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Fed Herding Investors to the Slaughter?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
In his market blog, Simon Avery of the Globe and Mail asks whether the Fed is herding investors to the slaughter?:
Why do the markets enjoy the hardship of others?
Specifically, why does news that last month 190,000 jobs disappeared in
the U.S. and another 43,200 vanished in Canada spur stocks? North
American markets rose in early trading before going almost flat before
noon. So how sadistic are these capitalists?Well, for one good explanation it’s worth turning to the Pragmatic Capitalist,
a much-loved blog on the markets. PC argues that the U.S. Federal
Reserve’s policy of anemic interest rates is forcing investors to incur
greater risk because traditional safe havens like insured bank accounts
and government bonds don’t offer any return to speak of. Fed chairman
Ben Bernanke is essentially pushing investors into the stock markets to
find any sort of returns. As the markets keep rising, investors are
buying into “Bubbly
Ben’s” idea that a country can print its way to
prosperity.
“The real question investors need to ask
themselves is this: if we truly are in the middle of a Fed-induced
liquidity rally where the fundamentals simply don’t matter, do you buy
now or wait it out for the inevitable bust?”
There are plenty of perma-bears who share this view. Chief among them is Bob Prechter who says that stocks and commodities are topping and the US dollar is set to rally:
“I
think stocks are topping out, commodities are topping out and the
dollar is making a bottom,” says Robert Prechter, president of Elliott
Wave International and author of “Conquer the Crash“.
According to Yahoo Finance - Tech Ticker, Prechter also makes the seemingly counterintuitive argument that the dollar will rally because
there’s so much debt, rather than being doomed because of it. “If the
economy turns sour again in 2010, as he predicts, Prechter says the
dollar will benefit as more dollar-denominated IOUs get called by
creditors seeking to shore up their own balance sheets, as was the case
in 2008.
“A sustained rally in the dollar would
have devastating consequences for stocks, emerging-market assets,
high-yield debt and commodities. But gold might be the exception,
because it represents ‘real money’ and more people are questioning the
global paper money system, Prechter says.”
It might be a good time for all of you to review the three triggers of the global gold bubble and read the views of Dr. Doom vs. the Investment Biker on asset bubbles summed in the Globe and Mail by Simon Avery:
Nouriel
Roubini, dubbed Dr. Doom for his prescient call on the economic
meltdown, warns that global investors are inflating an asset bubble
that could lead to a spectacular bust.
With oil prices up 80 per
cent this year, gold up 24 per cent and commodity indexes up nearly 50
per cent, prices have risen “too soon, too fast,” the New York
University professor said Wednesday.
“It is very hard to justify
oil going from $30 (U.S.) to above $80 based only on the fundamentals
of supply and demand,” Mr. Roubini said at the Inside Commodities
Conference in New York.
Those predictions didn't sit well with
Jim Rogers, the chairman of Singapore-based Rogers Holdings who is
widely known for calling the commodities rally of 1999.
“What
bubble?” Mr. Rogers said in an interview Wednesday on Bloomberg
television. He was responding to a question about whether he agreed
with Mr. Roubini's forecast. “It's clear Mr. Roubini hasn't done his homework, yet again.”
Mr.
Rogers noted that many commodities are not yet near their record highs
and he boldly predicted that the price of gold will double to $2,000 an
ounce, or more, in the next decade. He said he remains pessimistic on
the value of the U.S. dollar.“It's not a bubble if something is
up 100 per cent this year, but down 70 per cent from it's high. That's
not a bubble, that's a good year,” he said, adding that equity markets
are not about to crater.
However, Mr. Roubini, who is also
chairman of the New York research and advisory firm Roubini Global
Economics, thinks that the greenback is due for a major “snap back”
that will see it rise as much as 20 per cent within the next year.
In
an interview with CNBC television on Wednesday, he said that investors
are executing the “mother of all carry trades” by borrowing dollars to
buy commodities. Specifically, they are getting great rates on the weak
dollar and investing in emerging markets, fuelling a bubble. He
foresees the dollar swinging up when the asset bubble bursts.
“It's eventually going to occur, but it's going to be six months from now, a year from now,” he said.
As for gold hitting $2,000? “Utter nonsense,” Mr. Roubini said.
Mr. Rogers, in turn, didn't agree with Mr. Roubini's call on emerging markets.
“I
don't know any emerging market stock markets that are so high I'd call
them a bubble,” Mr. Rogers said. “They're certainly all up a lot, maybe
they're too high, but being too high is not a bubble for anyone who
knows financial markets.”
