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"There IS An Alternative" - Since The End Of QE3, Financial Market Returns Are Negative... Except The US Dollar
"There is no alternative. What are you going to do with all that cash earning nothing - you have to invest it!"
That, in about 20 words, is a summary of what 90% of CNBC "pundits" say day after day (it also explains why CNBC asked Nielsen to stop tracking its viewership ratings).
Of course, what that statement also says is "don't fight the Fed", which will do a better job of allocating your cash for you in risk assets. This quasi-religious philosophy - because blind reliance on faith is not a trade, and hope is not a strategy - worked for several years, as long as first the Fed, then all other central banks were injecting trillion of funds into markets. However, as explained earlier, recently the Newer Normal was unleashed - a time when the Fed is no longer in control due to capital outflows and money destruction from Emerging Markets eclipsing outside money creation by DM central banks.
It no longer does. In fact, as Bank of America notes, not only is fighting the Fed (remember: the Fed's prime directive, far more important than even its "China" and "Dow Jones" mandates, is to debase the currency) now the best strategy, but - much to the chagrin of talking heads everywhere who will have to change their bulletin scripts - there is an alternative, because "2015 is on course to be 1st year since 1990 that cash outperforms stocks & bonds."
From Bank of America's Michael Hartnett
The Bear Necessities
2015 on course to be 1st year since 1990 that cash outperforms stocks & bonds. Year-to-date annualized returns: dollar up 6%, cash flat, bonds down 2%, equities down 6%, commodities down 17%.
September risk-off continues: global stocks are back at their August lows, AAA investment grade bonds are the best performing credit; EM FX has collapsed to their lowest levels since September 2009, while Brazilian real collapses to all-time lows, as southern hemisphere currencies get battered (BRL, ZAR, IDR, AUD, NZD).
Annualized returns between QE1 (3/9/2009) & end of QE3 (10/29/2014)…stocks 20%, HY 18%, REITs 31% (Table 1).
Since the end of QE3, financial market returns have been negative with the important exception of the US dollar.
$100 invested in a classic stocks/bonds/cash portfolio (60/30/10) on March 9th 2009 was worth $218 by end of QE3; today that same portfolio is worth $209.
The big upside for both corporate bonds & corporate stocks has subsided as the liquidity story has peaked. Of greater note, the recent big reversal in the performance of assets directly linked to the bull market on Wall Street. Private equity managers and large asset managers saw their stocks appreciate 36% & 32% respectively between QE1 and the end of QE3. Since the end of QE3, the annualized returns are -10% & -18% respectively.
* * *
Hardly a ringing endorsement for a central bank which is starting to lose control. No wonder then that Yellen was not quite feeling "it" during her speech yesterday...
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In a deflationary environment cash is king, which is why the bankers want to ban it and then embrace NIRP. One way or another they're going to sheer the sheep.
Deflationary?
I did not cough up any blood yesterday.
hugs,
misteryellens
"There is an alternative!"
Sure . . . keep printing trillions and CHARGE you for your deposits.
F*CKING BANKSTERS
Yes. Strengthening dollar = deflationary. Of course, it will eventually end in hyperinflation but there are still lots of seats left in this game of musical chairs.
What that says is: "we want your fees/commissions and if you don't give it to us the Fed will drain it out of you"
Yellen survived the night? Oh, thank Satan!
Adrenochrome.....is a hell of a drug.
Hard to get....but Hunter S Thompson intoduced her to his connection at the Grove.
In other news, stampede in Saudi Arabia was caused by the King's son:
The Lebanese daily Al Diyar reported late Thursday that the stampede was triggered by the arrival on the scene of a large militarized convoy transporting the 30-year-old deputy crown prince, who is also the country’s defense minister.
“The large convoy of Mohammad bin Salman Al Saud, the King's son and deputy crown prince, that was escorted by over 350 security forces, including 200 army men and 150 policemen, sped up the road to go through the pilgrims that were moving towards the site of the ‘Stoning the Devil’ ritual, causing panic among millions of pilgrims who were on the move from the opposite direction and caused the stampede,” the newspaper reported.
