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The "Risk On" Lemming Stampede - LCMGroupe February Market Commentary

Tyler Durden's picture


Below, we present the February market commentary courtesy of Gordon T Long/LCMGroupe.

Paper abstract:

We are experiencing unprecedented moves in financial equity markets as a direct result of the US Federal Reserve money printing operations. The Federal Reserve is no longer operating as the traditional "Lender of Last Resort" but rather is now experimenting in untested waters as the "Buyer of First Resort".  Everything is being done by the US government to restore consumer confidence in an attempt to restart the US economy, which even after trillions of government spending, lending and guarantees is at best lethargic. Employment is no longer just a US problem as systemic growth and rebalancing issues face the entire globe. These issues are acute enough to now be seen to be igniting social unrest in many countries other than just the EU.

The "Risk On" Lemming Stampede (pdf link)


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Sun, 02/06/2011 - 13:23 | Link to Comment Bearster
Bearster's picture

Even after burning, bloodletting, and poisoning the patient, the patient is still lethargic.  Perhaps the fire, leaches, and arsenic are doing harm and not good?


Sun, 02/06/2011 - 13:34 | Link to Comment gwar5
gwar5's picture

Central Bank planners are sinking the Titanic and have all the life boats.

Sun, 02/06/2011 - 13:42 | Link to Comment tmosley
tmosley's picture

There's still some space on the last two.  Buy gold and silver.

Sun, 02/06/2011 - 13:35 | Link to Comment TeMpTeK
TeMpTeK's picture

Give Keynesianism a chance..... Just 4 more Trillion... It can work.. Just believe in Amerika..

Sun, 02/06/2011 - 13:37 | Link to Comment LawsofPhysics
LawsofPhysics's picture

There is a very real cost for creating capital.  The Fed steals real value from the American taxpayer (remember zero interest return for the American people, even though they are the ultimate source of the capital being created out of thin air).

Interest rates should have been gradually climbing a long time ago.

The world, and America in particular, will learn soon enough what the real cost for trillions of dollars magically appearing on balance sheets around the world (remember no one is actually "printing" money).


hedge accordingly.

Sun, 02/06/2011 - 14:52 | Link to Comment DonutBoy
DonutBoy's picture

The Fed is stealing from those long dollars, which is not equivalent to the set of taxpayers.  If you are a taxpayer with a $500,000 mortgage, the Fed is working to increase your real wealth.  If you're a taxpayer with a million dollar fixed-rate mortgage on a productive farm the Fed is your best friend.  If you're a taxpayer who rents with $200,000 in savings, you are being fleeced.

The response is to be long things which can generate wealth before and after a fiat currency disaster, and if not generate it, at least not go down with the fiat currency ship.

Sun, 02/06/2011 - 20:54 | Link to Comment DosZap
DosZap's picture


Bingo,even though the paper frns have not been printed, the value of doing so is ON THE BOOKS.

No way to remove it.

I see no way off this Titanic II, without a severe dose of Hyperinflation.

As you said,Hedge Accordingly.

OT a bit, but applies to hedging, I have asked several friends that have moved out of large urban areas, and into smaller sates, where land, is a LOT less expensive.

Oddly, the land where they are should be 50% of what they are seeing being listed for.

It's not selling, and the owners are not either.........

Hell,even 10-15% Inflation would kill the dollar, for good.

Sun, 02/06/2011 - 13:44 | Link to Comment Dr. Gonzo
Dr. Gonzo's picture

My consumer response to the new Fed Policy has been to spend all non-discressionary income at the coin shops buying gold and silver coins. Also to cash out of some retirement funds to spend at coin shops. Also to spend savings at the coin shops. This is my duty to stimulate the economy. This is what we are supposed to do as good American consumers. I'm helping the Fed by doing this. I'm too dumb to figure out how to work ipods and video games so I have to buy simple things like coins with my FRN's. I hope spending all my FRN's is helping Ben Bernake do God's work. I feel that my actions are helping to defeat the Soviets and Osama Bin Ladin and Hitler. I will spend my last FRN on silver if that's what it takes to defeat Nazi Germany.

Sun, 02/06/2011 - 13:51 | Link to Comment cossack55
cossack55's picture

Uh, hate to break the news to ya, Doc, but Nazi Germany has moved to DC.

Sun, 02/06/2011 - 14:47 | Link to Comment slackrabbit
slackrabbit's picture

Damn, I knew I'd seen that guy with the freaky moustache somewhere.

