Mohamed El-Erian's comments this week caused a stir among the status quo-huggers, as they were clearly a valuation call on the financial markets suggesting that currently having capital invested was likely to yield substantially lower or negative return in the future. This is an extremely important concept in understanding the "real value of cash." Not unlike the rhetoric of the late 1990’s or mid-2000’s, there is no shortage of rationalizations for why such currently extraordinary valuations are reasonable and justifiable. The fact remains firmly in place, stocks are expensive. Of course, since Wall Street does not make fees on investors holding cash, maybe there is another reason they are so adamant that you remain invested all the time.
Huxley’s words describe a psychological condition termed cognitive dissonance. According to the American Psychological Association, cognitive dissonance is induced when a person holds two contradictory beliefs, or when a belief is incongruent with an action that the person has chosen freely to perform. Cognitive dissonance is on full display today in the financial markets. The U.S. economy has been supported for seven years by a zero interest rate policy, record fiscal deficits and unprecedented surges in the money supply. Despite all of the stimuli, the economy is slogging along well below trend. The actions taken by the Federal Reserve, federal government and governments around the world are unprecedented. In a normally functioning economy such actions would generate massive growth and inflation. Since growth has been tepid and inflation benign, there is obviously something amiss.
Many recent commentaries have noted a distinct devolution in the numerical lies which the U.S. government calls its “economic statistics”. Numbers which used to be mere exaggerations (i.e. used to somewhat mirror the real world) have now become literally perverse: opposite to reality.
In so many ways, Warren Buffett and modern America are the same thing. An idea packaged and marketed so brilliantly, most of humanity unquestionably believes the myth. However, when you look beneath the surface, it becomes increasingly clear that neither of them actually come close to what’s printed on the package.
With 30% of the 'money' in Chinese stocks officially 'dumb money' and leverage of epic proportions, it is hardly surprising that the wealthiest of wealthy are - allegedly - taking advantage. As the broad Chinese stock market has surged, Hanergy Holding Group - the world's largest solar power company - has seen its stock price triple in a few months with late-day surges driving a lot of the gains. Amid accusations from the industry, Hanergy's chairman, Li Hejun - among China's wealthiest - has denied manipulation of its stock price, suggesting the public's recognition of the thin-film power generation's prospect is the reason... sure...
Warren Buffett is revered all over the place, but in reality, he’s the schoolbook example of everything that’s wrong with America. That whole money before and over anything else (including people’s health and well-being) mentality. It makes people stupid, and it makes for stupid people. And sick ones, too. This Tragedy of the Commons abuse is so ingrained in the economy that it’s hard to see how it can be changed. And that does not bode well for anyone except the Warren Buffetts profiteering from it.
“If you’re unhappy with what you’ve had over the last 50 years, you have an unfortunate misappraisal of life... should all be prepared for adjusting to a world that is harder..."
Some people never learn. Even though we’ve experienced two horrific stock market crashes in the last fifteen years, with losses of 40% to 80%, the professional monkeys posing as investment experts ignore facts, history, and common sense. Will the Ivy League MBA’s heed these warnings? Not a chance. They think they are the smartest guys in the room.
- ECB Tells Greek Banks Not to Boost Exposure to Athens Government’s Debt (WSJ)
- Search teams probe wreckage of jet in French Alps (Reuters)
- Flight Recorders Offer Best Hope of Explaining Jet’s Fatal Drop (BBG)
- Yemen Houthi militia sweeps toward Aden in threat to president (Reuters)
- In Nigeria, Oil Price’s Slide Deters Theft (WSJ)
- Saudi Arabia building up military near Yemen border (Reuters)
- Quant Who Shook the Financial World Tries More Humble Approach (BBG)
- Executive Pensions Are Swelling at Top Companies (WSJ)
Thousands Of Layoffs Coming After Buffett Merges Heinz With Kraft, Creating 5th Largest Food Company In The WorldSubmitted by Tyler Durden on 03/25/2015 05:37 -0500
Another day, another mega-M&A deal taking advantage of abnormally low bond rates, this time however not involving biotechs or a specialty pharma seeking to purchase a debt-free balance sheet, but one involving the Oracle of Omaha himself, and his Heinz investment, which will merge with Kraft Foods whose market cap was over $40 billion this morning on the news of the merger, and create the third largest food and beverage company in the US, and 5th largest in the world. And while the resulting company will certainly be a food giant, here is the rationale behind the deal and the punchline for American workers: "significant synergy opportunities." Translation: thousands of layoffs imminent.
Recall Lenin’s quote: “The capitalists will sell us the rope with which we will hang them.” Today, of course, the capitalists don’t even sell the rope; they give it away, for nothing. But what’s not to like? Stock investors are getting rich. Bondholders are making money. The government can spend as much as it likes. And the voters are bamboozled by it; they think it helps make the economy work better. This is going to be a hard habit to break. So, here’s the gist of my conclusion: Governments won’t break the habit of getting something for nothing. It will break them. But how?
Whether it’s subprime auto lending, Janet Yellen’s “stretched” biotech sector, or corporate credit, bubbles abound in today’s fragile market. Prem Watsa thinks valuations in one sector are particularly outrageous.
There is a tremendous denial by analysts and economists currently of the deteriorating economic underpinnings.
As HFT shops begin to turn on each other, it seems appropriate to reflect on the impact that Michael Lewis' Flash Boys book had on exposing the ugly truth that many have been discussing for years in US (and international) equity (and non-equity) markets. As Lewis concludes, after explaining the attacks he has suffered from the HFT industry, "If I didn't do more to distinguish 'good' H.F.T. from 'bad' H.F.T., it was because I saw, early on, that there was no practical way for me or anyone else... to do it. ... The big banks and the exchanges [have] been paid to compromise investors’ interests while pretending to guard those interests. I was surprised more people weren’t angry with them."