gabe borenstein

Why Does the Fed Feel Powerless to Identify Bubbles in Real Time?

In fact the FED did recognize the market "bubble" on the way in 1999,but the error was to address the issue via radically restrictive policy which had lead to dramatic market implosion.Untill mid of 2007 ,the FED once again had attempted to address the the issue of the market and the real estate bubble(they had called it inflation) by raising the FF to 5.5% from 1%.Unprecedented decompression was the result.Let's not forget Mr.Volcer under whose reign the FED had raised the FF to 20% . Major recession was the result . History shows that the FED in fact anticipates the "bubbles" but the applied monetary policy is invariably too aggressive.Evidently ,the FED in applying monetary brakes tends to forget the "monetary" lag and continues with restrictive policy for too long .
As for myself ,I had came to a conclusion that based on the past history ,when the FED is concerned about the "bubble" it will address the issue by derailing economy.
In 1999 I have met with portfolio manager for the Vatican ,Dr.Menginni .I have warned him about the market implosion ahead.
In September of 2007 ,in an interview with Brian Sullivan (Bloomberg TV) ,I had issued a warning about decompression ahead.
As of now ,I am impressed with the more dynamic approach that the FED has adopted ,although I do believe in the notion of too big to fail because of the psychological impact on the investment community.

Equities Update: After 2 Down Days, A Rally

Investors are trying to pick a top in the stock market . In reality the market is consolidating for the next move up.
For all of the sophistication , most participants are forgetting that the stock market is a leading economic indicator not a knee jerk reaction to individual data.
The economic momentum will accelerate into 2010 ,the market rally will intensify .
To surprise of most,the dollar will rally sharply -a reflection of a dramatic shift in the fundamentals .

Dow and Then: 1999 vs. 2009

The 1999 rally was reflection of insane evaluations and expectations of the high tech sector. When the reality caught on ,the markets have imploded. The preceding monetary tightening only exacerbated the issue .The current rally is a reflection of unprecedented commitment by the FED ,the Congress and the Administrations(both) to deflect a major economic decompression in any sector. The combination of the global "market" bears which have failed to read the danger signs which were visible as early as 2005,continue to spew the bearish nonsense which does not address the current programs(bullish) in place. The U.S recovery is in the early cyclical stages and will continue to gain momentum in the period ahead.
The price of gold is a reflection of the medieval perceptions by some of the market gurus who will be proven wrong in the period ahead.

Hawkishness Prevails in Government Policy

On June 3,2005 in an interview with Mark Gilbert (Bloomberg, London),I have predicted major decompression in the period ahead. In the same interview ,I have predicted that the yield on the 10 yr treasuries will decline to 2.5 % at the end of that decompression cycle.
The Fed policy which had again focused on inflation(wrongfully so),driving the FF to 5.5% by the August of 2007 had led me to concluded that economic Armageddon lies ahead.
When 2006 data had revealed that more than 20% of the new homes sold were financed by the subprime mortgages,there was no doubt in my mind that a major economic decompression was inevitable in the period ahead I had reiterated that conclusion during the Brian Sullivan interview September18,2007(Bloom... TV).
As the panic spread through the U.S economy I thought that what is about to happen to U.S ,would make Great Depression look like an economic Nirvana.
For the first time in my professional , life the FED surprised me as it unleashed massive monetary easing in coordination with the Treasury and the Congress(fiscal stimulus).
I knew then ,that the unprecedented economic Armageddon was averted . I have expressed that opinion in March of 2009 in another Bloomberg interview.
There is no doubt in my mind that mislead focus on inflation ,which lead to historically relevant spike in rates ,was a major catalyst for 2008 decompression.
Misled convictions had forced Lehman liquidation only to geometrically increase investors fear (globally). Rest is a history.
TARP ,TARF and aggressive easing had averted unquantifiable global disaster..
Further liquidity injection into key (needy) economic sectors with above in place ,were the necessary catalytic force necessary to achieve the current status quo.
In 2008 the consumers liquidity and assets (globally ) were decimated.
This reality will neutralize the excessive demand pull forces in the current cyclical recovery that in the previous cycles had lead to significant inflation.
The topic of reducing liquidity should be eliminated from the FED's agenda for now .Yes, there is too big to fail(psychology)
With the current status quo in place (both fiscal and the monetary),the U.S economy will experience the longest non -inflationary cyclical recovery recorded to date.