My
views have not changed in the last six months. We got a coordinated, unprecedented liquidity injection in the global financial system and severe performance anxiety propelling risks assets higher.
The
key question now is how long can this last? If history of the markets
has taught us anything, the answer is a lot longer than what most
investors think.
The biggest problem is trying to
figure out liquidity. The linkages in the global financial system are a
lot stronger in 2009 than they were in 1920. Moreover, with the advent
of shadow banking and sovereign wealth funds, the financial system
plays a dominant role in the real economy. Unlike past crises, the
synchronized global downturn happened when banks stopped lending and
global trade came to a grinding halt.
Then, as
central bankers pumped trillions into the global financial system,
banks made a killing off trading profits. And now, the message from the
Fed is clear, let the bubble blow. The Fed is telling the banks to go ahead and bid up risk assets because we need to combat the perceived threat of deflation.
Of
course, it would be highly irresponsible of the Fed or any central
banker to come out and say they want inflation, but that is what they
and the world's power elite want. The interesting thing is how they're
going about it. The Fed is giving the banks the green light to go ahead
and trade away, bid up risk assets and hopefully an asset bubble will
lead to real economic inflation.
So, we can expect more bubble trouble as another bubble forms sooner than we think.
Will this end badly, slaughtering investors down the road? Not
necessarily. Think about Schumpeter's creative destruction and read
Mort Zuckerman's recent op-ed in the Financial Times which argues that
the free market not up for the job of creating work.
Its
not all gloom and doom. I see a positive secular story developing in
renewable energy, emerging markets, healthcare, infrastructure,
nanotechnology and other technologies. But there is no doubt that the
sea change will be disruptive to hundreds of millions who will face
hard times before we restore sustained confidence and integrity in our
global economy and financial system.
»
Strangely CB s are indulging speculators with the same receipe as in 2000 2007
Lower bonds yields defying supply.
Carry trade in usd when in yen in 2005 2007.
Disconnect between prices /revenues/incomes.
Accounting creativity.
Extensive money supply.
A pinch of M&A at recent markets tip (30/40 % are not a disaster)
Goldman getting closer to god
Sincerly it is time to change of shepards as the herd is getting thiner!
Its not all gloom and doom. I see a positive secular story developing in renewable energy, emerging markets, healthcare, infrastructure, nanotechnology and other technologies. But there is no doubt that the sea change will be disruptive to hundreds of millions who will face hard times before we restore sustained confidence and integrity in our global economy and financial system.
Leo I agree with the above. It does not matter if you kill all the children of Bethlehem, mankind will overcome. The fact that Herodes needed these measures implicitly meant that he was loosing control, but he was not realising it yet. Now fast forward. The killing of the financial system and the maesures taken by the FED/GS is implicitly saying that "God's tool box" is loosing control, but they are not realising it yet. The first thing to overthrow by the public is "God's tool box". Mankind will overcome.
One cannot be asked what one cannot do in a given time constraint....
Thus options that are possible in a given time constraint should be amongst the choices....
First review what is....Why did Rogers move to Singapre...taxes....Check out wiki...tax rates of the world's economies....
If the US is to re-establish its manufacturing base it must
compete head on with BRIC...now review the rates....
Next...the topic of valuations....and next the topic of where valuations arise and fall...and continually feed
the US with most of its jobs....
Next....review the amount of money that a 10/5 Ctax will produce and its reliability....given the above....
Next remove all taxation from the cost of innovation capital...
Next separate the banking business from the securities business....
Next think about the renewed human psyche of freedom that
has never been tasted....
Next....defragment and simplify the rules of the securities
exchanges....and make them accessible by all first come first served worldwide....in the currency and language of choice....
This is expedited by the stroke of a poly pen-master....
"PC argues that the U.S. Federal Reserve’s policy of anemic interest rates is forcing investors to incur greater risk because traditional safe havens like insured bank accounts and government bonds don’t offer any return to speak of. Fed chairman Ben Bernanke is essentially pushing investors into the stock markets to find any sort of returns. As the markets keep rising, investors are buying into “Bubbly".
This is the bottom line - Where do Americans put there money to get even a break even with inflation ? This is clear enough to me that we are being herded manipulted INTO risk. If J6P is , so are the Fund managers . I agree with the post that when MM and 401ks are ALL IN , then the bubble will bust .
Play in the Den of Thieves at your own risk . Babylon falls in ONE DAY. They who trade in the souls of men .
This is also why banks and IBs should not be allowed in the securities trading business....
Let's simplify this....
The vehicle of choice for the public is a dependence
either on indexing or some professed pro manager....
The result being fewer and fewer stock players and opinions....
