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Money Manager’s Warning: ‘The Bull Move Has Lasted So Long Nobody Can See Its End’
“Here’s when US equity and bond markets will change direction,” Cali Money Man grumbled a few days ago. He is a wealth manager and has been on the job at brokerage firms and large banks through three phenomenal crashes. Unlike others, he hasn’t forgotten the craziness that led up to them.
“When investors come to fear the next Fed-talk, that’s when markets will change direction,” he said. “Now they bid up risk in advance on confidence – and afterwards on reassurance – that ZIRP will continue. But eventually they’ll focus on the start and pace of tightening. Fed-speak will assume an aura of bad news.”
And on Wednesday, there was some Fed-speak. As the minutes from the Fed’s July 29-30 policy-setting meeting were published, investors hit the sell button, just a smidgen, then changed their minds, but not much. The Dow and S&P 500 ended the day up, the Nasdaq slipped. The reaction seemed uncertain, jittery, frazzled, but finally unconcerned.
All eyes have been on the Fed for years. By now nothing else matters. And the minutes had a nasty message buried inside: the Fed was seriously debating if it should raise interest rates sooner.
Many participants noted that if convergence toward the objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated.
“Many participants.” No longer just a couple of hawks! And QE is practically history. It confirmed Fed Chair Janet Yellen’s quickly brushed-off warning in July to Congress; and it confirmed what other Fed governors have said recently: rate hikes might come sooner and be quicker than anticipated.
Alas, it took the market only about 30 minutes to decide that the FOMC minutes were backward looking and hence irrelevant. What mattered now was what would be said at the big shindig in Jackson Hole. When Yellen speaks on Friday, the pundits will vivisect her oracular pronouncements and read in between the lines to ignore what they don’t like and put in bold italics any hint that ZIRP would last forever, that in fact, the Fed couldn’t ever raise interest rates.
That’s what powers the market. Fundamentals have been obviated by the Fed.
“I was on a conference call with a group of portfolio managers,” Cali Money Man said today. “Their mood was resigned capitulation to the trend, going fully invested in order to survive. Low-risk assets pay nothing. They’re negative to clients after fees. And even worse after inflation. Yet these ‘low risk’ assets, such as high-grade bonds, face almost certain losses.”
Almost certain losses: that’s how low-risk assets are being defined today. The Fed’s new world is dripping with ironies.
ZIRP and QE, in effect since December 2008, have succeeded in creating a world where fundamentals have been surgically separated from valuations, where “low risk” assets produce almost certain losses, and where everyone has to pile into high-risk bets just to overcome fees and inflation, with a good chance of losing a big part of the investment down the road.
And these “principal-agent dynamics,” as Cali Money Man calls them, boil down to one hyper-ironic strategy: take on risk to survive. That strategy, when multiplied by a million times around the world, drives markets even higher.
“The bull move has lasted so long – despite weak macro fundamentals, despite its mysterious origins – that nobody can see its end,” he said. “We’re like observers on June 24, 1812, watching Napoleon’s Grand Army march off to Russia, with its victory certain.”
And so, one after the other, portfolio managers who have been bearish based on how they saw the fundamentals and other factors capitulate; they can no longer believe their former views. “This is the essence of a one-sided market,” Cali Money Man said. “Oddly, the third one of our generation.”
But one-sided markets invariably tip over. It’s just a question of when. And how violently. Cali Money Man added pensively: “I wonder how many of us will be at our desks four years from now.”
But not everyone is bullish on US securities. The report by the US Treasury – released on Friday when everyone was on vacation or getting ready to head out of town, and when no one was supposed to pay attention – was a zinger: US net capital outflows soared to $153.5 billion, the largest ever recorded. Read…. Foreigners Dump Record Amount of US Securities, But Who the Heck Is Still Buying?
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Sometimes the old guys who have seen it all have the most perspective and the guts to speak up because they have less to lose. What I like about numbers is that when they are not jockeyed, jerked around, and falsified they tend to tell the truth. Looking down the road the numbers do not work.
Allen H Meltzer is viewed by many economist as America’s foremost expert in monetary policy, Meltzer is the author of the three-volume “A History of the Federal Reserve.” For over 25 years he was the chair of the Shadow Open Market Committee, a group that meets regularly to discuss the policy of the Federal Reserve. “We’re in the biggest mess we’ve been in since the 1930s,” he recently stated. “We’ve never had a more problematic future.” More on his thoughts in the article below.
http://brucewilds.blogspot.com/2013/07/it-will-all-end-badly.html
Quick! To the Plunge-Protectionmobile, Batman!!
From what I can see ...
Price is managed by the banks through their network of money managers and price manipulating computer programs, specialists and market makers.
