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TrimTabs: "No Amount Of QE Will Be Able To Keep The Current Stock Market Bubble From Bursting"
It was the night before Christmas Eve, and CNBC trucked out TrimTabs' Charles Biderman to a de minimis audience, knowing full well that a man with his understanding of money flows would very likely repeat his statement from last year, that there is no real, valid explanation for the inexorable move in stocks higher, as equity money flows in 2010 were decidedly negative, and any explanation of the upward melt up would need to account for Fed intervention (and no-volume HFT offer-lifting feedback loops but that is a story for another day). A year after the first scandalous report was published, TrimTabs is sticking with its story: "If the money to boost stock prices by almost $9 trillion from the March
2009 lows did not come from the traditional players, it had to have come
from somewhere else. We believe that place is the Fed. By funneling
trillions of dollars in cash to the primary dealers in exchange for
debt, the Fed has given Wall Street lots of firepower to ramp up the
prices of risk assets, including equities." And, wisely, Biderman, just like Zero Hedge, asks what happens when the buying one day, some day, ends: "...stock prices will be higher by the time
QE2 ends, but economic growth will not be sustainable without massive
government support. Then even more QE will be needed, and stock prices
could keep rising for a while. In our opinion, however, no amount of QE
will be able to keep the current stock market bubble from bursting
eventually." Ergo our call earlier that Bernanke has at best +/- 150 days to assuage the market's fear that QE2 is ending (not to mention that we have a huge economic recovery, right Jan Hatzius? We don't need no stinking QE...). Therefore the best Bernanke can hope for is to buy some additional time. At the end of the day, the biggest problem is that the massive slack in the economy means that LSAP will have to continue for a long, long time, before the virtuous circle of self-sustaining growth can even hope to take over. By then bond yields may very well be high enough that Ron Paul will demand someone finally bring Paul Volcker out of the fridge.
From TrimTabs:
What Source of Money Is Pushing U.S. Stock Prices Higher? Market Cap Rises $2 Trillion in 2010 as Buying by Companies and Foreigners Offsets Selling by Pension Funds and Retail Investors. However All of Gain and Then Some, $2.4 Trillion, Since QE2 Announced at End of August.
At the end of 2009, we published a report entitled, “Are Federal Reserve and U.S. Government Rigging Stock Market?” We questioned whether the Fed or the Treasury were pushing up stock prices because we could not identify the source of the money that pushed the market cap up by nearly $7 trillion from mid-March 2009 through December 2009.
At the time we released our report, many people thought it was crazy to suggest that the Fed or the government would manipulate the stock market. Yet Ben Bernanke, Alan Greenspan, and Brian Sack have all but admitted publicly this year that the Fed attempts to prop up stock prices.
The market cap of all U.S. stocks increased $2 trillion in 2010. All of the gain and then some, $2.4 trillion, occurred since the end of August after QE2 was announced. Once again, most of the money to push the market cap higher does not seem to have come from the traditional players that provided money in the past:
Companies and foreign investors were net buyers:
· Companies. Corporate America was the biggest net buyers of shares, although all the float shrink occurred between January and August. The float of shares decreased $150 billion in 2010, mostly because new stock buybacks nearly tripled from the depressed levels of 2009. However, between September and year-end the float did not shrink but instead grew by $14 billion.
· Foreign investors. Foreigners provided some buying power in the U.S. stock market, purchasing a net $89 billion in U.S. equities from January through October.
But the buying of companies and foreigners was offset by selling elsewhere:
· Pension funds. Pension funds were apparently huge net sellers of U.S. equities. Based on Informa Investment Solution’s Plan Sponsor Network data, we estimate that managers of separate accounts pulled $169 billion from U.S. equities from January through September. Pension funds account for about 60% of the assets in separate accounts.
· Retail investor funds. Retail investors were net sellers of U.S. stocks. U.S. equity funds and ETFs redeemed $38 billion in 2010 even as a whopping $273 billion poured into bond funds and ETFs.
· Retail investor direct purchases. We doubt retail investors were big direct buyers of U.S. stocks when they were net sellers of U.S. equity funds and retail investor sentiment was relatively cautious until late this year.
· Hedge funds. We have no way to track in real time what hedge funds do, but we doubt they were big net buyers of U.S. equities. While hedge funds posted an inflow of $60 billion from January through November, the most popular strategies were Event Driven ($14 billion), Fixed Income ($9 billion), and Emerging Markets ($7 billion). Equity Long Bias, Equity Long Only, and Equity Long-Short received a total of only $12 billion.
U.S. Stock Market in Trouble Once Fed Interventions Stop. No Amount of Bond Buying Will Keep Stock Market Bubble from Bursting Eventually.
