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5 Things To Ponder: Random Musings
Submitted by Lance Roberts via STA Wealth Management,
This weekend's reading list is a bit of a hodge-podge of reads on a variety of different topics. However, before we get into it I wanted to address an interesting statement by the Atlanta Federal Reserve President Dennis Lockhart who Thursday:
"Atlanta Federal Reserve Bank president Dennis Lockhart said on Thursday there was little risk of a misstep that would force the Fed to lower rates once it begins raising them.
The economy is in solid shape to weather the upcoming turn to tightening monetary policy Lockhart, said at an investment education conference in Detroit.
"'Conditions are pretty solid,' said Lockhart, who regards an initial rate hike at the June, July or September Fed meetings as a high probability. 'I take the decision pretty seriously,' Lockhart said. 'Once we start, I want to be able to move deliberately towards higher rates.'"
This is a pretty common meme among the majority of economists as of late, and particularly surprising coming from the Atlanta Fed President considering:
- The U.S. is currently more than 6-years into an economic recovery (long by historic standards), and;
- The Atlanta Fed's own GDPNow forecast is pegging a near 0% growth rate for the first quarter.
But let's take a look at the decline in durable goods orders this week. Paul McCulley, the former legendary economist and fund manager at PIMCO, viewed durable goods a bit differently than the mainstream analysis generally given. He preferred the year-over-year trend of the 3-month moving average of core CAPEX orders as an indicator of broader economic activity over the next few quarters. If you are currently "bullish" on the direction of the US economy, you may want to take a closer look at the chart below.
Secondly, core CAPEX has been negative on a monthly basis for 6-consecutive months. Since 1992, there have only been 5-instances where core CAPEX orders have been negative for 4-or more consecutive months. The first three instances were leading indicators of future recessions. In 2012, there were 6-consecutive months of decline as the economy got very close to a recession but was saved by Central Bank interventions and the warmest winter in 65-year. The latest core CAPEX decline capped a second 6-month period as it appears that Q1 GDP will ring in close to zero.
I am not suggesting that the economy is about to slip into an immediate recession. However, I am suggesting that underlying economic strength in the U.S. is likely much weaker than headline statistics suggest.
Furthermore, as discussed Wednesday, the deterioration in underlying price momentum in the market is also raising other warning flags. To wit:
"...the price of the market currently remains in a positive trend but the underlying momentum and strength measures are showing signs of a negative divergence. This suggests that while market prices are trending higher, the risks of a correction are currently rising as the 'supports' weaken.
The negative divergence of the markets from economic strength and momentum are simply warning signs and do not currently suggest becoming grossly underweight equity exposure. However, warning signs exist for a reason, and much like Wyle E. Coyote chasing the Roadrunner, not paying attention to the signs has tended to have rather severe consequences."
So, with that being said, let's get to our weekend reading list.
1) The Meaning Of Liquidity by Howard Marks via Oaktree Capital
"Sometimes people think of liquidity as the quality of something being readily saleable or marketable. For this, the key question is whether it’s registered, publicly listed and legal for sale to the public. "Marketable securities" are liquid in this sense; you can buy or sell them in the public markets. "Non- marketable" securities include things like private placements and interests in private partnerships, whose salability is restricted and can require the qualification of buyers, documentation, and perhaps a time delay.
But the more important definition of liquidity is this one from Investopedia: 'The degree to which an asset or security can be bought or sold in the market without affecting the asset's price.' (Emphasis added) Thus the key criterion isn’t 'can you sell it?' It’s 'can you sell it at a price equal or close to the last price?' Most liquid assets are registered and/or listed; that can be a necessary but not sufficient condition. For them to be truly liquid in this latter sense, one has to be able to move them promptly and without the imposition of a material discount. "
Read Also: Bond Market Fears Liquidity Crunch Repeat by David Oakely via FT
2) There Is No Bubble In The Bond Market by Brad DeLong
"When we call something a "bubble" we attach a number of meaning-tags to it. Here are three:
- Bubbles are collective irrationality.
- Bubbles pop.
- Owning bubbly assets entails large long- and fat-tailed risks.
Safe bond prices are certainly elevated?—?more than elevated: absurd. The Federal Reserve has squeezed the term premium by shrinking the supply of long-term bonds and put the underlying fundamental future short rate to which the term previous applied on a very low path.
