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Jeremy Grantham: This Is Nothing But The Greenspan Legacy's Latest Bubble, America Is Now "Thorougly Expensive"
Yesterday we first posted Jeremy Grantham's latest letter which incidentally is a must read for everyone who still is stupid enough to think this market reflects anything remotely related to fundamentals, when instead all it is pricing in is the money printing Kommendant's daily predisposition to continuing his dollar decimation via ZIRP and shadow QE. Just like all those who are buying Apple at these stratospheric prices are in essence selling life insurance on Steve Jobs (sorry, someone had to say it), all those buying into the market here are betting the Fed is apolitical when it comes to monetary policy decisions: a proposition so naive and ludicrous, it is not surprising that only the momos continue to buy into the rally, which is driven purely by Primary Dealers recycling money they lend to the treasury which in turn is repoed back by the Fed, so that the banks can buy 100x P/E risky stocks with the same money used to keep the treasury curve diagonal. This is nothing but Fed-sponsored monetary pornography at its NC-17 best. Of course, those who grasp it are few and far between, while the rest of the population is ignorant in its hopes that S&P 1,500 is just over the horizon, without a resultant crash back to 0 on the other side of the bubble. So for all those who are still confused (this means you Kommendant Bernanke) here is a 6 minute clip in which Grantham tells it just the way it is: there is nothing more to this rally that free money and banks' last ditch attempt to lock in another year of record bonuses before it all goes to shit. And the implication - play with the big boys at your own peril. "Bubbles are when you should cash in your "career risk units" and do something brave to protect the investors. There is nothing more dangerous and damaging to the economy than a
great asset bubble that breaks, and this is something that the Fed
never seems to get. Under Greenspan's incredible leadership he managed to give us the
tech bubble, and by keeping interest rates at negative levels for three
years drove up the housing bubble, and finally the risk bubble. And
Bernanke has happily picked up the mantle, and seems totally
unconcerned about creating yet another bubble. He has interest rates so
low banks can't possible not make a fortune. Savers are being
penalized, anyone who wants to buy cash faces a painful experience, and
so we are all tempted into speculating, which is apparently what he
wants and we've just had one of the great speculative rallies in
history, second only to 1932-33."
Some of Grantham's bubble observations:
- Bubbles are when you should cash in your "career risk units" and do something brave to protect the investors.
- There isnothing more dangerous and damaging to the economy than a great asset bubble that breaks, and this is something that the Fed never seems to get.
- The current UK and Australia housing bubbles are no exception to the trendline: if they don't explode it will be the "first time in history that a bubble has not broken."
- Other current bubbles: commodities and the emerging market equities.
- In every bubble there is an element of greater fool, but nothing will stop the enthusiasm of the EM bubble due to the slow growth of the rest of the world, they have become the "only game in town."
- "It is not usual that you will get three bubbles in a 10 or 12 year period. Normally one bubble will chew up 20 years because it leaves such a painful experience, people don't queue up to put their hands on the same stove and burn themselves again. "
- The US market is now thoroughly expensive again.
Full must watch clip after the jump.
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You people need to get with the program. See this from Reuters:
Of the 172 S&P 500 companies that have already reported earnings for the quarter, some 83 percent have beaten analyst expectations, well above the 61 percent in a typical quarter and above the 79 percent record set in the third quarter of 2009, according to Thomson Reuters data.
"Fundamentals are continuing to look great, earnings look great. But some market players continue to underestimate how strong this economy is. They continue to fight it, particularly in the retail and consumer sectors," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.
"We continue to think that the economy is going to perform better than consensus. We have turned the corner on job growth."
Perhaps correct, but this has nothing to do with it. You're just speaking a different language. The "market" started its disconnection from the heath of the United States 20 years ago and each year it is further disconnected. That's one element of this. The second is the effect banking is having on this at the expense of the taxpayers and reality. The great deleveraging hasn't yet occurred even though it was supposed to occur two years ago. Too much liquid has been flushed into the market. Companies can grow and become more profitable on labor insecurity over the next two years AND their stock prices can still crash. That's a fact. A value discussion means nothing based on growth without a price discussion and a macro economic discussion about bank insolvency and 2 trillion of toxic assets in our central bank. My lawn could be turning green because there is a great flood of water about the blow under the surface.
