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5 Things To Ponder This Weekend
Submitted by Lance Roberts of STA Wealth Management,
It is hard to believe that the end of the year is fast approaching. This weekend's list of things to ponder covers a range of issues that caught my attention as I prepare to write my annual outlook for 2014. Will the economy continue to grow, are stocks under owned, what about Fed, rising credit risk and the question of "when or if to taper?" These are all important questions that all investors must answer as the new year rapidly approaches.
1) Only 20% of Economic Expansions Have Lasted Longer via Zero Hedge
With the duration of the current bull market now the 4th longest in history, we thought it worth noting just how unusual this business cycle has been. As the following chart shows, the current 'expansion' has lasted longer than 80% of all the 33 previous NBER expansionary periods. Of course, given projections from Wall Street to the Fed, there will never be another recession (by decree) ever again...
2) Howard Marks: Stocks Are Under Owned via Advisor Perspectives
In last week's "Things To Ponder" I shared various viewpoints discussing the potential market bubble. This week I also discussed why, due to the Fed's ongoing monetary interventions, that stocks could conceivably rally another 30% from current levels.
Robert Huebscher has an excellent interview with Howard Marks covering a wide range of topics that are worth an entire read. Importantly, Howard discusses his views on why stocks could rise from current levels.
"I wrote a memo February or March called the Outlook for Equities and I enumerated the pros and cons. I found roughly six pros and eight cons. The trouble is that you cannot put them on a scale and figure out how to weight them. You have to decide which factors you consider more important. Just like so many other things in this interview we have been talking about, the confidence in equities had swung to the negative. In 2000, everybody would have said equities would give you 11%; they would have been unanimous in that. Now everybody says 6% or 7%.
What changed? The only thing that changed is that the companies doubled their earnings and the P/E ratio went in half.
To put it simply, I still think equities are under-owned institutionally and under-loved, and I like to buy assets like that.
Obviously it is a little less true today, but money has to go someplace. Where is it going to go? I don’t think it is going to go into bonds. You can only put so much into real estate, private equity, or hedge funds. If you put it in hedge funds, they will buy stocks anyway. So it bodes well for the stock market.
But, now the stock market is back to fully or fairly priced, at a P/E ratio of 16 or 17. They are not giving them away. But, I keep going back to what would you rather buy? I am not shilling for stocks because we are not in the equity business. But with bonds at these artificially low interest rates, stocks are less bad. Note that I did not say 'good.'"
3) Corporate Credit Markets Back To Frothy Levels via Sober Look
One of the major side effects of the ongoing interventions by the Federal Reserve has been a rise in complacency with regard to investment risk. That complacency, combined with the artificial suppression of interest rates to historically low levels, has led to a "chase for yield" in potentially some of the most dangerous places like the "high yield" (a much more marketable term than "junk") credit market. Walter Kurtz noted:
"All of a sudden we find ourselves back in the frothy corporate credit environment that existed before the Fed struck a more hawkish tone in May (see discussion)."
"Perhaps some of the more publicized signs of corporate credit markets overheating have been the loosened underwriting standards in the syndicated loan market. The so-called 'cov-lite' loans often limit the lenders’ ability to take corrective action with the borrower when a company takes a turn for the worse. And the number of such deals has reached new highs.
Just as in the past, eventually someone will be suing the banks for selling these products. We will hear institutional investors testifying in court on how they were mislead by unscrupulous bankers about the 'hidden' risks. And some shareholders will be complaining about the amount of leverage the lenders put on the company. Everyone will all of a sudden develop amnesia about how these assets ended up in their portfolios in the first place. And those with capital and the ability to work out distressed situations will make a fortune.
For now, however, investors don’t seem to care – as long as it’s rated corporate credit it’s got to be good. It’s not 2006 quite yet, but we are certainly moving in that direction."
