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Sam Zell: "The Stock Market Feels Like The Housing Market Of 2006"

Tyler Durden's picture




 

Instead of the endless procession of "different this time", "buy-the-dip", "money-on-the-sidelines" asset-gathering, Muppet-fleecers that CNBC so typically trots out, Sam Zell graced them with his presence and the truth was allowed a voice for a few minutes. Joined by David Rosenberg, who clarifies the insanity that engulfs US equities, explaining in wonderment that it is "not surprising the market rises even in the face of bad ISMs, worse jobs, and worst NFIB data, because Japan and the US are embarking on a gargantuan quantitative easing that is the lynchpin behind the stock market." It is not about being bullish, or bearish, or agnostic, it is understanding the driver of this market - and that is not the economy, not earnings, "it is the mother of all liquidity-driven rallies." Maria B, soundbite in hand, is slammed for her "glibness" at not fighting the Fed but it is Sam Zell's brutal honesty that shocks even the money-honey. "This is a very treacherous market," Zell explains - thanks to the giant tsunami of liquidity, "the problems of 2007 haven't been dealt with," and given the poor macro data and earnings, "we are suffering through another irrational exuberance," leaving the entire CNBC audience speechless when he concludes, "the stock market feels like the housing market of 2006." 

Maria B:

"So don't fight the Fed?"

Rosenberg:

"That's a pretty glib comment for what is going on. You could have fought the Fed in 2000 and 2009 and done quite well... [thanks to the Fed] the market will tend to drift up - until something breaks."

Zell:

"We're debasing our currencies around the world.. which ultimately translates into a lot of inflation."

 

"What we are seeing here is like a giant tsunami of liquidity."

 

"People look at the market and think things are better. The level of uncertainty has reached a point where people are just throwing money [at risky assets] because they don't know what else to do with it."

 

"I would not be adding money to the stock market. This is a very treacherous market."

 

"Yes, it's gone up every day. Yes, you're not supposed to fight the Fed, but sitting on the sidelines is preferable."

 

"In our businesses, we are not seeing strong conditions."

 

"The problems leading up to 2007 haven't been dealt with."

 

Then at 6:00

Zell:"The current stock market feels like the housing market of 2006. Everybody can't afford to miss it."

 

Maria B: "That's a scary comment."

 

Zell: "Why? Every single day it goes up. What were the headlines in 2006 - housing prices going up every day. What are you talking about every day now - new high in stocks every day!"

 

"We are suffering through another irrational exuberance."

Enjoy...

 

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Thu, 04/11/2013 - 10:59 | 3436319 Winston of Oceania
Winston of Oceania's picture

In the end we will tie bells to them so that at least we can listen to the chimes as they swing in the breeze.

Thu, 04/11/2013 - 01:54 | 3435381 are we there yet
are we there yet's picture

The last 4 years of QE have been similar to Cyprus on savings accounts.

Thu, 04/11/2013 - 02:34 | 3435410 polo007
polo007's picture

http://online.barrons.com/article/SB50001424052748704235404578403123409888386.html

Poor Ben Bernanke. He could step down as Federal Reserve Chairman as soon as next year and he must be thinking about his legacy. 

Everyone considers him a hero now because he's adding a trillion dollars to the Federal Reserve balance sheet in this year alone and a good portion of that is finding its way into financial assets. Ten-year Treasuries are yielding less than 2%, making the budget deficit cheaper to finance, and the Standard & Poor's 500 has gained 10% in the first quarter alone, making investors feel better about their financial well-being.

It's true, however, that the Federal Reserve has to buy 57% of all securities the Treasury issues in order to clear the market because overseas sovereigns have become less enthusiastic. Unemployment is still high, but inflation is tame and there is a general feeling out there that the economy is improving. America still has plenty of problems, perhaps, but it is doing better than any other major developed country. In the first quarter the Morgan Stanley Europe and Far East Index, which measures the performance of the world's developed markets, was only up 5.2%. The Morgan Stanley Emerging Markets Index was down 2.1%. All in dollar terms.

Bountiful Ben learned what to do by being a student of the Great Depression. During the 1930s, under the influence of John Maynard Keynes, government spending provided the stimulus to bring the economy out of its doldrums. That option has not been available now because too many members of Congress are obsessed with cutting spending. Monetary policy is the only alternative to keep the economy growing at a satisfactory pace. Starting in 2008, the Fed has been increasing the size of its balance sheet from $1 trillion to the current $3 trillion. When it was only $1 trillion, the assets were all Treasuries. Today mortgage-backed securities make up 33% of the total, so the size of the balance sheet has increased and its quality has decreased, but yields on government securities are almost at a record low, so the man must be a genius.