Carl, your sense of humor is entirely too dry for the general population.
Remember - in cyberspace no one can see you smirking as you type.
A textbook churn operation with access to endless funds. This is all the Ponzi has left to offer folks. Churn.
Our economy is like 2 NASCAR tracks. Both closed loops. One is Wall St and the other is the real world. There is a large entrance ramp and a small exit ramp for liquidity/free money from the FED on one and just an exit ramp on the other one.
No real money gets to the real economy. All the unemployment benefit and other social service money is in the real world for a split second before its handed over to either overpaid corporate honchos or it goes strait to China and Middle East.(Only before our corporate heros take their cut).
good analogy. I'm always looking for analogies to explain the "two worlds". The market could go way up and the American economy could get worse at the same time. Did no one understand what American capitalists did over the last 30 years to achieve this? That was certainly deliberate. Ill intent is debatable. But outcomes were fairly obvious. Even old Warren buffet said the economy would suck, but that doesn't mean the market would go down. People who see the American "stock market" as a true representation of "America's health and growth" are not paying attention. It's as if no one has ever left the country and looked around at where growth comes from. Your one NASCAR track was raping and pillaging the other track. When it crashes, they can just move tracks. The ease of capital movement was the goal of capitalists for 30 years. The last time Rush Limbaugh and Al Gore agreed on something, it was that. We made a mistake in HOW we did that, for sure. Capture of long term capital should have been sowed into all agreements to loosen flight on short term capital.
Two points of contention:
1.) "....people don't queue up to put their hands on the same stove and burn themselves again."
Has this guy ever been to Las Vegas or Atlantic City? Casino's couldn't exist, much less stock markets, without this queue of idiots willing to put their hands on the same stove only to burn themselves again and again. Of course, these same idiots rationalize it all away by reminding themselves its just discretionary spending used for entertainment purposes.
2.) "There is nothing more dangerous and damaging to the economy than a great asset bubble that breaks, and this is something that the Fed never seems to get."
Why should anyone or any institution that has never been held accountable for its actions be concerned with the damage they wreck across the landscape.
If rule one always applies, then it should be quite obvious why rule two happens continuously.
funny and true. FED bubbles are by design. They create transaction and profit both ways and MOST importantly, they fill gaps in lifestyle expectations between real growth/income and fake. Our fed res system does this by design. Do we need to hire a national engineer to explain this? Fed governors either have to be raised from birth to protect the republic and not allowed to fraternize with bankers or politicians or we need to change the system before its over
Exactly. Like an addiction.
The FDIC closed 7 banks on Friday leaving taxpayers to foot $1.44 billion. Last week 8 banks were closed, just 1 off the October 30 2009 high of 9 institutions in one day. By April 23rd 2010, 58 banks have been closed in just four months yet by the same time last year only 29 got their orders for a total of 140 closures in 2009. At this rate, we're looking at 174 closures in 2010. That recovery sure is gaining pace.
Pocket change.
With the globe clamoring for the U.S. dollar and Treasuries, it will be no problem to "mop up" these little problems with Infinite Fiat.
Wash, Rinse, Repeat
Wash, Rinse, Repeat
You left out " until you go into default"
Can't go on forever, even when you can print money...
ESPECIALLY when you can print money.
http://www.bloomberg.com/apps/news?sid=adUQu7XAFc1A&pid=20601087
How much of this is perpetuated by the fact that the deeper pockets have found a way to pick up the Bank Failure Friday participant's assets and deposits for pennies on the dollar?
Those banks were all in a 100 mile circle. Looks like the FDIC is trying a geographic shutdown strategy. Wonder where the next 100 mile circle will be?
it's different this time.
http://finance.yahoo.com/news/Missed-the-Rally-Theres-Still-cnbc-409356184.html?x=0&sec=topStories&pos=2&asset=&ccode=
Naive?? Let's see now, all the central banks in the world are busy killing their currencies, economies, and governments. Does anybody really believe that is an accident?
Just checking.
and the rich get richer, coincidentally of course.
