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5 Things To Ponder: The More Things Change

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

"Ah, is it just me or does anybody see
The new improved tomorrow isn't what it used to be
Yesterday keeps comin' 'round, it's just reality
It's the same damn song with a different melody

 

The market keeps on crashin'
Tattered jeans are back in fashion
'Stead of records, now it's MP3s
I tell you one more time with feeling
Even though this world is reeling
You're still you and I'm still me
I didn't mean to cause a scene
But I guess it's time to roll up our sleeves

 

The more things change, the more they stay the same."

 

Bon Jovi

This week's "Things To Ponder" is focused on things that, in my opinion, far too many individuals are ignoring. Bob Farrell once wrote that "when all experts and forecasts agree; something else is bound to happen." Today, that is the case as much as it ever was. Despite rising geopolitical risks, weak economic data, deteriorating fundamentals and softer internals - the overwhelming belief is "equities are the only game in town."

Of course, we have seen this mentality many times in past history whether it was 1929, 1987,2000 or 2007. While ever market peak was different, there were all the same. 

Once portfolios are invested, riding the "bull market" wave is the easy part. What the majority of analysts and media forget is that as an investor I do not need information telling me why the market is going up. I am already invested. What I need is information that helps me identify when the wave will crest. Today, I wanted to share some things I will be reading and thinking about over the weekend that we should at least be considering in regards to managing potential portfolio risk.

1) The Beginning Of The End Of The Bull Market? by Mark Hulbert via WSJ Marketwatch

"Few paid attention a couple of weeks ago when the government announced that corporate profitability had declined markedly last quarter.

 

Yet future historians may eventually look back and pinpoint that report as the beginning of the end of this aging bull market. That’s because the first-quarter’s decrease could signal the long-awaited return to historically average profitability levels. If so, the stock market will have to struggle mightily just to keep its head above water over the next five years.

 

Once we make these assumptions, calculating the stock market’s return over the next five years becomes a matter of simple math. The picture isn’t pretty: Its five-year return, annualized, is minus 2.8%."

Corporate-Profits-062714

2) Ultra-Easy Monetary Policy Could Be The Medicine That Kills by Katy Barnato via CNBC

"'Monetary accommodation, to the point of ignoring the stresses and strains of financial stability and what they mean for asset markets and credit markets, is something that needs to be seriously rethought,' the Stephen Roach, Yale lecturer and former chairman of Morgan Stanley Asia told CNBC.

 

'As long as the Fed remains as widely accommodative as a $4.25-4.50 trillion dollar-balance sheet would suggest, there is good reason to question the Fed's commitment to financial stability and there is good reason to believe that we could, in the not too distant future, find ourselves in another mess'"

This concern echoed that of Wilbur Ross, who is also concerned of the potential "bubble" in sovereign debt.

"I've felt for some time that the ultimate bubble, when we look back a few years from now, is going to be sovereign debt, both U.S. and other, because it's way below any sort of reversion to the mean of interest rates,"

3) What We Can Learn From The History Of Interest Rates by Market Anthropology

"We believe that where a complicated market becomes even more so, is when one considers  1.) the relative extreme in yields that was reached at the end of last year, 2.) the uniqueness of the capital markets relative to what the Fed has provided over the past five years; and 3.) the rear-view proximity, density and casualties in participants memories to the spectrum of financial bubbles and crises from LTCM to GFC."

Market-Anthropology-062714

"Although a contraction in the US equity markets has so far failed to materialize, we do expect one to gain traction as the Fed steps further away from their extraordinary measures this fall. Similar to expectations in the mid to late 1940's, we anticipate that investors will continue to support the Treasury market even in the face of inflation - as the broader underlying skepticism of their collective anxieties will finally be realized when equity market conditions pivot lower without extraneous assistance."

4) Q2 Buyback Announcements Lowest In 7 Quarters by Cullen Roche via Pragmatic Capitalist

"'Stock buyback announcements in the second quarter are on track to be the lowest in seven quarters,' said David Santschi, Chief Executive Officer of TrimTabs.  'Buybacks in June have sunk to just $11.5 billion, the lowest level since May 2012.'

 

'The sharp slowdown in buybacks is a negative sign for the U.S. stock market,' Santschi said.  'Share repurchases are the main way companies reduce the float of shares. Perhaps fewer companies like what they see when they look into the future.'

 

TrimTabs explained that the decline in buybacks is not the only cautionary sign for U.S. equity investors. Merger activity has skyrocketed, while companies are selling new shares at the fastest pace since last autumn. 'Our liquidity indicators aren’t as positive for U.S. equities as they were a month ago,' said Santschi.  'While the bull market isn’t necessarily ending, investors should be more cautious on the long side.'"

Harvard-Business-Review-CEOCompensation-062714

Also Read: Why Corporate Executives Love Stock Buybacks via Harvard Business Review

 

 

5) Annotated History Of Global Volatilityvia ZeroHedge

"The decline in economic and asset market volatility this year from already low levels in 2013 has been striking, which as Markus Brunnermeier states, means 'the whole system is more prone to a financial crisis when measured volatility is low, which tends to lead to a build-up of risk in the background – the so-called 'volatility paradox'.

