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Weekend Reading: Copious Contemplations
Submitted by Lance Roberts via STA Wealth Management,
There are a couple of things that are simply hard to conceive currently. The first is that there are only SEVEN (7) Monday's left until Christmas. The second is that the Federal Reserve is seriously discussing increasing interest rates given the current economic weakness both domestic and global.
While many of more mainstream outlets continue to "hope" that we are on the cusp of economic resurgence, as I penned earlier this week, the EOCI index suggests something quite different.
(Note: The EOCI Index is a combined measure of the Chicago Fed National Activity Index (85 subcomponents), the ISM manufacturing and services index, the Fed regional manufacturing surveys, the Leading Economic Indicators index and the NFIB small business survey. Combined these measures give a broad sense of actual economic activity.)
"Despite hopes of a stronger rates of economic growth, it appears that the domestic economy is weakening considerably as the effects of a global deflationary slowdown wash back onto the U.S. economy."
Of course, while mainstream analysts and writers cling to each comment from the Fed as if it were gospel, it should be remembered that Ms. Yellen and her cohorts can not "tell the whole truth."
Imagine for a moment that Janet Yellen climbed up to the podium and said:
"After many years of ultra-accommodative polices, it is clear that ongoing interventions have failed to boost actual economic growth and only exacerbated the destruction of the middle class. It is clear that employment growth has only been a function of population growth, as witnessed by the ongoing decline in the labor-force participation rates and the surging levels of individuals that have fallen out of the work-force. While we will continue to operate to foster maximum employment and price stability, the reality is that the economy overall remains far to weak to sustain higher interest rates or any tightening of monetary policy."
As soon as those words were uttered, the markets would plunge dramatically which would erode consumer confidence and trigger an almost immediate recessionary environment.
So, if you were Janet Yellen, what message would you deliver to convey much of the same without "freaking" the markets out? How about this from yesterday:
"YELLEN SAYS IF OUTLOOK WORSENED FED MIGHT WEIGH NEGATIVE RATES"
Negative interest rates were "trial ballooned" after the September FOMC meeting and were dismissed by the markets. This is the second "trial" by the Fed to gauge market reaction. Historically, such hints have had a tendency to become future policy actions. It is worth paying attention to what the Fed is "NOT" saying.
I have been extremely busy this week working on a new project, so I am sharing with you the list of articles that I will be catching up on this weekend.
THE LIST
1) Bond Market To Stocks - Last Call by Jesse Felder via Tumblr
“Bond market risk appetites hold the key to the stock market right now. It is normally the case that equity and debt markets are very closely intertwined but today this true more than ever. And the bond market is signaling the party is nearly over.
I say that the relationship between bonds and stocks is more important today than ever because mergers and acquisitions activity and stock buybacks have been a major source of demand for equities over the past few years. And, to a very large degree, these have been financed by debt. So companies' ability to access the credit markets currently has a huge impact on stock prices."
Read Also: Bonds Are Sending Some Ominous Signs by Daniel Kruger via Bloomberg
2) Stocks Are 85% Above Long Term Trends by Doug Short via Advisor Perspectives
“The peak in 2000 marked an unprecedented 144% overshooting of the trend — nearly double the overshoot in 1929. The index had been above trend for two decades, with one exception: it dipped about 14% below trend briefly in March of 2009. But at the beginning of November 2015, it is 85% above trend, at the middle of the 77% to 93% range it has been hovering for the previous thirteen months. In sharp contrast, the major troughs of the past saw declines in excess of 50% below the trend. If the current S&P 500 were sitting squarely on the regression, it would be around the 1086 level.
Incidentally, the standard deviation for prices above and below trend is 40.6%. Here is a close-up of the regression values with the regression itself shown as the zero line. We've highlighted the standard deviations. We can see that the early 20th century real price peaks occurred at around the second deviation. Troughs prior to 2009 have been more than a standard deviation below trend. The peak in 2000 was well north of 3 deviations, and the 2007 peak was above the two deviations."
Read Also: Q4 Dividends Off To A Bad Start by Ironman via Political Calculations
3) The Fed's Communication Breakdown by Ken Rogoff via Project Syndicate
“Nothing describes the United States Federal Reserve's current communication policy better than the old saying that a camel is a horse designed by committee. Various members of the Fed's policy-setting Federal Open Markets Committee (FOMC) have called the decision to keep the base rate unchanged "data-dependent." That sounds helpful until you realize that each of them seems to have a different interpretation of "data-dependent," to the point that its meaning seems to be 'gut personal instinct.'
In other words, the Fed's communication strategy is a mess, and cleaning it up is far more important than the exact timing of the FOMC's decision to exit near-zero interest rates. After all, even after the Fed does finally make the "gigantic" leap from an effective federal funds rate of 0.13% (where it is now) to 0.25% (where is likely headed soon), the market will still want to know what the strategy is after that. And I fear that we will continue to have no idea."
Read Also: China's Economy Is Worse Than You Think by Noah Smith via Bloomberg
But Also Read: I'll Eat My Hat If There Is A Global Recession by Ambrose Evans-Pritchard via The Telegraph
4) The 10-Things I Relearned In October by Doug Kass via TheStreet.com
- Disasters have a way of not happening
- Permabulls (and bears) are attention getters
- Pay attention to investor sentiment at extremes
- Market remains preoccupied with monetary policy
- Quants rule - they move the markets up and down.
- Greed vs Fear
- Tech nearly always leads the markets
- Perception vs Reality
- The hardest trade is the best trade
- Curse of the Billy Goat lives
Read Also: Why The S&P May Already Be in A Bear Market by Shawn Langlois
5) A Good Time To Hold Some Cash by Mohamed El-Erian via Financial Times
"Recent signals from the European Central Bank and the Federal Reserve have reignited talk of divergent monetary policies among the world's two most influential central banks.
