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Not Done Rising

ilene's picture




 

Not Done Rising

Featured in: MarketShadows February 24 2013 Newsletter: Not Done Rising, But Night Will Come 

Over the last four months, we’ve been buying (virtual) stocks and selling (virtual) puts, without hedging our bullish bets. We explained our reasoning earlier in the year: 

“We are starting 2013 long stocks in Paul’s Virtual Value Portfolio with no covered call writing hedges for one reason – the Federal Reserve’s and other central banks’ plans to continue printing money into existence while debasing their currencies. This does not solve any problems such as too much wasteful spending, a perverse tax code, and a rushed-through fiscal deal that does not reduce the growing debt burden.” (Comfortably Bullish)

But stocks are one vehicle to help protect wealth during a time of money printing, zero rates, and devaluation of currency.

 had argued that the world’s central banks are racing to drive down their currencies, and that will increase asset prices. He warned, “Bears beware. A monetary revolution is underway:” 

The side-effects of this currency warfare — or ‘beggar-thy-neighbour’ policy as it was known in the 1930s — is an escalating leakage of monetary stimulus into the global system.

 

So don’t fight the Fed, and never fight the world’s central banks on multiple fronts…

 

The New Year ritual of predictions is a time for bravado, so let me hazzard that the S&P 500 index of stocks will break through its all time high of 1565 in early 2013 — mindful though I am of flagging volume and a wicked 12-year triple top… (Stocks to soar as world money catches fire, Calvinst Europe left behind – Telegraph)

In Lights, Camera, Rally?, Paul Price opined,

With the backdrop of very low interest rates, the overall ‘should-be’ P/E of the stock market increases because the alternative ‘safe’ investments are paying such low yields. Stocks become more desirable. This dynamic makes higher risk assets, such stocks, look even more attractive. And that’s exactly what the Federal Reserve wants.

 

The Fed is artificially holding interest rates down with its successive quantitative easing programs (QE1, QE2, QE3, QEternity….) and its Zero Interest Rate Policy (ZIRP). Part of Ben Bernanke’s plan (or plot, some might say) is to compel investors to buy “risk-on” assets, such as equities and commodities – while interest rates are hovering near zero and the dollar is continually losing value.”

 

The Fed’s Zero Interest Rate Policy should support higher multiples going forward. It may be cliche to say ‘Don’t fight the Fed.’ But essentially, we are not going to fight the Fed.

 

Our Conclusion: the Fed’s Zero Interest Rate Policy should support higher multiples going forward.

This week, in “Dow 20,000 Only a Matter of Time,” Econmatters suggested that we should be invested due to the growing money supply and currency in circulation, and the printing press phenomenon. Money is being created to chase assets, and that will inflate prices. Accordingly, the Dow will blow past 15,000, 16,000, 17,000 and so on based upon the currency creation effects alone. The fact is that markets are liquid, capital will flow in and out, and there will be occasional major pullbacks. “Those who fail to time the market will suffer losses at times. Make no mistake, though, Dow 20,000 is a foregone conclusion...

“Watch how the market performs once we break through the 14,200 level, and start putting in new highs in the other indexes. The pace can really take off once markets are in unchartered territory, and we can start taking 1000 point monthly clips that will leave you speechless… We are on the verge of taking that next leg up in the Dow, in fact, we should set a new high pretty soon; enjoy the ride as this breakout has been a long time coming.” (Dow 20,000 Only a Matter of Time)

 
 
 monetary base 25 years big chart
 
 
25 year money in circulation
 

In Cis Bam! Fed Drives Massive Liquidity Surge, Treasury Says Thank You Ma’amLee Adler, discussing his Composite Liquidity Indicator, wrote, "The composite liquidity indicator surged upward last week, driven by the huge Fed settlement of its monthly forward MBS (mortgage backed security) purchases. [That is, money is flowing from the Fed to the Primary Dealers, in exchange for the MBS the Primary Dealers are selling to the Fed.] This always takes place in the 8 day period surrounding mid month.

"Most components [of the composite liquidity indicator] had sympathetic upmoves on a smaller scale. The factors that slowed the rise in the indicator over the prior 3 weeks have receded as expected. The trend to the upside should continue at a breakneck pace as each new round of Fed cash hits the market and flows into the banking system."

Paul Price’s Virtual Value Portfolio is invested in stocks and we've also recently sold some PUTS in our Virtual Put Selling Portfolio. Monday's selloff gives us opportunities pick up stocks for less, and to write additional puts at better prices. 

Glimpse into the Future: Bloomberg Reports Biggest Story of All Backwards As Fed Blows Dangerous Deposit Bubble:

 

"QE will continue to drive stock prices higher until it ends. By stopping it, the Fed will deprive the dealers and their hedge fund clients of the fuel needed to keep stock prices up. We will likely come to the brink again, have a market crash correcting some excesses, wash, rinse and repeat. If we do not take corrective action against those in power perpetrating massive financial frauds and making policy to benefit the powerful, we will slowly descend toward the dissolution of civil society."

 

Full newsletter: MarketShadows February 24 2013 Newsletter: Not Done Rising, But Night Will Come 

 

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Tue, 02/26/2013 - 16:10 | 3278847 Albertarocks
Albertarocks's picture

I am simply not following this bugger-thy-neighbour policy.  Where I come from any guy who attempts to do that usually ends up with a concussion.

Tue, 02/26/2013 - 15:28 | 3278642 dontgoforit
dontgoforit's picture

Come on ilene, oh, come on ilene - you are up for best actress for this one.  I'd bet you a new F-150 against a 79 Marquis that we'll see 6,000 again before we see 20,000.

Tue, 02/26/2013 - 15:39 | 3278686 DeadFred
DeadFred's picture

She writes for Phil Davis who recently drank the kool-aid and went over to the dark side. He's just an Obama-bot now and I no longer visit his site.

Tue, 02/26/2013 - 15:38 | 3278681 Imminent Crucible
Imminent Crucible's picture

Let's be careful out there. It's not Dow 20,000 that worries me. It's Dow 20,000,000.

On the corner of my desk is a One Hundred Trillion Dollar bill, to remind me of when the Harare Exchange was the best performing stock market in the world. In nominal terms.

Tue, 02/26/2013 - 15:18 | 3278607 disabledvet
disabledvet's picture

Right up there with Apple I imagine. I do agree put writing is at a discount..is that for a reason? "on the future can tell"? Really?

Tue, 02/26/2013 - 14:35 | 3278438 BlueCheeseBandit
BlueCheeseBandit's picture

Hahaha.

You bulls have had your run. Now get ready to suck a bag of dicks. The news coming out of Europe will accelerate in awfulness. You'll be left holding a steaming bag of shit.

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