If the money to boost stock prices by almost $9 trillion from the March 2009 lows did not come from the traditional players, it had to have come from somewhere else. We believe that place is the Fed. By funneling trillions of dollars in cash to the primary dealers in exchange for debt, the Fed has given Wall Street lots of firepower to ramp up the prices of risk assets, including equities.
But what will happen when the Fed stops buying assets? If QE2 works and the wealth effect of higher asset prices creates a sustainable economic recovery, we think the Fed will stop its QE activities. The Fed is legally mandated to manage the economy, not the stock market, and we think the Fed will sacrifice the stock market to its legal mandate. If that happens, stock prices are likely to plunge to well below fair value.
A more likely outcome is that stock prices will be higher by the time QE2 ends, but economic growth will not be sustainable without massive government support. Then even more QE will be needed, and stock prices could keep rising for a while. In our opinion, however, no amount of QE will be able to keep the current stock market bubble from bursting eventually.
Mutual Fund and Exchange-Traded Fund Flows Not Dramatically Different in 2010 Than in 2009. Bond Funds Post Big Inflows, Global Equity Funds Post Moderate Inflows, and U.S. Equity Funds Suffer Redemptions.
Mutual fund and exchange-traded fund flows in 2010 were not greatly different than they were in 2009. Bond funds—references to “funds” in this section include both mutual funds and ETFs—continued to rake in huge amounts of money, although inflows subsided to $273 billion in 2010 from a record $416 billion in 2009.
Equity fund flows were mixed. Global equity funds posted a respectable inflow of $87 billion in 2010, up modestly from $62 billion in 2009. Nevertheless, global equity fund inflows were nowhere near the peak of $182 billion in 2007. U.S. equity funds posted their third consecutive outflow, losing $38 billion in 2010, little changed from the outflows of $42 billion in 2008 and $47 billion in 2009.
Flows shifted dramatically in late 2010 as the municipal bond market tanked and bond yields backed up. Bond funds lost $1.0 billion in November and $16 billion in December, the first monthly outflows since late 2008. If this selling persists, the exodus from bond funds could put more upward pressure on bond yields.
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Very well Stated!!!
Various governments around the world realize that if the banks and financial institutions are not refrained from speculation, their activities are likely to bankrupt countries causing hardship to a majority of the population. They are likely to become a major pain for the politicians and central bankers themselves, the very class of people who let the banks exist in their present form after repealing The Glass Steagall Act in 1999 and allowing them to thrive under their patronage.
http://www.marketoracle.co.uk/Article24581.html
Mahathir Mohammed of Malaysia was one of the first very vocal critics on bank and hedge fund speculation...of course, he became much more vocal when it no longer benefited him and his own currency and economy was negatively impacted....but nevertheless, he did recognize it early on.
And an edit addition: before the Asian currency crisis, Bank Negara Malaysia was a very aggressive currency speculator...even gaining the ire of the US Fed. Just want all the facts out there.
Monopoly always ends this way.
We can get this man a Hawaiian birth certficate, right? He actually wants to DECREASE the wealth gap.
http://www.bloomberg.com/news/2010-12-31/hu-jintao-visits-poor-beijing-families-vows-to-narrow-china-s-wealth-gap.html
"By funneling trillions of dollars in cash to the primary dealers in exchange for debt"
oops!!
Debt remains - stock prices on margin can be a frightening thing when viewed from the narrow exits that exist.
It is exactly what heralded the 1929 meltdown - to much debt chasing a fixed amount of stock in search of better perceived rates of return.
Best to stay well away.
Basel provides for essentially unlimited sovereign purchases. Chewco, Unlimited.
I agree, hard figures would be nice to have.
No I don't believe that the bankers are trying to conquer the world, they're too stupid! I'm suprised that they even know that the rest of the world exists outside of PIIGS and a few tax shelters.
There is absolutely no way that the Federal Reserve can or should print to save the banks. It's an obscene joke and an unlimited source of damage to the taxpayers.
Wall Street is worth somewhere between $40-70 trillion?
If the banks are laundering money from the Federal Reserve with their Algos to push the market up, and if the Algos make up 70% of the markets' volume (and the value of Wall Street is $40 trillion appx), then the Federal Reserve just pumped $28-$29 trillion into the banks. Thats' a mixture of printed dollars and interest earned from the Federal Reserves' US government holdings (which comes from the taxpayers!!!).
The Maiden Lanes buyout from the Federal Reserve is grand larsony of public funds, the banks should eat those losses.
The world's net worth (before inflation/QE) is less than a Quadrillion dollars. Yet the subprime market is an estimated what? I read the traded market for subprime derivatives was estimated at $4 QUADRILLION.
So obviously if Wall Street is worth "only" $40 trillion, there's definately not enough bonds to collateralize the subprime derivative market worth $300 trillion(??) dollars?
That's A LOT of fraud. They would need to print...oh, um at least $260 trillion to secure the value of the naked subprime derivatives. There is no way that's going to happen if we need to keep gas prices under $5/gallon.