But does holding bonds entail accepting large long- and fat-tailed risks? Only if you must sell your bonds in the future. If you have the option to hold them to maturity, your risks are bounded and very small. What you are complaining about is not risk, but rather lousy expected return. And even if you cannot hold them to maturity, the fact that others can hold them to maturity provides a pool of demand that limits how far bond prices can crash."
Read Also: A Bond Bubble Is Very Different From A Stock Bubble by Cullen Roche via Pragmatic Capitalist
And Read: Student Loan Forgiveness Is A Non-Solution via The Libertennial
3) The Current Boom Will Turn To Bust by Henry Blodget via Business Insider
"Bubbles" are rare, extreme events in which investment activity and valuations temporarily deviate wildly from historical trends — and then crash back down to the trend line in a colossal collapse.
"Booms," meanwhile, are far more common. They also see ever-increasing investment activity and valuations, and they also end in mean-reversion ("busts.") But the magnitude of the dime-a-dozen boom-bust cycle is nothing like the peak and valley that you experience in a bubble."
But Also Read: This Is Nothing Like The Market Back In 2000 by Brett Arends via MarketWatch
4) Gundlach - Don't Bet On Higher Rates by Robert Huebscher via Advisor Perspectives
"Gundlach reiterated his belief that raising rates would be a mistake due to the weak global economy and low inflation. Even if the Fed were to take that step, he said, it would eventually be forced to reverse and lower rates, as several European countries have had to do after attempting premature rate increases.
'I’m afraid that the Fed is intent on being a blockhead and raising interest rates against this backdrop,' he said, 'and further strengthening the dollar, weakening the economy, weakening corporate earnings, and basically having to reverse policy.'
Demographic problems and the growth of the federal deficit will push rates higher, he believes, but that might not occur for another five years. Gundlach also boldly predicted an inglorious fate for Detroit’s automakers."
Read Also: Why Yellen & The Feds Are Bubble Blind by David Stockman via David Stockman's Contra Corner
5) Here's Why We "Appreciate" Home Sales by Lee Adler via Wall Street Examiner
"The problem is that ZIRP suppresses inventory. Owners who would ordinarily cash out at a certain point in their lives, don’t, because the opportunity cost is too high. Their house is worth more to them as an asset, than cash would be, so they hold on to their properties rather than liquidate. As a result, listing inventory stays near record lows. Low inventories mean that prices will continue to “appreciate” even though demand remains modest."
Read Also: The Fed's Artifical Steepening Of The Yield Curve by Jeffrey Snider via Alhambra Partners
Bonus Read: Barclay's Says Oil Bottom Not In
Barclays sees prices bottoming somewhere in the mid-$30s for West Texas Intermediate crude oil and in the low- to mid-$40s for Brent and expects "further widening in oil market contangos as more expensive storage needs to get incentivised."
Over the last few months, the number of oil rigs in use in the US has collapsed, but Barclays doesn't think that enough production has yet come offline for this to impact production. Barclays writes that:
"The decline in US rig counts has been rapid and substantial (now down by almost 50% from its October 2014 high), but is unlikely to be an accurate signal of future production trends because usually when falling prices force rigs to decline it is those that are least productive that get cut first, while surviving rigs tend to be left on the most productive areas."
Bonus Video: Daniel Kahneman On The Riddle Of Experience And Memory
"Using examples from vacations to colonoscopies, Nobel laureate and founder of behavioral economics Daniel Kahneman reveals how our "experiencing selves" and our "remembering selves" perceive happiness differently. This new insight has profound implications for economics, public policy — and our own self-awareness."
"Man looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss." - Lou Mannheim, Wall Street
Have A Great Weekend.
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I'm a little afraid to even bring this up, but is it possible that we are.... maybe... NOT in a recovery?
But wait, that would mean they <gulp> lied to us. Oh, mercy me, no.
Well, it's random all right, which is actually an improvement.
1. is especially useful. Yes, the bond market is liquid, until a few people try to sell.
Leadership is supposed to mean you join in with others in talking about how well things are going. You display confidence in the Economy and your government.
Of course this is window dressing to anyone who wants to know what is going on.
These guys spend 6 years in the most manipulative Actions ever undertaken... and it doesn't work. And the truth is that everyone is kicking the can down the road an absolving themselves of good old American Responsibility.