The formal title of Saudi Arabia’s king is “the Custodian of the Two Holy Mosques [Mecca and Medina].” Thursday’s disaster, which follows close on the heels of another 107 deaths in a September 11 crane collapse at Mecca’s Grand Mosque, inevitably is politically damaging to the monarchy. If his son played a direct role in triggering the mass slaughter, it may well prove fatally destabilizing.
http://www.wsws.org/en/articles/2015/09/25/pers-s25.html
Let's hope it is politically destabilizing. The part that gets me is that sea of people could easily overwhelm that 350 person escort and yet they trampled each other instead. Sheep are fucking pathetic.
350 person escort was in fast moving vehicles. The final toll is expected to be 1500:
Thursday’s catastrophe was reported by Saudi officials to have killed at least 717 people and injured 863 others, with warnings that the death toll would almost certainly rise. The head of Iran’s Hajj and Pilgrimage Organization said that the number of deaths is expected to climb to 1,500, which would make it the worst disaster at the site in recorded history, surpassing the deaths of 1,426 pilgrims in a similar incident 25 years ago.
http://www.wsws.org/en/articles/2015/09/25/pers-s25.html
Zero Hedge should be covering this story that the stampede was caused by the king's son - all Western media have ignored it.
Whatever the case, I hope his royal highnass pays a hefty price.
Those desert Lambos are all equipped with sheep guards.
It looked to me like Yellen suffered a stroke of some sort. Affecting her overworked brain instead of the usual body part (leg, arm, face, etc). Just like the economy - but the economy has suffered a major stroke. It's gonna proceed to a full fledged heart attack when the market goes. Just a matter of time.
Sure looked like a stroke to me.
And now this from the Financial Times. You can't make this stuff up. It's a wonderful world where growth turns on a dime and goes from almost zero to the highest in a decade, over 1 quarter. Must be the hookers and blow.
Given the grammatical error (grow instead of grew), someone must have been under a lot of pressure to get this out fast. The squid has many tentacles, indeed.
"US growth revised higher to 3.9% from 3.7%
US gross domestic product expanded at a faster pace in the second quarter of the year than previously forecast, according to the third and final government estimate of how the economy performed.
The economy grow at a 3.9 per cent annualised pace, up from an earlier estimate of 3.7 per cent.
Economists had forecast a reading of 3.7 per cent. The final reading is up from a paltry 0.6 per cent annualised expansion in the first quarter
Hookers and blow is a helluva drug.
Come on ZH, you be wong, just wong.
Comparing returns - one "anal-ized" the other not.
What happened to truth, justice and the American Hghway???
Own income producing properties and short EM currencies. Pretty simple, really.
QE 3 has not ended. Every last dollar plus all interest has been rolled over with each piece of paper that matures.
Of course Yellen's ticker is giving out. She had to sit in front of an audience with a straight face saying she was going to raise interest rates while knowing she never will.
And she now has to deal with the uncertainty of starting QE4 and how to present it to the public without absolutely spooking the markets.
Yellen is the Fallguy for the FED. Bernanke quietly went out the door at the perfect time and left Yellen alone to go down on a sinking ship.
According to Itau BBA:
http://is.gd/XzTkOs
The Big Fear
Thus, Fed announcement day arrived with most equity markets up 5%-10% off the late August lows, commodity prices higher and rates priced for Fed action. The main concern coming into the Fed meeting was not that the Fed would hike; it seemed quite clear that it would not go against virtually the entire global economic policymaking community and raise rates. No, the concern was that the Fed would stand pat and stocks, rather than rally, would sell off.
Lo and behold, that is exactly what happened, and that is why we need to be very, very concerned about how things move from here. It remains unclear whether the equity market reaction to the Fed decision was (hopefully) just a classic case of buy the rumor (no hike) and sell the news, or something much worse, namely that investors might be starting to price in policymakers? loss of control – The Big Fear.
The Big Fear of policymakers losing control has been lurking underneath the global equity market for years, underpinned as markets have been by central bank support. Think of it this way: there are two global growth drivers: China and the US. Recently, the competence of the policymaking community in both countries has been called into question, suggesting a possible loss of faith in policymakers, which if true is very worrisome, thus the Big Fear concept.