Even if it was $1 quadrillion, there is absolutely no way that Quantitative Easing is going to salvage the value that never existed in the first place.
They're wasting a whole lot of tax dollars with this project that have absolutely no chance (according to their stated initiative of "creating jobs").
By the way, if anyone is aware of this, John Maynard Keynes never said to print cash or lend extensively during a "money shortage" aka. a TRADE DEFICIT. See "General Theory of Money, Interest and Employment" Ch22 in the short notes. John Maynard Keynes suggested combining currencies (as attempted with the petrodollar) but he emphasized the importance of using investments to spur growth. Keynes isn't as stupid as politicians make him out to be and he does base his theories from Adam Smith's Wealth of Nations.
Wall Street would be better off if they worked on increasing international volume in the stock markets instead of the Federal Reserve/inflation funded pump and dump scheme which is wasting quite a bit of our tax dollars. $89 billion from foreign investors is horrible!!!
Here's how they can pull it off: (since a grad from a state school has to tell "the cream of the crop" the obvious)
1. They lobby the WTO (vs. Washington) to favor US in issues ie. market rules and trade. Washington D.C. & Congress is useless, K & J Streets are not getting anything done.
2. They lobbied the WTO (and China) to allow Chinese investors/institutions to hold more than 30% of their assets in foreign investments. China has a 30-40% savings rate. India's savings rate is even higher. There's 1.3 billion people in China. There's 1 billion people in India.
By cultural behavior; Asians are savers, investors and gamblers. THERE IS 2.3 BILLION PEOPLE IN JUST TWO DEVELOPING COUNTRIES!!! THE VALUE OF THEIR SAVINGS ARE *REAL* (unlike the dough printed from the Federal Reserve).
We need to take full advantage of that.
If you have absolutely no interest in the behavior of the people you do business with, then you're going to fail.
3. MAKE THE U.S. A TAX HAVEN THROUGH OUR MARKETS!!! Wall Street needs to lobby our politicians to kill the capital gains tax in stocks, VENTURE CAPITAL, SBA loans, business loans and corporate bonds; especially the avenues of wealth creation. Stocks, Venture capital, SBA lenders and corporate bonds did not create the subprime collapse; it's a horrible idea to kill all avenues of financing because of one sector of the market.
India has a lower capital gains tax, Hong Kong and Singapore have lower capital gains tax, Australia has a tax code but since China is buying raw materials from Australia instead of the U.S.; we should attract their investors (since they have a trade surplus) to help us get the money moving in our economy.
4. The market needs to be better regulated and transparant so that the international community can trust it.
5. Flat tax at 10% for corporations and lose a lot of restrictions that make America less friendly to businesses. Japan just lowered their corporate tax rates. And eliminate bailouts forever. (Iceland recovered without a bailout) We can't afford it. Free market discipline works. This junk doesn't.
The U.S. economy has soooo many opportunity costs in lieu of economic expansion with REAL value, yet our inept corporate leaders and politicians prefer to thrive on corruption and fake value.
We're in a global market, we have to get with the program.
Regarding our creditors China
. . Remember, at the end of the day, Wikileaks is a "big national security risk". I wonder if this is why Huckabee wanted Assange assasinated. What a prick. Okay US military and government workers, this is exactly why we don't want you to read secret documents that you already had access to! (that was pure sarcasm, just in case it didn't translate through text)How long until we start selling organs to get by? I've got two of most of things; non-smoker, non-drinker.
I'll give 'em up as long as the greaseball cutting me up is gentle with the knife.
What do you want for a deposit on a lobe?
Dr. Nick is very considerate for someone so poorly trained and unlicensed.
http://www.youtube.com/watch?v=WTz8rKJk-Vw
If the Fed stops buying, risk off, but if they keep buying, the debasement of the fiat will erode any gains. Only the sickest adrenaline junkies alive (and Leo) are still trying to pick the point where they can sell and still manage to convert the fiat into something real before it sublimates into air.
Expect to be frustrated. Expect to be stunned.
After all - a few years ago would anyone have thought that you would have the 10yr US Treasury at 3% and Gold at 1400?
So what would cause everyone to gnash their teeth, maximize frustration etc?
As the stock market goes higher and higher into La La Land . It is not currently in La La land (IMHO) - but merely fairly valued. So La La would be say, another 30% higher. As everyone who was cautious, conservative, bearish, apocalyptically bearish etc - give up in domino like sequence - it will push prices up higher and higher. Sometime in 2012/2013 it will truly be in CuCkoo land - ( like in 1999). Then maybe you get a 20% "crash" putting the S&P all the back to 1250. hehehe.
(d)
+/- 150 days is when TSHTF?
