• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

The Stock Ramp Is Just More Deja Vu "Insanity" Warns Morgan Stanley

Tyler Durden's picture




 

When Morgan Stanley now agrees with most of what Zero Hedge has been saying (especially when it earlier announced that a short covering rally in the EURUSD is imminent, as we have been warning for the past two weeks), it may be time to get concerned. From Morgan Stanley: "Most investors I speak with concur with the view that growth is likely to be below trend for the next several years thanks to deleveraging and a more stringent regulatory environment. However, there is quite a bit of excitement over the probability of QE3 being implemented at some point during 2Q. Exhibit 5 shows just how excited stock investors seem to be getting over this prospect, especially in relation to their fixed income peers. But, this is almost always the case when animal spirits get going. The last time I pointed out such a divergence (October of last year), the SPX had a swift 10% correction over the proceeding 3 weeks. I have no idea whether we are likely to get such a correctly immediately, but I sure can’t rule it out and I am pretty confident you won’t be able to get out of the way unscathed. Just  another reason for why I want to be paired off right now." Also, this time will never be different: "Didn’t we learn anything from the Japanese experience of the past 20 years! I might be more on board with the program if I thought we were making real progress on the things that matter for sustainable organic growth. Unfortunately, I just don’t see it."

Morgan Stanley's Mike Wilson

Insanity

Wasn’t it just a year ago that we had the exact same set-up? Growth was slowing, Greece was close to default and there was unrest in Middle East. I guess one could argue China is no longer tightening policy and Europe is closer to the end of their crisis. On the other hand, earnings growth in the US is now decelerating and likely to get worse over the next several quarters. Furthermore, the political environment in the US has rarely been more charged and bipartisan than it is today. The S&P500 is trading almost exactly where it was at this time last year, but with a lower multiple. This is the direct result of higher earnings in 2011 than 2010 but with the prospect of lower growth going forward. This makes sense to me. Most investors I speak with concur with the view that growth is likely to be below trend for the next several years thanks to deleveraging and a more stringent regulatory environment. However, there is quite a bit of excitement over the probability of QE3 being implemented at some point during 2Q. Exhibit 5 shows just how excited stock investors seem to be getting over this prospect, especially in relation to their fixed income peers. But, this is almost always the case when animal spirits get going. The last time I pointed out such a divergence (October of last year), the SPX had a swift 10% correction over the proceeding 3 weeks. I have no idea whether we are likely to get such a correctly immediately, but I sure can’t rule it out and I am pretty confident you won’t be able to get out of the way unscathed. Just  another reason for why I want to be paired off right now.

I’d like to end this week’s note with a quote from Albert Einstein who said “Insanity is doing the same thing over and over again expecting a different outcome.” I feel like this is exactly where we are today with respect to the policy choices being made all over the world. Do we really think the result of QE3 is going to be any different than QE2? Or that the second European LTRO is going to end up resolving Europe’s solvency problems simply because the Fed is now supporting a larger effort via its open swaps line? Didn’t we learn anything from the Japanese experience of the past 20 years! I might be more on board with the program if I thought we were making real progress on the things that matter for sustainable organic growth. Unfortunately, I just don’t see it. While I am watching many things to determine if the facts are actually changing, there is one metric in particular that has to turn for me to get more constructive fundamentally. I am talking about personal income growth excluding government transfers. Until this shows some signs of life, I will remain highly skeptical that additional policy stimulus will end differently than what we have recently experienced. Exhibit 6 tells the sad story of our current plight and how this current rally will likely end. Until then, I will look forward to my next lunch with Adam Parker.

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Fri, 01/20/2012 - 13:26 | 2081468 the grateful un...
the grateful unemployed's picture

that should be "What the HELL is this?"

Fri, 01/20/2012 - 13:51 | 2081554 Vaiman
Vaiman's picture

This is freakin insane!!  As per CNBC

Greece, Creditors Near Debt Swap Deal With 70% Loss

Might as well give them squat cause that's what they are offering them!

Fri, 01/20/2012 - 14:11 | 2081627 Rynak
Rynak's picture

"this" is not even adjusted for real inflation....

Fri, 01/20/2012 - 14:43 | 2081760 slaughterer
slaughterer's picture

Insanity or not: As a bear, I will need to order large quantities of adult diapers if ES cracks 1320.  

