Herd Mentality

Tyler Durden's picture

The Goldman Tapes And Why The Delusion Of Macro-Prudential Regulation Means The Next Crash Is Nigh





There is nothing like the release of secret tape recordings to clarify an inconclusive debate. Actually, what the tapes really show is that the Fed’s latest policy contraption - macro-prudential regulation through a financial stability committee - is just a useless exercise in CYA. Macro-pru is an impossible delusion that should not be taken seriously be sensible adults. It is not, as Janet Yellen insists, a supplementary tool to contain and remediate the unintended consequence - that is, excessive financial speculation - of the Fed’s primary drive to achieve full employment and fill the GDP bathtub to the very brim of its potential. Instead,  rampant speculation, excessive leverage, phony liquidity and massive financial instability are the only real result of current Fed policy.

 
EconMatters's picture

Mixed Emotions for the Gold Market





Gold Bears Have Wind at their Backs as Technicals likely to fail to downside over Near-Term.

 
Tyler Durden's picture

4 Years Until The Next Recession? Not Likely!





David Rosenberg, in one of his recent missives, wrote: "...based on the current trend in the LEI and the level of the diffusion index, history suggests that the next recession is at least four years away." While anything is certainly possible, it is highly unlikely that the current economic environment is supportive of another four years of a "struggle along" economy. Given the artificial supports during recent years, the extreme extension in assets prices, record levels of margin debt and the chase for yield in "junk credits," it is highly possible that the next recessionary decline could be much larger than the historical average.

 
Tyler Durden's picture

The Bottom Line To Investors From Tax Inversions: No Above Average Returns





While it remains to be seen if Obama can put an end to what has been the hottest M&A trend in 2014, namely engaging in tax redomiciling "inversion" deals, it is clear that the C-suite is delighted to continue pursuing deals which minimize the cash outflows to the US Treasury, with some 52 redomiciling deals done since 1983, 22 taking place since 2009 and another 10 being finalized and many more in the works. But what is the track record of tax inversions when it comes to the bottom line, namely investor returns.  According to a Reuters calculation, "companies that have done such "inversion" deals have failed to produce above-average returns for investors."

 
EconMatters's picture

Newsflash: Everyone Shops Online These Days!





Those people piling into bonds on bad retail sales numbers based upon antiquated retail correlations are in for one big surprise.

 
Cognitive Dissonance's picture

Of Baling Wire, Chewing Gum and Sinking Ships





The promises of the master, used as currency to compel and reward our willing participation, can no longer be fulfilled since the economic system that is the ultimate delivery vehicle for those promises is about to sink beneath the waves.

 
Tyler Durden's picture

The Retail Death Rattle Grows Louder





The inevitable shuttering of at least 3 billion square feet of retail space is a certainty. The aging demographics of the U.S. population, dire economic situation of both young and old, and sheer lunacy of the retail expansion since 2000, guarantee a future of ghost malls, decaying weed infested empty parking lots, retailer bankruptcies, real estate developer bankruptcies, massive loan losses for the banking industry, and the loss of millions of retail jobs. Since we always look for a silver lining in a black cloud, we predict a bright future for the SPACE AVAILABLE and GOING OUT OF BUSINESS sign making companies.

 
Cognitive Dissonance's picture

Enlightened Self Interest and Financial Industry Hypocrisy - Chapter Two of Three





First we deny, then we deny we ever denied, and then we forget we were ever in denial. Man is an extremely efficient organic computing machine, so this is just kid’s stuff we learn right out of the crib.

 

 
Tyler Durden's picture

Explaining Market Gyrations





A look back at the headlines and market movements of the last month provides some useful color for why markets are weak and why now... As Scotiabank's Guy Haselmann warned early last month, there is a threshold point during the Fed’s attempt to normalize policy where the tide reverses and investors join in a sell-off in a race to avoid being left behind. This is why it's called the greater fool theory.

