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Irrational Exuberance 2.0
Absolutely nothing has changed since I last wrote about this market in June of 2014. If you haven't read it, you can read it here. The stock market bubble continues to grow, with new all time highs (ATH) being made daily, with no pullbacks, and extremely low volume. We rally on bad news and even higher on good news. Absolutely nothing can drop the market, and if it does drop, it gets saved from the dip buyers or various Fed verbal interventions. Take the latest Greek episode, where any good news we rallied hard on, but any negative news didn't faze the market one bit. In 2010-2012 when Greece was in the news, the market would swing at least 2% on negative news.
Janet and the clowns at the fed have yet again warned about the stock market valuations being sky high, ie a bubble, yet the markets continue to levitate to new highs. It's funny in many ways. First, what they don't realize, is that they have created a Frankenstein market, and they've lost control. Second, they warn about the valuations being too high, yet any time the market drops they jump in to save it with various verbal bullshit. They would never say it, but the stock market is their 3rd mandate. All of their efforts have been to boost asset prices (ie stocks etc) in hopes of creating a trickle down effect, but it hasn't worked, and will never work. And on top of it all, the Fed put together a team led by Stanley Fischer to spot asset price bubbles. That's right, after keeping interest rates near zero for almost 7 years and various QE programs creating the biggest Fed bubble of them all, they put together a team to try and spot bubbles they created. Go ahead and laugh. This is now the third Fed induced bubble in 15 years that will blow. Meanwhile we have yet to lift off the zero bound, with 7 years now of ZIRP, yet cheerleaders claim we are in a recovery.....
And yet everyone and their mother is still calling for higher rates for the 4th year in row. It's funny because if you call for a correction in the equity market and it doesnt happen you get shamed. But for bonds, where yields have done nothing but go lower, despite calls from prominent banks and strategists for a 10-year 3 or 4% end of year rate, they are not made fun of. If you talk down the stock market, you are treated like a moron, and will be accused of sandbagging american prosperity, brushed off as a alarmist, or crazy conspiracy theorist. Yet, history has shown us that extended periods of low rates has always led to a massive boom and bust, but this time it's supposedly different? In my opinion, with domestic and global economic data continuing to worsen, and with global yields (especially EU yields) far lower than the U.S., U.S. rates should head lower.
Some will have read the last paragraph and immediately say to themselves that we have growth and that we are in a recovery. Are we? That's why we have had 4 versions of QE, 7 years of ZIRP, and GDP for 2014 came in at 2.5%, down from 3.1% in 2013? We have also had 2 negative GDP prints since the last crisis, despite all the stimulus. Macro data has collapsed to the weakest since July 2011, and Personal spending is slowing significantly, there is no wage growth, worst back to back retail sales plunge since Lehman, and the Labor force participation is at 35 year low. Then some will tell you that the Labor force particpation rate is that low because of retirees, but if you look at a graph of workers aged 55 and older, you can clearly see that this is false. Others will tell you that the quality of jobs is great, but fail to tell you that these so called quality jobs are in the leisure and hospitality sector, ie waiters etc. Since the crisis, there have been no new net jobs created. Housing is heading back lower, despite 3 attempts from the Fed to give it a boost. With mortgage application rates and refinancing activity near the lows, what better time then now to re-introduce sub-prime loans and cut requirements for landing a mortgage as we are seeing currently playing out. Everyone seems to forget what happened last time......
And now the ECB has announced it will be launching its own QE program beginning this month, which has led to a surge in European stocks and a massive drop in European bond yields, as everyone and their mother is front-running despite the fact that there are not enough bonds to buy. What people do not understand, is that QE will be ineffective to spur growth in the EU, and it will be a failure, just like the QE experiments in the U.S. and Japan. What people do not understand, is that printing money to buy bonds doesn't put people back to work, and it doesn't produce goods and services. Printing money manipulates asset prices and creates instability. Earlier this year, Mr. Irrational Exuberance himself: Alan Greenspan, publicly came out and said that "[QE] didn't do much for the real economy." Even Richard Fisher came out and said "QE was a massive gift to the rich" that has widened the income inequality in the U.S. to a new record.