The problem is that Ben knows this cannot go on forever. His initial hope was that the liquidity he was providing would be sufficient stimulus to get the economy developing a significant amount of momentum on its own. He is too learned and too experienced to have put all of his confidence in that, however. He knew that much of the liquidity would be used to inflate asset prices and his expectation was that the increase in house prices and portfolio values would improve household net worth, encouraging consumers to spend and the economy to grow, perhaps as much as 3% annually. Whenever that objective was in sight, he could dampen (not reverse) the monetary stimulus and watch the economy expand as a result of natural forces. Since household net worth is almost back to its 2007 peak, he has reason to be optimistic. The risk, of course, was that the economy would become dependent on the stimulus and once it was no longer there, the stock market would decline, household net worth would diminish and the positive mood now sweeping the country would evaporate. If that happened, his legacy would be that he created an artificial prosperity that was followed by another period of dark reality.

Investors are well aware of the possibility of difficult times ahead if the Fed stops easing, but they believe that as long as money is flowing into the system at such a rapid rate, stocks are likely to move higher. Many professional investors have a short-term orientation anyway. Fifty years ago the average holding period for a stock bought on The New York Stock Exchange was eight years. It is now eight months. There is something else going on that is having a favorable effect on stock prices: investors are not selling. Trading volumes are low because investors believe that the flood of liquidity from the Fed will drive equities higher. As a result a marginal amount of buying has a disproportionate effect on prices. We know from various measures of investor sentiment that a mood near euphoria prevails. This is confirmed by the latest figures on margin debt. At $364 billion it is almost one third higher than a year ago and only slightly below the 2007 peak.

Thu, 04/11/2013 - 09:49 | 3435994 mess nonster
mess nonster's picture

"Many professional investors have a short-term orientation anyway. Fifty years ago the average holding period for a stock bought on The New York Stock Exchange was eight years. It is now eight months. There is something else going on that is having a favorable effect on stock prices: investors are not selling."

Top marks for the fastest self- contradiction ever.

Thu, 04/11/2013 - 11:08 | 3436378 Hubbs
Hubbs's picture

why is this comment getting so many thumbs down? 

Thu, 04/11/2013 - 02:34 | 3435412 polo007
polo007's picture

http://www.safehaven.com/article/29445/why-bernanke-cant-stop-deflation

While there are many risks to the current ultra loose money policy, consumer price inflation isn't one of them. Inflation remains persistently low despite the best efforts of central banks to increase it.

The Consumer Price Index (CPI) among the G7 economies was only 1.6%, year over year, during February. It was even lower at 1.4% excluding food and energy, according to economist Ed Yardeni. Meanwhile Producer Price Index (PPI) inflation rates are close to zero, Yardeni points out. In the euro zone, the CPI inflation rate is just 1.7%, and 1.4% excluding food and energy. Japan continues to experience deflation despite continuous efforts at reversing it through monetary easing.

"In the Brave New World (BNW)," writes Yardeni, "pumping more liquidity into financial markets won't stop consumer price deflation, but it will inflate asset prices, a.k.a. asset bubbles. Central bankers like Ben Bernanke at the Fed and Haruhiko Kuroda at the BOJ are still using models based on the 1930s. They are clueless about the BNW." Yardeni believes this is why central bankers are so committed to doing whatever it takes to avert deflation. They fail to realize that productivity-led deflation should be welcomed as the best way to boost the purchasing power of consumers, thereby increasing government tax revenues.

Thu, 04/11/2013 - 02:33 | 3435413 polo007
polo007's picture

http://www.businessinsider.com/who-really-owns-the-us-national-debt-final-edition-for-fy2012-2013-4

Overall, U.S. entities own 66% of all debt issued by the U.S. federal government. Ranking the major U.S. entities from high to low, we find that:

  • U.S. individuals and institutions, which includes regular Americans, banks, insurance companies and other government entities, own 30.5% of the nation's debt.
  • The U.S. Social Security Trust Fund claims 16.7%.
  • The U.S. Federal Reserve, thanks to its quantitative easing programs of recent years, has racked up holdings equal to 10.8% of the total U.S. national debt.
  • The U.S. government's civilian employee retirement fund accounts for another 5.6% of the nation's debt.
  • The U.S. government's military retirement fund owns 2.4% of the national debt.
Thu, 04/11/2013 - 02:49 | 3435423 blindman
blindman's picture

"..I used to get up at 1 o'clock in the morning to deliver
the papers and still have time to break the law." t.w.
.
Tom Waits Kentucky Avenue
http://www.youtube.com/watch?v=-VOYcRXzs1Y&feature=endscreen&NR=1

Thu, 04/11/2013 - 04:52 | 3435496 aicohn
aicohn's picture

Butt aroma as "glib"?

I think he was too kind.

She's a retard.

