Market participants are far too levered up, all on the same side, and well behind the monetary normalization curve of when the first rate hike is actually going to occur.
You can ignore and even downplay for a while, but eventually and as sure as the fundamental law of nature that everything has a cost....
The great mystery of the endlessly levitating market continues to confound everyone, even Goldman Sachs. Because while the market soared in May (and has continue to surge in June) contrary to the sell in May mantra, when peeking beneath the market's covers, Goldman has found that most investor groups did just as they are supposed to do for this time of the year: they sold!
St. Louis Fed James Bullard said on Friday that he expects the Fed to start raising rates sometime near the end of the first quarter of 2015.
"You’re picking up pennies on a train track. You are not getting paid much but you are sure that there will be a very negative surprise at some point. The risk / reward profile is as bad as ’07." - Portfolio manager speaking to Citigroup
While many dismiss the impact of the "baby boomer" generation moving into retirement, the reality is likely to be far different. If the current survey is representative of that particular group, the drag on the financial markets and economy over the next decade could be quite substantial.
Is there anything fundamental to explain why the equity indices of the "Fragile Five" countries, Brazil, South Africa, Indonesia, India and Turkey, have regained their recent highs? According to GaveKal the answer is a resounding no: "As investors, we like equity rallies to be propelled by fundamental factors, like earnings re-ratings or growth surprises. But there is little behind this rally to suggest any sustainable economic healing." So what is pushing this particular subset of risk higher? Why the global liquidity tsunami of course.
This time is different - check; Moral Hazard - check; Easy Money - check; Overblown growth stories - check; No valuation anchor - check; Conspicuous consumption - check; Ponzi finance - check... and, of course, Irrational exuberance: check!
The start of Q2 2014. US economy to strength. Japan's to weaken. Euro-area is barly growing, while the UK continues apace.
U.S. stocks are like a duck, floating on a quiet pond – calm above the surface, but lots of furious churning invisible to the naked eye. The S&P 500 looks like it will end the first quarter within a hair of the 1848 level where it started the year, but that doesn’t mean everything else is all stasis and light. Today we offer up a quick ‘Top 10’ list of surprises from the last 90 days. Gold, for example, is back from the grave, up 7.3%. So is an imperial Russia, with the biggest land grab since the building of the Berlin Wall. Mutual fund flows are ahead of exchange traded funds by a factor of 5:1. And most of those ETF inflows are into bond funds, not the “Great Rotation” we all expected into stocks. The 10-year U.S. Treasury yields all of 2.67%, and bonds have bested U.S. stocks consistently in 2014. First quarter 2014 may not have been a long trip, but it certainly has been strange.
The Zagat-style summary, the market is "extremely overvalued", but it will rise on an "increase in the level of profits" and "we expect an 8% rise in the level of earnings this year", even though "we expect many firms will issue negative earnings guidance ahead of 1Q 2014 reporting season that takes place from mid-April to mid-May."
For the second night in a row, China, and specifically its currency rate which saw the Yuan weaken once more, preoccupied investors - and certainly those who had bet on endless strenghtening of the Chinese currency - however this time it appeared more "priced in, and after trading as low as 2000, the SHCOMP managed to close modestly green, which however is more than can be said about the Nikkei which ended the session down 0.5%. Still, the USDJPY was firmly supported by the 102.00 "fundamental" fair value barrier and as a result equity futures, which had to reallign from tracking the AUDUSD to the old faithful Yen carry, have been propped up once more and are set to open at all time highs. If equities fail to breach the record barrier for the third time in a row and a selloff ensues after the open in deja vu trading, it will be time to watch out below if only purely for technical reasons.
Crowdfunding is set to disrupt the finance industry. Its about time!
Last week it was the largest equity outflow in over two years. This week, following the Monday drubbing which had the temerity to push the S&P to an "unprecedented" 5% from its all time highs, the timid retail investor said enough, and ran for the hills resulting in the largest equity outflow. Ever.
There is one major problem when the entire market is a rigged casino (by both the Fed and HFTs), favoring degenerate gamblers over traditional investors: at the first whiff of trouble everyone bails. Or as BofA politely puts it, "Typically flows follow returns and this week was no exception." In the past week, trouble whiffed, and the degenerate gamblers, loaded up to the gills with record margin debt hightailed it out of the casino, leading to the largest weekly equity fund outflow in over two years! Add some record leverage to the equity withdrawal, continued EM turbulence, ongoing Japanese deflation exports, oh and of course the ongoing Fed taper which has been solely responsible for all S&P gains since 666, and suddenly you have all the ingredients for a broad market crash.