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Logical Thought

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  • The Event That Will End The Bull Market [View article]
    While I almost completely agree with this article, I will provide one note of caution to the "broad market bears" (a group that includes me): it's possible that European QE could kick in as U.S. QE ends, and as money is internationally fungible that could put a bit of a floor under the otherwise "overvalued in a normalized environment" U.S. stock market.
    Apr 20 09:35 AM | 10 Likes Like |Link to Comment
  • Keryx Biopharmaceuticals: Is The High Valuation Justified? [View article]
    Hi Sarah. I'm short and I'm not worried at all. This will be at best a niche drug (hence, no one wants to partner with them) and this stock will be back in the $3s in 18 months when the market realizes how poorly it's selling. (Keep in mind that the fully diluted share count here is now around 95 million.)
    Apr 16 10:56 AM | 1 Like Like |Link to Comment
  • Tesla In China: Cleaning Up The Smoggy Skies [View article]
    >>According to Veronica Wu, VP of Tesla's China operation, Tesla expects China to contribute 30-35% of the company's global sale for 2014.<<

    Veronica's the one who *didn't* quit last month, right? Maybe we should ask her former boss-- you know, the one who *did*: http://bit.ly/1jITGX2
    Apr 15 06:31 PM | 1 Like Like |Link to Comment
  • Why Stocks Won't Crash (For Now) [View article]
    >>Is SEC accreditation something out of this world?<<

    No, it's a legal requirement before I'm permitted to discuss my fund's performance with someone I don't know or in a public forum. Although new rules about hedge fund advertising make this somewhat of a "gray area," when it comes to the SEC I prefer to stay "black & white."
    Apr 14 09:47 AM | 10 Likes Like |Link to Comment
  • S&P 500 Is Below Fair Value With A Strong Support Level Of 1668 [View article]
    >>Higher levels of personal income together with tougher lending standards should gradually improve household balance sheets.<<

    Sure, but meanwhile real personal income is flat to declining because so much U.S. labor is internationally fungible. That's why all the Fed is doing by "defending 2% inflation from below" is lowering the living standards of the average American worker who can't get a raise because his job (or his neighbor's) can be sent overseas.

    >>State and local governments are doing better with their balance sheets (with, unfortunately, some obvious exceptions).<<

    Without serious nationwide pension reform, those "obvious exceptions" are just the early canaries in the coalmines.

    >>Corporate balance sheets are strong...<<

    The recent stats I've seen show that net corporate debt is actually at record levels.

    >>...the federal debt level is a meaningless accounting entry because the debt never really has to be repaid.<<

    Really? Then why do we even bother collecting taxes? And what do we tell all those people and institutions who are holding the bonds or will be needed to buy the ever-growing avalanche of newly-issued ones? "Oh, don't worry, we can always print up enough to pay you off"? When in the world's financial history has that argument been supported by a pleasant outcome? There's really nothing new under the sun (including your argument); they were saying the same thing as far back as ancient Rome. http://amzn.to/1sXXb0K

    Let's just table this, Phil, until Japan blows up. Then you can explain to me why we're different.
    Apr 13 07:51 PM | Likes Like |Link to Comment
  • S&P 500 Is Below Fair Value With A Strong Support Level Of 1668 [View article]
    >>So the Fed is the only game in town...<<

    I don't agree with that. There's "another game" that should be played...

    Although the ratio of household debt to income is this country is somewhat off the all-time highs (of around 130%) attained in 2006, it's still FAR above historical norms (of below 60%), as is government debt as a percentage of GDP. What the Fed is trying to do with its current excessive measures is to encourage people to (literally) borrow yet more consumption from the future when in fact the best long run thing this country could do is substantial deleveraging (both on the household and government level) to pay down the 25-year spending binge on which we embarked between 1980 and 2005. Yes, it won't be pleasant but yet more borrowing now will create an even MORE unpleasant situation down the road, inflicted most severely on a generation that wasn't even ALIVE when that 25-year "two-SUVs & a McMansion" spending binge took place.

    The one exception I'd make for this is the infrastructure spending you mention, because if we have to fix the roads and bridges anyway, we may as well do it when we can borrow the money cheaply (or maybe we shouldn't even borrow for THAT and instead should raise the federal gasoline & diesel taxes to pay for it). However, even this idea scares me because we both know damn well that the political pork barrel is going to bring us too many "bridges to nowhere," as well as all kinds of non-infrastructure spending programs that will somehow be classified as "infrastructure." Perhaps one way to handle this is for Congress to agree not to build anything new and instead only to repair or replace what already exists, and not to spend it on anything on which you can't move cargo.

    Finally (and back to the original point of the article), I think there's a very big difference (stock-price wise) between more QE (which I think [hope???] is unlikely to happen) and "promises of low rates forever" (which I think won't be enough to support stocks when we enter a recession). After all, Japan had low rates for a very long time and yet its stock market still spent "forever" somewhere on the bottom of the ocean.
    Apr 13 06:44 PM | Likes Like |Link to Comment
  • Why Stocks Won't Crash (For Now) [View article]
    I assume from your answer that you're not accredited under the SEC definition of such so I guess we'll just end things here.
    Apr 13 04:21 PM | 7 Likes Like |Link to Comment
  • Why Stocks Won't Crash (For Now) [View article]
    >>...it's the function of the central bank to reliquefy the system when something bad happens.<<

    If you can't understand that the Fed keeps creating these bubbles then you and I have nothing further to discuss about this.