Fri, 01/20/2012 - 14:57 | 2081819 Hober Mallow
Hober Mallow's picture

Be brave, just a bit more and you will be rewarded on your shorts

Fri, 01/20/2012 - 15:26 | 2081951 bigun
bigun's picture

hope ur not highly levered cuz... "the markets can stay irrational longer than you can stay solvent" -some famous dude

Fri, 01/20/2012 - 19:38 | 2082793 ucsbcanuck
ucsbcanuck's picture

Keynes was the famous dude

Sat, 01/21/2012 - 03:37 | 2083661 resurger
resurger's picture

Bears are going to party soon

Fri, 01/20/2012 - 13:28 | 2081471 ekm
ekm's picture

Too bad. They are going to fire Mike Wilson now.

This is group insanity, pure and simple. I hope Mike still keeps his job.

Fri, 01/20/2012 - 13:52 | 2081555 orangedrinkandchips
orangedrinkandchips's picture

ekm,

 

so true, so true...."the nail that sticks out gets hammered down!" Japanese proverb....in amerika we say "smell ya later"

 

It's like my kids, who know everything, just ask, "this time is different".

 

50% bulls in the AAII...sure glad to see Mike, who obviously isnt a young 20 sumptin (not like that is a bad thing!) and he's been here before....not to mention THAT IS WHAT RESEARCH IS ABOUT.....PERIOD.

 

people pay for The Street bullshit.....whoo-hoo! Im 23 and know what R squared and CAPM is!! Im a fucking genius!

Fri, 01/20/2012 - 13:28 | 2081472 Chuck Bone
Chuck Bone's picture

The real insanity is the accelerated rate of debt growth creating lower marginal GDP returns, both in the US and abroad. This is the view from inside an exponential function. It cannot sustain, and when the debt accumulation finally stops, it'll be at least a 10% hit to GDP.

Fri, 01/20/2012 - 13:37 | 2081506 Spacemoose
Spacemoose's picture

and worse than that, the 10% hit will be to REAL GDP and not the phoney government inflated GDP.  in other words, multiples of 10% in the world of real things.

Fri, 01/20/2012 - 13:46 | 2081537 trebuchet
trebuchet's picture

This source reporting details of the PSI bond deal in detail:

http://www.athensnews.gr/portal/1/52461

Fri, 01/20/2012 - 14:07 | 2081613 trebuchet
trebuchet's picture

The last para IIF asking for additional sweetener to get "voluntary" participation for 14.5bn march 20 bond holders. 

those are the holdouts.....

 

Fri, 01/20/2012 - 15:03 | 2081844 Nobody For President
Nobody For President's picture

Interesting:

"Firstly, Papademos has reportedly agreed to change the jurisdiction of the new bonds from Greek law - which covers the bulk of privately held Greek bonds (over 190bn euros) - into English law.   English law overwhelmingly favours the bondholders rather than the debtor in any claim arising from a possible future credit crisis, haircut or default of Greece, while at the same time ensuring that the bonds will remain denominated in the currency in which they are issued (euro) in case the country is forced to exit the eurozone or the currency union collapses." Looks like the graceful exit for Greece is getting set up nicely...
Fri, 01/20/2012 - 14:08 | 2081604 Manthong
Manthong's picture

QE3 is over.  The propaganda policy with big and little lies, intervention both covert and overt, as well as all the swaps on both sides of the pond provided enough juice to boost confidence and buoy the markets even in the face of credit rating smackdowns. The Chinese helped with their usual spate of fudged numbers.

Maybe they can extend the charade a bit longer without a zilion or two in new funny money, but they probably need a good excuse now in the the form of a correction to pull another trigger.

A good enough sized correction and renewed fears of Armegeddon will be enough to cow the pansies in Congress to giving the White House golf pro his next trillion and to loose the hounds of printing at the Fed. 

Fri, 01/20/2012 - 13:29 | 2081483 Stax Edwards
Stax Edwards's picture

Hmmm, you mean MS is short? (Doubles down long)

Fri, 01/20/2012 - 13:31 | 2081489 LawsofPhysics
LawsofPhysics's picture

Wait a second, I thought MS was "in the club".  