Meanwhile if you browse CNBC, Bloomberg, WSJ, Marketwatch or any other mainstream financial network, you will see a bunch of posts trying to justify the Nasdaq levels, and how it's different this time. In the last few days on Bloomberg radio, they've had 3 people come on to defend the Nasdaq 5000 level. For example, one guy said "Just because Nasdaq keeps going up, doesn't mean it's a bubble." Another gentlemen said "This time it's different because of fundamentals." But the best I've heard was a guy saying "This is not speculation. This is a normal Bull market." $17 trillion in global central bank liquidity injections since the crisis & zero to negative rates driving risk accumulation doesn't make this a normal bull market. This is the most artificial bull market the world has ever seen. In a December WSJ article, the author wrote something quite eye-popping: "There are at least 48 private U.S. Companies valued at $1Billion or more by venture-capital firms, versus 27 at the start of the year. That is a record number--during the dot-com boom in 2000, there were 10 such companies." In Tuesday's WSJ, they had two separate articles talking about the Nasdaq and how this time it's much different. Just look at valuations which continue to rise to beyond stupid levels. Just look at the valuations of apps like Tinder, Uber, Snapchat, etc. who are getting valuations north of $18 Billion without a dime in profits. Uber's latest valuation is $40 Billion. To put that into perspective, that is greater than 250 S&P listed companies! Biotech valuations are also at alarming levels, as the WSJ recently noted. Some of these companies blatantly have said they have no business plans or plans on turning a profit in the near future. How is this any different than during the last tech bubble? If you want a reminder of why it is all the same, just read this wikipedia page on the dot-com bubble http://en.wikipedia.org/wiki/Dot-com_bubble .
Brief list of casualties so far from the Tech Bubble 2.0:
GoPro (GPRO)-59% from highs
AliBABA (BABA) -33% from highs
Twitter (TWTR) -36% from highs
RocketFuel (FUEL)-86% from highs
Rubicon Technology (RBCN) -88% from highs
Zynga (ZNGA) -85% from highs
King Digital (KING) -37% from highs
Lending Club (LC)-31% from highs
Tesla (TSLA) -31% from highs
Wayfair (W) -36% from highs
Yodlee (YDLE) -28% from highs
Veeva (VEEV) -33% from highs
TrueCar (TRUE) -29% from highs
Five9 (FIVN) -55% from highs
AeroHive (HIVE) -62% from highs
Everyday Health (EVDY) -34% from highs
Here we are, early 2015, and we have people boasting about how the bears or pessimists got it wrong saying that when QE would end, markets would reverse. They weren't wrong. What they don't mention, is that since the FED's QE program ended, Japan and the ECB launched/announced their own programs. Japan announced it's QQE program literally 2 days after the official end of the Fed's QE program. Mix that with over 20 central bank rate cuts so far this year, with some going as far as negative rates. Mix that with the various stick-saves everytime the market drops. For example, in October when the market finally was about to touch an official 10% drop, St.Louis Fed President Bullard said the most absurd comment, that the Fed should reconsider ending the QE program, despite the fact it was officially ending at the end of the month. Well markets exploded and haven't looked back since.
In my last post in June, I talked about the Japanese economy and the drastic failure of Abenomics and BOJ policy. Things have only gotten worse since then, despite the BOJ launching QQE on October 31st with a very close 5-4 vote. Since the inception of Abenomics in December of 2012, the Nikkei is up over 9,345 points or 101% in a little over 2 years. During this same span of time, Japan re-entered recession, saw a record number of corporate bankruptcies due to the weak Yen policy, the longest trade deficit in 60 yrs, and a massive drop in retail sales and household spending.
Talk has re-emerged of a bill to audit the Fed. This of course has led to many members of the Fed to come out swinging, with Janet Yellen saying that she would "forcefully oppose" an audit and that "central bank independence promotes better economic performance." Better economic performance you say? That's hilarious, because they have created more boom and bust cycles than at anytime prior to the Fed. Then you have Senators like Bob Corcker who said that auditing the Fed would be "harmful to the free world." Harmful to the free world who has suffered from ineffective Fed policies, and a Fed that has repeatedly missed every crisis it has helped create. What is harmful to the free world is a closed group of academics, with no real experience, meeting to discuss and alter monetary policy that affects everyone globally. What is harmful to the free world is the Fed having closed door meetings with various Congressional leaders and discussing monetary policy! And just remember, this is the same Fed, whom we just found out last October, that has a 'doomsday book'.
What keeps me up at night, is wondering how this will all end. And in my honest belief, I think it will end in tears, and it will be worse than any crisis we have experienced. What people and central bankers do not understand, is that you can't devalue your way to prosperity. Absolutely nothing has changed since the last crisis. The same too big too fail banks have only gotten much bigger. The same people that were in charge leading into the crisis and during it, are the same people who are in charge of fixing it. New regulations were established to try and regulate the industry, but they will be proven to be ineffective. Why? Because the Volcker Rule and Dodd-Frank have had all the important elements removed, thanks to the massive lobbying power of the TBTF banks and the Fed.
