• GoldCore
    07/30/2014 - 18:58
    “But long term...and economic law says, if you keep printing a lot of paper money, the value of the dollar and currency will go down, and things and most prices will go up and indeed gold always goes...

5 Things To Ponder: The Everything Boom

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

Earlier this week I posted an article discussing signs of "market exuberance" which including a link to a Neil Irwin, NYT, article entitled "Welcome To The Everything Boom." The article is well worth reading, but Neil asks the right questions.

"'We’re in a world where there are very few unambiguously cheap assets,' said Russ Koesterich, chief investment strategist at BlackRock. 'If you ask me to give you the one big bargain out there, I’m not sure there is one.'

 

But frustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next. How long will this low-return environment last? And what risks are being created that might be realized only if and when the Everything Boom ends?"

This weekend's reading list of "5 Things" is a point/counter point focused on this central idea of the "everything boom." Bubbles are a very interesting phenomenon. When "bubbles" are seen they do not exist, when disbelieved they burst.

Therefore, is the "everything boom" a realization of economic nirvana, or is it the next financial "bubble" quietly waiting to be ignored so that it "pop?"

1) Another Sign The Bull Market Is Nearing Its End? By Mark Hulbert via WSJ MarketWatch

"Here’s another sign the bull market in stocks may be nearing an end: Companies have dramatically reduced share repurchases.

 

New stock buybacks fell to $23.2 billion in June, the lowest level in a year and a half, according to fund tracker TrimTabs Investment Research. In May, the total was just $24.8 billion, and the monthly average in 2013 was $56 billion.

 

That’s worrisome, according to TrimTabs CEO David Santschi, because 'buyback volume has a high positive correlation with stock prices.'”

Hulbert-StockBuybacks-071114

READ ALSO: The Only Buyer Of US Stocks Left... by Joshua Brown

2) The Muddled Truths About The Market by John Kimelman via Barron's

 "If you're thoroughly confused about whether stocks are cheap or expensive, you're in good company.

 

Another topic that resembles a Rorschach diagram, rather than a clear set of facts, is market sentiment. Though a low VIX suggests that investors have grown complacent and fearless, other investors and pundits take solace from the fact that fund flow data suggest that investors still haven't fully bought into the notion that stocks are great."

 3) Market Bubble? Not Even Close by John Gustafson via Minyanville

"Global stock and bond markets all seem to be acting in a manner that's almost exactly the opposite of what you'd expect if you were paying attention to the media. Every article, talking head, and investor letter has been preaching caution for the past six to 12 or more months. However, the flow of money continues to be toward investing, not saving. It isn't the same as 2006 or 1999, where all you heard was cheerleading and exuberance toward anything and everything rising.

 

Currently, we all recall the burn marks from 2008, which seems to be keeping a lid on the enthusiasm.

 

There are no big, flashy warning signs that we saw prior to the last big falls -- probably because there are still so many things wrong economically and politically around the globe to forestall such overconfidence."

4) Artificially High Asset Prices by Gavyn Davies via Financial Times

"In a full macroeconomic equilibrium, this is clearly impossible, since all markets must clear simultaneously, now and in the future. But New Keynesian models might not allow for excessive risk-taking in the financial markets, because they usually do not contain a fully developed financial sector. Furthermore, the interest rate that is appropriate for the US might not be appropriate for the world as a whole. Extensions of Wicksell’s theory, outlined by Claudio Borio, the head of economics at the BIS (most recently here with Piti Disyatat), are based on this assumption.

 

Borio is essentially arguing that the Fed is underestimating the true natural interest rate in the global economy. He says that credit bubbles can develop, along with excessively high asset prices, if interest rates remain at present levels. On this view, the banking and shadow banking sectors can take on a life of their own, in the context of a long-term financial cycle driven by rising risk appetites among borrowers and lenders.

 

The resulting increase in credit and debt may not give any inflationary signals to the central bank. It could instead be felt in the demand for financial assets, in which case the price of assets may rise, without any immediate effect on the real economy or inflation."

5) Is The Fed Going To Attempt A Controlled Collapse by NotQuant.com via Zero Hedge

"As most Fed watchers know, last week was interesting because Janet Yellen, speaking at IMF came out and said something quite surprising.  In a nutshell, she said, 'It’s not the Fed’s job to pop bubbles.' While many market participants immediately took this to mean, 'To the moon, Alice!' and started buying equities hand over fist, there’s another possible explanation for Mrs. Yellen’s proclamation of unwillingness: The Fed could be preparing to do exactly what it said it wouldn’t.