Fri, 01/20/2012 - 13:37 | 2081507 francis_sawyer
francis_sawyer's picture

two is company... three is a crowd...

Now - rethink whether MS is "in the club" or not...

Fri, 01/20/2012 - 13:31 | 2081491 Dr. Engali
Dr. Engali's picture

MS....yes the world is insane , but buy stocks anyway so we can get paid.

Fri, 01/20/2012 - 13:33 | 2081493 GeneMarchbanks
GeneMarchbanks's picture

"Didn’t we learn anything from the Japanese experience of the past 20 years! I might be more on board with the program if I thought we were making real progress on the things that matter for sustainable organic growth. Unfortunately, I just don’t see it."

"We" haven't obviously since "we" bailed out "your" bank you douchenozzle.

Fri, 01/20/2012 - 13:36 | 2081499 SheepDog-One
SheepDog-One's picture

'My God...its madness...havent we LEARNED anything from our past'?....says MS as they open their sack wide for more QE free money bailouts.

Fri, 01/20/2012 - 13:39 | 2081515 Caviar Emptor
Caviar Emptor's picture

Right on SheepDog

Fri, 01/20/2012 - 14:07 | 2081610 Bohemian Clubber
Bohemian Clubber's picture

LOL sounds like the wolf speaking to the red little riding hood...

Fri, 01/20/2012 - 13:39 | 2081495 SheepDog-One
SheepDog-One's picture

WOW its crazy seeing the complete unicorn rainbow S&P decoupling from everything. 200 S&P points are nothing but ether. And the craziest part is S&P used to LAG the others, now looks down on everything from a balloon.

Fri, 01/20/2012 - 13:40 | 2081516 CvlDobd
CvlDobd's picture

I think they broke the spirit of many bears with the global central bank coordinated BS after Thanksgiving. that's where the decoupling started in earnest.

That Monday they broke me. Depending on how we close today I may have to close my XLK short.

Fri, 01/20/2012 - 13:43 | 2081529 SheepDog-One
SheepDog-One's picture

If thats true and all shorts/bears have given up, then next to be creamed will be the bulls, just like last time we were at DOW 12,700 and lost 1,200 points in a week. Cant perform a short squeeze rally with no shorts around.

Fri, 01/20/2012 - 13:46 | 2081536 Caviar Emptor
Caviar Emptor's picture

We got a slew of global CB coordinated bailouts/liquidity injections just this week a long with some fiscla juice: PBOC, ECB, IMF (ie Fed), US debt ceiling to get raised imminently, million mortgage writedowns underwritten by Treasury

Fri, 01/20/2012 - 13:52 | 2081561 Captain Kink
Captain Kink's picture

Exactly.  Be long...S&P 1350-1370 within 60 days. Sorry, Y'all.

Bring the Junk.

Fri, 01/20/2012 - 14:03 | 2081602 Stax Edwards
Stax Edwards's picture

Right there with you CK, get ur chips on the table fools

Fri, 01/20/2012 - 16:29 | 2081787 Captain Kink
Captain Kink's picture

let me go out on a very flimsy limb (technical analysis): S&P will revisit (albeit briefly) all time highs this calendar year. The upside for short ZHers is that Silver, now going to lead gold, will be 35+ in short order...and then higher still, to new highs... Same for gold. It's the liquidity that will drive it. Funny money everywhere! Or is that Foney Munny?

Fri, 01/20/2012 - 15:49 | 2081788 Captain Kink
Captain Kink's picture

And get long mortgages! DMO, DLTNX, etc

Fri, 01/20/2012 - 14:40 | 2081744 poor fella
poor fella's picture

No worries. Patience and lack of emotion towards the casino is best.

I picture Geithner flying a parasail screaming "HELL YEAH!" right before the updraft disappears and he loses lift entirely.

ratchet ratchet ratchet COLLAPSE ratchet ratchet ratchet COLLAPSE ratchet ratchet ratchet _____?

Fri, 01/20/2012 - 18:53 | 2082674 lotsoffun
lotsoffun's picture

this is instant gratification generation.  why wait 60 days, when that passes in two weeks?

you going to go short on it??