 
Tyler Durden's picture

Herd Trading, Policy Pivots, & Terrible Market Liquidity Are A Bad Combination





This week, markets have been driven by position squaring and P&L management.  There have been extraordinary price movements in various commodities and currencies due to extreme weather, the decline in the Chinese Renminbi, capital flight, Fed taper, and geo-politics.  Such P&L volatility is causing decisions to be made in other, seemingly uncorrelated markets, due to the need to manage P&L risk. These movements are of elevated concern because the investment climate of recent years has created a herd mentality.  Now that global stimulus is being withdrawn, those trades are under attack and a mini-contagion is unfolding. "The apt analogy is a playground see-saw where investors (and Fed) have a seat firmly on the ground and risk assets dangling in the air... The Fed would like to balance the see-saw, but history suggests the chances are infinitesimal.”

 
Tyler Durden's picture

The Herd Mentality – The Left Tail Will Follow The Right Tail





The word “tantrums” referenced in the title was the paper’s attempt to explain adverse market reactions, e.g., last year’s reaction from ‘taper-talk’. The authors stated that risk premiums can jump quickly, simply because non-bank market participants (read: mutual funds) are motivated by their peer performance rank. The authors had 3 subsequent conclusions: 1) the relative peerperformance race causes momentum in return; 2) return chasing can reverse sharply; and 3) changes in the stance of monetary policy can trigger heavy fund inflows and outflows. These conclusions partially explain (empirically) the herd mentality and momentum in recent years behind tight credit spreads and elevated equity prices. Investors are so fearful of missing the upside and underperforming peers that they frantically scramble to remain ahead of them (i.e., seek risk). However, the conference and paper suggests that there is a threshold point during the Fed’s attempt to normalize policy where the tide reverses and investors join in a selloff in a race to avoid being left behind. This is why I’ve been calling it the greater fool theory. The most surprising part of the conference was Rubin’s keynote speech. Rather than speak about Washington’s messy politics or such, he basically gave a speech that criticized and questioned Fed policy.

 
Tyler Durden's picture

Here's A Great Way To Lose Money...





Nature is full of unpleasant parasites which cause their hosts to engage in irrational, destructive, or even suicidal behavior. Of course, they exist for humans too... especially for investors. In fact probably the number one parasite which affects investors is a very peculiar emotion: fear. Specifically, it’s the fear of missing out that drives so much irrational investment behavior. Nobody wants to miss a big boom, no matter how baseless the fundamentals. Ironically, this fear of missing out is stronger than the fear of loss. Following the crowd is a great way to lose a lot of money.

 
Tyler Durden's picture

Peter Schiff Bashes "Ben's Rocket To Nowhere"





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Just as many expect that the #1 buyer of Treasuries (the Fed) will soon begin paring back its purchases, the top foreign holder (China) may cease buying, thereby opening a second front in the taper campaign. Little thought seems to be given to how the economy would react to 5% yields on 10 year Treasuries (a modest number in historical standards). The herd assumes that our stronger economy could handle such levels. That is why when it comes to tapering, the Fed is all bark and no bite. But the market understands none of this. This is not unusual in market history. When the spell is finally broken and markets wake up to reality, we will scratch our heads and wonder how we could ever have been so misguided.

 
Tyler Durden's picture

How The Fed's Bazooka Misfired: QE-Infinity Sends Experiment Awry





Investors may be trapped in a ‘greater fool theory’ in thinking they can all unwind risk at the same time. Over-regulation, shrinking bank balance sheets, and fewer market makers mean that market liquidity is challenged. Retracting Fed dollars is always far more difficult than creating them, particularly in the current environment.  The FOMC scientists have been working in their lab tweaking models to assess marginal benefits, but it is blinding them from seeing the underlying risks that are building. They openly ask what signs of troubles are evident, but the morphine drip has been in use for so long that they can’t see that the current calm may be replaced with an uncontrollable monster unleashed when the sedation fades.

 
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