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Weekend Reading: Risk - That Is All
Submitted by Lance Roberts via RealInvestmentAdvice.com,
While the world patiently waits for Janet Yellen to raise interest rates this month, the markets have been unable to decide as of yet whether such an event is good or bad thing.
As I discussed earlier this week, there is an ongoing belief that despite the rest of the world struggling with deflationary pressures and weak economic growth pushing Central Bankers globally toward further negative interest rate environments and more liquidity, the U.S. can remain an “island of economic prosperity.” To wit:
“International And Emerging Market Divergence. As I stated above, there is currently a belief that the U.S. can remain isolated from the rest of the world. Given the global interconnectedness of the world today, there is little ability for the U.S. to permanently diverge from the rest of the world. As shown below, historically when international and emerging markets have declined, the U.S. has been soon to follow.”
The reality is that such divergences have rarely lasted for very long and the ultimate reversion to reality have been brutally painful to investors.
This week’s reading list is a compilation of articles and research notes dedicated to understanding more clearly the “risks” that are currently building within the financial markets and economic environment. What you choose to do with that information is entirely up to you, however, ignoring it has generally never worked out well.
1) Give Me Only The Good News by Jeremy Grantham via GMO
“This is more or less the best I can do to prove the point. We in the U.S. have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff ‘that just ain’t so.’
We are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps our species. It may well be necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.”
But Also Read: Voters Know The American Dream Is Over by Charles Hugh-Smith via OfTwoMinds
2) Reasons “Not To Hike” Pile Up by Caroline Baum via MarketWatch
“What do Larry Summers, market monetarists, gold bugs and other hard-money types have in common?
No, it’s not a trick question, but it yields a surprising answer. Three different economic philosophies are aligned in challenging the wisdom of the Federal Reserve’s stated intention to raise interest rates next week.
The better question is why the Fed is determined to raise rates now. The world’s major economies are diverging, with Europe, Japan and China requiring additional stimulus from their central banks. The dollar is likely to strength further, crimping U.S. exports and restraining import prices. A renewed decline in oil prices is going to prevent inflation from moving up to the Fed’s 2% target, a premise for any Fed action.
The 5% unemployment rate remains the only reason for starting to normalize rates, and that’s based on the Fed’s flawed Phillips-Curve thinking. A sustained increase in wages is more hope than reality at this point. And since wages lag prices, not the other way around, forecasts of higher compensation may have to wait.”
But Also Read: OK Jobs Report Paves Way For $6.8B Fed Giveaway by Louis Woodhill via Real Clear Markets
3) Rare Data Point Sighting Sends Warning by Tim Mullaney via CNBC
“The S&P 500 has a big performance issue that should be a focus for investors: Too much of the index return is coming from too few of its stocks.
The 10 most valuable companies in the market are up roughly 21.4 percent as a group this year, versus a loss of 2.6 percent for the rest of the stock market.
That 24 percentage-point spread between the biggest stocks and the index as a whole is the widest since 1999, heading into the dot-com bust.”
But Also Read: A 20-Year-Old Perversion In The Stock Market Is Ending by Sam Ro via Business Insider
Contra-Take: Is It Time To Go Full Zero Hedge? by Cam Hui via Humble Student Of The Markets
4) The Junk Bond Market’s Early Warning Signals by Ben Wright via The Telegraph
“The relatively high global equity prices point to expectations of strong economic growth; the historically very high bond prices point to expectations of weak economic growth. How does one reconcile these two wildly inconsistent worldviews? The short answer is quantitative easing, which has pumped up asset values far beyond what the fundamentals would justify. Any bad news that comes along – and there has been a fair bit of that in recent months – merely serves to highlight that growing disconnect.
With the paths of the US Federal Reserve, the Bank of England and the European Central Bank starting to diverge as we enter the new year, it is clear that, at the very least, investors are in for a bumpy ride in 2016.”