 

Fri, 01/20/2012 - 13:43 | 2081524 Caviar Emptor
Caviar Emptor's picture

One thing Faber got right: stocks are acting as an inflation hedge. One thing he got wrong: bonds are not a bubble. They're acting as a deflation hedge. That's got Biflation written all over it. MS covers both those concepts in this report. But they're calling for an imminent, long-term reversal in the trend. But there's no change whatever in the policies which global central banks are pursuing. The band plays on.....

Fri, 01/20/2012 - 14:01 | 2081591 Cdad
Cdad's picture

Dog,

Clear signs that the "melt up" "Santa Rally" "Year End" "Mutual Fund Monday" "Turn Around Tuesday" "Rotation" equity rally has already hit its peak and gone.

As has been the case for weeks now, individual equities are being carefully sold across all the sectors...as the Roach Motel [SPY] and other index ETFs hold up th appearance of market stability.  Truly stunning that anyone really thinks equities are a buy here...or that buyers will emerge from somewhere to take criminal syndicate Wall Street bankers out of their positions.

Broken market doing the fully monty today...clearly.  

Fri, 01/20/2012 - 13:36 | 2081501 Irish66
Irish66's picture

"What is This"....my checking account

Fri, 01/20/2012 - 14:40 | 2081750 andybev01
Fri, 01/20/2012 - 13:36 | 2081502 SeverinSlade
SeverinSlade's picture

Bernanke announcing QE3 with the S&P over 1300 and "encouraging" (laugh) US economic data...That's a good one.

Fri, 01/20/2012 - 13:44 | 2081530 SheepDog-One
SheepDog-One's picture

Theyre happy to let everyone believe in it.

Fri, 01/20/2012 - 13:46 | 2081538 alien-IQ
alien-IQ's picture

announcing QE 3 with the SP over 1300 would be laughable...if they cared what the people of this country thought. However...that is far from the case.

QE 3 with the SP at these lofty levels would mean maximum pain for the peasants and maximum pleasure for the oligarchs.

Who do you think will get their way?

Fri, 01/20/2012 - 13:59 | 2081586 SeverinSlade
SeverinSlade's picture

As I've pointed out before though, Bernanke launching QE3 at these levels will be seen as a villain who only cares about Wall Street (which is true but the idiot Sheeple don't know that).  Bernanke must be seen as a hero (repeat Time's Man of the Year)?

Fri, 01/20/2012 - 15:53 | 2082060 catacl1sm
catacl1sm's picture

The Fed only has to hint that QE will resume 'IF' things turn sour.

Sat, 01/21/2012 - 03:36 | 2083657 resurger
resurger's picture

Exactly! they can not QE3 if the economy is doing great... the only pretext for the QE would be if there is a nice crash coming on the way..

 

be patient, its going to come sooner than you would expect.

Fri, 01/20/2012 - 13:37 | 2081509 barliman
barliman's picture

 

Hmmmm, let's start a new internet meme ....

" Didn’t we learn anything from _________?"

 Fill in the blank! Like so:

" Didn’t we learn anything from the last two times the Fed did a headfake and only 'jawboned' about QE3?"

Of course not! That's the beauty of hopium!

barliman

Fri, 01/20/2012 - 13:46 | 2081510 LouisDega
LouisDega's picture

Stock ramp is Deja vu... Hmmm.. Will this be the topic in this weeks exiting episode of Things that make you go Hmmm?

Fri, 01/20/2012 - 13:39 | 2081512 TzaristBondHolder
TzaristBondHolder's picture

Not just insanity but madness.  The bank stocks are priced as low as 0.3 to book (in the case with BAC) - isn't it easier to review and adjust the book as the market clearly disagrees with the book value...

Fri, 01/20/2012 - 13:40 | 2081517 zerotohero
zerotohero's picture

Every cloud has a silver lining - just bought 50oz of maple leafs yesterday.......BITCHEZ.

Fri, 01/20/2012 - 13:41 | 2081523 alien-IQ
alien-IQ's picture

but that's all it is, a lining. take away that lining and what you have is a cloud...a very dark, dangerous cloud.

Fri, 01/20/2012 - 13:48 | 2081547 zerotohero
zerotohero's picture

At least the silver is hard and physical - the rest yes just an illusion that has been fed to us for decades.

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