Thu, 04/11/2013 - 06:41 | 3435559 CDNX fan
CDNX fan's picture

This has been an enormous advance and whatever the reason, it is making me a lot of money. I work with guys that have lost every dime  trying to short this move while the "stupid guys" like me are coining it.

 

Rule #1: NEVER underestimate the replacement power of equities within an inflationary spiral.

 

Can you feel the love?

Thu, 04/11/2013 - 07:21 | 3435595 paint it red ca...
paint it red call it hell's picture

Odd, how bulbs shine their brightest right before they burn out.

Can ya feel the heat?

Thu, 04/11/2013 - 08:08 | 3435638 Quinvarius
Quinvarius's picture

Those points will come right off the DOW when the secondaries and the bankruptcies start.  I was a mad bull before Cyprus.  Now banks are allowed to fail again and they are stealing people's money out of accounts.  There will be a liquidity fueled rally, but it won't be in paper.  What are you going to do?  You have a withdraw cap on your account.  Gold is ridiculous cheap money vs paper right now.  You make a big purchase of PMs to get your chunk out of banks and out of paper, and you withdraw as much cash as you can every day.  Banks lose deposits and the printing starts again.

Don't listen to GS and their idiotic muppet raping call to lever up short on paper gold.  They can't keep gold on the shelves any more than they can keep ammo on the shelves.  You were crazy not to be buying gold before Cyprus.  Now you are just stupid not to be buying.

Base money in 1970 was 65B.  Base money today is 2990B.  Gold in 1970 was $35.  2990/65 = 46.  46 x $35 = $1610.  The gold rally has not even started yet.  We are at 1970 prices.  Trust the math not the stooges.

Thu, 04/11/2013 - 12:26 | 3436901 Thisson
Thisson's picture

Thank you for contributing those facts about base money and gold price.  I hadn't thought to look at it that way.

Thu, 04/11/2013 - 08:05 | 3435650 Catullus
Catullus's picture

You could make the argument that this is not an equity bubble IF dogshit wasn't leading the rally. There are really good picks out there with sound balance sheets in stable industries that are getting no love.

AMZN is still the most ridiculous of the bunch.

Thu, 04/11/2013 - 08:21 | 3435682 Clowns on Acid
Clowns on Acid's picture

"The Stock Market Feels Like The Housing Market Of 2006"
Sammy get a clue...it's a lot worse.
The Housing market of 2006 was similar in the sense of the short fingered vulgarians of the MSM breathlessly promoting the scam, and interest rates were low and probably negative.

However this time the immoral leeches at the Fed have conspired to use the good standing of the US population (not 100% of the population mind you) to print fiat and pump up prices of the MBS and ultimately the Equity market, enabling the mulatto community organizer and his insane circle of co-conspirators to continue spending more, dictating who gets what and for how much, while raising taxes on private business people and individuals alike.

It's illegal, insane, and immoral.

Thu, 04/11/2013 - 08:37 | 3435731 MiltonFriedmans...
MiltonFriedmansNightmare's picture

+1 for the reference to the "mulatto community organizer"...

Take heart though, 4th turnings bring about change rather quickly in some instances.

Thu, 04/11/2013 - 08:33 | 3435719 orangegeek
orangegeek's picture

The Dow and S&P500 have been in a vertical ascent in the last four days.

 

http://bullandbearmash.com/chart/dow-jones-hourly-riding-channel-resista...

 

The only organizations hiring are governments.  Each quarter of earnings coverups makes it more interesting.

 

We officially call this "Stock Market Jenga".

 

Thu, 04/11/2013 - 09:54 | 3436014 mess nonster
mess nonster's picture

Bitcoin off 50%!

Hey I have some used mining equipment for sale...

Thu, 04/11/2013 - 08:57 | 3435810 marketexpress
marketexpress's picture

It is going to be worst than may 2008, lehman crisis.

Thu, 04/11/2013 - 13:38 | 3437247 Nostradalus
Nostradalus's picture

lehman crisis occurred sept. 14 2008. it was a sunday i remember well.....

Thu, 04/11/2013 - 23:35 | 3439479 NeedtoSecede
NeedtoSecede's picture

The erroneous Lehman comment makes me think about the move Animal House and Belushi's epic rant.

"Was it over when the Germans bombed Pearl Habor?"

Thu, 04/11/2013 - 09:02 | 3435820 yellowsub
yellowsub's picture

There should be no surprise when you hear how subprime is sneaking into housing again and the driver the auto sales... 

Even those who previous defaulted back in 2008 or earlier are getting homes!  Talk about lesson learned from 2008...