But Also Read: Corporate Loan Charge-Offs & Delinquencies Surge by Pater Tenebrarum via Acting-Man Blog
And Also Read: This Time Is Not Different For Credit by David Keohane via FTAlphaville
5) When Forward Guidance Leads To Misdirection by Joe Calhoun via Alhambra Partners
“As we approach the Fed meeting expect markets to get more volatile. While the odds favor a move, it isn’t a sure thing until it is actually done. We found out last week what happens when forward guidance turns out to be forward misdirection. All those traders who thought they had a sure thing, who assumed that Draghi wouldn’t dare disappoint the market, got whipped. Whipped good.”
But Also Read: Fed’s Decisions Really Come Down To Guessing by Alex Pollock via AEI
MUST READS
- Jason Zweig: Wall Street’s Big Lie by Matt Phillips via Quartz
- American’s Self Deception About Debt by Catey Hill via MarketWatch
- Likelihood Of A Correction Has Increased by John Hussman via Hussman Funds
- American Prosperity Requires Capital Freedom by J. Giancarlo via Cato Institute
- What Are The Odds Stocks Rise In 2016 by Mark Hulbert via MarketWatch
- How Companies Massage Their Earnings by Buttonwood via The Economist
- The Apex Of Market Stupidity by Charles Gave via John Mauldin/ZeroHedge
- A Whole Lotta New Lows With Near Market Highs by Dana Lyons via Tumblr
- Like Clockwork They’re Bashing Buffett Again by Jesse Felder via Felder Report
- A Compendium Of Market Wisdoms For November by Meb Faber via Meb Faber Research
“There are few things more important than the preservation of capital” – Dick Davis
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Janet will keep her finger on cntrl P next week.
Funny the article sites "oil" as why inflation will not meet the Fed target 2%. Remember, oil is "transitory" and is not included in the CPI. Yet because the CPI is fabricated to be whatever the Fed wants it to be, they will not meet the mandate. They will site falling stock prices, low growth, whatever. But they won't raise rates.
They've set their cites on Armageddon.
Negative rates by the superbowl.
Janet is by now, confused, rattled, indecisive, hiding from public view, taking meds and pissing her pants.
Like when she almost puked on stage?
https://www.youtube.com/watch?v=kOiHn2LLmgM
The world is also patiently waiting for thermonuclear war.
Have the markets decided whether that is a good or a bad thing?
The FED and other Central Banks cannot raise rates for the next 20 years, they will go to zero, then negative.
Plain and simple.
With the amount of Government debt, any rise will make most countries bankrupt in a few months.
We are just all following the path of Japan. Where is the BOJ rate now ? 0.1%
Thats what I say......With federal, state, and local governments teetering on the cliff of bankruptcy, constantly rolling over and increasing their debt to fund the welfare state, a raise in interest rates, could be the final straw to push them over the cliff.....And the big government welfare state lovers, running the FED, would go against their very essense to harm their government god.....
Lucy has never failed to pull that football, no matter how much she promised.....
I'm pretty sure the Zombies could see the future, and were singing about J. Yellen 50 years ago...
Well, no one told me about her
The way she lied
Well, no one told me about her
How many people cried
But it's too late to say you're sorry
How would I know, why should I care?
Please don't bother trying to find her
She's not there
https://www.youtube.com/watch?v=QojlKXob73o
in 1913 the fed was born as an fundamental
and primary institutional abstraction
and distraction. like all born entities
it was imbued with an self preservation and
expression, a priori, essence and instinct,
yet it is, as you say, not there. founding
entities and surviving families and their
"hungry" stomachs and desperate minds continue
to feed there though. feeding on what,
what power? the power to distribute, selectively,
credit "money" at zero interest gone bad.
all in a dangerous and weaponized, technocratic
milieu.
someone said it, there is no justice in this world.
she is not there.
but karma, karma is here.
anyway poems^tm
Good. Very good to week to come. Op-ex on Friday; BS to justify the rate hike. Celebration! The week after...who knows?
Risk is to be used with a shitload of caution in the real world. Having been in the position of entering a burning building or handling extremely high voltage (35-345kV), or having my 'folks' do so. Caution is so very critical. It was my ass on the line if I had an issue. Funny fucking thing is that assholes at banks and congress et.al. get away with this shit scott free if a problem occurs. I never had an isssue but got the job done.