4) The Fed Is Desperate To Taper via Tim Duy
I wrote this past week that I remain convinced that the Federal Reserve likely will not be able to taper any time soon due to a weakening economic environment. That problem will likely be exacerbated next year by the impact of the Affordable Care Act. As I stated:
"While there is much talk about the Federal Reserve potentially 'tapering' their purchases as early as 2014, the rising wave of deflationary pressures, both domestic and abroad, will likely keep the Federal Reserve engaged longer than currently believed."
Tim Duy laid out a similar case with a twist which is that the Fed may be forced to "taper" despite the data.
"Interestingly, one of the costs of quantitative easing seems to be the inability to exit quantitative easing. This was revealed in today's bond market sell-off after the minutes were released. Despite the Fed's repeated efforts to use forward guidance to hold down rates, despite repeated reassurances that tapering is not tightening, Treasury yields gain almost 10 basis points at the 10 year horizon on even a whisper of tapering - and this after Bernanke's dovish speech and Vice Chair Janet Yellen's (perceived) dovish Senate hearing last week. Fine tuning policy with a tool of uncertain force is something of a challenge. Sufficient faith in an alternative tool would help clear the way for tapering despite this uncertainty, but after reading these minutes, I am somewhat concerned such faith is lacking.
Bottom Line: Clear evidence of the space we have been in for months. The Fed wants to taper, and is becoming increasingly nervous they will need to pull the trigger on that option before the data allows. That means that tapering is not data dependent. That means the policy deck is stacked with at least one wild card. And that sounds like a recipe for the kind of volatility the Fed is looking to avoid."
If Tim is correct, then this could be extremely disruptive to the financial markets.
5) Fed Efforts To Boost Growth Dangerous But Necessary via Wall Street Journal
Interesting discussion by Stanley Fischer, former governor of the Bank of Israel and Glenn Hubbard, chairman of the Council of Economic Advisors under Bush, discussing that the Federal Reserve's policy responses to the financial crisis were correct at the time. However, their early actions may have become a dangerous addiction.
But Mr. Hubbard is unsure if the current bond-buying program is having much positive effect on the economy, saying it does create the risk of asset bubbles.
He lays the blame on the government rather than Fed policy makers.
'The problem is not the Federal Reserve, the problem has been the government,' said Mr. Hubbard, the dean of the Columbia Business School. Rather than buying $85 billion a month in securities, the more appropriate policy response would have been a big government investment in infrastructure and other needs, he said.
Congress, which would need to approve that type of investment, has instead moved to curtail government spending in the past year.
Stanley Fischer, former governor of the Bank of Israel, agrees that the Fed's early action helped avoid an even deeper crisis. He added that the Fed can successfully unwind its stimulus programs.
'Everyone knows now about asset prices and presumably they'll take that into account and moderate policy accordingly,' he said. The Fed's actions were 'dangerous, but necessary.'"
Just For Fun - Stupid Things That Finance People Say via Morgan Housel/Motley Fool
Morgan Housel recently wrote a fantastic list of things that are consistently thrown out on the financial media that, upon reflection, is quite foolish. The whole list is worth reading but here a couple that I thought should have been included:
"[Portfolio Manager On TV] It's Time To Buy"
Sure it is. Of course, they told you the same thing in 2001, 2002 and 2008.
"We Have A Buy Rating On That Stock"
Of course, you do. You also have a buy rating on every other stock that you underwrite for a fee.
"Operating and Pro-forma Earnings"
When you can't report GAAP earnings because you will miss estimates - fudge it with accounting gimmicks.
"Stocks Are Cheap Based On Forward Estimates"
True, of course forward estimates are achieved just about as often as "unicorn sightings"
Well you get the idea and Morgan's list is well worth a read.
Have a great weekend.
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there should not be a "weekend". it's weakness.
Come visit us on Bitcoin, where the party never ends. (Until the most recent bubble pops!)
http://bestbitcoinsites.wordpress.com
pondering how birds appear in court and win lawsuits against corporations
http://www.wunderground.com/news/wind-energy-company-pleads-guilty-eagle...
