Author Archives: Scott Bleier
After the failure of the Federal Reserve to truly stimulate the economy with trillions of dollars, the equity markets have done the heavy lifting. Because the stock market has rallied again past every historical norm, investor confidence has re-emerged, all in the space of one historic month.
One month of sustained gains has changed the picture everywhere. Most now truly believe that the problems and malaise that were evident as recent as last month have been nullified and that it is clear sailing regardless of the facts.
During this past month, the S&P 500 index has moved up over 125 points or over 8%. This gain comes after a rally that began in November of 2012 when the Federal Reserve promised to keep their monetary stimulus in place until unemployment reaches the mystical level of “full employment”.
That gave stock investors the green light to buy regardless of any news or scenario. We are now at all time highs for most of the indices and almost every indicator is past almost every record. There has been no pullback or correction and because “everyone” expects the overdue pullback, it has not yet happened.
Regardless of the reasons for this historic market, it has taken on the characteristics of past bull market phases. First the most economically sensitive groups rallied sharply. Then consumer stocks, then technology. Then the reach for anything with a safe yield combined with the “margin expansion” explanation. Then, finally, the short covering of the “worst” companies combined with the out-performance of the most lagging groups like shippers and Chinese scam companies.
Like in other bullish phases, it has taken the ability to set aside all caution and concern for risk in order to maximize profit. The exception is the long-term hold of those “old man stocks” with yield that has experienced historic multiple expansion. Even they are past historical multiple peaks.
But there is a road map and warning signs that must be heeded. The first to rally and most economically sensitive group, namely commodities, are very weak and have been this entire year. A year when records are being broken everywhere. Yet, according to analysts, during these historic gains the market is getting cheaper, not more expensive. Every doubter has hung up his hat after being “gored” by the bull. They have all been banished to a cave where they are cannibalizing each other just to survive as the market goes up every day without as much as a two day pause.
Certainly the latest phase in this Bull Market is fueled by endless POMO and by the April contributions to 401k’s combined with the largest “towel throw” in the past four years. And now with a one way market, low volatility and stability, we are invincible. But are we?
With 10% days in precious metals there is some new volatility afoot. Even if there is not and all negatives continue to be ignored, the technicals alone mandate a retracement that tests the breakouts that have occurred in individual stocks and the major indices.
A simple test of the latest primary breakout. After a parabolic breakout, that is the best case.
And based on my commentary you may think me “bearish”. “Agnostic” is the preferable description while I hold much of my old man stocks bought shortly after this record setting Bull Market began in 2010-2011. I have gone along for the ride without some mystical target top. I can appreciate that we are where we are, but can certainly doubt and even dislike how we got here!
Allow me to quote Bill Gates: “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
I know the site is focusing on specific trading ideas but I can’t help but look at the breadth and scope of the overall equity marketplace.
Today alone we have a big POMO day, David Tepper presenting his rip-snortingingly bullish “Tepperisms”, a terrific Tuesday being the 19th up in a row, a technical breakout for the major indices to new all time highs and massively monstrous moves in the heavily shorted names. It remains disassociated from the true economics and reality of the world yet is the picture of technical and situational perfection for markets to trade higher.
With Option Expiration coming on Friday and this being T+3 for Friday, it all feels a little blow-offie to me.
Maybe I’m just thinking in a anachronistic and linear way. Going without as much as a 5% correction since the QE-Forever rally began on November 16, 2012, we have gone above every historical norm of market action. This is precisely the reason that one can never say never nor always when it comes to market action.
Needless to say, the griddle is hot. Perhaps it can go on forever but I’m thinking that things are almost at the tipping point of being too lopsided based on the action both above and under the surface. My guess is that Op-Ex on Friday is the day to watch.
Today, Paul Krugman of the New York Times, liberal Keynesian and chief free money proponent asks why some investors hate the Chairman of the Federal Reserve, Ben Bernanke.
I Am Become Ben, Destroyer of Worlds
Joe Wiesenthal reports on Bernanke rage among hedge funders, and sure enough, here’s Paul Singer declaring not just that he dislikes Bernanke’s policies but that BB is destroying the very fabric of society.
I still don’t have this rage entirely figured out. In substantive terms, it’s really hard to justify. After all, the Fed is normally expected to cut rates when unemployment is high and inflation low; with unemployment high and inflation running below the Fed’s target, easy money is just what the textbook says you should be doing (and quantitative easing is just an attempt to get some traction with normal policy rates up against the zero lower bound). It’s the economic situation — an economy so depressed by private sector deleveraging that conventional monetary policy has reached its limit — that’s radical here, not the Fed’s response.
What about the self-interest of the hedgies? A guess may be that given they way they’re normally rewarded, with fees based on total profits (not profits relative to a market-average baseline — e.g., 2 and 20), they find themselves hurting financially from a low-yield world. Also, for whatever reason old hedge fund guys tend to be goldbugs and hyperinflation hypochondriacs — hyperchondriacs? — who are simultaneously sure that BB’s policies will produce Weimar redux and furious that so far they have done nothing of the kind.