Sun, 02/06/2011 - 18:13 | Link to Comment zaknick
zaknick's picture

Backwards: bankster DC/Fraud St oligarchs spawned Nazis.

Edwin Black's Nazi Nexus and War on the Weak ( the early work; the joo pulls his punches on Rockefucker and Bushit later).

Sun, 02/06/2011 - 13:54 | Link to Comment apberusdisvet
apberusdisvet's picture

Anyone who sincerely believes that the FED's real agenda is to "restart the economy" has his/her head in a delusional parallel universe.  It's all about the TBTFs, either here or in Europe; certainly not about the welfare of this country.

Sun, 02/06/2011 - 13:54 | Link to Comment Racer
Racer's picture

Children's education will suffer soon if the school week is cut to 4 days instead of 5 in Scotland! And the US poor depend on SNAP even more

But in the meantime banksters get even fatter bonuses

Sun, 02/06/2011 - 15:37 | Link to Comment prophet
prophet's picture

SNAP, CRACK, POP - cereal banking

Sun, 02/06/2011 - 21:03 | Link to Comment DosZap
DosZap's picture

And all this time we were told , It's ALL fo the chiddrens!!.

Well,they do not seem to have managed to hep the Chidddrens.

Sun, 02/06/2011 - 14:02 | Link to Comment Caviar Emptor
Caviar Emptor's picture

What the Fed doesn't want to realize is that the center of gravity has shifted. The ever-spending, ever-borrowing middle class can't afford the rising cost-structure of middle class life given the realities of long declining real incomes compounded by declines in housing and retirement benefits. Unfavorable demographics and a decline in confidence in their future earning potential just add to the problem (structural unemployment will do that to people). 

So the Fed is fighting for its life: the old method of expansionary monetary stimulus as a cure-all has gone beyond the tipping point of diminishing returns into the shadowland of a negative feedback loop. The virtuous cycle has turned vicious

Sun, 02/06/2011 - 18:21 | Link to Comment zaknick
zaknick's picture

Yayyy! Vicious, bitchez!!

The "empire" turns to blood and tears. How do you like them apples?

Rockefucker, Bushit oily interests, dirty joos and C!A out of Colombia now!!

Sun, 02/06/2011 - 21:05 | Link to Comment DosZap
DosZap's picture

Oh, they KNOW it, they are just trying to run the table as long as possible before the natives figure it out.

Sun, 02/06/2011 - 14:03 | Link to Comment steve from virginia
steve from virginia's picture

The Establishment is fighting the last war. They don't understand the problem is a) real economy insolvency rather than finance illiquidity, and b) We're all about resource constraints on real economy output and aggregate demand.

The Fed never mentions energy so they implement the worst possible solutions to real problems.

Moral hazard and ZIRP gives finance a green light to lend as much as possible and to hell with any consequences.

Accelerating 'growth' pushes demand for fuel which drives up prices of everything that embodies it such as food. The world's stomachs are at odds with the world's gas tanks, its farms at odd with its auto factories.

Fed- led market discipline keeps redemptions in line with 'new money' so a crash is unlikely but steadily increasing fuel prices are the wild card. Current price levels are bankrupting for most businesses but only in the longer term. Businesses can endure high prices for awhile but a decline in customer spending means an increase in business failures and a returning recession.

Once the Fed gets to the effective end of QE 2 @ the end of this month there will be pressure to continue with more QE from those who fear the instant reappearance of deflation. The economy is aground on the deflationary rocks of input costs that Fed policy forces higher.



Sun, 02/06/2011 - 14:41 | Link to Comment 11b40
11b40's picture

Very well said, Steve.

All the things that are doing well for investors (speculators) now are long-term killers for our economy.

Even our high-tech exports hurt us overall.  I mean, what are exporting, other than food and entertainment, that isn't somehow making our competition stronger and more efficient?

As a retail broker, I deal with over 20 factories, most of which are in China, but some in Europe and ME.  All are in the process of 'trying' to get price increases.....with varying degres of success.  On Friday, I was flat-out told by one of my largest customers that the new prices quotes, which reflected a 15% price increase, would not be accepted.  My competition has a 7% increase on the table.  The business is mine to lose, but I must at least meet 7%.  We are constantly re-configuring compositions and cheapening products to try and keep certain retail price points.