Also on the ponder list for the weekend, if you should so desire: healthcare.gov as an identity theft machine, with exclusive info unearthed from a primary source by yours truly.
http://thebullelephant.com/healthcare-gov-is-an-identity-theft-machine/
Nothing wrong with that at all.
If I was a life or disability insurer, I'd certainly pay top dollar to anyone who could produce verified medical records of the putative insured parties.
If a person claiming a benefit was found to be engaging in unsafe lifestyle practices (such as regularly purchasing cigarettes, alchohol, or unhealthy food products (McD, KFC, etc), then I as an insurer would sure want to know about it!
I don't know what your problem is - no bennies for fatties, cheaper premia for the rest of us!
Reap what you sow!
Why are Bitcoiners always right?
Well, the birds are real, not fictions like corporations.
"Well, the birds are real, not fictions like corporations or courts"
exactly!
+100
plus the birds pay taxes and vote. unlike etc etc.
and write laws. unlike etc etc.
kabuki birds.
Oh, the baby's just crying, kushmere.
Wait 'til it's a big strong boy.
Forward estimates...lol...its as stupid a metric as it gets.
"Hey look, who could have ever expected our exceptionally well engineered and highly sought after cars would ignite into a flaming ball of death when the airbag deploys? Our "team" is working around the clock to figure out who supplied these defective airbags!"
Yeah.
no one is nmwewn to a fireball
You funny Dr jones!
Man, I almost bought it.
That was a close one, Tyler...
-this announcement brought to you by People(?) for a Bigger Gov't. moar Regulations, and Fake Money... (POAR)
One thing to Ponder this weekend is how to get over the shame of losing to the Vikings. :(
don't Vikings generally kill all the males then ass rape all the women, take the goats, burn the buildings then ass rape your women again??
you're a long way from home little friend, make believe with a synthetic rubber ball and large men in tights is more a homo erotic thing than anything else.... real vikings eat babies and fuck your wife till dead,
get over it
Probably confusing the Vikings (red hair, full-on manly red beards) with the Maoris (black hair, sporadic black beards, cannibals).
Just sayin'
The maori's have casinos now, don't they?
Maoris would have got on pretty well with vikings actually I reckon.
Similar tribal culture and even mythologies.
They would have had some fuckin awesome fights too.
The Maori would only ass rape your mother if she asked nicely I think. Fuck stick.
Guess people here don't watch football.. :)
Challenges are good. Was this chap a financier? a Economic maestro? A wallstreet criminal (sorry for the redundancy)?
I hope he wasn't just a playwrite. No only financial mucky mucks count in the world...
sarc
"pro forma earnings." those were the days. there's no way we get a "reprise." in other words good luck recreating the three one trillion dollar securitization markets that Alan Greenspan deemed appropriate for total annihilation...and did indeed do so i might add. Everything else has gone pretty much per the Paulson Plan (react--to the liquidity crisis, replensish--via TARP, TALF, cash for clunkers, first time home buyer credit, HAMP, HARP...never did get my "bikini beach volleyball on the moon" though), restore (QEternal)...but not those things. Since so much credit is extended in...ahem..."modern banking"...well, let's just say "recovery risk looms large." the Bank of North Dakota appears to have solved the "demand for credit problem." via "massive oil production, double digit economic growth and 2 percent unemployment" i might add. for everyone else? ooops. sorry!
No need to ponder. If Hugh Hendry was forced to participate due to Bankster fraud the end is nigh. Man they are going to put the crash on, break the markets, let the panic spread and buy that shit up pennies on the dollar. That's the way they do it. They are banksters. That's what banksters do.
break it, buy it, fix it, sell it
break it again, buy it again, fix it again, sell it again, break it...
TPTB have that process down pat.
TPTB r TBTF.
Teach your kids how to do that. Teach your grandkids how to do that...
and build up a multi-millenial Family Dynasty
(be the 1%).
@TBTF_r_TBTF
Would this scheme be possible without money? Most (All?) of our macro-economic problems are the result of money maniulation (He who controls the money supply....). Most people have focused on money reforms as the solution. If money is the problem, we should at least begin contemplating a world without money as one possible option.