Big is bad because where is GS going to get their money from ? That's right.... the places where the money went to
What needs to happen for a healthier market....is to make it such that there are more and more smaller players.....not fewer and fewer larger players....
An ideal market would have many many small players with differing opinions ....the best and the worst....
Otherwise one has what it has.....GS gaming the centered money .....exactly what it has to do to make a dime....
Markets do need regulation such that size is limited....and promotes individual participation....
A defragmanted....easier to regulate exchange....first come first served.....no account minimum......same transaction rates.....all prices have to be discovered on the exchange .....no dark pools or price discovery anywhere else....no taxes....
Banks not allowed....GS and their ilk not allowed....
too many conflicts....
Then one will have a REAL securities exchange....
Leo: did you take that picture at Roubini's loft party?
"Why do the markets enjoy the hardship of others?
Specifically, why does news that last month 190,000 jobs disappeared in the U.S. and another 43,200 vanished in Canada spur stocks? North American markets rose in early trading before going almost flat before noon. So how sadistic are these capitalists?"
It's not a matter of enjoying hardship or being sadistic. It's about capitalizing on an opportunity.
Many participants assume that the market rises and falls according to economic indicators. Exchange insiders know this and take advantage of the situation by driving up prices when there's a large outside short interest, or shorting the hell out of the market to kill demand and subsequently drive down prices when outsiders are long.
last week the mkt faltered on good news, then resumed rising on bad news.
maybe good news strengthened the dollar? maybe people hear bad news and assume the mkt is discounted? wtfk?
nothing, and i mean nothing, makes sense. and everything, and i mean everything, has been rising together so it's all equally suspect (tho bullion is possibly better than cash). i can't count on riding the fickle whims of a liquidity rally forever. and shorting is a coin toss, which i'm not into.
so i'm out- or 80% out, to be precise- more out than i have ever been (tho comparable to where i was in july 2008- 65% out- when everything went too high too fast and all together). looking/waiting for any semblance of direction/rationality. might be too much to hope for, and if that never happens, so be it. but i'm betting that it will, that thermodynamics will win in the end and that the new new normal will in fact be more normal... in which case i'll be buying back in confidently and slowly- ideally in a few weeks/months.
best of luck to all those heroes out there!
"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." ERNEST HEMINGWAY
"Now, what were the consequences of inflation? One of the odd things about inflation is, in the Roman Empire, that while the state survived — the Roman state was not destroyed by inflation — what was destroyed by inflation was the freedom of the Roman people. Particularly, the first victim was their economic freedom." Joseph Peden
http://mises.org/story/3663
Demand will collapse faster than you are allowing. A strong dollar depends on a collapse of the world economy even, to an extent, a collapse in the supply chain (and supply chain deterioration is now occurring--look for it to occur especially in agriculture). It's not four months the stock market will rise--more like two. Among others I follow Howard Davidowitz because he's more an "economy on the ground" kind of guy. His view of the economy is alarming--and he's not predicting, just describing.
You don't see any serious policy change because underemployment among those with a BA or higher, is only about 15%. That's nowhere near high enough to make fundamental policy change. In short, the view in suburbia is, "Throw some more money at it and we'll look again in six months."
But the economy really is running on embalming fluid. It's about to break out in a bad case of reality.
"So, we can expect more bubble trouble as another bubble forms sooner than we think. Will this end badly, slaughtering investors down the road? Not necessarily. Think about Schumpeter's creative destruction and read Mort Zuckerman's recent op-ed in the Financial Times which argues that the free market not up for the job of creating work."
not necessarily? sorry, pal. there is no free lunch. this will end very badly. necessarily. believing otherwise is the same idiocy mislabeled "optimism" that got us into this mess.
“…CDS, when handled by the current group of greedy, risk seeking idiots, will undoubtedly destroy the world. It is just a matter of time.”
~Tyler Durden, 11/08/2009
“The problem with ZH is people like you who see the sky falling and the world coming to an end.”
~Leo Kolivakis, 11/08/2009
"if we truly are in the middle of a Fed-induced liquidity rally where the fundamentals simply don’t matter, do you buy now or wait it out for the inevitable bust?”
This does seem to be the real question investors should ask. The trouble is Dnarby's right. If one waits it out, what is there to buy with? Anon's response is unintelligible to me. I do not understand much of it.
The answer then would seem to be buy now...but buy what?
Gold.
Jer
IMHO:
This rally is coming in a large way at the expense of the dollar. As more and more investors figure this out, risk appetite will ultimately move capital into precious metals.
