dcb

Fears of Inflation Seem Overblown

We have lost 30% of the value of the dollar against the australian dollar in three months. Can anyone say Iceland!!!! Ukraine, Russia, etc. We in in the early stages of a full blown currency crisis just as jim rodgers, and Marc Faber have predicted and their predictions have been proven accurate. Certianly much more accurate that the folks running the fed and treasury have proven to be. If you actualy trust people who keep getting git wrong time and time again to get it right you are a bigger fool than me.

Fears of Inflation Seem Overblown

I will add, because of their stupid way of thinking the decreasing GDP will cause the fed to print more money making things even worse. You are seeing this happen in the markets as we speak.

We are printing more money of a currency the world doesn't want to hold and we compensate by printing more money. Add to that an insolvent banking system and you tell me how it is going to end because to me it is clear and very painful. When it happens they are going to say it was a tsunami you could imagine would happen (a six sigma event) just like the credit and banking crisis (which they were warned about). All for two reasons. So politicains don't have to say they made a difficult decision, and so the gravy train to wall street keeps on flowing. After all wall street has paid a lot of money to ensure this unfolds exactly the way I am saying it will.


On May 30 12:33 PM dcb wrote:

> the first mistake you made is believing anything that comes out of
> the fed. The second error all over the place is the assumption that
> inflation requires recovery. As I mentioned Argentina, iceland, and
> the asian currency crisis prove that isn't the case. Zimbawae proves
> this isn't the case. The markets are showing signs of inflation every
> day in front of you, oil is rocketing upwards, commodites going higher.
> The taxi driver knows he is paying 30% more for gas than just a few
> months ago.
> Prices going down for a few months does not deflation make, a long
> period of deflation will not happen and isn't happening. Regardless
> of velocity of money, etc. the drop in value of the dollar means
> we can't have deflation. we can have a ruined economy but prices
> will rise until we are all in the poor house. We will have capitalized
> banks. If you doubt a word of what I say read about iceland, their
> inlfation, and their economy. they had a huge contraction of GDP
> and inflation at the same time. There is lots of information out
> there, articles, and statements of the people living in iceland.
>
>
> I wish the normal forces of deflation were being allowed to operate
> and run their way through the system so we would actually end up
> with a more stable economy. We weren't the bubble of Japan in the
> 90's where the tokyo palace was worth more than the entire state
> of california and hence we won;t not have the deflation they had.
> It is clear common sense. Greenspan attempting to fight the deflation
> which never happened created the housing bubble and the commodity
> bubble and inflation. the exact same thing is happening now, only
> this time it will be worse. Because the fed is hell bent on preventing
> any deflation at all (there is nothing wrong with controlled deflation).
> The very collapse the fed tried to avoid by limiting the effects
> of deflation will be triggered by fed policy. We have seen this happen
> over and over in country after country. In fact fed policy will trigger
> the currency crisis that triggers the inflation that happens with
> a contracting GDP. All to prop up banks and avoid them having to
> mark their assets to true value. when you force money into a system
> faster than it can use it the result is not productive use but collapse.
>

Fears of Inflation Seem Overblown

the first mistake you made is believing anything that comes out of the fed. The second error all over the place is the assumption that inflation requires recovery. As I mentioned Argentina, iceland, and the asian currency crisis prove that isn't the case. Zimbawae proves this isn't the case. The markets are showing signs of inflation every day in front of you, oil is rocketing upwards, commodites going higher. The taxi driver knows he is paying 30% more for gas than just a few months ago.
Prices going down for a few months does not deflation make, a long period of deflation will not happen and isn't happening. Regardless of velocity of money, etc. the drop in value of the dollar means we can't have deflation. we can have a ruined economy but prices will rise until we are all in the poor house. We will have capitalized banks. If you doubt a word of what I say read about iceland, their inlfation, and their economy. they had a huge contraction of GDP and inflation at the same time. There is lots of information out there, articles, and statements of the people living in iceland.