So yeah they should stop the Manipulation of rates and wealth transfer through QE and all talk about Bailouts of any kind since they all just to to Corporations when you follow the money.
Plus we have to guess that they are using Fiscal Policy in the Federal Budget Spending to stimulate the economy. This is also a failure. You can spend $250 Billion on Weapons each year, but there aren't that many employees working in the Industry to be a National Success.
So... this only leaves us to Demand real Governance and Real Sweeping Reforms.
And they have been manipulating since the dot come crash and the Twin Towers went down... went it come down to it (15 Years!!!)
Henry is full of shit we are in a bubble echo
Hello hello ello llo lo o
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://goo.gl/9YqZBb
The FED gives colonoscopies to diagnose strep throat.
C'mon Janet, prime to 5% if this is a "recovery".
It's a Trap!
Boom / bubble... Semantics. Btfd unless it's not a dip but rather reality kicking in and really, what are the odds of that happening...
Fuck TED.
"Their house is worth more to them as an asset, than cash would be, so they hold on to their properties rather than liquidate."
Or maybe it's because they live there? Or because cashing out and staying in the same geography is a net push? At any rate, seems like a stupid hypothesis.
Yeah, actual humans don't think like that.
I know plenty of people who would sell, if they thought they could make a little money on the deal,
but they can't, and why go through the hassle when the neighbors can't sell?
Sesame Street: Cookie Monster And Count Cooperate
http://www.youtube.com/watch?v=5l7KbMVdN7E (2:12)
Contemplating the bigger picture, does anyone really believe the dollar is up on "fundamentals," or even fear?
The banksters need to repay us.
"I have a reoccurring nightmare that one of the banksters will get away."
The dislocation will be epic, when it comes. But it's not coming tomorrow. And probably not the day after that, either.
The folks running things play the long game on a scale most of us can't really imagine. They've been at it for centuries. They're not going to jump the gun by a few years; they're going to wait until there is no hope for humanity to peacefully escape from their trap before they spring it.
Nothing less than the total foreclosure on all of the Earth by the Central Banksters is the goal. And it's the only goal, and it's been the goal all along.
The python doesn't uncoil to eat the rabbit until it's absolutely certain the rabbit is dead. The banks will not stop inflating the world's fiat currencies, and pulling every trick they can to keep a financial reset from happening, until they are certain there is zero chance of ANY country managing to break free of their paper grip.
This is why they're trying to start WWIII with Russia. There are lots of other reasons, such as Russia's gold and so forth. But for them to actually achieve their globalist, neofeudal NWO, there can be NO PLACE LEFT ON EARTH FOR ANY HUMAN TO ESCAPE THEM.
This is why Commiebama is trying like hell to let Iran go nuke; it gives Israel the pretense they need to go on the offensive. https://www.youtube.com/watch?v=KbO0f9uaWZE While I personally loathe the Iranian theocrats, I also recognize that Iran is one of the few remaining Rothschild-free countries in the world. So I neither favor nor oppose them having nukes; it's a wash, to me. But if Commiebama is trying to let them go nuke, that means the banksters have an ulterior motive, and I'm pretty sure "creating an excuse to justify an Israeli attack" is that motive.
Oil is the least of the riches contained in the MidEast, folks. It's not widely known, but it's true nonetheless. And that is still secondary to the real reason, which Iran's lack of a Rothschild bankster boot on its neck. But once Iran falls, the banksters know the whole of the MidEast is ripe for Israel's plucking.
Oh, and Russia being allies with Iran? Yeah, isn't it funny how things just seem to line up nice and neatly in this crazy world of ours?
Have a plan for when the SHTF, because it will. But have some patience also, because it's not quite time yet.
Yep, the Fed started raising rates the last time just as the recession became apparent to most of us.
It took Lehman and couple of years for them to reverse course because the rich fuks were "making" so money.
Same this time.
The economy is DEAD and lies are the only "recovery" we will see again. Probably in my lifetime, if not my grand-gifts too.
Other things.....
Thesis – Antithesis – Synthesis…Kansas Politicians Call For Changing the Constitution
1945 British National Archives Document Calls For New World Order Now
Snowden Says ‘Living in Russia Is Great’…Working For Both Sides Has Its Advantages
Russian Bank Hires Two Former U.S. Senators