Zero-Hedge-HistoryOfVolatility-062714

"When measured market volatility is low, people feel empowered to take on more leverage and more liquidity mismatch, which leaves the whole system more prone to sharp movements. This dynamic occurred during the 'Great Moderation.' During that period, fundamental and asset volatility was generally low and market participants took on much more leverage."

In The "Wash, Rinse, Repeat" Category: My Credit Score Is Terrible...I'm Surprised They'd Give Me So Much Credit

 

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Fri, 06/27/2014 - 16:36 | 4903727 NOTaREALmerican
NOTaREALmerican's picture

History Shimistory,  it's all ZIRP now. 

Fri, 06/27/2014 - 16:52 | 4903787 nink
nink's picture

WTF happened the market was in the tank and I walk away for lunch and come back and someone BTFD 

Fri, 06/27/2014 - 16:40 | 4903740 TeamDepends
TeamDepends's picture

Anybody got oh, $100000000000000 to lend us?  We want to buy some stawks.

Fri, 06/27/2014 - 16:48 | 4903771 buzzsaw99
buzzsaw99's picture

What kind of a name is "Wilbur" for a man? [/mr. ed]

Fri, 06/27/2014 - 16:54 | 4903797 Duke Dog
Duke Dog's picture

Yep, but in all those other instances, you never had world governments/Central Banks owning $30 TRILLION of a $50 TRILLION market. Don't disagree with the end result but this putrid equity market could go to DOW 50,000, or higher before the nucleaur event.

I wouldn't participate in this fucked up market for any amount of money.

Fri, 06/27/2014 - 17:09 | 4903850 Jstanley011
Jstanley011's picture

While ever market peak was different, there were all the same.

Indelibly.

Fri, 06/27/2014 - 17:14 | 4903875 pakled
pakled's picture

Alt opening to the piece...

 

If the future's so bright how come I don't need shades?

 

(twisted words of an old Timbuk 3 tune)

Fri, 06/27/2014 - 18:57 | 4904180 disabledvet
disabledvet's picture

Again "the Fed is Tapering." That is not going to change until it is done. "History will be the judge of QE"...we're looking in the rear view mirror with all this Fed crap now.

I think the most important point since Lehmans utter annihilation in 2008 is "what has changed?" And my answer to that is simply "a whole friggin lot."

Before 2008 the US economy was beholden to a clique of totally insane people ("the Zionist loving phucktards" to keep it simple) and simply put "they're all dead now and America is better for it." The folks who have remade the American economy since Wall Street suicided itself are a whole new breed of folks...cutting across many different regions, industries, ideas and beliefs. Elon Musk, Harold Hamm, Jeff Bezos, the dude in charge of Netflix...these are the folks who have emerged at the top of the heap from the ashes of the catastrophic failure of the "War on Terror" which is now being both unceremoniously wound down and quite spectacularly ramped up at the same time.

In short "these were the folks who stuck to their knitting" while everyone else was losing their minds. The big winners have been North Dakota (still 2 percent unemployment) and Pittsburgh, PA. From what I've seen of my many years of cross country touring "that's about it." (Wichita is a very nice New City though...as was the very small City of Cape Giradeau.)

There's an absolutely stupendous amount of new money sloshing around the USA right now...it will go where it's treated the best.

That ain't New York (city or State), that ain't Philadelphia, Boston or LA. It ain't Atlanta or Miami or Columbus. And it sure isn't Chicago even though of all the Cities I have lived in that one was the nicest...just a totally broke place that can't produce any jobs either.

San Francisco is crazy expensive, Portland is Nice But Weird, and Seattle might be great...but right now isn't there yet.

Minneapolis/St Paul is really cool though...as is the whole State of Minnesota. I had a bad experience in Wisconsin so as much as I love the place I'd never live there.

So "there's your recovery." It's not like it's non existent...there's just no "there" there yet.

So this year we travel through the valley of death. Welcome to life folks. There is never a bad time to stake stock of the value of your life and it's puny existence. "Economies contract" and that's part of the recovery process too.

"Death" for lack of a better word.

But this isn't the Depression (by a long shot...in many ways it's worse actually) so we have a huge explosion in energy production, coal prices have collapsed, natural gas prices are well off their all time lows of 2 bucks...but have a long way to go to get back to 15. The Cloud computing has collapsed pricing wise, three dimensional printing is now in the hands of consumers, we have Teslas, we have a huge build out of wind and solar, we have the Army Corps of Engineering still "engineering" all these huge rivers and coastal regions.

And of course we have all time record low interest rates with an all out war effort going on.

"There is a 4-6% recovery in here somewhere." Just not with the dopes who got us into this mess...and who have no intention of getting anyone but themselves out of this mess.

Hitler was right about the Jews. Truman just had a better plan that's all.

Sat, 06/28/2014 - 09:23 | 4905181 AdvancingTime
AdvancingTime's picture

 It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. At some point the return on loaning money is simply not worth the risk!

 Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008.

When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants. More on this subject below.

http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...


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