Oh, for the love of money! Sell your soul to the rentiers!
> we should at least begin contemplating ...
except, "we" have no say in the matter.
"They" will provide any necessary monetary reform.
btw, the neg is not from me...
+1 for contemplating.
If your stock market returns exceed fundamental values for more than four months, call your doctor. You may have a medical condition known as The Bernanke.
Someone just made a $147,239,214 Bitcoin transfer (blockchain.info)
https://news.ycombinator.com/item?id=6782290
http://www.fromthetrenchesworldreport.com/a-drones-view-from-3-miles-up/...
Its not your dads america anymore
@max2205
Thx for the clip. Can't wait for the solar-powered high-altitude drone that stays aloft for years. Why is it that people will pay upwards of $10 for a movie ticket to see a plot similar to what's happening in real life, but the vast majority of people could care less about the reality that the surveillance/police state is tightening its grip every day? Oh, and about that movie - better if it's in 3-D to simulate the reality that we're trying to ignore.
cursive, my wife loves to read...but when i tell her the greatest story ever told is happening now, i get the , meh....
@smlbizman
I thought the greatest story ever told was about two thous - oh, nevermind.... :D
Well, here it is, folks. Glenn Hubbard is widely considered a "conservative" from the Chicago School/Milton Freidman mold (think laissez-faire markets and/or limited government). In other words, not a big government Adlai-Stevenson-type liberal. And here is what he believes should have happened post-2009. Is there any doubt that people like Glenn Hubbard are nothing but useful idiots for the international cabal of rentiers that suck the wealth and vitality from the rest of the populace?
Bitcoin $ 2000 by year end?
Today $ 900 ---
Realtime quotes and news:
http://btcpost.net/index.php
Ponder this (pointing at crotch)
Stocks have reached a permanently high plateau.....
Sarc
1) what happens when the money supply shrinks (real deleveraging)?
2) what happens when POTUS leaves office early?
3) what happens when the forever war ends (and government spending contracts)?
4) what happens when noncompliance of the ACA act is revealed to be higher than the flipside of Obamas approval rating?
5) what happens when world population peaks, and those fibonacci (economic) numbers reverse, as the number of new consumers being born to shop, goes parabollically lower?
" But, now the stock market is back to fully or fairly priced, at a P/E ratio of 16 or 17."
A recent posting said CAPE is a 24 P/E.
"Stanley Fischer, former governor of the Bank of Israel, agrees that the Fed's early action helped avoid an even deeper crisis. He added that the Fed can successfully unwind its stimulus programs."
The FED's actions are deepening the crisis. Math is additive. More debt is piling up.
Apparently Fischer would rather have chronic 10% real unemployment, than seen unemployment jump to 15% or so with real unemployment being down to 6%now, with the market having been cleared in 2009.
Worse then would have been much better for now. Fischer should study the 1921 recession and its aftermath.
'The problem is not the Federal Reserve, the problem has been the government,' said Mr. Hubbard, the dean of the Columbia Business School. Rather than buying $85 billion a month in securities, the more appropriate policy response would have been a big government investment in infrastructure and other needs, he said."
Infrastructure would have required debt. The FED would still be buying 85 billion a month in securities.
"Congress, which would need to approve that type of investment, has instead moved to curtail government spending in the past year."
That is becasue debt is piling up to total 17 trillion to date.
Just wait to see the market's reaction when they increase QE and buy other assets, like stocks and bitcoins.
Nothing But Trouble: "Mr. Bonestripper"
http://www.youtube.com/watch?v=enUo-1TjdEs (2:39)
6th thing to ponder: debt-ceiling kabuki returns for the last time again! It's gonna get rave reviews again (or is it electrolytes?)
Show me 1 share of stock anywhere that is not owned. What the heck does underowned mean to some people?
Investors have little or no control over any of the points mentioned. It is simply que sera,sera. These matters will be handled those geniuses in residence in DC. Obama the omniscient. Getting really drunk won't help but you will not have to think about your fate for a while.