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StalingradandPoorski
If you really believe that, then I won't make matters worse by suggesting a couple more things.
The kids at zh are very bright and great writers but not one of them have made an argument linking the financial crisis (which began under Alan Greenspan in the 1990s) with our foreign policy of provoking of Russia -- to the pass we're at today -- by the US's withdrawal from the ABM treaty in 2002, just as the subprime bubble started to pick up steam.
The US military became conscious of 'peak oil' in 1973 and this alarm was reinforced when global 'peak oil' was touched on briefly in 2005. So they decided to 'call the game' anyway, even though there may be as much as 30, 40, 50 years of oil in the ground, sand, and shale.
Because capitalism requires more and more consumption year after year which reduces the supply of oil and hurries the day of the last barrel.
The US army of the 22nd century must be provided for by the US army of the 21st century. Also, soon America will have a nonwhite majority, so this seemed as good a time as any to destroy our oil wasting economy and go to war. And the earth is over-populated any way, this is obviously the time for a police state on our shores.
But why provoke Russia to another 'cold war' or even a conventional one? To terrify the citizens of the West so when the DJIA declines and eradicates our oil wasting economy, they will be too frightened about nuclear war to notice that the economic rug has been pulled out from under them.
Can a military junta be any worse than our last 3 clowns?
“What is harmful to the free world is a closed group of academics, with no real experience, meeting to discuss and alter monetary policy that affects everyone globally.”
Actually, what is harmful to the free world is absence of a means to hold them accountable for what they have done and are doing.
So, why the absence?
There are several reasons: 1) Americans have been medicated and indoctrinated into a kind of lethargic stupor; 2) there are hardly any Americans who know that they have the same power American Founders had; and, 3) too many Americans (40,000,000 to 80,000,000 million) are complicit in, or benefit from, crimes perpetrated by the 1% and their millions of foot soldiers.
Is there a solution for these reasons for inaction… for allowing major treasons complete impunity? Of course there is. It begins by learning what was never taught in public indoctrination centers (commonly known as public schools and universities): the real history and real law of the Revolution. Everything else slowly falls into place.
The Regime and it's friends in the MSM love the nation's atrophied economy.
The argument between deflationists and inflationists is being won handily by the deflationists.
http://www.globaldeflationnews.com/inflation-vs-deflation-part-1which-on...
Robert Prechter predicted this years ago. Capital is being destroyed at a faster pace than it is being created. People underestimated the size of the shadow economy.
"What people and central bankers do not understand, is that you can't devalue your way to prosperity."
----
I think bankers do understand this. But which one of them want to be the one to end the game? Think about it. Look how whistle blowers get demonized. So if you were a central banker, would you risk your assets and retirement, or just keep your mouth shut?
Even worse, would you want to be blamed for the collapse after exposing the truth?
"So if you were a central banker, would you risk your assets and retirement"
Left out: Your life?
" yada...First, what they don't realize, is that they have created a Frankenstein market, and they've lost control.....".
You really shouldn't be making even a one word remark, since you have no idea what you are talking about.
If you think J Yell and her elfs don't realize every single facet of everything that they do, 366/24/7, then you have no business commenting here.
They KNOW every single gross result of their actions as well as every atomic nuance about what they do because anyone that's breathing and above ground does too, if they care to pay attention.
Stop acting as if the FED is a bunch of imbeciles, and not some really savvy bunch of unindictable criminals.
Members of a cult don't feel imbecillic no matter how remarkably bizzare the beliefs are. I agree they aren't idiots but I tend to think they are in a lifestyle bubble (yes pun). They studied this Keynes garbage, moved up the chain by regurgitating it, surround themselves with like-minded pricks, and put every effort into proving themselves correct......cult.
Comte
You've nailed it my friend. Another horrendous theft of other people's assets and incomes for the favored few.
Can't wait for them to find Hank Paulson Jr. to claim "Ya gots ta give my pals $1700 billion or we plugs the kid."
Loved watching the leader of the U.S. flying over from Israel to address his minions.
"hopes of creating a trickle down effect, but it hasn't worked, and will never work."
Burned in '1987 most of those folks retired with diminished expectations.
Shift to 401k from defined benefit plans.
Burned in 2000/2001 most of those folks found that they could not retire and when they might try, it would be with diminished expectations.
Burned in 2008 All confidence is gone. Savers penalized by ZIRP.
S&P walking on air.....and I can bet that is the part of the graph that is going to move to meet the rest.... its a long way down.