I wish the normal forces of deflation were being allowed to operate and run their way through the system so we would actually end up with a more stable economy. We weren't the bubble of Japan in the 90's where the tokyo palace was worth more than the entire state of california and hence we won;t not have the deflation they had. It is clear common sense. Greenspan attempting to fight the deflation which never happened created the housing bubble and the commodity bubble and inflation. the exact same thing is happening now, only this time it will be worse. Because the fed is hell bent on preventing any deflation at all (there is nothing wrong with controlled deflation). The very collapse the fed tried to avoid by limiting the effects of deflation will be triggered by fed policy. We have seen this happen over and over in country after country. In fact fed policy will trigger the currency crisis that triggers the inflation that happens with a contracting GDP. All to prop up banks and avoid them having to mark their assets to true value. when you force money into a system faster than it can use it the result is not productive use but collapse.


On May 29 06:21 PM Fighting Yoda wrote:

> Despite all the money printing deflation is taking root - CPI data
> clearly show that. CPI as usual under reports - it under reported
> inflation now under reports deflation. For inflation hawks - inflation
> is hard to come by when wages and demand fall - money printing cannot
> offset loss of income and confidence. If you believe in inflation
> you have to believe jobs will grow, and wages will rise. Does anyone
> believe that?
>
> There is too much surplus capacity globally – look at China – do
> you think US is going to import all the junk that we imported from
> them. In US itself do we have shortage of auto or home capacity.
> Despite huge production cuts the capacity is still surplus. Nat gas
> is another very good barometer – rig count keeps going down but the
> inventories keep rising, and of course prices keep falling.
>
> Green shoots are simply smoke and mirror tactics of Wall Street,
> meanwhile the Govt. is simply watering these weeds.
>
> Velocity of money is dwindling as credit crunch continues, just because
> there is thaw in the credit markets (as measured by TED spreads)
> does not mean credit has increased. Credit is decreasing – both availability
> and demand. Money is money + credit – money may increase but if credit
> decreases more – net money has actually decreased.
>
> SFP Fed had recently published a nice paper on the subject: U.S.
> Household Deleveraging and Future Consumption Growth
> www.frbsf.org/publicat...

Fears of Inflation Seem Overblown

if the value of the dollar drops we will import inflation regardless of economic conditions. think iceland or argentina, when their currencies collapsed prices skyrocketed yet their economies were ruined. I have enjoyed your articles very much, but you have to see the bigger picture.

'Too Far, Too Fast': A Look at Asset Classes

Analysts Turning Bearish on S&P 500 After 14% Rally (Update3)
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By Michael Tsang and Lynn Thomasson

May 11 (Bloomberg) -- The biggest earnings-season rally since 2002 has pushed 34 percent of the companies in the Standard & Poor’s 500 Index above analysts’ price targets for the next year, raising concerns about the pace of the recovery.

The S&P 500 was within 5 percent of the combined price projections of more than 1,700 securities analysts last week after gaining 14 percent since Alcoa Inc. reported first-quarter results on April 7. Caterpillar Inc., the largest maker of excavators, and Citigroup Inc., the bank rescued by $45 billion in U.S. taxpayer funds, are among 170 companies that trade above their average price estimates, data compiled by Bloomberg show.

So far, analysts have resisted lifting price and earnings targets after the S&P 500 surged 37 percent from a 12-year low in March. The combination of falling profit predictions, rising valuations and higher costs for options that insure against losses are raising investor concerns that the rally may have come too far, too fast.

“To expect this to continue to move onward and upward from here would be unrealistic,” said Leo Grohowski, chief investment officer at Bank of New York Mellon Wealth Management, which oversees $132 billion in New York. “It would be healthy for the market to take a breather and allow some of the fundamentals to catch up.”

With more than a third of the companies in the benchmark index for U.S. stocks overvalued compared with their price targets, the S&P 500’s fair value is 970.21, compared with its 929.23 close on May 8, data compiled by Bloomberg show.

Banks Lead Market

The S&P 500 fell from a four-month high today, losing 2.2 percent to 909.24, as banks said they would sell more shares. The decline was the largest in three weeks.

The index rose 5.9 percent last week, erasing this year’s losses, after results from the government’s examination of banks reassured investors and the Labor Department said the pace of job cuts slowed in April. Financial stocks led the measure’s advance, surging 23 percent.

More than 200 companies in the gauge have risen at least 50 percent since this year’s low on March 9. Prices of almost half the companies in the measure are within 5 percent of the fair value target, according to data compiled by Bloomberg.

The S&P 500’s steepest nine-week rally since the 1930s began as the biggest U.S. banks said they were profitable in the first quarter, President Barack Obama outlined $787 billion in spending and tax cuts and the Treasury unveiled plans to finance as much as $1 trillion in purchases of lenders’ troubled assets.

