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So What Happens When The Music Stops?
In a note released earlier by Raymond James, the author Jeffrey Saut does all in his power to explain not only why Treasuries are a bad bet (inflation is a-coming), and why the market will continue ramping higher, but ironically, why, even as the author submits by calling his piece "When the music stops" that all equity market participants have entered into a bubble frenzy, the market will simply continue going higher, period. As a reminder, comparable notes were a dime a dozen just before the dot com bubble popped. Of course, nobody will care to stake their reputation on calling when this bubble, which everyone now acknowledges it for what it is, will end. However, Saut does provide some astute observations on the career risk that has gripped most portfolio managers, the majority of which have, not surprisngly, not participated at all in the current rally. We would add, a comparable career risk now permeates among the analyst community which has all now gotten on the bull bandwagon, as nobody is willing to call a spade a spade, for fear of angering some of the larger accounts or superiors, for being a contrarian in a market that swiftly silences all objecting voices as it pursues new irrational highs.
And, last week stocks continued to “creep higher” with all of the indices we follow trading higher for the holiday-shortened week. That action left most of those indices at new rally reaction “highs,” putting even more pressure on underinvested money managers. A case in point was an article from a few weeks ago whereby a money manager disclosed that he still has 80% of his $850 million under management in cash. I read the article with both amazement and amusement. Amazement because I was surprised that any portfolio manager would admit he had that huge of a hoard of cash after more than a 50% rally from the March lows. Amusement because he probably allowed himself to be quoted believing that the September 1st Dow Downer, of 185 points, was the beginning of the long anticipated correction.
And here is the punchline of how speculative frenzy coupled with job preservation will continue dislocating a market from any possible connection to an underlying economy that has yet to approach anything remotely resembling a bottom, and as we grind slowly toward the 2011-2012 cliff, likely to see another major leg down when the Commercial Real Estate threat will be the next "black swan" that nobody could have possible anticipated. Emphasis ours:
According to Jeremy Grantham, “In markets, where investors hand over their money to professionals, the major inefficiency becomes career risk. Everyone’s ultimate job description becomes – keep your job. . . . Refusing, on value principal, to buy into a bubble will, in contrast, look dangerously eccentric. And when your timing is wrong, which is inevitable sooner or later, you will, in Keynes’ words – not receive much mercy.” Indeed, performance risk, bonus risk, and ultimately job risk.
And there you have it: everyone knows the market is a bubble, however if you want to keep that seat by your desk on January 2, you have no choice but to buy: after all Obama said it is safe to do so. In the meantime, Main Street, largely ignorant of the motivations behind the small minority that determines the bulk of market movement, will part with their hard earned savings, and chase whatever stocks it thinks will make it the next slot machine millionaire. Of course, the dislocations between the market and the deteriorating economy will continue becoming more acute. And once the inevitable end of the music occurs, the overshoot to the downside (just as the current upside overshoot) will be unprecedented. But at least all those who managed to placate their LPs for one more year will have a job which will allow them to hopefully repeat the entire spin/rinse cycle once again. But that is a mind boggling 3 months into the future: an enternity when careers are now made and killed with each tick of the SPY.
In conclusion, it is wise to provide the same John Keynes pieces that Saut used to begin his piece with, confirming that there is nothing really unique or "this time its different" about this market move:
“The actual private object of most skilled investment today is to ‘beat the gun.’ As Americans so well express it, to outwit the crowd and to pass the bad, or depreciating halfcrown, to the other. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs – a pastime in which he is the victor who plays ‘snap’ neither too soon nor too late, who passes the old maid to his neighbor before the game is over, who secures a chair for himself when the music stops. Or to change the metaphor slightly, professional investment may be likened to those newspaper competitors in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors, as a whole; so that each competitor has to pick not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. We have reached the third degree where we devote our intelligences to anticipating what the average opinion expects the average opinion to be. And there are some, I believe, who practice the
fourth, fifth and higher degrees.”
John Maynard Keynes, "The General Theory Of Employment, Interest and Money" - 1935
hat tip John
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It would appear the Janet Yellen is having her stroke in installments,
DJ 09/14 04:45PM Fed's Yellen: Stronger Regulation, Not Monetary Policy, Boosting Econ
Janet is doing quite a bit of yellin' today...