 

 So just maybe the Fed fully intends on heeding the advice of the BIS, and is strategically positioning itself as a stalwart dove to shield itself from the public fallout of its orchestrated financial calamity. A particularly sound play from a political perspective in the event that things don’t go as smoothly as planned.

 

 One thing is certain at this point:  An intentionally orchestrated crash is the direct recommendation of the BIS, per its annual report.   That this action exists as a potential policy measure is now confirmed."

 


 Do I think there is an asset bubble? It's quite probable when considering the current extremely low yield spreads between "quality" and "junk" assets. 

However, let me pose another idea. What if "bubbles" really aren't about asset valuations, volatility or price levels? Rather, what if they are all about "psychology" instead. If we look back in history, we can clearly see that valuations in 2007 were substantially lower than in 2000, yet the markets crashed anyway. The same is true for 1929 which was even lower still. 

Yet, what all "bubbles" have in common is a "psychological" factor. A "belief" that the current trend, either positive or negative, will not end. It is at during these times that "everyone is on the same side of the boat" and what causes the rapid deflation is the rush to the other side. 

In other words, whatever "trigger event" occurs that creates a "rush for exits" will have nothing to do with fundamentals, valuations, volatility, or prices. It will be a psychological "panic" that spreads through the financial markets like a pandemic which causes financial instability, increases volatility and destroys prices.

For now, there is no visible sign that the current bullish trend is ending. However, when it does, questions will be asked, fingers pointed, and blame laid. The answer will simply be; "no one could have seen it coming."

"If everyone is thinking alike, then no one is thinking." Benjamin Franklin

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Fri, 07/11/2014 - 16:43 | 4948275 Thomas
Thomas's picture

"More people have died reaching for yield than at the point of a gun." --unknown author--

"When an asset class is owned to avoid career risk, it is time to sell that asset class." --Me--

The most hated asset right now is cash. As they say in the exorcist, "It burns."

Fri, 07/11/2014 - 17:01 | 4948326 negative rates
negative rates's picture

What goes up, must come down.

Fri, 07/11/2014 - 17:18 | 4948374 syntaxterror
syntaxterror's picture

Except for the dollar, which is rapidly approaching ZERO. The everything boom is obama-speak for hyperinflation by the way.

Fri, 07/11/2014 - 17:21 | 4948388 Thomas
Thomas's picture

I don't think it is just psychology. Bubbles are asset appreciation pulled forward in bulk quantity. If you go all John Hussman and normalize valuations, monetary policy, bond yields, and everything else under the sun that has been driven into the land of bestiality, I think you find that the regression  to the norm is ugly and regression through the norm--I'm avoiding mean--gets fugly. 

Fri, 07/11/2014 - 16:42 | 4948283 Gringo Viejo
Gringo Viejo's picture

I'm not into pondering. I've been known to muse now and then. But pondering? Never cared for it.

Fri, 07/11/2014 - 16:46 | 4948294 Atomizer
Atomizer's picture

Hide under your wooden desk, you remember the drill.

Fri, 07/11/2014 - 16:46 | 4948296 AccreditedEYE
AccreditedEYE's picture

This guy again? Listen friend, why don't you have a scotch, short some Vol, use proceeds to leverage long QLD and rake in the Greenbacks? You worry way too much man.

Fri, 07/11/2014 - 16:54 | 4948307 Black Forest
Black Forest's picture

Can you tell me how to get rid of my CNYK puts?

Fri, 07/11/2014 - 19:52 | 4948770 AccreditedEYE
AccreditedEYE's picture

Courtesy bid, when the time is right.

Fri, 07/11/2014 - 16:51 | 4948303 samuraitrader
samuraitrader's picture

it is all psychological. investors, speculators and traders do not trade the markets, they trade their BELIEFS about the markets. and there is a lot of emotion in those beliefs which is why I laugh when I see someone post something about "removing the emotion." sorry, you are a human, not a vulcan.

right now there are too many people on one side of the boat. I am on the other.

"It takes character to sit there with all that cash and do nothing. I didn't get to where I am today by going after mediocre opportunities." - Charlie T Munger

Fri, 07/11/2014 - 17:04 | 4948336 ChanceIs
ChanceIs's picture

Gotta be careful quoting Ol Charlie.  I mean...the guy is right.  Be he also said......'Gold is for 1930s Jews to sew in the sams of their garments when fleeing Austria,' or words to that effect.

