Bill Blain: "Talking To Accounts The Bottom Line Is Asset Prices Continue To Rise Despite Our Disbelief"

Tyler Durden's picture

From "Blain’s Morning Porridge - May 17" by Bill Blain of Mint Partners

* * *

Talking to accounts yesterday I was struck by a sense of resignation: stocks seem determined to go stratospheric despite the fact many people think a correction/reset is coming. Bond spreads are at all time tights – and everyone seems to be chasing them down. Investors are frustrated they aren’t catching the returns, and its human nature to find reasons to talk these gains down.

For instance, I’m told stock market gains are due to “passive” investments like indices and ETFs rather than active management, and tight yields are unsustainable as and when Central Banks normalise and interest rates climb higher. (Actually, I think rising interest rates are further away than many think!)

But, the bottom line is financial asset prices continue to rise despite our disbelief! Should you buy into the story at this stage in the game? The rule remains – don’t join the last 5% of a rally just so you can catch the first 25% of the subsequent crash!

There are other games to play – and that's to look for real value opportunities out there. There are many stories – some of which are risk and obvious, some of which require a little more imagination.

For instance, financials have become a real “catch a falling knife” sector in recent years. Everyone is very aware of capital risk – the risk a central bank or regulator might decide a bank’s capital position is unsustainable and bail-in debt investors across the curve. It's only happem with a number of basket case Olive-belt banks thus far.

Banco Popular is an interesting one – back in the pre-crisis days it was one of my top European bank stocks. It had a superb cost/income ratio, stuck to the retail businesses it knew well, had management focused on the bottom line and even a AAA rating for a long while. Now its in serious trouble with a massive Euro 37 bln NPL book – mainly from real estate. Its Capital COCO Perps are trading around 18% plus. Is it a buy?

Its put itself on the block to sell, sell assets or restructure. The stories are Bankia, Santander and BBVA are all keen to look, but we also know Sabadell and Caixa already decided it’s a “no-way Jose” story. The price is likely to remain highly volatile on any news – like another bank pulling out or rumours of an ECB capital discussion.

I’d be interested in any client views on POPSM.

And, also in banking, hats off to Lloyds – the last of the UK governments stake will be sold today, netting us taxpayers a modest £900 mm profit. Lloyds was a superb bank before the Global Financial Crisis (again sticking to its knitting and never pretending to be what it patently was not), but got hoisted on the petard of buying the toxic HBOS.

Put Lloyds in context of the RBOS bailout. The government put $46 bln into a bank that has subsequently managed to lose a further £56 bln, and is still essentially unfixed and unresolved. I must giggle at a chum of mine working there who thinks changing the name of their investment bank to Natwest will somehow make them more palatable…  Or how about Scotland? As the risk of Indyrep2 reduces, how do fancy buying Scottish debt at a considerable spread over gilts, when the risk is exactly the same.. (unless of course Scotland ever does get itself chucked out the UK!)

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lester1's picture

The biggest hedge fund in the world is the federal reserve's plunge protection Team which is unaudited, unregulated and able to use unlimited electronic money to buy assets and prope up assets. They have been kicking everybody's ass since 2008.

If the Fed is ever fully audited, we would find them owning all kinds of stocks and assets that they are not legally allowed to own.

meta-trader's picture

she was a waitress in a cocktail bar now she owns a jet...

_RRR_'s picture

but since no audit (you hear 'em laughing?) is gonna happen all you can do is buy more stawks, yes?

Arnold's picture

Bill needs to chill out in the bunker, or that impending stroke is going to catch up with him.

Silver Bug's picture

The crash is coming, it is unavoidable at this point, good riddance to this corrupt, phoney system. Tuff times lay ahead, but in the end, it will be a better system. Precious metals are the only salvation.

Buck Johnson's picture

"But, the bottom line is financial asset prices continue to rise despite our disbelief! Should you buy into the story at this stage in the game? The rule remains – don’t join the last 5% of a rally just so you can catch the first 25% of the subsequent crash!


fockewulf190's picture

When you have Central banks printing money out of thin air and buying everything under the sun with it, including stocks, what is so hard to figure out? We also know that pension funds are, or are on the verge of, blowing up, so if the assets they hold don't perform, there will be chaos. So preform they must. CNTL-P is the only answer they have left.

lester1's picture

The biggest hedge fund in the world is the federal reserve's plunge protection Team which is unaudited, unregulated and able to use unlimited electronic money to buy assets and prope up assets. They have been kicking everybody's ass since 2008.

If the Fed is ever fully audited, we would find them owning all kinds of stocks and assets that they are not legally allowed to own.

The_Dude's picture

What about 'CB's buying everything not locked down and then monetizing it all' don't you understand?

overmedicatedundersexed's picture

I am now  smart enough to get out ahead of the crowd..I guess I was alot dumber in 2008..but this time I will sell before the crash, cause well I am smart now..


NoDebt's picture

Border wall.  Tax cuts.  Whrere are we on this bet again?

Heh heh heh.  ;)


overmedicatedundersexed's picture

I hear that train a commin commin down the will lose.

Arnold's picture

I killed a man in Reno, just to watch him die.

_RRR_'s picture

don't build no border wall for stock prices, it'll get overrun

Arnold's picture

You cannot recover yesterdays.

_RRR_'s picture

the FED can, there's nothing they can't do

Arnold's picture

The first time I ran into this concept, I was running a dirt job.