The short-term implications for investors include a stronger dollar, greater equity market volatility and a wider trading range for key interest rate differentials. The longer-term consequences are up for grabs. Both suggest investors should revisit conventional wisdom that dismisses cash as a 'wasting asset' in their portfolios."
Read Also: Is The U.S. Entering A Recession by Charlie Bilello via Pension Partners
Other Reading
- Everything You Need To Know About Apples Cash Pile by Matt Phillips via Quartz
- The Coming Middle Class Tax Increase by Robert Samuelson via Real Clear Markets
- Investor Letter - 5 Major Market Fears by Dan Loeb via Third Point
- The Difference Between Real & Academic Investing by Ben Carlson via A Wealth Of Common Sense
- The Absurd Claims Of Keynesian Economics by Scott Sumner via The Money Illusion
- 9 Habits Of Influential People by Travis Bradberry via Forbes
- The Trinity Portfolio by Meb Faber via Faber Research
- Visualizing Where Money Is Made In America by Tyler Durden via ZeroHedge
“Risk taking is necessary for large success, but also necessary for large failure.” – Nasim Taleb
Have a great weekend.
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Fukkit , I'm doomed out.....think I'll go duck hunting.
I'm visiting the range as well. It's still legal, right?
they are taking names and pictures for the coming cultural revolution trials....pick out the family and friends you will have to turn in
Recently graduated college with a good job.. can finally start thinking about investing... but all this stuff has my head spinning' spinning spinning. .-.
Glad you've got a good job. Hang on to it. But think about starting your own company in the meantime.
Huge opportunities amid the Great Transition.
national debt updated, another 77 billion added today, 117 billion higher than the first update after the celing increase
Thanks for posting Lance's stuff. I like reading his posts, but his web page sux. Can I say that here, sux? Sux, there, I said it again. Content enjoyable, delivery sux. There I went again.
Ok we're past the point of endlessly describing the problem.
The NWO continues apace the best laid plans of mice and men. I don't think it's going to work out for the oligarchs it rarely goes accordingly and I think in this bubble they have actually created forces greater than any one groups ability to control.
If we do have oligarchs after this all goes SHTF I think they'll be new ones surfing the refuse pile of the devastion the last crew created because if anyone thinks that you can create forces of this magnitude then neatly shape that charge when the time comes I am at a loss over what to say to you.
When this shitshow hits full gale force blow I think the best anyone can do is hold on for dear life.
Doom or whatever you want to call it. Just read and study history, what they have wrought here is orders of magnitude larger than has ever been attempted in world history and it's all connected back to trip wires that span multi national boundries.
When these things start really going off it's going to be every country for themselves so fast their heads are going to spin. This is chaos building on an unimaginable scale.
The artificial suppresion of interert rates at this level is so pervasive and has gone on so long that when this Rube Goldberg band aid job really lets loose it's going to like a worldwide financial hurricane.
Good luck and God Bless.
"Ok we're past the point of endlessly describing the problem."
I find it Ironic that you made this a double post.
Ok we're past the point of endlessly describing the problem.
The NWO continues apace the best laid plans of mice and men. I don't think it's going to work out for the oligarchs it rarely goes accordingly and I think in this bubble they have actually created forces greater than any one groups ability to control.
If we do have oligarchs after this all goes SHTF I think they'll be new ones surfing the refuse pile of the devastion the last crew created because if anyone thinks that you can create forces of this magnitude then neatly shape that charge when the time comes I am at a loss over what to say to you.
When this shitshow hits full gale force blow I think the best anyone can do is hold on for dear life.
Doom or whatever you want to call it. Just read and study history, what they have wrought here is orders of magnitude larger than has ever been attempted in world history and it's all connected back to trip wires that span multi national boundries.
When these things start really going off it's going to be every country for themselves so fast their heads are going to spin. This is chaos building on an unimaginable scale.
The artificial suppresion of interert rates at this level is so pervasive and has gone on so long that when this Rube Goldberged band aid job really lets loose it's going to run like a prolonged cat 6 worldwide financial hurricane.
Good luck and God Bless.
What a hell FED is talking about, price stability? What price stability? Stocks, bonds pumped up to a gigantic bubble, commodities down, in collapse, peoples income and overall wealth dramatically down, standard of living down, not to mention rampant inflation of food and sustenance. Low unemployment? At least 100 million Americans who need good job, unemployed, desperate people taking shitty jobs for few hours a week for almost nothing, even subsiding the corporations if one takes under consideration all costs of employment.
Here is more about devastation that FEDs committed within the real economy of people who work for living.
https://contrarianopinion.wordpress.com/economy-update/
the stealing will continue until
morale improves. it is a 1913, federal
reserve, money system thing. you have
fucking owners, get the joke?
no, you have no sense of humor, do you?
In search of short term profit Wall Street has led US companies down a blind alley.
They have frowned on long term investment and R&D as these dent short term profits and dividends.
They prefer layoffs, asset stripping and mergers and acquisitions to boost short term profit and dividends.
Companies that once issued stock to grow now take on debt to buy back their shares that increase the share price and dividends for the other share holders.
Increasing stock was always much better than debt for investment. With stock you pay dividends depending on how well the company is doing and it doesn’t drain the company in the bad times. Debt repayments stay the same good times and bad.
Wall Street has strip mined the real companies of the US economy and left them in no position to grow without long term investment and R&D.
The UK was the last super power and China will be the next.
Adios America.
To see how bad it is read Michael Hudson's book "Killing the Host".