This weekend's reading list is a smattering of articles to enjoy between your favorite beverage, grilled meat and really fattening desert. Just remember to go back to the gym on Monday...
Yes, the clock’s ticking louder, louder, warns the Economist, “only a matter of time before the next recession strikes.” Unfortunately, the “rich world is not ready.” America’s not prepared. You are not ready.
Today will go down in history as one of the worst times in history to be invested in the stock market. Virtually no one believes this statement. That is why it will prove to be true. Every valuation method known to mankind is flashing red. A crash is baked in the cake. Will the trigger be Greek default, a Chinese market crash, a Fed rate increase, a derivative bet going boom, a Middle East event, someone doing something stupid in the South China Sea, a Ukrainian eruption, or a butterfly flapping its wings? When greed turns to fear, for whatever reason, the house of cards will collapse for the 3rd time in 15 years. Thank the “brilliant” bankers at the Federal Reserve.
Although a slew of ‘experts’ say the darndest things (e.g.Bloomberg ‘Intelligence’s Carl Riccadonna: “You had equity markets benefit from QE, but eventually QE also jump-started the broader recovery.. Ultimately everyone’s benefiting.”), we can’t get rid of this one other nagging question: who needs an expert to tell them that today’s markets are riddled with bubbles, given that they are the size of obese gigantosauruses about to pump out quadruplets?
“When does our credit based financial system sputter / break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit and stocks begin to be exchanged for figurative and sometimes literal money in a mattress.” We are approaching that point now as bond yields, credit spreads and stock prices have brought financial wealth forward to the point of exhaustion. A rational investor must indeed have a sense of an ending, not another Lehman crash, but a crush of perpetual bull market enthusiasm.
"...markets can turn from tranquil to turbulent in short order. It is worth noting that in 2006 volatility was low, and companies were generating record pro?t margins, until the business cycle came to an abrupt halt due to events that many people had not anticipated. Although investor appetite for equities may remain robust in the near term, because of positive equity fundamentals and low yields in other asset classes, history shows high valuations carry inherent risk... potential ?nancial stability risks arising from leverage, compressed pricing of risk, interconnectedness, and complexity deserve further attention and analysis."
The bust of Aussie boom-towns, collapse of the mining industry, dramatic capital outflows, and a bursting housing bubble all have one thing in common, according to billionaire hedge fund manager Crispin Odey - "China is everything to Australia in lots of ways." Simply put, he tells The Australian Financial Review, economies dependent on China for income, including Australia, are headed for recession and central banks will not be able to able to come to the rescue because they have exhausted the arsenal of policy weapons. "We've got a very old-fashioned recession which is spreading across the world," and Australian banks face a tough time ahead too because there are indications bad debt risks are rising.
Rich valuations point to the likelihood of low returns across asset classes. [W]e develop a cross-asset approach to risk premia and implement it across the asset classes. The results show that valuations are rich across the board. This indicates markets may become shaky as we get closer to the first Fed rate hike in nine years.
As an investor, it is simply your job to step away from your "emotions" for a moment and look objectively at the market around you. Is it currently dominated by "greed" or "fear?" Your long-term returns will depend greatly not only on how you answer that question, but to manage the inherent risk. “The investor’s chief problem – and even his worst enemy – is likely to be himself.” - Benjamin Graham
About That 2100 S&P Target For 2015, Goldman Was Only Kidding, Now Sees Even More Ridiculous Multiple ExpansionSubmitted by Tyler Durden on 12/06/2014 16:14 -0400
It was just one short month ago when, on the back of the soaring dollar (which has since soared even more), as well as "diminished global GDP growth and lower crude prices", Goldman's David Kostin cut his EPS for 2015 and 2016 from $125 and $132 to $122 and $131. Then, it was just two short weeks ago, the same David Kostin said "we expect the P/E will contract and the index will slip during the second-half of 2015 as the Fed takes its first step in the long-awaited tightening cycle. Our S&P 500 year-end 2015 target of 2100 implies a modest 5-10% P/E multiple compression to 16.0x our top-down 2016 EPS estimate or 14.6x bottom-up consensus earnings estimates." And then, with the S&P now about 20 points away from Goldman's 2015 year end target (and just 120 points from the government-backed hedge fund's 2016 year end target!), the very same David Kostin admits that he was only kidding and that the S&P may in fact rise to a whopping 2300 in the coming year...
There is a saying that you don’t ring bells at the top. It’s not really true. Every time the market forms a major peak, at least in the last 15 years, there are usually a preponderance of signs of excessive speculation and leverage.
Is the price of oil today driven more by global growth and supply/demand factors or by monetary policy factors? We hope it doesn’t surprise anyone when we say that we think monetary policy dominates ALL markets today, including the global oil market. What’s the ratio? Our personal, entirely subjective view is that oil prices over the past 3+ months have been driven by 3 parts monetary policy to 1 part fundamentals. How do we come up with this ratio? For the past 3+ months the oil Narrative has been dominated by public statements from influential answer-suppliers talking up the oil price dynamic of a rising dollar and monetary policy divergence. That’s the source of our subjective view of a 3:1 dominance for monetary policy-driven factors over fundamental-driven factors. However – and this is the adaptive part where we play close attention to Narrative development and dissemination – the noise level surrounding this Thursday’s OPEC meeting is absolutely deafening.
"My personal fond hope and expectation is still for a market that runs deep into bubble territory (which starts, as mentioned earlier, at 2250 on the S&P 500 on our data) before crashing as it always does. Hopefully by then, but depending on what the rest of the world’s equities do, our holdings of global equities will be down to 20% or less. Usually the bubble excitement – which seems inevitably to be led by U.S. markets – starts about now, entering the sweet spot of the Presidential Cycle’s year three, but occasionally, as you have probably discovered the hard way already, history can be a snare and not a help." - Jeremy Grantham
The financial, economic and political system has been captured by corporate fascist psychopaths. The Federal Reserve has aided and abetted this takeover. Their monetary manipulations have resulted in this deformity. The American middle class has been murdered. Decades of declining real wages have left them virtually penniless, in debt up to their eyeballs, angry, frustrated, and unable to jump start our moribund economy by buying more Chinese produced crap. Yellen, her Wall Street puppeteers, and the corporate titans should enjoy those record profits and record stock market highs. The artificial boom will lead to a real depression. Luckily for the oligarchs, most middle class Americans are already experiencing a depression and won’t notice the difference.