What? Let them fail.. free market is always the answer
Why You’ve Never Heard of the Great Depression of 1920
http://blog.tenthamendmentcenter.com/2010/04/why-youve-never-heard-of-the-great-depression-of-1920/
Do your part: spread the truth
That was very interesting. Never heard mention of this before. Thanks
DOW next resistance level is 11,250/300
MARKET UPDATES:
http://www.zerohedge.com/forum/latest-market-outlook-0
Quite telling how many references to the Fed, economy, FDIC and Goldman I read above. Last time I looked I am trading contracts on crude, currencies, metals, bonds and equity indexes. Not contracts on Blankfein or Bernanke.
I could care less what the Fed or Obama do. I could care less what the economy does. I just need to be on the right side of the trade, I just need to make sure I don't let catastrophic losing positions run their course.
If some of you paper traders understood these basic principles of trading then you wouldn't waste your time with endless essays of a rigged market. "Overvalued" is a poor trader's excuse for not knowing how to trade a bull market. Just like the bagholders scream "undervalued" in bear markets.
My declaration of interest: over the last three to four decades I have traded currencies, hard and soft commodities, on my own account; I have traded credit bonds government bonds, CD's, TBills, equities, convertibles, as an interbank broker and regulated stock exchange dealer; I have managed, multi-currency cash bond and equity portfolios for SWF's and pension funds. More latterly people ask my opinions and actually pay for them! I have been a paper trader to start up new (options based, zero cost, step up return/no downside strategies).
I would hazard a guess that the people who read and contribute to this site are just as experienced. I guess I shouldn't feel sleighted by your comments, but I think that this forum is a good one.
My current position is short property/long cash 65%, long inflation 15%, long (value based) equities 20%. Bar-bell I know and not playing the pork belly roll like you do, but there you go.
I care that I cannot make a reasonable amount of money from proper analysis without being ramped against by the latest spit-baller or regulator or central bank. I like liquidity in markets though and having some sense of trust in who is helping me trade.
I am bearish on capital and equity markets but made good money last year, with small(ish) risk. How did you do and what is your background?
Oh and philosophically/politically, I am on the side of fixing the deficit by correcting imbalances like this:
http://georgewashington2.blogspot.com/
Though I guess politics don't matter to markets in your eyes?
There is a statistic for you, people who are making money are not unemployed. Brilliant! Another good reason for preventing people like you from legislating prosperity.
Castro once made a comment like, "Do you know HOW MANY American presidents I've dealt with....and here I am?". I felt the same way about Greenspan and feel the same way about Rubin and Summers, Obama's biggest shame. Our permanent establishment is tottering on the wall. That's why you see so many "intelligent, establishment" folks trying to tip them over just not in the corporate media. Once upon a time, the banks had all my friends on their side. Now, the other side of the "establishment" is pushing them over. This is a crisis within the elite too. The ones we let rule we're wrong and it hurt EVERYONE. That's why it's so potent this time. I don't think some ZH people understand how many "establishment" people are on their side (maybe you do), even knowing it might mean the loss of this investment gap not being filled. The Japanese refused to accept those losses, didn't they. It's been a 20 year mugging of the young, now middle aged. Moral, intelligent people are out there and see this thing. I've never heard so many references to the movie "Goodfellas" and "Goldman Sachs" in the same sentence. The richer they get from this, the more existential their threat in perceptions. I've never seem this much dissenting discussion and bank bashing at white collar dinner parties with bankers in company. Everything has changed. Cynicism reigns on ZH, rightly so but insideous too. These people need to be networked and you might be more optimistic. There is a way out of this. It may not happen under Obama (I never thought it would), but it will happen. It took 13 years to get a nation from a war. Good things will happen. I'm optimistic, not that this won't all crash, but that we can engineer a workable way to emerge on the other side. I'm also optimistic about the remedy extending internationally. Banks have long used multiple sovereignties to their advantage. It's time for us to reach out the European and Asian ZH and bank critics. That would cause bank freight, not flight.
Yes, having the same experience.
When the lawyers and CPA's are ready to lock and load, you know the government is in deep shit. What these communists and kleptos don't have is consent of the governed. Obama is so damned arrogant and ignorant, he thinks that doesn't matter.
