Central Planners are trying with all their might to force people into behaviors and financial assets that are in direct contrast to their logic as well as long term financial well being. This is the height of immorality, not to mention hubris.
“In general [traders/economists] are trained to analyze the economic data, balance sheets and so on. They’re not trained to predict political decisions. These factors have ruled the lives of fund managers in a more significant manner than what used to be over the past 20 or 30 years.”
The paragraph above pretty much sums it up. There are no markets, there are manipulations.
Friday Night Dump: CBO Admits Error, Now Expects Another $600 Billion In Deficits From Obama Tax CutsSubmitted by Tyler Durden on 01/04/2013 17:59 -0500
Two weeks ago, when we commented on the biggest farce in financial thinking at the time (promptly replaced by the even more lunatic platinum coin "idea"), namely that one of the main "spending cut" proposals of the Obama administration, one amounting to $290 billion, was the assertion that the US will save hundreds of billions because, get this, interest rates are now lower than they were before. We commented as follows: "this is where one's Excel refs out, because the interest payment on Treasurys, at least in a non-banana republic, one set to see 120 debt/GDP in 3-4 years, is a function of fiscal decisions (central-planning notwithstanding), and to make the idiotic assumption that one can control interest rates for 10 years (central-planning notwithstanding), just shows what a total farce this whole exercise has become, and also shows that nobody in the administration, or the GOP for that matter, has even modeled out the resultant budget pro forma for the proposed tax hikes and budget "savings" as that would blow up said excel model immediately." We now learn that one other entity that did not fully model out the last minute Fiscal Cliff deus ex, and especially not the recursive debt relationship in a country where half the government spending is funded by debt, is the always amusing CBO (whose epic prediction failure rate has been discussed here on numerous occasions). It appears that they just did, after the close, on Friday. The outcome? Their initial estimate of a $4.0 trillion budget increase was wrong and when one factors in the fact that this incremental spending would have to be funded by, you guessed it, debt, debt which has interest, the full impact of the Obama tax cut rises deficits by 15% to $4.6 trillion over the next decade.
So you want a trillion dollar platinum coin? Ok: here are some facts...
Fed mouthpieces Bullard and Lacker are out in force this morning talking the market back from the edge of yesterday's FOMC Minutes and reassuring us that the economy is going to be weak enough for a lot longer to justify the Fed's actions. However, right at the end of Jim Bullard's interview with CNBC's Steve Liesman, we got a glimpse of the reality behind the curtain as the St. Louis Fed president threw Bernanke under the purge-ry perjury bus... Following a discussion of fiscal policy uncertainty and the need to carefully spend what money we have, Liesman jokingly commented to Bullard that it is "Easy for you to say, you have a lot of dollars to spend; you get to print them!" To which the now foot-in-mouth Bullard replied, "Aaahh; indeed we do." This seems a little different from what Bernanke previously told Congress.
In money management long term success lies not in garnering short term returns but avoiding the pitfalls that lead to large losses of invested capital. While it is not popular in the media to point out the headwinds that face investors in the months ahead - it is also naive to only focus on the positives. While it is true that markets rise more often than not, unfortunately, it is when markets don't that investors are critically set back from their long term goals. It is not just the loss of capital that is devastating to the compounding effect of returns but, more importantly, it is the loss of "time" which is truly limited and never recoverable. Therefore, as we look forward into 2013, we want to review three reasons to be bullish about investing in the months to come but also review three risks that could derail the markets along the way. The reality is that no one knows for sure where the markets will end this year; and while it is true that "bull markets are more fun than bear markets" the damage to investment portfolios by not managing the risks can be catastrophic.
Sometimes I just have to smile when faced with anti-gun propagandists, regardless of the vicious statements they make, because I know from years of past experience in this debate that because of their deep rooted hypocrisy, they will inevitably make my pro-gun case for me. All I have to do is sit back and wait for them to contradict themselves. The gun grabber personality is interminably flawed, but it could be summarized thus: They believe the whole of society should cater to their personal concerns. That we should give up our rights just to make them feel safer. And, that they are somehow a step above the rest of us, and do not need to practice what they preach. My question is, why should we go out of our way to please such weaklings and frauds? I have yet to hear a good reason...
We are living in the United States of Delusion. The delusion has four key sources. The irony is that clinging to delusion rather than face the necessity of deep cuts in borrow-and-squander budgets will lead to the involuntary reset of the entire system, depriving every vested interest of their share of the swag. Is delusion a sustainable state? No. Thus we can confidently predict that causality, factuality and karma will eventually sweep aside delusion and all those who cling to it.
- After the worst post-Christmas market performance since 1937, we had the largest surge to kick off any year in recorded history
- The myth is that we are now seeing the clouds part to the extent that cash will be put to work. Not so fast It is very likely that much of the market advance has been short-covering and some abatement in selling activity
- As equities now retest the cycle highs, it would be folly to believe that we will not experience recurring setbacks and heightened volatility along the way
- The reality is that the tough choices and the tough bargaining have been left to the next Congress and are about to be sworn in
- The myth is that the economy escaped a bullet here. The reality is that even with the proverbial "cliff" having been avoided, the impact of the legislation is going to extract at least a 11/2 percentage point bite out of GDP growth
Sometimes you just have to step back and laugh. Three times in the last two years, global stock markets have lurched higher four times (fed by a hosepipe full of central bank largesse) only to fall rapidly back to the fundamentally weak reality of the global economy. If ever there was a chart that summed it all up - and highlighted the inexorable optimism that this time it really is different - the current chasm between Global Manufacturing PMI and MSCI World suggests either stocks are off in fairy-land again or there is about to be the biggest surge in the global economy since 2009 (right as currency wars escalate and the debt-ceiling debate in the US threatens more fiscal drag).