Lack of Support

“Estimates suggest there isn’t that much further to run because equities are fairly valued,” said Hayes Miller, who helps manage $30.9 billion at Baring Asset Management Inc. in Boston. “Earnings growth for 2009 and 2010 can’t support prices too much higher than where we are today.”

S&P 500 companies beating profit forecasts outnumbered those that trailed by 2-to-1. A majority of companies in each of the index’s 10 industries posted results that beat projections, data compiled by Bloomberg show.

Caterpillar reported 14 times more per-share profit on April 21 than the consensus estimate. Since then, 15 of 19 analysts cut second-quarter forecasts by about 53 percent and 16 reduced their outlooks for the third quarter by 66 percent. No one covering Peoria, Illinois-based Caterpillar boosted estimates, Bloomberg data show.

The company’s 30 percent surge since its earnings release has pushed the shares to $39.64, 25 percent higher than the $31.83 analysts on average say the company is worth.

‘Sudden Jamming’

Nick Heymann at Sterne Agee & Leach Inc. in New York rates Caterpillar a “sell” and expects the stock will fall 39 percent, based on his price target of $24.

“We’re going to have a sudden jamming on the brakes of investors’ enthusiasm for early-cycle stocks when they realize they made a big mistake,” he said in a telephone interview last week. “If you’re not properly positioned in your portfolio, you may find that you go through the windshield.”

Since New York-based Citigroup reported per-share profit that was 48 percent higher than the consensus on April 17, more than 50 percent of the analysts reduced their estimates for the second quarter and half cut their projections for all of 2010, Bloomberg data show.

Shares of the bank surged 35 percent last week, leaving them overvalued by 33 percent, based on the average 12-month price target compiled by Bloomberg.

Starwood Estimates

Of the 17 analysts with estimates for Starwood Hotels & Resorts Worldwide Inc., owner of the St. Regis and W Hotels chains, 13 cut earnings forecasts for the second and third quarters since the company’s per-share profit in the first quarter beat projections by 300 percent.

Starwood, based in White Plains, New York, more than doubled to $22.08 from its low in March, lifting its market value to $4.12 billion. That’s $1.08 billion more than analysts say it is worth, based on price targets compiled by Bloomberg.

Goldman Sachs Group Inc.’s Steven Kent trimmed his profit estimates through 2011 and said on May 1 that “aggressive” cost cuts were behind the results from the first quarter. Kent, based in New York, advised selling Starwood and says earnings only support a price of $11, half its closing level last week.

The 17-month bear market hurt the credibility of Wall Street analysts and strategists who remained bullish during the worst year for stocks since the 1930s.

‘Not Real Good’

They were slow to recognize a recovery, which may force them to play catch-up as stocks climb, said Richard Bernstein, the former chief investment strategist at Bank of America Corp.

“We’re not real good at forecasting the future,” Bernstein, who left last month to start his own money-management firm, said during an interview in New York. “I used to tell everyone that the most-watched, least-important thing I do is the target on the S&P.”

Strategists said the index would rally 11 percent last year, according to data compiled by Bloomberg. It lost 38 percent instead.

Analysts overestimated earnings by an average 13 percentage points in each period between the third quarter of 2007 and the end of 2008. Better-than-expected first-quarter results haven’t prompted them to boost forecasts for the rest of 2009. Instead, they’ve ratcheted down predictions as the first global recession since World War II weakened demand.

Analysts said in March that profit among S&P 500 companies may drop 29 percent in the second quarter and 15 percent in the third before jumping 95 percent in the final three months of the year, according to data compiled by Bloomberg.

Steeper Drops

Now, they expect a 35 percent slide in second-quarter income and a 23 percent decrease in the third. The consensus is for profits to rebound 69 percent in the last quarter, with financial companies accounting for all of the gain.

Analysts project that companies in the benchmark stock index will earn $57.17 on a share-weighted basis this year, data compiled by Bloomberg show. Based on the measure’s closing price last week, investors are paying $16.25 for each dollar of forecasted profit.

That’s in line with the historic average of 16.3 times earnings over the past 128 years, data compiled by Yale University Professor Robert Shiller show. Strategists say stocks are fairly valued, predicting the S&P 500 will end the year at 949, with its companies producing per-share earnings of $47.06.