The guy has lost it - both in respect to the role of gold, and what not to say in public.  I mean....I LOATH political correctness and believe in the First Amendment - but I wouldn't say (or think) of making a joke about the Holocaust.

 

Fri, 07/11/2014 - 17:37 | 4948426 jaxville
jaxville's picture

Why be concerned about that? It's just a fairy tale reinforced with cheap hollywood drama and the force of law in many countries. When an aspect of "alleged" history becomes illegal to question or to make public FACTS contradicticting it then anyone with a few ounces of grey between their ears who can think for themselves know it's all a big load of BS.

  You are right though about it not being a joking matter. It is very sad how so many have been persecuted for exposing that fraud.

Fri, 07/11/2014 - 16:58 | 4948320 ChanceIs
ChanceIs's picture

Bubbles?

Inflation?

Booms?

Somebody help me out here.  I have a graduate degree in engineering, and I can't do the math.  This article says that the cost of the Costa Concordia loss will exceed $2 billion.  (It is scheduled to be refloated Monday.):

http://www.tradewindsnews.com/weekly/340755/Costa-Concordia-claim-climbs...

but his Wiki states that the population of Giglio Island - the wreck site is 1,500:

http://en.wikipedia.org/wiki/Isola_del_Giglio

So here we go - I learned to do this type of arithemitic in astrophysics.  2 billion is 2 x 10^9.  1,500 is 1.5 x 10 ^ 3.  So to get dollars per person, we divide the first by the second and subtract the exponents, equivalently 2/1.5 x 10 ^ 6.  Forget the 2/1.5.  Lets focus on the 10 ^ 6.  That would be one mi$$ion.  Like dude...pinch me...like they are spending $1 million per resident to remove the wreck!?!?!  I mean....WTF!!!!!

Is this a boom in stupidity or whaaaaaaaat?  Like Dudes. Take the $1 million per, screw the environment, and chare $100 per head for all of the wreck divers who come from all over the world for some scubaa diving.

Like am I nuts???  It has been a long week.  I mean...the arithemetic is corrct.  $1 million per head.  WTF????????

 

Fri, 07/11/2014 - 17:29 | 4948407 max2205
max2205's picture

It's insurance money.....not for public consumption

Fri, 07/11/2014 - 17:37 | 4948422 NOTaREALmerican
NOTaREALmerican's picture

I don't know what they teach you guys about math in engineering, but when dealing with money you've ALWAYS got the factor in bullshit.

1st law of bullshit:  Anything + bullshit -> $ ^ bullshit.

So, using the Costa Concordia.

Sunk boat + bullshit  ->  Lots more loot for the bullshitters + 1 refloated boat.

 

There are two paths to prosperity in college.   The introverts (and semi-autistic) learn about science, the extrovets (and sociopaths) learn about bullshit.

Sorry, you just got the wrong kinda brain.

Fri, 07/11/2014 - 17:03 | 4948331 seek
seek's picture

The shame about this is, I think the (possibly well intentioned, but the jury is out) plan on the Fed's side was to have a low return environment so the banks could skim more of the interest for themselves to recapitalize. So, plan is: banks fuck up in '08, Fed covers their asses and creates environment where the banks can take all the income, and the banks should be going "whew, you saved our ass, Fed, we'll get recapitalized and never do this again."

Instead it's "wheee, making money is easy! Let do some more of this!" And you get this shitshow of a market (for anything) everywhere on the planet while people dependent on investment income slowly drain their capital and start starving, at which points the banks will realize without real world capital they're holding nothing of any value themselves and it all collapses into a pile of dust.

Fri, 07/11/2014 - 17:31 | 4948414 cougar_w
cougar_w's picture

It seems insane unless you think in terms of The Fed buying time.

You don't even have to know what they were buying time against, or toward what end.

Buying time.

I happen to think I know what they are running from. Or I might have it wrong and it might even be a complex thing, covering all kinds of exits, that they are trying to outrun. The mixed messages we keep getting make me suspect the latter; they have to jump in different directions depending on wher the monster pops up.

But they are running regardless -- and buying time.

Sat, 07/12/2014 - 00:08 | 4949308 Cthonic
Cthonic's picture

Was there ever a second tulip bulb mania? Did the world ever want to go back to the pound? Will there ever be another FRN denominated financial asset mania?  That's what they are running from, the end of the current locus of global financial hegemony, the Fed.

