he had lost the $250,000 and was $100,000 in deficit.
He didin't have the money nor did I but I was liable and my boss took me to the bank and co-signed a $100,000 note for me. They extracted 50% of my paycheck for 12 months as payment toward that note until the trader finally paid off the loss about a year to the date after it was incurred.
That incident always comes to the front of my thoughts when markets move into irrational mode. I would much rather be out a little early than repeat that incident by being a little late. Deep in mind $100,000 in 1973 isn't the same as $100,000 today.
JS
What Happens When Liquidity Disappears? [View article]
"For example, if BoA sells bonds to the Fed, then BoA will probably attempt to replenish its bond inventory. So some part of the QE then gets credited to some checking account of some bond seller."
If BoA does in fact replenish their bond inventory and they do that to some degree then you are right. The question then becomes what does the recipient of the bond proceeds do with the money. My guess is he reinvests it rather than buy goods and services with it so it is still not doing a lot to help GDP - rather it ends up inflating risk assets even further.
Good point though and I do agree with it.
By the way it is not my "idea" that sentiment is overwhelmingly bullish if you were directing that comment to me.
JS