While the media continues to pound the table with all of the bullish arguments that should continue to drive the current advance in the markets, it is only prudent to at least attempt an understanding of the counter arguments. The "risk" to investors is not a continued rise in the financial markets, but the eventual reversion that will occur. Like Wyle E. Coyote, since most individuals only consider the "bull case," as it creates a confirmation bias to support their "greed factor", they never see the "cliff" until it is far to late. Hopefully, these charts will give you some food for thought. Remember, every professional poker player knows how to spot a "pigeon at the table." Make sure it isn't you.
The practice of sensible investment becomes difficult when our secondary information sources (“fundamentals”) are inherently subjective. We are coming to appreciate the counsel of a friend who suggested that the merit of gold lies not in its price so much as in its ownership. What matters is that you own it.
While the last trading day of 2014 will be important if only to see if Dow 18,000 can be recaptured on what is sure to be the lowest volume in years, don't expect much help from Brent which continues to slide and was down nearly 3% at $56.20 or WTI which is also flirting with the $53 level, down almost 2% overnight both set to cap the worst year for the commodity since 2008. Not much should be expected from Treasuries either, set to return over 6% in 2014 - the best performance since 2011 - crushing the latest hoard of bond shorts all of which got the Treasury move in 2014 epically wrong, which will close early at 2 pm. Which means that the HFT algos will once again be driven off the illiquid USDJPY correlation, where low volume will mean 5-10 pip moves today should be the norm, as well as European stocks, whose Stoxx Europe 600 Index rose 0.3% earlier on the latest round of jawboning by an ECB member, this time Dutchman Peter Praet, who said in an interview with German newspaper Boersen-Zeitung that lower oil prices increasingly risk de-anchoring inflation expectations, indicating that quantitative easing is becoming more likely.
The Japanese stock market reached its all-time-high on December 29th 1998, and as The Wall Street Journal reports, analysts were still looking forward to another strong year for shares in 1990, despite some signs of danger. Reading through the headline on that day suggests, 25 years later, investors and talking-heads have learned absolutely nothing...
Massive 1,500 Ton Gold Vault For Sale In The Heart Of London, One Previous Owner, Asking £4,500,000 O.B.O.Submitted by Tyler Durden on 12/26/2014 15:16 -0400
As a result of Deutsche Bank's gold-rigging problems, the German bank's practically brand spanking new Singapore gold vault, just over a year old, is about to go on sale. But while one can debate when the brand new storage facility will see a "for sale" sign attached to the main vault door, one thing is clear: Deutsche Bank's massive, and even newer, gold vault in London is already looking for offers. According to Reuters, Deutsche Bank is "open to offers for its London-based gold vault following the closure of its physical precious metals business."
Despite the widely held belief that 2015 will be the year in which a patient Fed finally begins to normalize rate policy, we believe the Fed has no possibility of withdrawing the stimulus to which it has addicted us. QE4 was always much more probable than anyone in government or on Wall Street cares to admit. A recession and a financial panic caused by sub $60 oil will significantly quicken the timetable by which the Fed cranks up the presses. When it does, oil could once again increase in price, along with all the other things we need on a daily basis. That should finally dispel any remaining illusions that the Fed could successfully land the metaphorical plane. More QE may minimize the damage in the short-term, but we believe it will keep us trapped in our current cocoon of endless stimulus, where we will slowly suffocate to death.
One thing is certain about the ensuing “race to the bottom”. Japan’s retirement colony will end up with the hindmost. And they will surely burn professors Krugman and Summers in effigy—-even if driftwood is the only fuel they have left.
If prices fall any further (and what’s going to stop them?), it would seem that most of the entire shale edifice must of necessity crumble to the ground. And that will cause an absolute earthquake in the financial world, because someone supplied the loans the whole thing leans on. An enormous amount of investors have been chasing high yield, including many institutional investors, and they’re about to get burned something bad. We might well be looking at the development of a story much bigger than just oil.
The central banks are now out of dry powder - impaled on the zero-bound. That means any resort to a massive new round of money printing can not be disguised as an effort to “stimulate” the macro-economy by temporarily driving interest rates to “extraordinarily” low levels. They are already there. Instead, a Bernanke style balance sheet explosion like that which stopped the financial meltdown in the fall and winter of 2008-2009 will be seen for exactly what it is—-an exercise in pure monetary desperation and quackery. So duck and cover. This storm could be a monster.
First it was humans. Now it is vaccum tubes.
Among those who’ll get to eat the losses: unsuspecting retail investors.
About That 2100 S&P Target For 2015, Goldman Was Only Kidding, Now Sees Even More Ridiculous Multiple ExpansionSubmitted by Tyler Durden on 12/06/2014 16:14 -0400
It was just one short month ago when, on the back of the soaring dollar (which has since soared even more), as well as "diminished global GDP growth and lower crude prices", Goldman's David Kostin cut his EPS for 2015 and 2016 from $125 and $132 to $122 and $131. Then, it was just two short weeks ago, the same David Kostin said "we expect the P/E will contract and the index will slip during the second-half of 2015 as the Fed takes its first step in the long-awaited tightening cycle. Our S&P 500 year-end 2015 target of 2100 implies a modest 5-10% P/E multiple compression to 16.0x our top-down 2016 EPS estimate or 14.6x bottom-up consensus earnings estimates." And then, with the S&P now about 20 points away from Goldman's 2015 year end target (and just 120 points from the government-backed hedge fund's 2016 year end target!), the very same David Kostin admits that he was only kidding and that the S&P may in fact rise to a whopping 2300 in the coming year...
In any economy, nothing works in isolation. For every dollar increase that occurs in one part of the economy, there is a dollars worth of reduction somewhere else. The real issue is what the fall in commodities in general, including oil, is telling us about the real state of the economy.
B-Dud Explains The Fed’s Economic Coup (Or Why Every Asset Price Influencing Monetary Policy Transmission Is Now Manipulated)Submitted by Tyler Durden on 12/03/2014 20:30 -0400
The Fed can do only do two concrete things to influence these income and credit sources of spending - both of which are unsustainable, dangerous and an assault on free market capitalism’s capacity to generate growth and wealth. It can induce households to consume a higher fraction of current income by radically suppressing interest rates on liquid savings. And it can inject reserves into the financial system to induce higher levels of credit creation. But the passage of time soon catches up with both of these parlor tricks.
A little over a year ago, we presented a "Yellow" asset, which was "the best performer of the past year." It wasn't gold: it was yellow cab medallions. As we wrote then, "the best returning asset class traded in the NY Metro area is yellow but doesn't change hands on Wall Street.... over the last 12 months New York City taxi medallions have risen 49% in price, besting the relatively humdrum returns of the S&P 500 (up 21%), the NASDAQ (22%) and the Dow (18%). Medallions – essentially the right to operate a for-hail taxi in New York City – now trade for as much as $1.3 million, an all-time record." In retrospect it was also the perfect time to cash out on the "yellow" euphoria. According to the NYT, "the average price of an individual New York City taxi medallion fell to $872,000 in October, down 17 percent from a peak reached in the spring of 2013, according to an analysis of sales data. Previous figures published by the city’s Taxi and Limousine Commission — showing flat prices — appear to have been incorrect, and the commission removed them from its website after an inquiry from The New York Times."