Despite goldilocks (to use a financial market cliche) conditions characterized by the interplay between yield-starved investors, rock-bottom borrowing costs, and companies’ propensity to leverage their balance sheet in order to inflate earnings and underwrite their stock price, at least one leading indicator is flashing red.
Despite US business media's propagandic imploring that Europe is recovering, is in a Goldilocks scenario, and is the best place to invest - all thanks to the magic of Q€ - it appears they forgot to tell the Germans. The ZEW Investor Expectations index fell for the first time in 6 months, without making a higher high, as Germany's DAX index rose to record-er higher highs. We've seen this pattern of momentum exuberance before...
"This is not investing," exclaims Ed Yardeni in this brief clip, "it is all about central bankers... these markets are all rigged." That is not a criticism he notes, "I just say that factually... I love these central bankers, they've been very good to the stock market." The clip is then followed by a defense of this pumping by central banks, because "we are a 401(k) society." Which apparently ignores the whole "massive inequality gap" issue that is staring America right in the eyes... But for now stocks are up so "shut up and enjoy it" as Larry Kudlow said yesterday.
This time is not different. The excesses being built up in the markets today will eventually revert just as they have been at every other peak in market history. The only question, of which no one has the answer to, is exactly when this occurs. With this in mind, there are 10-basic investment rules that have historically kept investors out of trouble over the long term. These are not unique by any means but rather a list of investment rules that in some shape, or form, has been uttered by every great investor in history.
It's different this time... "decoupled" "cleanest dirty shirt" "goldilocks" - oh wait!
But, the jobs data was awesome? Greece is contained? "goldilocks"??
The price of crude has collapsed by 50% in a few months (and 40% since the end of QE3), which can only mean one thing: the Wall Street penguin brigade is out in full force with its spate of energy sector downgrades, none of which is more bombastic than that of Citigroup's Robert Morris who in 118 pages just crucified the entire energy space, lowering his target price for every single company in his coverage universe, and declaring that "Goldilocks has left the building."
"The highly abnormal is becoming uncomfortably normal... There is something vaguely troubling when the unthinkable becomes routine."
In October the US economy added the most waiters and bartenders in over a year. In fact at 42K, one in every five jobs "created" in the US economy went to a bartender, or a waiter.
The last time the stock market reached a fevered peak and began to wobble unexpectedly was August 2007. Markets were most definitely not in the classic “price discovery” business. Instead, the stock market had discovered the “goldilocks economy." But what is profoundly different this time is that the Fed is out of dry powder. Its can’t slash the discount rate as Bernanke did in August 2007 or continuously reduce it federal funds target on a trip from 6% all the way down to zero. Nor can it resort to massive balance sheet expansion. That card has been played and a replay would only spook the market even more. So this time is different. The gamblers are scampering around the casino fixing to buy the dip as soon as white smoke wafts from the Eccles Building. But none is coming. For the first time in 25- years, the Wall Street gamblers are home alone.
Since weather has become the most crucial factor in forecasting economic growth, we thought it crucial to the future of central bank policy to note that Summer 2014 was officially the hottest one ever, according to NOAA. This of course means there is "pent-up" cold weather, which may explain the collapse in global growth expectations. However, this chatter about heat may surprise Americans (aside from those that live in the Western States) as the Mid-Atlantic and Northeast U.S. were running cooler than normal (thus concerns about growth). According to NOAA’s records, this is the 38th consecutive August and 354th consecutive month with a global average temperature above the 20th century average.
“At This Point You Just Have to Laugh”. In every important respect, the Fed and the ECB and their brethren are no longer central banks at all. They are Ministries of Markets, no different from a Ministry of Industry or – even more eerily similar – the Ministry of Culture you would find in most European governments. At this point the Narrative hegemony is complete. There’s no longer even a cursory bow to the idea that fundamentals matter. So I’m calling a top. Not a top in markets, because I honestly have no idea what’s going to happen next. But I’m calling a top in the Narrative of Central Bank Omnipotence because it has, in fact, reached its asymptotic limit of influence and belief.
- Scotland split jitters send sterling to 10-month low (Reuters)
- S&P 500 Beating World Most Since 1969 Doesn’t Spark Flows (BBG)
- Happy ending guaranteed: Vietnam building deterrent against China in disputed seas with submarines (Reuters)
- China Posts Record Surplus as Exports-Imports Diverge (Bloomberg)
- Russia, U.S. to hold talks on 1987 arms accord (Reuters)
- Halcon’s Wilson Drills More Debt Than Oil in Shale Bet (BBG)
- Deadly Disappointment Awaits at Ebola Clinics Due to Lack of Space (WSJ)
- Latinos furious at Obama on immigration delay, vow more pressure (Reuters)
- Japan GDP Shrinks at Fastest Pace in More Than Five Years (WSJ)