Thu, 04/11/2013 - 09:06 | 3435833 stutes33
stutes33's picture

Zell is looking old

Thu, 04/11/2013 - 09:29 | 3435864 Disenchanted
Disenchanted's picture

Stock 'Market' 2013 = Wagon of Fools

 

 

Memoirs Of Extraordinary Popular Delusions And The Madness of Crowds

by Charles Mackay (1852 edition)

 

Some of the sayings on the deck of South Sea playing cards(aka Bubble Cards) described in the above book...

 

Eight of Spades:

“A rare invention to destroy the crowd

Of fools at home instead of fools abroad.

Fear not, my friends, this terrible machine,

They’re only wounded who have shares therein.”

 

Nine of Hearts:

“The headlong-fool that wants to be a swopper

Of gold and silver coin for English copper,

May, in Change Alley, prove himself an ass,

And give rich metal for adultrate brass.”

 

Eight of Diamonds:

“He that is rich and wants to fool away

A good round sum in North America,

Let him subscribe himself a headlong sharer,

And asses’ ears shall honour him or bearer.”

Thu, 04/11/2013 - 09:39 | 3435959 Disenchanted
Disenchanted's picture

Does this sound familiar:

 

 

Some in clandestine companies combine;

Erect new stocks to trade beyond the line;

With air and empty names beguile the town,

And raise new credits first, then cry ’em down;

Divide the empty nothing into shares,

And set the crowd together by the ears.   

~Daniel Defoe

Thu, 04/11/2013 - 09:30 | 3435920 Bryan
Bryan's picture

Botox lips.

 

Thu, 04/11/2013 - 13:43 | 3437255 Nostradalus
Nostradalus's picture

zell or maria?

Thu, 04/11/2013 - 09:35 | 3435932 madcows
madcows's picture

First, it was the Fed Blown Internet bubble.

2nd, it was the Fed Blown Housing Bubble.

Today, it is the Fed Blown Equity Bubble.  If you were wondering where all the Fed money went, there is your answer.

I thought it would have shown up in PM's.  But it hasn't, b/c there hasn't been tremendous overall inflation, as yet, and I'm assuming it's hard to for the Bots to HFT real gold.  Remember, the banks are the beneficiaries of the Fed money.  Their business is equities. So, that's where the money has gone.  Mom and Pop are still hiding in bonds for the most part, just trying to hang on to their money.

Main St is still suffering, while Wall St is blowing the next bubble with free money.  The question is, when and how does it pop... and will they confiscate my bank account when it does?  I've been sitting in cash waiting for a correction.  But, now i'm thinking I'll buy some blue chips.  Why not, right?  I'm being raped by the bank for holding my cash there, and I figure it's at great risk of being confiscated.  So, why not put it in stocks that will likely lose value, but at least won't be stolen from me?.... Unless... Hell, those bastards will probably confiscate my stock holdings, too, when the SHTF.  There really is no place to hide.  God Damn you Ben.

Thu, 04/11/2013 - 09:56 | 3436020 Winston of Oceania
Winston of Oceania's picture

Buy productive property preferrably in a Free State, not any part of NY and the like.

Thu, 04/11/2013 - 10:07 | 3436060 madcows
madcows's picture

I don't want a mortgage, and I don't want to pay property taxes.  Having property is akin to being held hostage by the government.

Thu, 04/11/2013 - 16:23 | 3437999 SilverDOG
SilverDOG's picture

madcows

 

Unless you pay Alloidal Tax.

Thu, 04/11/2013 - 12:29 | 3436927 Thisson
Thisson's picture

It pops when youth unemployment hits levels that cause social unrest.

Thu, 04/11/2013 - 09:46 | 3435988 Cheeseus Sonofdog
Cheeseus Sonofdog's picture

Yeah, but the housing crash began in 2006 and stocks didn't collapse for a full two years later. In fact, as housing was crashing, the stock market and housing related stocks were in melt up mode... I hope we don't have another two years of this delusional mania...

Thu, 04/11/2013 - 09:48 | 3435993 therearetoomany...
therearetoomanyidiots's picture

Americans know what's going on here.

"Buy Buy Buy!" - Cramer

Thu, 04/11/2013 - 09:59 | 3436029 tecno242
tecno242's picture

This time it really is different though.

This is not what I would called irrational exhuberence.  Who is exhuberent about this situation?  I don't see a ton of pumpers around or teenagers throwing their allowance into stocks.

This is caused by too much liquidity and the fact that there are very few places to get a return.

A return that is REQUIRED for a lot of fund managers that need to appease bosses and pensions that need to keep the bottom line black.

Money is simply flowing into the stock market not because people think stocks are the best thing ever... it's simply because there's a lot of money that needs to go somewhere and there's nowhere else for it to go if you need more than 1-2% return.

Thu, 04/11/2013 - 12:32 | 3436939 Thisson
Thisson's picture

That's another way of saying a lot of financial assets have to be destroyed, so that the surviving financial assets can obtain reasonable risk-adjusted returns.

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