To believe that the housing bubble caused the 2008 crash was is to ignore its origin in Federal Reserve policies that forced investors to reach for yield. Tragically, the Federal Reserve has done the same thing again – starving investors of safe returns, and promoting a reach for yield into increasingly elevated and speculative assets. Thinking about the crisis only from the perspective of housing, investors and policy-makers have allowed the same process to play out more broadly in the equity market. On a quantitative basis, the overvaluation of the equity market is greater percentage-wise, and greater dollar-wise, than the overvaluation of housing in 2006-2007. Impatient, crowd-following investors are all too willing to wastefully scatter seeds onto this parched desert, thinking that this is their only chance to sow. To wait patiently in the expectation of fertile soil and rain is not an act of pessimism, but an act of optimism and informed experience.
Diversification with a solid strategy
Near-Bankrupt Rome Bailed Out As Italy Unemployment Rises To All Time High, Grows By Most On Record In 2013Submitted by Tyler Durden on 03/01/2014 15:34 -0400
A few days ago, we reported that, seemingly out of the blue, the city of Rome was on the verge of a "Detroit-style bankruptcy." " And just as expected, yesterday Rome was bailed out. What is certain is that this year will not be the last one Rome is bailed out either. In fact, it will continue getting rescued for years to come because contrary to the propaganda, the Italian economy continues to get worse with every passing month, yields on Italian bonds notwithstanding. Ansa reports that in January the Italian unemployment rate rose to a record 12.9%, and that "reducing Italy's "shocking" rate of unemployment must be the government's highest priority, Premier Matteo Renzi said Friday." How, by pretending everything is ok, kicking the Roman can and hoping things improve by bailing out anyone that is insolvent? Putting 2013 in perspective, this is the year when according to national statistical agency Istat, some 478,000 jobs were lost in Italy in 2013, the worst year since the global financial crisis of 2008-2009, with an average annual jobless rate of 12.2% last year.
Crisis was averted. Or was it just put off for another day?
Once again the smell of NAPALM is in the air
The biggest fear the market currently has is not the ongoing crisis in the Emerging Markets, not the suddenly slowing economy, not even China's credit bubble popping: it is that Bernanke's successor may have suddenly reverted to the "Old Normal" - a regime in which the Fed is not there to provide the training wheels should the S&P suffer a 5%, 10% or 20% (or more) drop. Whether such fears are warranted will be tested as soon as there is indeed a bear market plunge in stocks - the first in nearly three years (incidentally the topic of the Fed's lack of vacalty was covered in a recent Reuters article). So, assuming that indeed the most dramatic change in market dynamics in the past five years has taken place, how does one trade this new world which is so unfamiliar to so many of today's "younger" (and forgotten by many of the older) traders? And, more importantly, how does one look for the signs of a bottom: an Old Normal bottom that is. Courtesy of Convergex' Nicholas Colas, here is a reminder of what to look forward to, for those who are so inclined, to time the next market inflection point.
In the aftermath of yesterday's Developed Market rout, it may come as a surprise how - relatively - quiet the EM bourses were. Because while the now ongoing Argentina reserve depletion continues (the country has $28 billion left - a drain of over $2 billion in two weeks, the Turkish political instability is still there, and everyone from Hungary to South Africa to India are lamenting the Fed's taper, for the most part traders were ignoring developments out of the emerging world. This may change today when just over an hour ago, Russia announced it would cancel a bond auction for the second consecutive week after an emerging-market rout sent yields on January 2028 bonds to record highs. The reason cite: market conditions.
It is still all about the Yen carry which overnight tumbled to the lowest level since November, dragging the Nikkei down by 4.8% which halted its plunge at just overf 14,000, only to stage a modest rebound and carry US equity futures with it, even if it hasn't helped the Dax much which moments ago dropped to session lows and broke its 100 DMA, where carmakers are being especially punished following a downgrade by HSBC of the entire sector. Also overnight the Hang Seng entered an official correction phase (following on from the Nikkei 225 doing the same yesterday) amid global growth concerns and has filtered through to European trade with equities mostly red across the board. Markets have shrugged off news that ECB's Draghi is seeking German support in the bond sterilization debate, something which we forecast would happen a few weeks ago when we pointed out the relentless pace of SMP sterilization failures, with analysts playing down the news as the move would only add a nominal amount of almost EUR 180bln to the Euro-Area financial system. Elsewhere, disappointing earnings from KPN (-4.3%) and ARM holdings (-2.5%) are assisting the downward momentum for their respective sectors.