The SPY/GLD ratio is insisting that the Fed can't print money for a liquidity driven rally forever. Dishonety makes people too cunning.
A large part of our manufacturing sector has been shipped overseas. So, there can be no economic recovery without a resurgence in manufacturing in the U.S.
http://www.mfi-miami.com/jim-willie-says-economic-recovery-not-happening
we do not have to manufacture to make money, but we do have to provide something of value to those we buy goods and services from domestically and from outside the US. Google does not manufacture anything, Apple employees in US don't make the Iphones, Hollywood studios only make entertaining pixels, and hiphop recording studios don't stand at a conveyor belt rolling with MP3s under construction, but these companies do employ Americans in high paying jobs because they provide things that people want, that make money for them.
The thing is we now have to compete globally on all things except local service/trade jobs...these include technology jobs, manufacturing jobs, information jobs. It jsut seems to me that our inflated real estate, among other things, have to deflate to match our decreasing wages, which are decreasing to meet global wages. Once housing, health care costs and education costs decrease to match our decrease wages (one only has so much a month to commit to rent or mortgage, eventually as housing bubble burst shows, housing prices have to react to this fundemental), then a decent middle class lifestyle will be affordable again, but we can expect the mojority of our population to be way richer than everyone else in the world any longer.
buying now (long) means you are more retarded then ever and need to move your ass from Zero Hedge to the retarded msg board of Yahoo.com.
i flagged you (JamesBrrando ) as junk
The problem with ZH is people like you who see the sky falling and the world coming to an end. I am bullish on certain sectors, namely energy (especially renewable energy and more specifically Chinese solar stocks), infrastructure, healthcare (medical equipment, biotech and healthcare software), emerging markets (yes China is frothy in some sectors but others are golden). I am making money and plan on buying the dips as I've been doing the last six months. You guys want to short this market, go ahead but you're going to get your heads handed to you as we move to the second phase of the liquidity rally. Leave the name calling out of this and tell me where you're putting your money to work. Money talks, bullshit walks.
All the stuff you're buying is grossly
overpriced and part of the bubble...
and you're only buying because, in
your opinion, it's a free gravy train.
Some morning, the markets will open 10%
down for god knows what reason and then
grasshoppers like you will be shit-out-of
luck and saying you're sorry. You
basically are asking everyone to believe
in the omnipotency of the Fed, and that
the short guy with beard behind the
curtain pulling the levers up and down knows what he's doing. Ben's proven numerous times that he
hasn't a clue and know nothing of the
laws of unintended consequences. Leo,
you might as well be Cramer.
Being long anything in China is pure speculation. "Shareholder value" doesn't translate in ??. These companies are run by management that is extremely short-term-oriented and just out to get theirs. China is a huge growth story, but buying common stock isn't the way to play it.
Leo .... don't feed him ... just let him be ....
Just buy SDS everyday the market goes up and sell it everyday the market goes down. This way you will not get smoked!
No energy policy, no recovery
Healthcare - You serious? Do tell.
Yeah
When something is 'free' demand will go up. Who makes medical consumables?
umm umm umm, I see a hidden agenda here.
Do enlighten us with what hidden agenda you see here.
Do enlighten us with what hidden agenda you see here.
Do enlighten us with what hidden agenda you see here.
LEO;
Just for fun wanna see Uncle Ben's prop desk. Google: brian sack engineers big moves at the fed
This is what's holding the market up! And yes, Ben is herding sheep and Webster has been notified to remove the word retirement from the english language. All bankrupt pension funds (they will all go bankrupt) will be nationalized to fund SSI. As soon as 90% of 401k's and all money market funds are in equities, the market will crash.
Dnarby
The missing key are lots of better valuations on everyones books.....ie the banks....
What induces this....structural tax change....
Understand that the unfunded liabilities are assets that
you do not have....thus you cannot lose them.....
And simpler yet....the govt. is a re-allocator ....not a generator....
Over 50% of Americans will pay no income tax ....and this is climbing....
A 10% State....and a 5% Fed Consumption tax only....
No corp. or individual taxes will provide for the
addition of millions of new business valuations....
An increase in tax on a diminishing base which is exactly
what the current admin is doining....is the exact opposite
of what the US needs....
The tax take from a 10/5 C tax will dwarf the current take....
And....when all taxes are removed from all risk born securities....then innovation cost is at its minimum....
And....when one adds a more efficient fully electronic lower cost direct access exchange that is defragmented....
that is more handily regulated and trusted....
Then one could expect US labor shortages.....and a new Golden Era....
AND THIS IS NO JOKE....
Play with the numbers....you will find out for yourself....