14:50 *FED’S YELLEN SAYS FORECLOSURES SHOW `NO SIGN OF TURNING AROUND’
14:50 *FED’S YELLEN SAYS TIGHT CREDIT IMPEDING ECONOMIC GROWTH
14:50 *FED’S YELLEN SAYS ECONOMY HAS `ENORMOUS AMOUNT OF SLACK’
14:50 *FED’S YELLEN SAYS CONSUMER SPENDING IS `BOTTOMING OUT’
14:50 *YELLEN SAYS UNEMPLOYMENT WILL `REMAIN ELEVATED’ FOR A FEW YEARS
14:50 *FED’S YELLEN SAYS U.S. ECONOMY TO `REMAIN VULNERABLE TO SHOCKS’
14:50 *FED’S YELLEN SAYS SHE SEES `TEPID’ U.S. RECOVERY
Ummm, maybe she is pissed now that she realizes she has no chance at Bernanke's job?
Hehe...
It appears we may have seen our appearance of "Janet Unplugged".
Sorry... that's about as unwound as poor Janet is ever going to get.
Maybe she's been reading zero hedge? I presume she still knows how to read...
It's like an appariton, anytime one of the in-crowd, either by momentary brain seizure, accidentally ingesting sodium pentathol, or being visited upon by the Rapture, suddenly and without warning blurts out something like the above and for a few scant seconds becomes a "truther".
Was Janet jogging through Haight-Ashbury and breathing too deeply? Did she leave her therapist and have to unburden herself? Does she have a, gasp, personal agenda?
Very troubling, seeing someone go off script.
If I had $1 billion and I wanted to gun the markets, is buying SPY shares the best way to do it? Would buying SPY shares cause the ETF to automatically buying of the underlying S&P500 shares, causing it to jump up like that?
i believe you would get more action for the money in the futures pit
the water is fine until it isn't anymore.
http://www.youtube.com/watch?v=-YTFKOFudvM
News Anchors are so slow in reporting events that happened earlier in the day. Then they repeat until something else breaks.
These current events don't hold water.
Where is the money coming from? Follow the money and there you will know the truth.
All bubbles burst at some point in the process. Keep this in mind.
When the music stops, there will be no chair. When the investor want to run for the exit, there will be no door...
For FED (and our dear government) know that when the next drop comes around, there will be no stopping it. So they will either,
1. BAN ALL SHORTS
2. SIMPLY CLOSE THE STOCK MARKET FOR GOOD.
numb yet again as the march continues!!
Equity markets will sooner or later crash. That money will be chased into bonds and cash and ultimately into its final destination -- gold.
The equity markets will not power higher forever in the face of dollar depreciation, not unless the computers are reprogrammed to take into account purchasing power parity of gold and oil relative to USD.
I will stake my reputation that this equity bubble will pop by years' end, and I suspect gold will be north of $1200/ounce by Jan 2010.
I agree 1000% percent, however, it's unreal to watch the market zoom higher every freaking day in the face of a complete clusterfuck of a financial system/economy/currency.
I just wonder how inflated the currency and markets get before the whole thing tanks - and to what extent gold will be manipulated along the way.
One scenario is that the world will treat the US the same way we treat our financial institutions: basically create zombies that feed off of everything else until there is nothing left but banks and government. Wait, we may be already there....
Are you related to Marge N O' Error?
Ha. Yes, she's my Irish cousin. Believe me, once she's had a few it's a pretty wide margin.
$1200 gold! 2000 years ago 1 oz bought 350 loaves of bread. have you seen the crop predictions lately? how about $12,000.00 an oz.( good article), bob
Just bought a fresh loaf for $1.99 tonight at the supermarket... @350 loaves, you say? Hmm.. $1000/oz? By some measure, gold may be overpriced right now..
Holy shit. In Connecticut a good loaf (not Wonder) of bread is $3.99.
1oz today buys over 600 loaves. Productivity gains. Something that wouldnt have happened had we kept a gold standard. Or are you saying bread is cheap and should be 35 bucks a loaf?