He wonders why everyone hates zero percent interest rates because they are good for everyone and that inflation is better than the alternative. Ask those who live off the interest how they’re doing. But its not interest rates that has everyone all pissed off. It is something else entirely.
BERNANKE HAS DISRUPTED THE PRIMAL FORCES OF CAPITAL’S NATURE!
Buy creating capital (no pun intended) through the simple act of digital printing, and buying “assets” day after day, week after week, month after month and year after year, he has seismically shifted the rules of investing, capital formation and the ebb and flow of markets.
He has single handedly so warped investor psychology that there is a bone-fide expectation (self-fulfilling) that markets only go in one direction.
It removes the opportunity that comes with the mispricing of assets in a moribund economic environment. Instead, most assets are simply “too expensive” based on any traditional metrics or historical norms and those prices are “justified” based on the flow of cash from the FED. And please don’t give me a boilerplate answer about how the market has a 15 multiple. That is mostly based on Apple’s huge earnings and the too big to fail banks and their fictitious “earnings”.
So, why is Ben hated? There you go. Plus, this is the same reason that this is “the most hated rally in history”.
Here is the speech that Mr. Bernanke should receive:
This Bull Market may be the greatest in our investing lifetimes. Bigger and faster than the “Peace Dividend”, more broad based and adding more market capitalization than the “Tech-Bubble”. But each of these past huge bull market moves were based on some measure of real value. And those values were even perceived as ‘real’ during those booms.
What we now have, culminating with Apple’s huge debt offering (even though it has a hundred and fifty billion dollars in the bank), is based on the greatest IOU in history. And most are debts that cannot and will not ever be repaid. My guess is that most of the Sovereign portion will be “forgiven” or “extinguished”. I’m wondering if Central Bankers even have to repay debt.
For markets, the inmates have completely taken over the asylum. This is Attica and the authorities don’t even know where to begin to control the situation. But as long as markets are rising, there will be no call for bloodletting or the chopping off of heads. All country bond yields will hover just above zero, yet there will still be outrageous demand because there is simply so much money, so much liquidity that must find a home outside of cash.
We’ve been harping on the reality of the “Fantasy Market” for a couple of years now without trying to bet against it. QE has so perverted and warped the investment process that the markets have bought into a version of the Stockholm Syndrome because free money for markets are benign and good. For example, I pleaded for everyone to buy Verizon (VZ) around $30. Wall Street told you not to. I begged! And those who bought had to wait a year. Some even lost patience. Now the stock 80% higher and its yield has been cut in half. Yet it is now parabolic and you are told to buy it.
Now even the most bearish have thrown in the towel knowing that the trillions of dollars plunged into then markets has so changed the psychology of big investors as to prevent the liquidation of any real portfolios. Sure, there are flash crashes and big and fast moves. But the liquidity pumping from all corners has assured everyone that everything will be “market-perfect” until it ends, regardless of economic fundamentals. As long as we are “left alone” and the liquidity stays locked in the “closed loop” of the financial system, there is no limit.
But if you want to be anachronistic and think that chart patterns make a difference, or that “sell in May and go away” has a chance, please notice the formation of what may be a perfect near-term double top combined with a series of negative divergences. Historically, this is a very bearish pattern. I would lighten up if I was trading near-term but I am not prepared to bet against the greatest shift in investor psychology with endless liquidity in history.
I am thrilled to see that you’ve taken my advise and ceased your worry about “inside baseball stuff” like deflation and other economic nightmares.
After the worst week of the year for equities, a miserable year for anything economically sensitive like “metal” and the worst week for gold, silver and copper in decades, we are enjoying our best week of the year in all of the above.
European economies are plunging but their markets are soaring. Precious metals have rallied sharply. American indices are the number two performer in the entire world this year, right after Japan, and they are about to make new half-decade highs as the month ends.
Stocks routinely gallop or plunge 10-20% a day on no news. Lagging groups are now leading. Everyone is breathing a giant sigh of relief that there will be more free money forever.
Funny, while the markets were correcting there was a different FED HEAD Jawboning every single day. Now that the market is rallying, they have receded into the woodwork.
Someone wrote this week that the world has become a giant accounting fraud. Let me add that it is also a giant insider trading scheme perpetuated from the highest reaches of government. And we in the ever-shrinking world of finance, are only to happy to abide.
In fact, we depend on it.
Oh God! The gnashing of teeth, the newfound worry and doubt!
With economically sensitive stocks and commodities crashing, everyone is now worried that the reality of the real world is about to displace the distorting fantasy of QE, POMO, ZIRP and free money from helicopters.
Just because Apple has gained and lost $600 billion in market value over the past year?
The astrological signs have moved into disunion. The heavens are shifting. The major indices have pulled back and everyone is scared.
Yea of little faith in St. Ben! A little ebb & flow is a good thing. But just be careful in chasing the winners as they are more than a little expensive, historically.