The estimate represents a gain of 2.1 percent in the next seven months as declining profits push the index’s price- earnings ratio to 20.2. That’s more expensive than any time in the past five years.

Priced In

“The equity market has priced this recovery and then some,” said Barry Knapp, U.S. equity strategist at Barclays Plc in New York. “It looks pretty expensive to us.”

Knapp, the most bearish of the 10 strategists tracked by Bloomberg, says the S&P 500 will decline 19 percent from last week’s closing price, based on his year-end target of 757.

Gains have already pushed the index past projections from Barclays, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings Plc and Morgan Stanley. None of the 10 forecasters polled by Bloomberg News has raised outlooks for 2009.

Leon Goldfeld, chief investment officer of the Hong Kong unit at HSBC Global Asset Management, which oversees more than $350 billion, said in an interview on May 4 that it’s “hard to see” enough profit growth to justify higher stock prices. The firm’s strategy will be to reduce its holdings of equities and move into bonds and cash, he said.

Chop and Grind

Options traders are increasing bets the rally is about to end. Futures on the Chicago Board Options Exchange Volatility Index, which measures the cost of buying or selling options as insurance against declines in the S&P 500, are priced above the gauge’s level of 32.05. The premium on VIX contracts expiring this month through November indicates traders are betting the stock index will fall in the next six months.

History also shows rallies from bear-market lows suffer setbacks before climbing. The last time U.S. stocks broke out of a bear market in 2002, a seven-week, 21 percent surge from the trough gave way to a 15 percent drop before the bull market resumed. During the Great Depression, a 47 percent surge after the stock-market crash in 1929 was followed by at least six retreats of at least 25 percent.

“We’re going to be in a very volatile, chop-and-grind type of market,” said Christopher Hyzy, chief investment officer at Bank of America’s private wealth management unit, which oversees $200 billion. He said the S&P 500 may retreat as much as 10 percent as investors focus on the ability of companies to increase earnings to pre-recession levels.

“We’ve been shown that there is a small light at the end of the tunnel, it’s dim but getting brighter, and that’s why stock prices have come this far this fast,” Hyzy said from New York. “Now, it’s all about ‘show me.’”

To contact the reporters on this story: Michael Tsang in New York at

'Too Far, Too Fast': A Look at Asset Classes

It would help if you provided what you thought would be a reasonable entering position considering earnings expectations.

Screening for Trends

good article richard. as usual you have some of the best posts and most useful on the site

Screening for Trends

the more you read from him the more you learn not to read. But, I am glad people are starting to catch on to the fact he is full of BS. Notice how he always appears to forget that he advised buying at the peak of bull and said google at a thousand was a great buy. only to watch it loose 2/3 of value.


On Apr 29 07:50 PM AJB7 wrote:

> Cetain wrote <MCD MA GOOG AAPL RIMM POT. These stocks tend to go
> up all the time, have low volatility...>
>
> In fact, MA traded at 320 in early 2008 before trading down to 120
> early this year, GOOG traded as high as 750 before hiting its low
> of 250 last November, etc. If these are examples of stocks going
> "up all the time" and having "low volatility", one can understand
> why this guy has the largest negative comment rating in SA (what
> is it now? -5000? -6000?). Cetin, time to take a vacation.

How Key Assets Behave When Down Feels Like Up

does anyone know what percent of the revenue of the merging etf's are from global esxposure

Is Buying Bonds Really a Good Idea?

If you are looking to buy a bond fund it's too late because they have gone up too much and now the downside risk is greater than the upside. If you can build your own portfolio then you maintain the upside. I bought about 450K of bond funds at the height of the credit squeeze, and I'm happy to hold the LDQ, and investment grade funds I got at 87 that are trading at 100. At this point I'll loose more in taxes by not holding. After ZIRP there was no benefit, although european corporates may do well as the ECB is further expected to lower rates. This may also be the case with emerging market debt, but after it has run up I wouldn't be buying edd right now

Which Is Safer: Investment Grade Corporate Debt or Government Bonds?

All is market timing. stocks at the height of the recession, corporate (high grade) at the height of the credit crisis. We have bottomed in the credit portion of the cycle and now have the marcoeconomic effects on the real economy to deal with. you're behind the curve with bond mutual funds, but if you build your own portfolio in the secondary market you'll still do OK. Remember ZIRP produced a bond bubble in Japan,so be careful!!!!