When paying a premium for equities, or any asset for that matter, one runs the serious risk of capital impairment. Worse, most professional investment managers falling prey to the bullish sentiment currently surrounding this period of extreme valuations will likely not live up to their overriding fiduciary duty – the preservation of wealth. Following the herd may have its benefits at times, but following the herd over a cliff never ends well. As Seth Klarman warned. “Risk is not inherent in an investment; it is always relative to the price paid”
Wondering why stocks are surging this morning - aside from Fischer's comments, OPEC rumors, Greek bank recaps, and JPY ignition? Perhaps it is the veritable swarm of professional technical analysts out with notes warning of significant problems ahead. From John Hussman's refined Hindenberg Omen and Carter Worth's "sell stocks, breadth is a problem," to Oppenheimer's warning of "seasonals and weak internals," and Louise Yamada's "stocks are vulnerable, keep cash on sidelines" warning - it appears today's early bounce is as much about contrarian oversold bounce as it is about any macro news. But with 73% of the largest 1000 stocks at least 5% off their highs, stocks remain fragile as they push back towards highs.
The omens are not good when momentum and quality become highly correlated, warns SocGen's cross-asset research group. Quality is now essentially price momentum and vice versa, and history tells us when these two strategies collide the omens are not usually good, as it is a phenomena usually associated with equity markets turning bearish. This becomes even more evident when they plug the factors into their bear market indicator... simply put, we are in a bear market!
Should a person or group that has never experienced what is known by all as “real life” while simultaneously being seen by many legal standards as not having the full credentials to be recognized as an “adult” have the ability to vote directly for, or vote for candidates responsible in the setting of the nations wage laws, tax laws, business law, national debt, business tax structures, business mandates, international trade policies, monetary policy, or most importantly – whether to send their brethren off to war where people die for real – not in some video game or movie?
We need to wake up....and FAST!!!
Sitting in Silicon Valley, it feels like we’ve reached the peak again. Hot money is chasing deals at ridiculous valuations. Housing prices are more than incomes can cover. Optimism is high. Jobless Claims are at cyclical lows. We’ve seen this before, in 2000 and 2007.
"An alternate, more sophisticated approach to explaining why QE may not work to stimulate aggregate consumption is, perhaps, because the demographic mix of the U.S. (and most parts of the developed world) has shifted toward older people. Unlike 30 or 40 years ago, the enormous baby boomer generation, and even retirees, are much wealthier (including human capital) than in the past, and they are wealthier than current generations earlier in their life cycle. So the wealth effect does not lead to an increase in consumption and, potentially, has the opposite outcome."
- Robert Merton
Next week is all about the Fed, and the positioning or should I say De-Positioning will be taking place right up until the last minute of this all-important Fed Meeting.
This week's Economic Policy Institute's report, leverages the fashionable, French economist Piketty's statistics, in order to illustrate how well the "top 1%" are doing in each of the 50 states. The report is provokingly titled: "The Increasingly Unequal States of America". But the report creates distortions in the truth. An important matter affecting hundreds of millions should also include a straight acknowledgement of probability theory (involving large sample sizes). The most liberal people suggest that even thinking about this math is unnecessary. Perhaps any glorification of wrongs that need to be righted, justifies the means that it would take to get there. Over time this can conflate math ideas with one's ideological bias.
“... I am a hard working taxpayer who is getting pretty fed up with having my savings earning no interest and possibly being devalued (see Japan) and of not being able to find any sensible place to invest my hard earned due to central bank policies making it impossible to make any return anywhere without taking crazy risks.”
"When a social construct (gold as money) survives for 6,000 years I would expect curious people to inquire as to whether it is tied to some immutable underlying law... [instead], our court economists prefer to write this off as a 6,000 year old delusion. That says a lot about the sorry state of the economics discipline today.”
For any/all readers who retain the capacity for independent thought; it is universally acknowledged that the mainstream, Corporate media is little more than a propaganda megaphone. It broadcasts a single message, 24/7, with which the Old World Order brainwashes the masses in our Zombie societies.
It is understood that with the overwhelming financial resources at its disposal; the One Bank has been able to (literally) buy each-and-every mainstream media outlet across the Western world, with all of these media outlets controlled within a mere handful of its 147 corporate fronts. We understand that because of this media oligopoly that, conservatively speaking, 99% of what is spewed by the mainstream media is irredeemably tainted – and thus cannot be relied upon.
"My premise hasn’t really changed since I published my paper explaining why I had become more constructive towards risk assets this time last year. That is to say, the structural deficiency of global demand continues to radicalise the central banking community. I believe they are terrified: the system is so leveraged and vulnerable to potentially systemic price reversals that the monetary authorities find themselves beholden to long only investors and obliged to support asset prices. However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time."
Three important factors which should support gold above $1,100/oz are Chinese demand, central bank demand including from Russia and of course the Swiss Gold Referendum. We remain bearish in the short term but very bullish for 2015 and in the coming years.
Kuroda has fired the shot that looks likely to trigger the next phase of the crazy monetary experiment we’ve all been living in for the last five years. Unfortunately, the next phase is where things start to get nasty. Just because equity markets cheered the latest sugar rush he guaranteed them should not make smart investors lower their guard — quite the opposite, in fact. Colonel Kuroda has gone up-country into the Heart of Darkness, and all we can do is await the Apocalypse now.