Back then the loaf was kilo, not 1/2 pound...
And by the way, thats another way producers rise prices but noone cares to reflect- by shrinking the product for the same price...
Back then the loaf was kilo, not 1/2 pound...
And by the way, thats another way producers rise prices but noone cares to reflect- by shrinking the product for the same price...
"Productivity gains" my ass- back then the baker didnt have to feed an investment advisors, 401k parasites, pay more then 10% taxes, pay mortgage, MelloRoos or whatever that bullshit is, and bail out banks. "Productivity gains" my ass- the system is being made more complex for the only reason for the parasites to be able hide while sucking ever more blood...
This explains succinctly why markets can remain irrational longer than you can remain solvent. In essence, the market is not efficient and the herd prodded along by the powers that be can gun any market higher or lower as required. Forget about price discovery, willing buyers & sellers, supply & demand, or the underlying fundamentals. If you have "cash on the sidelines," we will cajole you dear fund manager until you capitulate it to us. If you don't, you'll be fired and another person willing to do the capitulation will take your place.
So, this begs the question, is this anyway to run a capital market over time successfully for companies to generate wealth on return on capital for investors? Moreover, will anyone trust their capital to it both domestic & foreign? IMHO, NO.
Dear Lionhead - you may wish to reconsider the purpose and design of stock "exchanges" (SEs). The myth is that exchanges exist "for companies to generate wealth on return on capital for investors." This is the "simple lie" that the market timers want us to believe and yet the complex truth is that SEs exist to transfer wealth from 401Kers and to launder foreign drug money in a secure and perfectly coordinated environment. Of course there are more painful and confusing layers to the onion, but the onion's purpose is NOT in anyway honest by design.
How many of us are in this boat that didn't realize it was a boat until it was too late. I'm in a 401k. Every two weeks, I take a percentage of my salary, hand it to one of the EIGHT really crappy funds I have to pick from, and tell that fund to go buy stock with it. I don't say, "Go buy stock if it's a good deal" I say, "GO BUY STOCK", every two weeks, like a clock. I wouldn't do it, it's stupid, but it's pre-tax, employer matched (well, that's suspended at the moment), and hey, everybody else is doing it :)
Back a year and a half ago, when I decided I wanted my money out of the market, I discovered that not ONE of my 401k choices is FDIC insured. I have to wonder how many other people are as disturbed about this as I am.
I've been lurking since March - first post - huge thanks to ZH and all its contributors for the education and entertainment.
If everyone ran to cash out their 401k I think there would be solvency issues. But, mine is offsetting my stinky short positions.
I'm certain of the solvency issues, but my problem is more immmediate. None of the fund options my employer offers me are anything remotely close to safe. When I see the train coming, I should be able to move my money off the tracks!
I'm in the same position. Horrible 401k plan with terrible choices, all of which are in "advisor" class, meaning I pay an extra point in fees for performance worse than an index fund.
I've pulled mostly into the money-market choice. Not FDIC insured.
I was ignorant of what a scam 401k funds are for the longest time. It was the proposals of four years ago to "privatize" Social Security that really got me thinking about it. Here would be a system where a huge portion of American's retirement savings would be shoveled automatically towards Wall Street, into these funds with limited choices where advisors are doing god knows what with your money and charging you handsomely for it. I would divert, what, maybe an additional half trillion to Wall Street every year?
Anyway, that's exactly what the 401k system is doing now. Just shoveling money towards Wall Street. The fund advisors mentioned in this post do their best (I suppose) to make money, but pretty soon the siren song of the bubble gets too loud, and there goes everyone's savings into the market.
I just hold my nose, and invest in order to get the match and tax advantage, and roll into an IRA that I can control as soon as I move between jobs. Heavy money market fund option right now, with minor bond and a little international stock.
Exactly what I have done.
Most people can choose an Individually Directed Account (IDA) or Self-Directed Brokerage Account (SDBA) in their 401k (they are basically the same thing, just a matter of which term they use). You manage your own investments at a cost, but no options, futures, margin - like in retail. This IRA option is not well advertised at many places; ask your HR dept for papers on it to look at (for the fees). You can get pretty fancy in there; it doesn't have to be just stocks or funds.
