With market internals dismally weak and 967 of the Russell 2000 index's members down over 20% from their highs (a bear market), the question is: how long can they maintain the status quo thanks to a handful of big blue chips as levered longs attempt to stay solvent?
The problem with inflation is that it is a lot easier to create than contain. The Fed continues with its dubious claims that inflation is too low, but the markets and prices are saying otherwise.
Because we’ve reached a point in time at which $1 trillion no longer sounds like a lot of money, we thought we’d go through the exercise of assessing just what the Fed could have done with this money besides give it to Wall Street.
Upon closer inspection, the report was a total disaster. You wouldn’t know this from the financial media’s coverage, but it was.
If the advance from January 2013 to the top in early 2014 isn't a blow-off top, it's certainly a pretty good imitation of one. If the NASDAQ surpasses the high of 4,371 and moves higher, the head and shoulders pattern is negated. If the NAZ fails to rally to new highs, that could be a signal that the rally from 2009 is reversing or has entered a new phase.
The great attempt to prop up the US economy through spending and printing money is at an end. The world takes a long time to catch on to these changes, but the shift has already begun. It’s now just a matter of time before stocks figure it out.
The still-dominant consensus view that America’s economy is poised to single-handedly yank the world out of its lethargy is likely to be disappointed once again with the odds high that our economy will remain burdened by growth-inhibiting monetary policies. In addition, it will continue to be negatively impacted by various other impediments, including a populace that is increasingly under-employed, an unwieldy and inscrutable tax code, a Rube Goldberg-like healthcare system, an increasingly ossified infrastructure, and a regulatory apparatus that congests the lungs of our economy, small businesses... weaning the stock market off of casino capitalism promises to be anything but pain-free. But did any responsible adult really believe there would be no pay-back for all these years of the Fed’s force-fed gains? If you do, you probably also believe foie gras grows on trees.
The Central Bank intervention fiasco continues to unravel before our eyes.
Last month it was a tribute to his cat. This month, the manager of the world's largest bond fund discusses sneezing: "A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500. It feels sooooo good that people used to sneeze on purpose." He also discusses the aftermath: "The old saying goes that when the U.S. economy sneezes, the world catches cold. That still seems to be true enough, although Chinese influenza is gaining in importance. If both sneezed at the same time then instead of “God bless you” perhaps someone would cry out “God have mercy.” We’re not there yet, although in this period of high leverage it’s important to realize that the price of money and the servicing cost of that leverage are critical for a healthy economy. " He also talks about some other things, mostly revolving around long-term rates of return assumptions and what those mean for investors.
Yellen is evidently aware that stocks are bubbling. As Fed Chairman she cannot admit it (no Central Banker will ever say the markets are in a bubble), but the signs that she is aware of this are present.
Just a few brief days ago, Weibo IPO'd "successfully" at the bottom-end of its range ($17) and exploded higher - "proving" that Candy Crush (or take your pick of recent IPO failures) were all one-offs and that 'quality' companies were still in demand. Fast forward 6 days and Weibo just entered a bear-market - down dramatically from its highs over $24 and is nearing its IPO price. There's no data, no news - just selling, in size. Investors stashing cash away for another pop in Alibaba's forthcoming IPO perhaps? Not if market conditions continue to look like this...
Ralph Waldo Emerson once said “Doing well is the result of doing good. That’s what Capitalism is all about,” and nowhere is this description more embraced than on Wall Street. There, the idea of the meritocracy, where those that produce the most financial value get to take home the biggest rewards is almost a cliche All of which begs the question, why do most hedge funds exist? If Capitalism existed on Wall Street, and compensation was tied to the creation of economic value, most of the “absolute return industry” would go out of business. To understand why, we need to go back a decade.
Investors take note. One of the primary market props of the last five years is being removed. What happens when the markets finally catch on?
Japan is where the Keynesian economic model rubber hit the road. And it's proven that QE is ultimately an economic dead end.
Meanwhile, we are still puzzling over the miracle produced by the Fed. Uri Geller could bend spoons. The Fed bends the entire economy. Hardly a single price is unaffected. Hardly a single business plan or investment strategy goes forward without an eye on the central bank. Jesus turned water into wine and multiplied loaves and fishes. But the Fed make Him seem like a two-bit shell game hustler. The loaves and the fishes couldn’t have had a market value of more than a few thousand shekels! Every year, more resources must be drawn from the future and enjoyed in the present. Every year, the claims on future earnings increase… and every year the debt becomes even more unsupportable. Somehow. Someday. Those claims on the future will be marked down.