Preview from Europe: Mid-Day Sell-Off

U.S economy is consolidating for a major rebound in the period ahead.
The structural vulnerability in the key sectors has been addressed.
The fiscal and the monetary policies are aggressive and will lead to a GDP growth of 4% plus in the 4th qtr. I expect GDP expansion in 2010 to exceed 4%.
I expect the rebound to be non inflationary as it is fueled by carefully balanced monetary and fiscal policies.
Demand pull (inflationary catalyst ) is not an issue in this cyclical expansion ,something that most investors had failed to recognize.
A 100% margin on the Comex listed futures ,such as gold may bring some sense of reality into a massive speculation based on the obsolete theories .
In the meantime the stock market rally will continue as the market is undervalued and behind the curve.
Only several months ago ,Depression was a consensus.
In the meantime we are heading for a rebound of unprecedented durability.
Unemployment will decine sharply by the end of the 4th qtr.
It will decline to 3%by mid 2010.
The projected deficits will evaporate as the tax revenue increases geometrically and the U.S Treasury(Government) realizes record profits on the liquidity investments(injections).

Bernanke's First Bubble

This is an example of the type of nonsense that had prevailed in the market for quite some time .As late as March ,consensus for the economy was Great Depression.When that ridiculous assumption had failed to prevent current market rally ,then we have heard of the swine flu and it's negative impact on the economy.Daily ,economists/analysts mumble about economy decompressing again-some of these cheerfull individuals had won a Noble price .The U.S economy is on the way to a major rebound with the fourth quarter GDP likely attaining 4% plus expansion.As the consumer/investor liquidity has been decimated the recovery will be driven by very effective measures in place as opposed to demand pull inflationary cyclical rebounds in the past. It is clear to me now ,that somewhere out there exists Micky Mouse school of economics.For the record ,I had predicted the current recession as early as June of 2005 during the interview with Mark Gilbert(Bloomberg ,London).I have repeated the warning on September18 ,2007 during the interview with Bfrian Sullivan(Bloomberg TV ).Now ,I am bullish on the equity markets as I believe we are heading for unprecedented and historically relevant non inflationary economic/market rebound-period.

The Fed's Quant Easing Gameplan

What makes the FED policy very effective is the inability of the "traders" and others to " read"the FED's blue print.We have heard a nonsense about the band on the 10 year treasuries between 3% -3.10% .Now we are subjected to another "waste of time " analysis.Basically the FED in cooperation with "others" has deflected a decompressionary Armageddon as consensus was "babbling" about Depression.The policy in place is so effective that the U.S economy is about to explode to the upside.All the FED is doing(most likely) is trying to fine tune policy in order to maintain various "forces " in check. I would not worry about "crowding out" effect as the Central Banks are substantial investors in the treasury sector and the dollar is about to replace gold as the ultimate and liquid asset. One thing for sure the less details the FED divulges to the market ,the more effective its' policies will become.You want to know about FED's long term objectives ,interview Mr.Bernanke -although I doubt that he would divulge this info-any other analysis is useless-although the FED did avert another turmoil and for that they should receive a lot of praise.
The FED came from behind the curve and now effectively they are ahead of the curve and very effective.

Economy in Crisis: Three Bears and a Missing Goldilocks

I did not specify the duration of the period ahead.Certainly in the other comments i did specify the second half of 2009 as the time frame for the econonic and market rebound-so let's see what will transpire.
As to the past ,I challenge you to show me a one strategist to come even close to predicting the current turmoil.
In june 2005 I have predicted the current events and have stated that the yield on the 10 yr treasuries will decline to 2.5% .
In the same interview Bill Gross stated that at the end of the decade the 10 yr will decline to 3%-not even close.
In 1999 ,I have met with portfolio manager for the Vatican (and other managers as well)Dottorre Mengini.At the ime I have reflected to him the impending high tech implosion-that market collapsed two moths later.
My current analysis will be correct again but I am not a psychologist ,therefore I can not analyze market paranoia and psychosis.
As I have stated previously ,these emotional outbursts should have been expressed at least 2 years ago.
My track record speaks for itself.There are Central Banks that still play the video of my interview with Brian Sullivan.
Old Limey, ,just show me one individual that comes even close to my predictions/conclusion and then I will say Mea Culpa.