I had more operators than machines for a day and since his regular machine was down for service, my chosen operator, was given a choice.
Sit with pay, peddle a truck or open the bar early.
Two out of the three were paydays.

He chose the third, and for years afterword I took his shit for sitting him down, missing a day of pay, that he would never recover.

TheSilentMajority's picture

It is actually, as they say, "different this time".

Its a fact that the BOJ, SNB, ECB are all aggresively printing money and using it to buy USA equities.

Let it Go's picture

I'm reminded of the line, "Its not over until its over!" One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses.

One thing is clear, the central bank's large foray into stock ownership represents more than just a moral hazard and in many ways, it paves the path for a liquidity crisis in our future. More on this subject in the article below.

Last of the Middle Class's picture

The Fed IS the market now. All the talk of unwinding, deleveraging, slowing QE is just a head fake who's goal is to lead to an artificial raise in rates simply for the "recovery" propaganda to be unleashed at some point. The lunatics are running the asylum when the Fed prints enough to cover even the raising of interest rates which is the game plan I've said all along just in order to meet the "we're in recovery phase" optic. The ACA act and other massive federal interventions will never let the economy recover enough on it's own so the QE, stealth, or other wilse will continue. This will in turn exacerbate the growing wealth divide and prop up the stock market, which at this point is so far out of touch with reality, it's become a barometer of how horrible the economy really is. Every day I see a higher Dow, I cringe at what it is truly costing our economy simply for one optic, and apparently we have another president who is clueless about what really MAGA. So sad

Dilluminati's picture

The real economy is at a disconnect with the digital economy,  I'm sort of laughing at the appearances of it to some.  But the story is correct that the distortions create a drive to be included, the markets are going up and I want my piece of the pie.  Whenever you hear people say disregard valuations they own that asset.  The McMansion bought in 2006 and underwater if that theory was correct would be worth multiples of it's purchase value and it is not.

I'll make a further speculation and it is of course sound, but those who don't exit and are looking at a > than 15 year horizon are going to endure one of the longest recoveries since the middle ages.  Efectively debt deflation and population demographics assure it.  But if your real estate worked out for you in 2006 then you want more of the exasperated valuations.  

Take Ford yesterday and the announcements they made.  That sound like a robust economy or another correction?  Any optomism that trump would fix obomacare seems to be drowned in fueding and fighting, don't expect any tax relief.  I'm glad that people are buying these valuations as it affords me time to reposition and buy that base model car at 0% @ 36.  (need cash much detroit?) I hope this continues until I get some more certifications under my belt and then I'll roll MOAR into savings.  When it does correct heavy contributors to 401K are going to take a hit and that is a larger segment of our economy, those last holding the stocks are going to experience a recovery time worse than Japan 1989 and with a younger generation that never knew savings accounts or anything but zirp.

One need look no further than Ford, dry shippers, and wages to conclude the truth.  

First they talk animal spirits, then valuation rules no longer apply, then how nobody could have seen this coming.  

Short humanity, short retail, short automotive, dry shippers, short common sense.

TheNuclearGenie's picture

I don't believe this at all. I have made a killing in the US markets since 09-10. Good luck trying to bet against the house. I know the FEDs got my back. Whos got yours?

Big Fat Bastard's picture

Did it make up for losing your ass the previous 10 years?

SubjectivObject's picture

Near as I can tell from day to day prices/costs, inflation is ON.

quiet as it's kept ....

[not in precious metals, though, so stay away from those]

Big Fat Bastard's picture

Do you really believe wages are rising?


Don't be foolish.

Big Fat Bastard's picture

Get what you can get for your rapidly declining house today because it's going to be less tomorrow for decades to come.

Money_for_Nothing's picture

Local Governments go under financially if house prices decline significantly. If prices collapse then deflation will make houses expensive at the new lower price. A house almost paid for is a target for foreclosure. So pay off what you can as fast as you can.

Big Fat Bastard's picture

Nonsense. Municipalities just adjust the mill rate to compensate. They've been doing it for decades.


Housing prices have a very long way to fall.

East Indian's picture

There is a hidden player in the game - the central banksters and their proxy banksters and their favourite borrowers of the first resort - with bottomless pockets of vacuum backed "money"; they are going to buy out the whole world till there is nothing left to buy.

East Indian's picture

Sorry. I forget where I am. ZH readers know this very well.

Arnold's picture

It's okay,
Mohawks, when not working, are heavy drinkers.
We make broad allowances for good men.

Big Fat Bastard's picture

I guess that's a good thing considering nobody else is interested in buying it these prices.

Money_for_Nothing's picture

A simple explanation is FX fluctuations. Dollar going up or down to the Yen or Euro? Find a stock that trades a million shares a day and park your dollars there till you are ready to spend them. That way you don't have to pay negative interest rates to a bank.

Vlad the Inhaler's picture

You can read a billion articles about stocks being overvalued but what is the alternative, you think fund managers are just gonna sell and go to cash?  Not until they can tell their clients that they absolutely had to because the market crash was plastered all over the headlines.

ThanksIwillHaveAnother's picture

There is a way to audit the FED...storm it!  But the masses are too long gone.   So get ready for the worst.

ThanksIwillHaveAnother's picture

I am very disappointed in the Swiss Bank.   So much for sound money.  It was nice to know ya.

whatisthat's picture

I would observe the over leveraged derivatives markets will crash in due time.

whatisthat's picture

Which will flush the rigged and corrupt markets and for a short while..

whatisthat's picture

Look for buying opportunities after the derivatives crash..