    >>And, notice that nobody is rushing out, making risky new loans.<<

    Yes, well here on Planet Earth we have things called the sub-prime and leveraged loan markets, not to mention grotesquely insolvent countries such as Greece issuing new long-term debt in the 4% range.

    >>Your pessimism, as has been expressed by many ever since 2008, is not only unwarranted. It's been very destructive for those clinging to such views.<<

    Are you an accredited investor, Tack? If so, feel free to email me and I'll be happy to share with you my audited results since January 2005. Then you can send me yours and we'll compare, okay?
    Apr 13 04:03 PM | 17 Likes Like |Link to Comment
  • Why Stocks Won't Crash (For Now) [View article]
    >>It seems that the majority of investors have already positioned themselves defensively.<<

    Gee, and I thought margin debt was at record highs!
    Apr 13 03:22 PM | 5 Likes Like |Link to Comment
  • Why Stocks Won't Crash (For Now) [View article]
    Tack:

    Without QE, what would subprime car loans, junk bonds, single-family investment housing and the leveraged loan market look like? There's nothing more laughable to me than academic economists (not necessarily you-- I mean nothing personal here) who claim that QE is "just an asset swap" or that "all the money is just sitting there in excess reserves." Back when market participants were forced to live in the real world, if Treasury needed to borrow hundreds of billions of dollars, auctions were held and the money came out of the private sector, thereby leaving it unavailable to chase much more speculative opportunities. Now however, the Fed simply creates the money to buy those bonds itself so the private sector still has its hundreds of billions burning holes in its pockets and hence available to make risky new loans to all the Fed bubble#3-era recipients who are one payday or interest rate increase away from causing this one to end the same way the last two did (as it most undoubtedly will).
    Apr 13 03:17 PM | 15 Likes Like |Link to Comment
  • S&P 500 Is Below Fair Value With A Strong Support Level Of 1668 [View article]
    >>If the economy starts to dip back into a recession, my expectation is that we will have a resumption of QE.<<

    I guess that's our primary difference. We've had countless recessions in the past without the Fed trying to counter them by printing trillions of dollars, and I think that even THIS Fed is going to have to give up its God complex and acknowledge that recessions are an inevitable part of capitalism. Am I sure about this? Sadly, no. But I think that if it does try yet another QE the political backlash could be massive.
    Apr 13 11:42 AM | Likes Like |Link to Comment
  • Why Stocks Won't Crash (For Now) [View article]
    bbro,

    How many economic environments have we had when the Fed was printing a trillion dollars a year and still achieved just 2.4% (Q4 2013) GDP growth? What do you think will happen to that 2.4% when the Fed is printing "zero"?

    I'm not necessarily predicting "a crash" but I don't think stocks can avoid at least a very severe (at least 20% from peak) correction tied into the end of QE. I just don't know if it will front-run the end of QE or happen around the time of-- or shortly after-- its completion. Either way, it should occur by year-end.
    Apr 13 09:29 AM | 22 Likes Like |Link to Comment
  • Why Stocks Won't Crash (For Now) [View article]
    >>...history shows Fed tightening has been bullish for stocks, at least initially.<<

    Sure, but historically (except for the Volker era) the Fed tightened because the economy was so strong that it was beginning to overheat. On the other hand, what we have now is a situation that combines painfully slow growth with a Fed that suddenly realizes it has created a $5 trillion balance sheet with nothing sustainable to show for it. So unless you think that "tapering isn't tightening," you really can't call the end of QE anything but bearish for stocks.
    Apr 13 09:25 AM | 22 Likes Like |Link to Comment
  • S&P 500 Is Below Fair Value With A Strong Support Level Of 1668 [View article]
    >>I have written before... about the dividend yield model and its uncanny reliability since 2009.<<

    Do you really want to rely on a model with an "uncanny reliability" that was established solely in an era during which the Fed was printing trillions of dollars? How does you model work going back to, say, 1964 (i.e., over 50 years)? The only one of your four scenarios that seems to acknowledge a problem with the model is #4 (a recession). If we've got the crappy economy we've got now (2% GDP growth) with the Fed printing $85 billion a month for over a year and STILL printing $55 billion this month, what kind of economy do you think we'll have when the Fed is printing zero?

    Also, your second scenario states that the only thing that could cause a sudden inflation spike would be a spike in the price of oil. While I-- like you-- don't necessarily see inflation as being an immediate problem, we're in such uncharted waters here (the massive amount of continual Fed printing) that there might be a myriad of "unknown unknowns" that could cause such a spike.

    In summary, our clueless (as proven by its creation of and failure to anticipate previous crises) Fed has added such an unsustainably artificial element to this economy and stock market that I wouldn't put credence in ANY model that reads "bullish" without having been back-tested over a very long period of time.
    Apr 13 09:06 AM | 6 Likes Like |Link to Comment
  • Is Tesla's Gigafactory Becoming A Gigafarce? [View article]
    @Haeze
    Not according to this: http://bit.ly/PYTnNl
    Apr 8 10:33 AM | 1 Like Like |Link to Comment
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