The Cliff is dead; long live the Cliff. Yesterday’s impressive market rally was a great way to kick off the New Year, but (as ConvergEx's Nicholas Colas notes) we do have 251 trading days to go before we can lock in those gains and dance a celebratory jig. The market’s psychological pendulum swings between extremes of “Macro” and “micro” focus, and we shouldn’t take it for granted that the stock market’s positive take on the Fiscal Cliff negotiations portend a better economy, a stronger financial picture for the U.S., or any of the actual nuts-and-bolts which hold together the framework of corporate earnings and cash flows. Colas' prime concern is that the increase in Social Security tax withholding by 2 percentage points – back to its pre-2011 12.4% - will take a chunk out of the spending power for tens of millions of households. In the abstract, the amounts involved are not huge – perhaps 50 basis points of GDP. But everything counts when GDP growth remains stubbornly subpar.
What are the core characteristics of the spoiled teenager? The conventional view is that the spoiled teen "gets everything they want." In my view, the key characteristic of Spoiled Teenager Syndrome is that risk, cost and consequence have been masked. This is a systemic point of view, meaning that the masking of risk, cost and consequence help us understand not just the eventual failure of spoiled teenagers but the eventual failure of every group or enterprise that masks risk, cost and consequence as a strategy to paper over an unsustainable Status Quo. This includes families, companies, states and nations. Masking risk, cost and consequence creates an illusory world that eventually crashes on the unforgiving rocks of reality. What is the Central Planning strategy being pursued by our Central State and the Federal Reserve? Masking risk, cost and consequence.
Today's market moving news (or at least what should be market moving news) comes from hyper discounter extraordinaire, Family Dollar, whose stock is getting clobbered on what is merely the latest downward outlook revision (because as much as the Fed would like, reality, and cash flows, still do matter). Yet, while earnings not only for the $0.99 store but for the entire S&P will be atrocious something that apparently only selling copious amounts of VIX and buying up the ES in hopes of lifting all sinking boats can fix, it is the comments on the conference call that are most disturbing. To wit...
I left yesterday for the bobbling heads - to the artists of verbiage that weave arguments of their own accomplishments much as the artists of Three Card Monty hide the truth behind their shells. Yesterday we had a nice rally in the equity markets. No surprise; the sigh of relief was palpable that Congress did something, anything to address our fall over the cliff. I would not get too excited however. We raised taxes, we penalized those succeeding and we did it in a meaningful manner. We did not cut the national debt as sung by the chorus across the airwaves. In fact, according to the Congressional Budget Office we decreased revenues by $3.6 trillion over ten years. We did not protect the middle class, but because of the expiration of the payroll tax decrease, Federal taxes will rise for 77% of all working Americans. Thus we rewarded non-working Americans at the expense of those with jobs. The game was the continuation of postponement and avoidance and reckless governance of the nation.
Bill Gross On Bernanke's Latest Helicopter Flyover, "Money For Nothing, Debt For Free" And The End Of Ponzi SchemesSubmitted by Tyler Durden on 01/03/2013 07:53 -0500
Back in April 2012, in "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement" we first explained how despite its best intentions (to boost the Russell 2000 to new all time highs, a goal it achieved), the Fed's now constant intervention in capital markets has achieved one thing when it comes to the real economy: an unprecedented capital mismanagemenet, where as a result of ZIRP, corporate executives will always opt for short-term, low IRR, myopic cash allocation decisions such as dividend, buyback and, sometimes, M&A, seeking to satisfy shareholders and ignoring real long-term growth opportunities such as R&D spending, efficiency improvements, capital reinvestment, retention and hiring of employees, and generally all those things that determine success for anyone whose investment horizon is longer than the nearest lockup gate. Today, one calendar year later, none other than Bill Gross, in his first investment letter of 2013, admits we were correct: "Zero-bound interest rates, QE maneuvering, and “essentially costless” check writing destroy financial business models and stunt investment decisions which offer increasingly lower ROIs and ROEs. Purchases of “paper” shares as opposed to investments in tangible productive investment assets become the likely preferred corporate choice." It is this that should be the focus of economists, and not what the level of the S&P is, as it is no longer indicative of any underlying market fundamentals, but merely how large, in nominal terms, the global balance sheet is. And as long as the impact of peak central-planning on "business models" is ignored, there can be no hope of economic stabilization, let alone improvement. All this and much more, especially his admissions that yes, it is flow, and not stock, that dominates the Fed market impact (think great white shark - must always be moving), if not calculus, in Bill Gross' latest letter.
The bipolar mood swing over the short-term band aid Fiscal Cliff non-solution may be over, and finally the market, which yesterday saw the official breach of the debt ceiling on the final day of 2012 on paper may be starting to look forward 58 days to that day in February, or more likely March, when the real catalyst as we have said all along- the increase of the US debt ceiling by another $2.4 trillion - has to be resolved. Futures are down a modest 5 points even as the EURUSD slide continues now that year end window dressing repatriation means European banks no longer need to show the currency on their books - at some point the EURUSD-ES correlation algos will kick in but not yet. Keep in mind that in the summer of 2011 the debt ceiling negotiations started some two months before the D-Day in early August, this time around politicians, who have learned nothing, will likely leave all debate until the very last moment once again, as the democrats assume the GOP will fold like a cheap lawn chair once again, even as the tensions at the GOP to do just the opposite hit a fever pitch. Which is why not even Goldman Sachs, as confirmed in a note by Alec Philips last night (coming shortly), cares to predict what (or when) the "debt ceiling 2013" outcome will be.