This too shall pass, but it won't be pretty.
Spoken like an incinerated short.
Speaking only as a majority of one, I don't mind risk. Handling risk is what many of us do well. I just don't want to play poker with the Mafia. That's what this market feels like. I think that's why so many people have hunkered down.
Thank you for a concise voice of reason. He did recommend companies like KO, JNJ, and MSFT, which, are all in the DJIA, and have not experienced the speculative mania of other equities. Sadly, he sees commodities as a bubble, but does not elaborate.
When the worm starts to turn I might buy some puts on gold and silver as protection to a physical postion, and some out of the money puts on something like the Russell 2000 which seems uniquely bubblicious.
But crazy rising markets can go on years longer than you'd think. They don't just "end" because smart people think it's crazy. Something has to happen to change the trend. Rising interest rates. Utter speculative exhaustion. A double dip.
I, personally, am quite amazed by the short amount of time it takes us to return to basically the exact same point on the timeline. This is becoming a mirror image of 2007 -- with the exception that economic conditions are worse than then. However, everyone is cheering how it is certainly the time for markets to go the stratosphere -- without so much as one down day. Seriously, that should make anyone's blood run cold -- even those who have enjoyed being long the market for the better part of their careers. The pressures on the economy are beginning to far outweigh 2007 and 2008 (including the gas price crushing blow). I doubt it will take $4 a gallon gas to see the same effects we got back then. $3 ought to be enough. But right -- don't worry about the consumer, don't worry that nearly 20% of the working population doesn't have a full-time, full-paying job.
All through spring and summer 2007 we heard much the same thing. Don't worry subprime will be contained, don't worry about the financial system that is ridiculous. Don't worry that the consumer has buried themselves in more debt than we could have even imagined a half-generation ago. And most certainly do not put another thought into the safety of your money in the bank. Yet, as we all clearly saw, even the most empowered market, enjoying it's own dose of reality can't ignore the weight of the details forever.
Yes, we certainly have a lot of liquidity now, but at some point (in my opinion) we will circle back to exactly what that means. And when that isn't enough? Then what? I say for all of you who want to be long -- and ridicule those who feel it is time to be more prudent -- in a market where 20% of the volume is often traded in a single, government-backed entity best of luck to you. But I am going to take the high road here, participate in whatever "trades" I feel like, but I'll chose not to leave my chips unattended in the casino. Because I happen to remember vividly how in November of 2007 their was absolutely no reason for the market to do anything but go up and we all now how that ended.
I think many would have seen Steven Keen's analysis/updates of the Australian housing market.
http://www.debtdeflation.com/blogs/2010/04/06/debtwatch-no-44-april-2010...
I have been unsuccessfully trying to get my wife to agree to sell our house off and on for the past few years to lock in our the capital gains which would be around 250% (which is tax free for owner occupied homes). She almost agreed but is too comfortable where we are. I am still working on it.
Take my advice Kina, SELL NOW. Do not ride your bubble down, you will forever regret it. GET OUT NOW!
I had the opportunity to sell ca re 3 years ago and passed. biggest mistake of my life. I knew we were in a bubble, I just didn't realize how bad it was and had no idea of the magnitude of mortgage fraud.
Get out now and convert a percentage of your gains to gold and silver. But do it now.
Same advice to Canadians. You all have been given a great gift and have seen a preview of your future here in the states. Use that info wisely...
I'm trying, we stand to make about $350/400k capital gain since 2000 if we get out ASAP. I imagine the catalyst for things going 'off' in Australia would be a US double dip and or China/Asia problems. Both are on the cards.
Anyway, have printed off a few of Mr Keen's graphs for the wife.
Do an analysis based on price to rent and price to income. That should make the big picture clear.
Shiller has written extensively on the subject
http://www.econ.yale.edu/~shiller/
Don't forget the massive energy problem staring us in the face. We have less than 5 years before energy gets ugly and probably more like two....
The states are completely unprepared for an energy crisis. Sierra club currently threatening lawsuits if we start building nucs. Failure over here is baked in the cake...