Fri, 07/11/2014 - 17:42 | 4948445 NOTaREALmerican
NOTaREALmerican's picture

Re:  possibly well intentioned

The nice people can never comprehend the winning sociopaths behavior.    We'd have a completely different society, and entire human history, if they did.  

Fri, 07/11/2014 - 18:00 | 4948491 seek
seek's picture

Hence the hedging language. Ultimately I think there's a mix of sociopaths and people who mean well (but are easily manipulated or believe in non-Austrian economics) within the Fed. Good luck figuring out which is which when both make decisions that send the economy to its doom.

Fri, 07/11/2014 - 18:15 | 4948517 Ariadne
Ariadne's picture

I think the amerindians comprehend it now, and we better heed the lesson PDQ.

Fri, 07/11/2014 - 20:56 | 4948881 lotsoffun
lotsoffun's picture

i gave seek an up arrow for his positive thoughts about the fed.  but - the reality is, the BANKS OWN THE FED.  and jamie and lloyd don't want to see their bonus go down.  only up.  their is nothing altruisitc in the banks ceo's or the fed, and their is nothing non-parasitic about it (at this point).  the greed factor in these guys is too high.

wealth transfer, plain and simple.  during most of the history of mankind, some guys with weapons showed up in your village, town or city an made and attempt to take, with force, for 'free' (excepting their risk at losing their lives) everything you had.

(vikings were outstanding because they had discovered steel, with which with many less man, they could stand up against those with iron weapons).

so unless you had better weapons, or a lot of men with lessor weapons, but more men, your goods became theirs.

the banksters, took centuries to figure it out, but, they don't need steel to steal anymore.  and the sheeple do not understand what is going on.  and, they don't have to show their faces anywhere and confront actual possible bodily injure, let alone any legal or financial damage  (hello jonnie corzine).

your money, in your digital bank account into theirs.  it works, it's working and it won't stop until somebody pulls out the steel again.

sorry, it's ugly - but that's the way it is.

and i do appreciate the civility of the people that hope and change and pray for things like bitcoin to prevent the steel, but - it's not going to work.

amen.  no sarcasm.

 update.  please.  think about this.  the biggest news today.  lebron james signed with cleveland. 

the news is awash with people that 'luv' this.

does this help teach my children how to read?  did that create REAL jobs - besides maybe more ticket takers and his drivers?  did that go to R&D for health care?

the city of cleveland is so sick that having basketball players sell more ticket to the arena results in REAL positive value to the community?

i can't even think how to express.  is this person -  isaac newton, ben franklin, thomas edison, george washington carver, socrates, descartes, madame curie, jonas salk?  except for generating t.v. revenue for cnn - has he done anything positive besides selling tickets to arenas and nikes to people that can't read or write or hold a job?

all he does his help the bernacke's kill people's intelligence so they can continue to have their hand in you pocket and make you a dependent on them until you having nothing left and have to bend to their every whim, which is to increase their wealth at your expense, until you drop dead.  (until after living a miserable life).

good luck with all that - because - that is where we are.  and we export it, which is worse.

 

 

 

Fri, 07/11/2014 - 17:23 | 4948393 Ariadne
Ariadne's picture

The cheap assets are the stuff I stocked up on in years past. Invest on the trend line of the chronosynclastic infundibulum.

Fri, 07/11/2014 - 17:32 | 4948416 Carpenter1
Carpenter1's picture

Cheap assets are never on the radar of the status quo investor. If so, bubbles wouldn't happen cause they would not buy 26P/E stocks. But they do, over and over

Fri, 07/11/2014 - 18:02 | 4948494 ShrNfr
ShrNfr's picture

Bubbles will always form when the prevailing attiude is that there will be a "greater sucker" willing to relieve you of the asset at an increased price. At some point, you always run out of new suckers. Depending on how great the "sucker margin" was, there then is a new "unbubble" to exit your assets at the highest lower price that a "greater sucker" will pay. When you run out of new suckers, the collapse is complete. Rinse, repeat.

 

The challenge is to always be the "sucker" who enters at the lowest price and exits at the highest one.

Fri, 07/11/2014 - 18:02 | 4948497 gdiamond22
gdiamond22's picture

Bull Market. Global capital is infiltrating our borders like illegal immigrants. The world (and the US) is awash in negative news in all facets of civil society, but the US I the last beacon of hope. This bubble will last for longer than you (and I) will like. Rather than predict, prepare.

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