I wouldn't be sleeping at night if I held shares now....
US GDP growth is not 2.5% in 2014 aas the artifle states but 2.26% according to my calculations.
Does anyone else see what I do?...Most of these companies that are making such stock gains are multinationals, and appear to get their profits from rising third and second world consumer markets...I see lots of angst over " no trickle down", but could it just be the new normal? Western consumers are just tapped out and I just wonder if our own hubris can't accept that maybe we don't matter that much anymore. So then why would markets go down based on bad news from the west?...Decoupled?
What [...] central bankers do not understand, is that you can't devalue your way to prosperity.
Check your premises: Central bankers do not strive for general prosperity.
They do understand very well that you can devalue your way to prosperity for a selected few.
Tired of all the CBs don't understand what they are doing noise... CBS fully comprehend that the way to thieve one's way to prosperity is through inflation...
"CB's fully comprehend that the way to thieve one's way to prosperity is through inflation.."
Moreover inflation is a by-product of the money/credit given to their ilk long before the peasants know what hit them.
A fucking Hindenburg economy; the little people holding the tie-down ropes waiting for the blimp to explode and fall on them.
Elites and .gov apparatchiks drinking booze and smoking cigars in the observation lounge of the aerodrome.
Well written straightforward article, sharp knife through the bullish bullshit pie.
Tha author made some good points, then lost all credibility with this:
Zynga (ZYNGA) -103% from highs
Obviously the author was measuring a proportion. If a stock went from 10 to 2.50 this is a 400% reverse drop using the 2.5 as the denominator. Yes it could have been better stated but didn't detract from the authors points.
If you shorted Zynga at the high you'd have a 103% gain...would be one way to put it.
Edit. Looks like article was corrected.
LOL! "Tha author ... lost all credibility" writes the guy who never mistypes!
Effing Zombie markets. WTF - fits in with the Zombie Decade. And these MoFos rumnning the Central Banks will be looked upon years from now as dumb or worse than the CB clowns that created the Great Depression.
JoWazzoo
They want you to think they are "dumb". In reality they are clever criminals intent on robbing you of everything you have by front running you on all asset classes from the free money/free credit that they have the exclusive license for.
Did I forget to tell you creating money for me and my wealthy friends was never intended to help any of you in the first place?
----Aunt Janet
"Did I forget to tell you creating money for me and my wealthy friends was never intended to help any of you in the first place?"
Precisely. Moreover, articles like this one above ascribe innocent ignorance to the actions of the Fed and other Central Bankers. ZIRP and TARP are nothing more than legalized theft. These people and their cohorts are stealing in broad daylight while their academic shills provide obfuscation for cover.
Oh yes a bull market on expanding debt. Six plus years of ZIRP and the economy barely expanding. Russia and China selling out their long USA bond positions. Who is left to buy these bonds? Could it be our Fed? Only way to know is to audit the Fed. Fat chance of that happening in a programed market! Pray for the best people!
.
seems all the banks that gobbeled up the rest were involved in money laundering of some type--- that and fraud---just saying--
Well-shown here!
http://patrick.net/misc/Ask+journalism+how+much+it+got+for+its+soul.++%2...
Maybe you meant to say that it creates no wealth on average? Actually devaluation works just fine for creating wealth, if you are one of those close to the printing presses.
Yep, same old story same old swindle. "Where are the customer' yachts?"
It's !:12 AM PST.
Tomorrow I have the privilege of getting up and working for a true, family owned, private sector job that's involved in open pit mining, Ready Mix Concrete, Steel, Steel Fabrication, Real Estate, Rental Properties and Recycling, Fifty entities in all and I'm to hype the employees over the 1% raise they got over the last two years (after the last .5% raise they got two years ago...after four years of nothing but reduced hours.)
I'm on the same sort of raise program as all the rest of them. Seven years of real inflation at 8% per year with two later years of less than 2% raises. In the words of some other shithead, "I feel their pain."
I really don't, because I went on a bunker life after 2001, and I think I can weather a storm of 50%+/- either way.
"My girls" have been on a 35 hour work week for the last seven years based on my recommendation to keep them working and having a stabile income. Everything I've recomended to bring them back to a full forty hour work week is jeered as no longer necessary. They managed to get the same work done in a 35 hour environment so there's no need to bring it back into the forty hour environment. These ladies sacrificed time and pay to keep the company running through the depths of 2007 - now.
I'm the fucking corporate controller.
It's time to save the ladies. I have to talk to the COB, and his wife. They are actually decent people.