On Jan 26 02:47 PM OldLimey wrote:

> Mr. Borenstein, in your comment you wrote: "I am sick and tired of
> this post facto wisdom. The time to reflect analytical ability was
> two to three years ago."
>
> Whatever you think of Mr. Sutton's analysis, I'm not sure it serves
> any purpose to be quite so 'direct'. Let me remind you of something
> you wrote on 11 September last year:
>
> "The problerms in the financial sector have existed for years and
> are being addressed while their magnitude is distorted by the media
> and the market bears .
> Why? take a look at the record short open interest in the equity
> market -that is why.
> In the period ahead you will see Dow at 20,000 and the NASDAQ over
> 5000.
> Hard to believe? So were my warnings about the current turmoil,issued
> over the period of more than two years."
>
> Notwithstanding that your warnings may well have been prescient,
> neither your assessment of their cause and intensity nor your insights
> into the future appear to have been.

Economy in Crisis: Three Bears and a Missing Goldilocks

I am sick and tired of this post facto wisdom .The time to reflect analytical ability was two to three years ago.
The warning signs of impending deceleration (Armageddon)were all over.
I have issued the warning as late as September18,2007 in an interview (Bloomberg TV -FED time) .How much more explicit economic warning/analysis can be?
What is the point of reflecting at this time of what transpired ?
That part of the economic history is done with.
It is the period ahead that matters .
Most of the issues have been and are being addressed .The U.S economy is heading for a rebound in the period ahead unlike Europe and Asia (include Emerging markets as well), as these areas are lagging in properly addressing acceleratingt "economic cracks",
Once the economic deceleration reaches the "implosion status",the affected area will not have the resources that theU.S has in addressing the issues.
Inflation will not be an issue in the period ahead and I expect the food prices to decline substantially as demand pull is not an issue in the food prices inelasticity .The relevant companies are trying to increase the profit margin-they will fail just as the energy sector did.
AsI have stated many times the unemployment while a shocking misery index ,is a lagging indicator.
The necessary catalytic ingredients are in place for the noninflationary major recovery process but we may need a bit more time to achieve a convincing stability leading into a major economic/market rebound.
In the meantime give the "economic remedies" a chance -impose moratorioum on short selling for at least a year.

The Battle of the 'Flations

Deflation was an issue for quite some time and it will be an issue in the period to come.It is being addressed aggressively .We just need to make sure that any weak structural economic link is addressed without delay -political/economic criticism can wait.
At this juncture the implemented measures need time to have the anticipated impact(lag).
It is the negative psychology that appears to distort the fundamentals.
Clearly U.S economy is bottoming out(unemployment data is unnerving but it is a lagging economic indicator),but Asia ,Europe Emerging markets are yet to feel the massive "economic "pain.
The global economic recovery cycle is driven by the U.S period.
It had taken almost a year for the global economies to comprehend the magnitude of the economic issues and most countries are still lagging in dynamic response necessary to abort dire consequences.
I expect a massive capital inflows into U.S to continue and eventually contribute to a dynamic recovery in the period ahead .
By the end of the first qtr of 2009 U.S economic stability will have arrived .By the second have of 2009 ,explosive economic recovery will be on the way.
I am sure that the peanut gallery will respond with some criticism....but ...
I have predicted the current events as early as June of 2005 in an interview with Mark Gilbert(Bloomberg London).and predicted the yields on the 10 yr treasures will implode to 2.5% .
On September 18 ,2007 during the FED time I was interviewed by Brian Sullivan(Bloomberg TV) and I have reiterated the Armagedden scenario that was about to hit the U.Seconomy.
Now ,I am taking the other side of the consensus ....but i do believe that the SEC should impose moratorium on the short sales (stocks) immiediately to allow the implemented measures to work.