The prior week, I had a meeting between one of my plastics vendors and a a buyer for a 700 store chain.  At least 30 minutes of a 90 minute meeting were devoted to resin costs - all up between 8 & 22%, depending on the type.  And this is based on what has been happening over the past few months.  What will it be like in another 90-120 days?  We know inflation cycles feed on themselves & it is no longer theory.  It's here, and it's growing, and consumer sales are going to start reflecting it.  Soon, the retail shelves will be stocked with more expensive merchandise.


Sun, 02/06/2011 - 15:03 | Link to Comment Gordon Freeman
Gordon Freeman's picture

Well, I read the whole f@$king thing.  Gotta give Mr.Long points for stamina.  Having said that, the chart on page 76 is perhaps the most ridiculous thing I've ever seen on ZH.

The truth is that this market is not done going up.  The trend alone will tell you when to sell.

Sun, 02/06/2011 - 16:19 | Link to Comment ivars
ivars's picture

Technical (long term response of stock and oil markets to shock impulse) picture-chart  of DJIA in 2011-2012 and double dip ( recession) in Q1 2012, as well as oil price moves upwards as the cause of it:





Sun, 02/06/2011 - 16:20 | Link to Comment ivars
ivars's picture

Technical (long term response of stock and oil markets to shock impulse) picture-chart  of DJIA in 2011-2012 and double dip ( recession) in Q1 2012, as well as oil price moves upwards as the cause of it:





Sun, 02/06/2011 - 17:28 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

This guy earns his money, fair play to him i say.

Sun, 02/06/2011 - 18:46 | Link to Comment Yen Cross
Yen Cross's picture

 Going through the secular risk chart. I'm thinking stagflation, as opposed to a bear market. Although the two thoughts fit hand in hand. You can have a manipulated equity market and stagflation. SANS: The Carter era. Although it was more energy based, the principal is intact. Now we have devaluation in currencies based on the Fed light and reserve currency effect on commodities. A stronger dollar boosts the debt level, and boosts pricing structure. The fed should be buying dollars back every night, to off set ACB selling. The Euro is way over valued.

Sun, 02/06/2011 - 23:54 | Link to Comment chump666
chump666's picture

the "crack up boom" Austrian answer to excess monetary funding to stock prices.  you don't hear that term much anymore.

Hedge funds should start fixing shorts at the top, which is now 3mths feb to may 2011.  i'll bet volumes plummet from now onward. 

It's all about China


Mon, 02/07/2011 - 03:57 | Link to Comment Lord Koos
Lord Koos's picture

I they really wanted to restore consumer confidence in the stock market they could start by putting some of the fraudsters in prison.

Mon, 02/07/2011 - 04:08 | Link to Comment Assetman
Assetman's picture

While not a Fed apologist, I do regretfully understand what they are TRYING to do.  Pouring as much liquidity onto bond and equity markets as possible to attempt a self-sustaining economic jump start is a laudable goal, I guess.

But as we are beginning to see, cracks are beginning to form already.  Rising commodity prices wouldn't necessarily be a problem, per se.  But those increases are happening on the top of high unemployment and stagnant incomes.  Americans are just beginning to come to grips that these trends scream "lower standard of living".  And current policy will continute to the pressure on that squeeze of the middle class and poor.

This slippage in our standard of living is a natural by-product a very gross policy of capital misallocation, in my view.  Capital is simply not being directed towards a productive purpose that creates long-lastng wealth.  If it were, there might be a chance that the formation of the capital would be a self sustaining process. 

But unfortunately, the capital the Fed ultimately providing is being funneled into unproductive endeavors.  Absorbing the inherent losses of the financial system might onto the Treasury's books be a noble thing to a narrow swath of the population-- but it does very little to add to the real output of the economy.  And as of now, capital is being diverted en mass to risky paper assets, with little thought of the value captured in return.  While some of those assets have intrinsic value behind them, investors are paying a huge paper premium to those own cash flows.

My sense is that deep down, Bernanke has a growing sense that QE will not work, and that he's essentially throwing Hail Mary's under the current strategy to get things jump started.  Sure-- something self sustaining might occur, but a lot of capital that has already been deployed has been wasted in thing that don't create real value.  And that's the tragedy of this whole episode.

Mon, 02/07/2011 - 04:15 | Link to Comment ivana
ivana's picture

Have feeling that we (taxpayers) are just entering major bear wave 3 all over the world and that one will last last last ... until we all obey.
Anyway, the best time for investments is coming. Keep your powder dry.
Great work Gordon!!

Mon, 02/07/2011 - 11:49 | Link to Comment Reptil
Mon, 02/07/2011 - 21:48 | Link to Comment rocker
rocker's picture

Thanks for this post Tyler

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