In economics the chicken must always come home to roost. Man can only live beyond his means for so long. Bernanke’s reputation hinges upon the market not tanking as his successors close up the spout of gushing currency. The endpoint is coming. When it happens, the house of cards will tumble down. And with it will come the livelihoods and hopes of many. With every boom there is a bust. It’s an immutable fact of government intervention into the economy. As Bill Bonner writes, articles full of lavishing praise for Bernanke will begin appearing in coming weeks. Writing puff pieces on state bureaucrats is often a high-paying gig. But they all reveal a particular trend: celebrating the wise achievements of someone empowered to govern society. When businessmen are praised in print, their accomplishments are chalked up as minor victories reserved for the few. When the selfless man of charity is given his due, the praise is mild. When a lord of government sees the pages of a major periodical, it’s the kind of brown-nosing that would make a teacher’s pet uncomfortable. For now, Bernanke will bask in exaltation. But his just deserts are coming. You can bet $4 trillion on it.
Following yesterday's continued slide to record lows against the Central Bank's currency basket, the Russian Ruble is rallying this morning as Russian Central Bank chief Elvira Nebiullina jawboned the threat of renewed intervention to "smooth out" markets:
*NABIULLINA SAYS FX MKT INTERVENTIONS NEEDED FOR FIN. STABILITY; BANK ROSSII 'SMOOTHING OUT' SHARP RUBLE SWINGS
One can only hope that - despite the bank runs, a plan not to raise rates, and a canceled bond auction - Russia has more success that Turkey is "fixing" the problem of QEasy money flows. The Ruble "basket" has reverted back to pre-Turkey levels.
- Only time will define Bernanke's crisis-era legacy at Fed (Reuters)
- Record Cash Leaves Emerging Market ETFs (BBG)
- Investors Look Toward Safer Options as Ground Shifts (WSJ)
- Fed Policy Makers Rally Behind Tapering QE as Yellen Era Begins (BBG)
- Rating agencies criticise China’s bailout of failed $500m trust (FT)
- Russia to await new Ukraine government before fully implementing rescue (Reuters)
- U.S. readies financial sanctions against Ukraine: congressional aides (Reuters)
- Companies resist president’s call for minimum wage rise (FT)
- Secret Swiss Funds at Risk as Italy’s Saccomanni Visits Bern (BBG)
- Top Democrat puts Obama trade deals in doubt (FT)
- Erdogan to Give Rate Increase Time Before Trying Other Plans (BBG)
From Citi: From the viewpoint of domestic US economic conditions the Statement is completely anodyne. From the point of view of EM, the Fed has just said "hasta la vista, baby"
As we begin 2014, it is important to recognize the levels of INSANITY currently existent in the world enabling us to understand the apocryphal nature of the times we live in and prepare ourselves to meet the challenges it represents. The world is leveraged to an extent that has never before seen in history! Debt now masquerades as NOMINAL growth and REAL growth has ceased. Headline economic reports are now nothing more than POLITICALLY CORRECT HOAXES to FOOL the public at large and mask the betrayal of the public by the leaders who hold the reins of power. ECONOMIC Stagnation emerged after the 2008 Global financial crisis and in real terms has NEVER ENDED!
The Status Quo views real estate bubbles as a "good thing": as home prices rise, the homeowner's collateral (equity) rises, creating both a psychological "wealth effect" (now that we're richer, we can afford to borrow and blow more money) and a temporary (and thus phantom) increase in collateral that will support more household debt. What few seem to realize (or discuss) is how rising home prices push rents higher.This is an entirely pernicious effect, as renters aren't getting any more "home" for the higher rent--they're paying more money for the same shelter. Central Planning pushing housing prices higher is not win-win--it is lose-lose-lose.
- Citigroup 165K
- Barclays 175K
- UBS 185K
- HSBC 191K
- Goldman Sachs 200K
- JP Morgan 215K
- Bank of America 220K
- Deutsche Bank 250K