The great bonus is that you get to lose 40% and can blame yourself, instead of hating on *fucking* TRP like I got too.
Mother fucking fuckers, lose 40%, or a total lifetime return of -80% since 2004.
Mother fuckers.
Put it all in whatever stable value fund is offered.
"stable value" - neither stable (not FDIC insured) nor a value (not any cheaper or better yielding than any other fund) - the doublespeak is mindnumbing
The rally will go on until the big banks sell enough of their CDOs, CLOs, LBO debt, etc to retail investors to survive a pull back. These funds are opening to make retail investors the bagholders:
PowerShares Prime Non-agency RMBS Opportunity Fund
PowerShares Alt-A Non-agency RMBS Opportunity Fund
Third Avenue Focused Credit Fund
BlackRock Legacy Securities Public-Private Trust
Good words in the names of these funds...Opportunity..Focused...Trust
Sign me up!
OK JK, I'm going to open 2 mutual funds for you: The Lionhead Bagholders"Trust" & the Lionhead CRE Capital Depreciation "Focused" Fund. 100k minimums, 5% front loads, redemptions once in 5 years. Are you a "sophisticated" investor? ;)
as Mary Schapiro would say, "robust"
what happens when music stops? someone keeps dropping quarters into karaoke machine. My opinion - this market goes higher! Quote me on that. And i do not need 10 page papers with wiggly lines to prove that.
Think about this - someone is ramping the market on low volume (according to some theories...). Well to bad for you cause they spent very little money and got stocks much-much higher. What happens next? Either you go to buy and that when they sell to you OR they let it down 10% at which point you scream - correction i predicted, correction i predicted - and then buy. But stocks are still higher by 40% at that point from where "they" ramped them up by spending very little money (see above...). Good luck!
Don't forget that right now it's mainly the banks owning this bubble through their robots. They need some sucker to come in and take the bag at peak value, before they can all beat a retreat.
Fund advisors playing with with Ma and Pa's money seem like pretty good candidates don't they?
"A case in point was an article from a few weeks ago whereby a money manager disclosed that he still has 80% of his $850 million under management in cash. I read the article with both amazement and amusement. Amazement because I was surprised that any portfolio manager would admit he had that huge of a hoard of cash after more than a 50% rally from the March lows."
This just gets silly. Why do people refuse to understand that there's no such thing as investing in the stock market? If one money manager is buying, another money manager must be selling. So the total amount of cash out there doesn't change. What changes is who holds is at each moment.
The manager quoted, could be the one who went all in in March and sold off in August at a 50% profit. Now he sits tight, happy and with his cash secure, while "analysts" are being puzzled by all this cash on the "sidelines".
Will PE ratios ever matter again? I know that the market is 'always forward looking' and has everything 'priced in', but just how far ahead is this market looking? I see nothing in the economy, especially in my profession (natural resources - timber) that tells me that all is well and it is green shoots and unicorns form here on out. Somebody must see something that I don't that justifies this lofty market.
But again, a few trillion in TARP money to a few select banks can keep things going for quite a while, I guess. After all, we can't be told who or what the recipients of the largesse did with it; national security and all.
this rally is pure farce, blatantly controlled by a computer program that is funded somehow with currency swaps involving the yen and the euro. this much is blatantly obvious.
that it has gone on for 2 months now without being shut down by the authorities is proof enough that the authorities are complicit, if not in fact directly behind it.
a sick "rescue plan" that is nothing more than another trillion dollars GIFTED to Wall Street by our corrupt Treasury and Federal Reserve, Inc.
I've been in the business 15 years. I'm getting out. This is both too depressing to watch all day everyday and too futile to "game". The market will collapse; whoever is buying it would have to buy ALL OF IT ultimately to keep it at this altitude throughout the depression that has clearly started. What they are doing here "to help" (they would argue) is going to crush us. No point playing in this litter box any longer, getting out and not owning stocks until the day they really are investable - probably 5 years from now.
O'Neill said (paraphrasing) you can either develop the ability to see what the market is doing, or you can argue with the market because it is not doing what you think it should be doing. Sounds like you chose the latter.
