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Get Ready for the Sack of Rome
I traded the great Japanese bull market during the eighties at Morgan Stanley, from the very bottom all the way up to the peak. The firm’s fundamental analysts railed against the tide for years, claiming that stocks were liquidity driven, overvalued, and headed for a huge fall. Every time they made that call, their offices got moved ever closer to the elevator, and eventually, the men’s bathroom.
When the turn finally came, I had already taken off on an extended vacation, and the ignored analysts had moved on to hedge funds, where they proceeded to make vast fortunes. When someone at last threw the switch on Japan, it got dark amazingly fast. Tokyo went out at an all time high of ¥39,000 on the last day of 1989, and then dropped a staggering 45% in January. Yesterday’s close, 21 years later, was ¥9,489.
These days, I feel like those Japanese analysts, except the market that is driving me nuts is the one for US Treasury bonds (TBT), (TMV) . The more arguments I find that they should fall, the faster they go up (see charts below). I probably would have fired myself my now, if I weren’t my own boss, as nepotism is always a powerful force.
Now I hear that PIMCO’s Mohamed E-Erian says that there is a 25% chance of real deflation hitting the US, after telling us it won’t for so long. Again, this reminds me of Japan, where the higher it went, the more imaginative the explanations became as to why it should continue. Ignore those 100 PE multiples, just focus on the damn Q-Ratios!
I believe that we are witnessing the final blow off top in the great 30 bull market in bonds. A decade from now, it will not be stock investors complaining about a lost decade, but owners of bonds.
Could it go on for another six months or a year? Sure. Like gold in 1979, technology stocks in 2000, the absolute tops of these parabolic moves are impossible to predict, both on a time and price basis. But when the turn comes, it will resemble the Sack of Rome.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by going to the "Hedge Fund Radio Archives".
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Get ready for the real sack of rome coming in 10 years or so if europe doesnt wake up before its too late
http://www.youtube.com/watch?v=u650H_rz-6k
i disagree, what i believe that we are currently seeing is the great blow-off top the game of musical chairs known as momentume investing. These will blow before bonds. The plethora of price target increases base on no mathematical analysis, increasing hype, and, oh yes, increased multiples is staggering. I hear every day how "cheap stocks are". And, indeed, some are. But they just get cheaper as all marginal hft interest is focused on growth at any price. If someone can give me a reasoned answer how a company projected to do $1 of GAAP income next year can generate $3.5 of fcf to shareholders I might be inclined to change my mind. But guess what, having spent a few years looking at financial statements I will state here that it is impossible. And oh, the stock in question, is being valued at 30 times the $3.5 by the sell-side.
You have to ask yourself 'why would people buy something that yields 2.7% over 10y'. Some must expect yields to go even lower for a cap gain. Some must rationalize against zirp yields on cash... for the next 10 years ?. The whole thing is a conundrum... The USA is bankrupt and crooked rotten at it's core. no election will 'change' anything.
You want change ?. End the global wage arbitrage war against American workers. Prosecute the financial terrorists.
Do neither... More of the same. Enjoy your double dip... (we never mathematically ever left this depression).
I hate to say this, but treasuries are in a bull market. I am long and biased, obviously. I am a bear long-term, seriously, how can the US ever repay the debt it carries? However, there is no question that at this moment, right now, treasuries are appealing. That is not opinion, but fact. The Fed is a buyer and will buy more which puts a floor in. Investors are buyers and stocks are just way over valued, IMHO. In time, some time in the future, TBT will be a play, but not now. It is waaay to early to short treasuries. If you don't fight the Fed when they are trying to reinflate to certainly do not fight the Fed when they are trying to do QE. Just my opinion and I am long UBT and various intermediate term treasury funds.
Too bad there isn't a fund that shorts awful products like treasuries in terms of GOLD to work around the Fed's QE nonsense.
My counterargument would be: think of all the shit that blows up with a 6% 10y. Think how hard the Fed would work to prevent that from happening.
If the stock mkt collapses soon, maybe bond prices are correct. If not, it will be the other way around.
it's like a erection, you never know how long it will last and once it blows you can't stop it.
I have no idea who would junk the quote of the day.
Um, okay. So is Timmy acting as Pfizer and giving away free Viagra to the crazies?
I have bookmarked this and will reread it once a week to keep from buying into the lunacy. Might even start trading the TBT again.