Time to Cautiously Get Back in the Game

In fact this is a great opportunity for the investors.
All of the structural weaknesses are being addressed with a capital infusion. Some additional time may be required for restructuring of some sectors. Few business models may have to be modified.In the end it appears that some trillion dollars of capital wll be provided to the broad economic sectors.Allowing for the multiplier of seven ,that is about seven trillion dollars of stimulus or about 55% of the GDP-unheard of catalyst/jolt.
While explosive unemployment is unnerving ,it is a lagging indicator.
By the 1st qtr of 2009 economy will be stabilized and by the 2nd qtr it will expand moderately .
By the second half of 2009 we will see a major economic rebound.
In the meantime any sector under the stress should be assisted "financially".
The SEC should impose moratorium on the short positions for a year enhancing the impact of the liquidity injection.

Banks Are Yet Again Under Pressure

This is not the time to argue about the merits and faults of the requests for financial aid by the auto industry.
Lend them the money with some compensation /wage restrictions.
This is not the time to philosophise as the markets are unstable.
Continue with injecting liquidity(TARP) ,lower the FF to zero and impose six months moratorium on shorts .
This will allow the implemented measures to work without the speculative distractions.
On June 3,2005 I have said the following in an interview with Mark Gilbert(Bloomberg -London)."All of the economic forces point to a dramatic slowdown ahead which will turn into a serious recession,with almost no tools left to abort that possibility".
Now I have to listen to "experts" that this economic upheaval was unpredictable.
The implemented measures will contribute to the economic rebound but speculators must be stopped from udermining unprecedented effort at rejuvenating the eeconomy.
The SEC should impose moratorium on "shorts" immiediately.

The Stock Market Is Not the U.S. Economy

In a nutshell,unemployment is a lagging indicator where as the stock market is a leading indicator.
Asa result of unprecedeted economic dislocation,the leading indicator (the stock market) is sometimes a confusing leader(market volatility).
The investment community must simply evaluate the global scale of intervention attempting to stabilize financial sector and economy in general.
Clearly (allowing for the multiplier),the global "intervention" is unprecedented and will succed in precipitating a global economic/market rebound led by the the U.S .
By mid 2009 ,the magnitude of the U.S economic rebound will surprise the biggest bulls(if there are any left).
Some of the individual market rallies will redefine the word "Bull".
20,000 DowJones is a reality in the period ahead.

Now ,let me hear from the peanut gallery dicussing the end of the universe scenario.

Sentiment Overview: Bullishness Is on the Rise, Insiders Are Buying

It suffices to say that the mega rally is on the way in the period ahead.
It will dwarf and redefine previous impressive 900 points spike.
Volatility will continue but the global focus/action aimed at the economic revival will exceed the expectations.
Remember ,mega rally =s Gabe.

Market Overview: Indices Fall with More Earnings Misses

This is a mole nonsense.
For the record ,a desk that trades a 100 million Euros a day in bonds is a Micky Mouse operations.
I trade for my clients in the increments of a 100 million dollars and have traded as much as billion dollars at a clip (treasuries).
For the record ,I dont think any investor expects rebound in the earnings in the near future.It is quite clear that based on the current levels ,two consecutive contractions have been discounted without any allowance for the major economic impact of the TARP-I preferr to call it a stability plan.
Given the magnitude of easing (U.S) and the liquidity injection into the system ,U.S economy and the markets are heading for major rebound-period.
That is not the case for Europe and Asia and Emerging Markets as ECB and other Central Banks were late in acknowledging problems and are behind the curve on the implementation of radically easier monetary policy.
The dollar strength is a reflection of the global recognition of the major U.S economic upward momentum in the period ahead.
In the meantime we have to listen to a Mole nonsense and other economic fairly tales.
We are getting ready for a record /unprecedented stock market rally.
This outcome can not be affected by the new President elect as the catalysts in place will shortly produce the results.
I suppose what is missing on this opinion platform is an article about the end of the universe as the anti Christ is influencing the market.
Enough of this garabage.