Speaking of music stoppage, there was a hell of a lot of put activity on Wells Fargo today (and last week). Something strange is brewing....
i've seen that. i also think wfc is a pos. I also saw their common stay green from the get go today, when virtually all the other banks were red.
this is a bit strange. some think it's buffett just hedging his long.
We saw what happened last time the music stopped: TARP, stimulus spending, et al. There's still a good bit of that yet spent. And congress is easy to stampede in a crisis. IMHO we'll have to watch one last government spending frenzy to keep this puppy dancing before it really stops.
I have a question that I hope is rhetorical, but who knows, someone will undoubtedly venture a guess.
If all the assholes that Saut says who are buying in order to save their jobs, at what point do all of these brainless unthinking, scared-i-cat fund managers start selling to lock in the year's gains, and try to front-run each other to the exit door to lock in said gains, thereby reinforcing the next selloff?
this market is 110% pure bullshit.
i traded today, and it felt like i was the only human in the room (level II) seriously... it was nothing but robots with massive bids and offers trading rebates or HFT or what ever the fuck.
all crap.
market is no longer a market.
total sham.
someday soon, it will have 1987 style pullback.
i guarentfuckingteed.
From Kevin Depew:
"One of the harshest lessons I learned in financial markets was in 2003 when the bullish percents turned up in March and early April from very low levels. Then, as now, the calls were that it was going to be a short-lived "relief rally" from exhaustion levels and that soon the inevitable bear market would return. Four years later, that view proved accurate. Four years."
BPNYSE is printing extremes never before seen: March at two (2) or so, today in the eighties. If anyone has perspective on this, a link or such, sharing it would be a public service.
It is different this time in a new economy. Overall, it's better than expected and the market has proven to be resilient. Going foreward the P/E is cheap and the bull market is in it's early stages. The recession was shallow and the white house is projecting a 3.5% gdp next year. Bernanke, Summers and Geithner say the economy is strong and they see no problems on the horizon.
When this thing blows, I will be one happy mo@#th*r F*#k#r.
Just my theory……………
We may be witnessing the greatest fraud conspiracy ever committed between the government and the banks. What has to happen for an economic recovery? The government and the banks have to recoup trillions of dollars without raising taxes, and keep inflation/deflation in check. It’s their only hope. The only way to do that is to own and control the markets, eventually enticing most of the cash sitting on the sidelines in. When the hype and price is at its peak, on the count of three, they sell everything. The market crashes with the government and banks holding all the cash and the people holding the bag. Hey people, it was your own fault! You invested in stocks! Nobody made you do that! The wealthy will still have enough to swoop in and buy all the newly cheap shares to recoup their losses as the stocks rebound, the banks will be able to lend to the corporations to hire the people who lost their jobs and nest egg, who can’t retire now and have to keep working, delaying social security, while still paying into it, and we all live miserably ever after.
That idea is retarded. The gov't is flooding the markets with liquidity to try and restore confidence hoping it would cement and create a real bull market.
If anyone is going to get hurt, it will be the gov't. They can move around easily and they can't do anything politically sensitive.
401-Ks are a great means to save and create wealth. The problem is the contribution limits are too low - the government does not want you to be able to save enough which could lead to you actually taking care of yourself -- it will interfere with their government dependency agenda.
401-Ks certainly are better than giving the money to Social Security -- which I am very likely to get no return ON my investment and a growing liklihood of not getting a return OF my investment as they move to make Social Security a welfare program for those who spent too much in their pre-retirement years (they should have never bought a new car, multiple cars, a house > 1500 sq ft, cell phone, cable TV, vacations, big screen TV, regular restaurant & movie visits, etc., but they felt they were due or entitled to such). I know how barbaric that one should not be able to indulge in all of these -- but that is why folks do not have any retirement funds.
>We would add, a comparable career risk now permeates among the analyst community which has all now gotten on the bull bandwagon, as nobody is willing to call a spade a spade, for fear of angering some of the larger accounts or superiors, for being a contrarian in a market that swiftly silences all objecting voices as it pursues new irrational highs.<
This is a basic MO of criminal syndicates - extortion. The Wall Street-Washington-MSM consortium is no less than a corrupt culture whose conduct is sinister and criminal.