1. Consumption/sales tax: Check.
2. Eliminate tax on investment: Check.
3. Get the bad debt cleared... Check.
...Except that blows everything up.
IMO we're gonna have to reboot everything in two years, then we can do 1 & 2.
“The real question investors need to ask themselves is this: if we truly are in the middle of a Fed-induced liquidity rally where the fundamentals simply don’t matter, do you buy now or wait it out for the inevitable bust?”
The problem with waiting it out is... Buy with what?
Govt. imposed 0% interest rates overprices risk....
A normal economy pays real rates of interest on short term
no risk debt....
This is a forced traders "hot potato" market....
NFL....hold it...but not for long....
One guesses that this must be one of few better overall choices amongst a set of no so favorable choices....
...........................
One must hope that this is this case.....
...........................
This again suggests that a very trustworthy defragmented
....easy to regulate exchange ....must be established....
No taxes of any kind should be placed on any security type in the name of efficient capital....
When this is combined with changing the tax structure to a 10/5 C tax only.....THE US WILL ENTER A NEW GOLDEN AGE....AND NO THIS IS NO JOKE....
Anon, I urge you to expand on your post. I myself think there will be a huge explosion of growth after the crash, as the most inefficient portions of our economy will be purged (gov't and finance). IMO this loss of drag will result in a moon shot as pent up entrepreneurship explodes.
But first, what does 10/5 C tax mean? Google turns up gobbledygook.
I don't see why you would call Bob Prechter a perm-bear. He was bullish on the stock market in March just before this big run up. What do you consider a perma bear? One or two months? He has just recently gotten bearish. Your analysis is lazy at best.
Accuse of anything but being lazy. I have been spot on about the liquidity rally. And Prechter wrote Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression. Yeah, he's a perma-bear.
Leo, with all due respect, Prechter called the bottom in 82 and thought the market topped in 1995 for a multitude of reasons. That means for 13 out of the last 27 years he was bullish. And he has called many a rally since then. He is also correct that the market topped in 2000. With the lost decade we have witnessed, anyone invested in the broad market indices from 1999 has made zilch (Nasdaq excepted). Thanks to Prechter, I have made a great deal in the last 10 years. So please do not disparrage a man that called the bottom with precision in March and claims we are near a top or topping now. If he is off by 6 months--so what? They have tight stops and open minds when the winds change. I subscribe to Steve Hochberg at EWI so I know the lowdown--and they called the rally spot on all last week and even give it a bit more leeway from here although they are not expecting anything above the October highs.
I'm sure you know that anyone that held a Nasdaq 100 index mutual fund since 2000 is still down over 60%. As far as I'm concerned that was indeed the top of this market. It's all a bear market rally, no matter what the Fed does IMHO. I am a perma-bear and have always said so. And I also do not agree that TA has become useless in this rally--in fact, the market is doing exactly what it is supposed to do--suck everyone back in. We can sit here at ZH an spout all kinds of conspiracies or liquidity reasons for the endless rally, but it all comes down to fear and greed. Right now, greed is at the helm. The charts are not impossible, in fact they are making sense and those that are losing money and whining about it here are fighting the tape. I consider myself a tape fighter but I have done fine.
So ride the rally and make money--I for one think we have a pullback coming and then one more big leg up just for Santa and maybe St Patrick. I've been saying this for months. March/April the big show will start again--no matter what the printing presses, stimili, or a continuation of QE do--this pup is headed down in the coming years and we will never know why, until the black swan jumps in the pond.
I was a subscriber in the summer of 87 when Prechter called the top before the crash. I don't remember him turning bullish.
Just like he called the top in gold at 300, then 400, I haven't heard many gold calls lately, but if one followed his advise they would be broke unless they were to big too fail.
Leo - your final paragraph reads like an Obama campaign brochure. Nothwithstanding, Pimpco's McCulley in his recent letter (posted here on ZH) argued that that a V shaped reocovery (as you appear to be suggsting) could quite possibly shut down the liquidity pump.
he concludes
http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2009/McCulley...
I have written about the W-recovery, but I see a small v-recovery shaping up here, not a "V" recovery that mirrors the decline (impossibe unless employment comes roraring back, which it won't). This however, does not mean the liquidity rally can't go on for a lto longer than we think. In fact, if the Fed stays on the sidelines until after unemployment peaks, this liquidity rally has several more months to go.
politics aside - from the March bottom you have been as accurate as anyone out there and those who may have bought in to your thinking have done very very well. It actually makes sense that a small v may be on the horizon given the amount of stimulus that is about to hit - the question is has it been priced in and/or has the liquidity rally got anything left in it