They tell their insiders what they are going to do ahead of time. Those that play the game and support them WIN and those who believe that there is still a free market and that fundamental value matters, LOSE.
It does not matter what those who are not on the inside think or beleve about a Fed meeting. That is an explanation created after the fact for the suckers who believe in a free market. It aims to create legitimacy for something that is entirely illegitimate.
Do you really think that the banks cannot increase price as interest rates rise? If so, then I have a gold ETF that I want to sell you. "HOWEVER", it is easier for them to hide their con if they drop prices while interest rates rise. It adds to the myth and mystery.
... and this is how, IMO, they will sacrifice the Fed to gain a global currency. They will blame the Fed for the next market crash and economic distaster (which they will once again say that it could not have been foreseen ... black swan, perfect storm, blah, blah, bullshit) ... and come to the rescue with a global system that they will say is impervious to the problems that dollar based system created (well actually they created using the dollar as a scapegoat).
I could have easily confirmed there's endless bull.
You might not be able to see the end, but the bullshit is clear as day!
QE seems to have been replaced by companies that are borrowing cheap and re-purchasing stock to inflate EPS. QE can stop and nothing will change until the cost of borrowing starts to move up.
Every fireworks show has its grand finale. Whether it hurts or not depends where you're standing at the time.
Smoke always blows toward the fool.
Hey, Napoleon's Grand Armee' had both a beginning and an end.
But the Fed's Free Money policy is set to go on "Fo'-Eh'-Va".
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As others have said, you can ride into battle on a tiger but don't expect to ever get off it.
Getting fucked in the ass hurts if it's too long.
“When investors come to fear the next Fed-talk
So, Never
One of the many other glaring weaknesses in bear thesis is the fact that only the pro's have been in this market. Very little in the way of retail like what was seen in the 90's.
I hate to agree with you but yes, retail has been gone for a while. So the change in direction may only occur after many of those get pulled back in for slaughter.
But many are gone for good, burned by the criminals of WS, never to return. They would rather stack silver and gold under a mattress than going back into what they consider is a fixed game by criminals.
Are you saying that they would now not feel that WS is criminals? Cause that is what it would take to get them to return...
I fear we have been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years. It is important that we ask ourselves have these actions really worked or merely masked over major flaws and problems? For fun consider that by not demanding the right kind of growth and by throwing money at problems we have only delayed and added to festering issues that face us in the future.
Modern Monetary Theory often referred to as MMT to its many believers removes much of the risk ahead and guarantees that we will always be able to muddle forward. MMT is an economic theory that details the procedures and consequences of using government-issued tokens and our current units of fiat money. Newly acquired tools like derivatives and currency swaps are suppose to allow us to print and manipulate away problems. What I'm seeing develop is an "almost surreal" feeling of indifference towards reality. More on this subject and the fatal flaw in MMT below.
http://brucewilds.blogspot.com/2014/01/have-we-been-lulled-into-complace...
Central banks buy western nation-state treasuries with ones and zeros. They have a lot of ones and zeros in their computer applications. They have so many ones and zeros that the banksters are using them as tools for financial terrorism in order to steal everybody elses wealth. I don't like banksters.
Nothing new in this article, sorry Wolf
Wolf, I never miss one of your articles. But I actually expect the US Fed to become LESS relevant over time, not more. It's already starting to happen, as the 'stock market' gets higher and higher in point-and-laugh territory. (Love those fundamentals!) As the world de-dollarises, in North America a real productive economy would eventually begin to return - but it would (for a long time) be largely unrecorded. Central planners would tend to be dodged and avoided by producers in North America, except for those few who get incorporated into government supply chains. When the currency is reset - as is becoming very clear now, that it will soon have to be - I don't see why the US Fed would have much say in how that runs either. This is before even considering a possible drastic population reduction from either war, disease, or famine, ALL of which are threatening major populations now. In terms of productive populations, look at California, Flyover Country, the Rust Belt, and consider the country's direction as depicted by Dmitri Orlov.
I think the US Fed achieved Peak Relevance last century. Considering that the fate of the Fed is now pretty much openly tied to the fate of the zombie banks, I have to disagree with you and assert it will be a cold day in hell before 'investors' fear the Fed on anything. Paul Volcker is sooooo 1981!
As long as they control money creation, they will continue to be relevant.
Look meatbags, robots run this market and it will go up until the millisecond all of their identical programming tells it to go up, then it will go down.
Can't upvote due to your italics, but great article. Forbes buried this in their Mexican addition? If the Fed raises rates look for Belgium to buy loads more bonds, and stocks.
I disagree. In it's current state of operation, the "market" will never drop. What this market is priced in is another story.
"If we print, it will rise."
Maybe markets go sideways for ten years and then .........