Oil has been riding peak since '05....we could hit the down turn ANY DAY. When we come off of the platue, Wall Street will be forced to liquidate, and this will force hyperinflation. I think It happens in September to go out on a limb. 'Merca drives one more summer. The shit ain't endless. It is about to get uglier than we can imagine.
Not all of Canada is in a housing bubble. Vancouver, Toronto, Calgary, maybe Ottawa for sure. There are plenty of places across the country which haven't experienced massive gains in 'value'.
As for bubbles popping. With chemical reactions you can have two major ingredients combined but nothing happen, unless you add a tiny drop of catalyst. The same with a flock of birds that seem to take flight simulanteously, what is the thing that triggers the mass near simultaneous exodus?
So the thing that can pop a bubble could easily be a minor thing, the flapping butterfly wings.
The world's reserve currentsea; not only FIAT, but it is in massive circulation. THE DOELARR IS DEAD.
Who will bury the body? And when? The corpse is rotting and vultures are feasting! Considering it is in our backyard, I vote we do it. The body is stinking up the place.
The primary function of your Government is to pretend to fail
http://www.youtube.com/watch?v=Gsxd3knYq20
Next DOW key resistance is 11,250/300
If that level is penetrated next target is 11,900
MARKET UPDATES:
http://www.zerohedge.com/forum/latest-market-outlook-0
You know when comments go vertical the thread is about worn out. lol
Time for another religious sideshow. I'll start:
My God can beat up your God!
THANK YOU FOR POSTING THIS.. THIS IS THE CO-FOUNDER AND CHIEF STRATEGIST FOR GMO. THEY MANAGE BILLIONS WORLDWIDE.
HE SAID WHAT MOST WON'T SAY: EM IS A BUBBLE RIDE...AND US MARKETS ARE THOUROUGHLY EXPENSIVE. THATS WHY YOU WON'T SEE HIM ON CNBC ANYTIME SOON
I disagree that Apple is overpriced.
I'm just a Dip Shit, please extent my loan
GM DIP Loan
http://d38e0yhv9tix0p.cloudfront.net/pdflib/68_50026.pdf
This transaction was a further amendment to the Old GM Loan, which brought the total loan amount to $19,760,624,198. The $360,624,198 loan was used to capitalize GM Warranty LLC, a special purpose vehicle created by . On 7/10/2009, the principal amount was included in the $7.07 billion of debt assumed by the new GM, as explained in footnote 10.
1. Payment amount does not include accrued and unpaid interest on a debt obligation, which must be paid at the time of principal repayment.
2. Treasury committed to lend General Motors Corporation up to $1,000,000,000. The ultimate funding was dependent upon the level of investor participation in GMAC LLC's rights offering. The amount has been updated to reflect the final level of funding.
3. Pursuant to its rights under the loan agreement with Old GM reported on 12/29/2008, Treasury exchanged its $884 million loan to Old GM for a portion of Old GM’s common equity interest in GMAC. Treasury held a 35.4% common equity interest in GMAC until the transactions reported on 12/30/2009. (See transactions marked by orange line in the table above and footnote 22.)
Under the terms of the $33.3 billion debtor-in-possession credit agreement dated 6/3/2009 with Old GM (the "GM DIP Loan"), Treasury's commitment amount was $30.1 billion. The remaining $2.2 billion of the financing was provided by Canadian government entities. As of 7/09/2009, $30.1 billion of funds had been disbursed by Treasury.
9. On 7/10/2009, Treasury and Old GM amended the GM DIP Loan, and the principal amount and interest accrued thereunder were extinguished and exchanged for privately placed preferred and common equity in New GM, except for (i) $7.07 billion, which was assumed by New GM as a new obligation under the terms of a separate credit agreement between Treasury and New GM
All spelled out on page 71. Chrysler is also involved. The 4/9/10 dealings haven't been released to the public
Can someone open this redacted file? I believe it will kill the MSM GS story & open new rabbit holes.
Investigation of the SEC’s Response to Concerns Regarding Robert Allen Stanford’s Alleged Ponzi Scheme ---March 31, 2010
http://www.sec.gov/news/studies/2010/oig-526.pdf