Why is the Big Fear so worrisome? It’s simple. If investors lose faith in policymakers and decide that cash or bonds are a better place for their money, then stocks are likely to sell off much further. How much further? One never knows, but maybe asking a few questions might help. First, at what level does the S&P need to be for the Fed to engage in QE 4? Second, what S&P level will be considered cheap (keep in mind 2016 E estimates need to come in sharply)? I don’t know the answer to either question, but it seems reasonable to expect that the S&P would need to go much lower than the 1870 level it bottomed at in late August or the 1830 level of a year ago.
The economic implications of such a sell-off would likely be a US and global recession. Such an environment could create a negative feedback loop between financial markets and the real economy, which policymakers would find very difficult to break.
It seems clear that the Fed will not raise rates this year, neither next month when they meet again nor in December, which is the last meeting of the year. Will they raise rates in 2016? From this armchair, the odds are against it, as the forces of recession gather while the forces of reflation stagnate. On this front, one has to question the Fed's 2016 inflation forecast of 1.6%, up from 0.4% this year. The Fed’s crystal ball has been mighty cloudy for years, but this forecast takes the cake.
A look at the global economy helps explain why. Four factors stick out: excess debt, an absence of inflation, insufficient demand and excess supply of raw materials and manufactured goods. None of this is new – what is new is how the various hopes and remedies have fallen short while the problems deepen. The toxic combo of excess debt and disinflation is one powerful reason why the Fed did not move, and excess supply in commodities and manufactured items (look at the PPIs around the world) is another. The global economy needs demand-creation or production shut-ins, and to date both have been lacking.
There are small signs that the commodity complex is starting to finally adjust, with closures, dividend cuts and stock issuance in the mining sector and talks about talks in the world oil market. However, the manufacturing segment of the world economy is quite far behind the commodity segment, suggesting that China's need to shift excess production will ensure manufactured-goods disinflation for the foreseeable future.
One can wish for inflation and for the Fed to be able to hike, but one also needs to be focused on the realities of the current global economy. Where is the demand going to come from? Who is going to shut in production? Let?s look at the three main economic regions: Asia, Europe and the Americas. Asia is likely to be a source of manufactured-goods disinflation as it seeks to rebalance itself to a China that is a competitor first, a customer second. Japan's recovery is sputtering; it will continue QE while a fiscal stimulus package seems quite likely in the months ahead. Europe remains quite weak, and with the refugee issue now occupying policymakers, ECB-led QE seems the only game in town.
The Americas is a concern. South America is in a deep funk, whether it is Mexico's subpar growth rate, Brazil's political and economic travails, Andean copper dependency or the impact of weak oil on countries such as Colombia or Venezuela. All this is pretty well known.
The US is most worrisome because of its combination of still-high equity prices and a very bare policy toolbox to confront any economic weakness. How bare? Well, monetary policy is on hold, and the bar to QE4 is likely a much lower S&P. What about US fiscal policy, one might ask? Great question. Here is the only thing one needs to know about the US presidential election process: it takes fiscal policy flexibility away and locks it in the freezer until late 2017, two whole years from now. In other words, at a time when the US economic expansion is close to seven years old, with the Fed on hold, incomes flat, debt levels high, a strong dollar and absolutely no inflation, fiscal policy is locked away for the next two years at least!
By the way, the UK confronts similar issues and could possibly be a canary in the coalmine for US monetary policy – QE for the people on BOTH sides of the Atlantic perhaps? The UK's negative rate discussion is likely to move across the pond over the next quarter or so. One other way of thinking about it is this: which comes first, the end of ECB QE or QE4 in America? I would go with the latter.
How does one vanquish the Big Fear? With aggressive policy action on the demand-and-supply side. What is the likelihood of that? Exactly. Seen in this light, it makes perfect sense for investors to worry that policymakers no longer have their back, and thus they take some money off the table. One analogy is that the US economy is like a ship that has engine trouble, is drifting towards the rocks and is left to hope that the wind shifts and takes it away from the reef…. not exactly a bull-market, high-valuation tableau. Hope is not a strategy.