Suppose a person trades their IRA on-line and keeps goosing it up by trading ETF's and mining stocks (check out WLOC btw). That person is unemployed so can't really buy physical PM's because of the need to buy daily necessities and housing with household income. The person will turn 59 1/2 years on August 8, 2011 and can avoid paying big taxes on IRA withdrawals to be used for PM purchases at that time.
Can this person afford to wait and avoid taxes, or is August too late to get in before PM prices explode?
IOWA
A). You can buy PM's in an IRA. There are links for this on most any PM website. Google "church trust" for one of many organizations that do so. The drawback is that you will have a private vault holding your PM's which could be nationalized, although I think it unlikely.
B). You can do a "checkbook IRA", google it. It's allowable to have a LLC hold your IRA assets with you responsible as both the storage facility and manager of the LLC.
Neither of these options require you to take the tax hit to convert to PM's.
No comment could possibly capture the contempt I have for the PM IRA concept.
PM IRA's are just more paper "wealth", unless I'm missing something.
Paper that represents PM is assumed worthless, right?. I can buy all the SLV and GLD ETF shares I want right now and trade in and out of them. How are IRA's any better?
PM IRA's are just more paper "wealth", unless I'm missing something.
Paper that represents PM is assumed worthless, right?. I can buy all the SLV and GLD ETF shares I want right now and trade in and out of them. How are IRA's any better?
For the last two years I have given up till Dec 31, 2010 to prove ZH's bearish slant to be right.
Some who were early supporters of the ZH stance have flipped 180 and have done very well.
ZH has proven to be a contra indicator re the Stock market; it has done very well by PM holders.
However, I will now go long. The amount of money that could have been made in the indexes alone, since 3.9.09 if one had simply never discovered ZH is incalculable.
Exactly. A thinking man, all you pricks, take heed.
March 2009 was what it looked like-a buying opportunity, pure and simple.
Now, at the same time, we ARE seriously fucked (ala the thinking at ZH) so be prepared to get the hell out in time.
No nuclear explosions, no dollar collapse, no $500 silver-just an insane market.
The same insane market that we had in 1987 (before most of the posters here were born, it sometimes seems from the quality of their posts)
Good comment, best I've read in awhile and so refreshing.
This could be true. But some of us have been badly burned by the crooks in the schlock market.
In this rigged system, I wouldn't buy shares in Jesus Christ Himself, LLC or anything else if you gave me a free toaster, warm concubine service and 24/7 live entertainment.
What is untrue about the market making a monkey out of ZH since 3/9/09?
Nothing.
What if I gave you a cookie?
Keep stackin' that silver!
http://www.youtube.com/user/BrotherJohnF?feature=mhum
The market started to go up well before QE2 actually started. The smart money (unfortunately not me) were balls deep long before the Fed even announced the inevitable printing frenzy.
I belive the reverse going to happen. The smart money will start to take risk of the table well before QE2 runs out.
The smart money also want QE3. That's going to be hard to justy if the S&P 500 and DOW are sitting at or near all time highs. A large pullback will be engineered.
if this link video is true, then none of this will matter a toss
http://www.youtube.com/watch?v=HI4tqbQDPKk&feature=player_embedded#!
That's some serious shit that not many are paying attention to.
What do you think will cause/trigger current stock market Bubble to Burst?
More than half of the IBD Top 100 names have been lagging the last few days.
Could be a warning sign of an impending correction.
All 100 stocks are charted here:
http://clearstation.etrade.com/cgi-bin/bbs?post_id=9592582
XRT had its first down day in awhile on Friday.
Bank stocks still hanging tough.
I'll be watching closely for a turn.
Guessing the short term moves of the insane leaders for profit is one thing.
Looking at the longer term picture it is clear that the path they have put us all on is confiscation of our wealth through inflation and the taxes nominal gains generate.
This path also leads to the reneging on of all promises our citizens in real terms without ever having to admit it and the general impoverishment of the masses for the gain of the few.
I know I can't change this path in any way.
I am convinced that we are too far on this road for it to change.
Any tid bits I can pick up from the folks at zero hedge to help preserve wealth and survive the rape and pillage by this system is what keeps me coming back to read ZH and TD every day.
A major reset is coming but when?
To be away from securities that have some hope of preserving purchasing power until then is slow death.
So many questions so few clear answers.
(d)
great post, tmosley, took the words out of my mouth but you expressed them a lot better
as far as I'm concerned trolls & assholes never change and he is both, so don't expect anything to change in the future
all the best in 2011
http://theopeningrange.blogspot.com/
The TOO BIG TO FAIL BANKERS who are in control of the equity, commodity and currency markets are like termites that require wood to eat and thrive on. Here the wood is the savings of the majority of the population and the money the traders use for trading the markets. The simple way to destroy these termites is to keep the savings out of their reach.
http://www.marketoracle.co.uk/Article24581.html