While the punchline of this post is well-known by everyone, and even the Federal Reserve finally admits that its own actions have led to record inequality and a world in which the rich have never been richer and poor, never been poorer (over the objections of some certifiable lunatics), we find it amazing that even the banks – those ultimate beneficiaries of every action by the Fed in the past 7 years – are now openly trolling what little is left of the middle class.
Presenting: Bank of America’s chart showing who the undisputed victor in that age-old war between Wall Street and Main Street, truly is.
“So what chu gonna do about it?”
– Bank of Countrywide Lynch (already bailed out once by Main Street)
Over the weekend, we first reported that none other than Nobel prize winner Robert Shiller said that in his opinion, unlike 1929, this time everything – stocks, bonds and housing – was overvalued. Curiously, none other than Goldman’s chief equity strategist, David Kostin echoed this sentiment when in his latest weekly note to clients he said that “by almost any measure, US equity valuations look expensive. The typical stock in the S&P 500 trades at 18.1x forward earnings, ranking at the 98th percentile of historical valuation since 1976. For the overall index, the aggregate forward P/E multiple equals 17.2x, a rise of 63% since September 2011, compared with the median expansion of 48% during 9 previous P/E expansion cycles. Financial metrics such as EV/EBITDA, EV/Sales, and P/B also suggest that US stocks have stretched valuations. With tightening on the horizon, the P/E expansion phase of the current bull market is behind us.”
Are stocks overvalued? By just about any measure that you could possibly name, stocks are at historically high prices right now. From a technical standpoint, the stock market is more overvalued today than it was just prior to the last financial crisis. The only two moments in U.S. history that even compare to our current state of affairs are the run up to the stock market crash of 1929 and the peak of the hysteria just before the dotcom bubble burst. It is so obvious that stocks are in a bubble that even Janet Yellen has talked about it, but of course she will never admit that the Federal Reserve has played a key role in creating this bubble. They say that hindsight is 20/20, but what is happening right in front of our eyes in 2015 is so obvious that everyone should be able to see it. Just like with all other financial bubbles throughout our history, someday people will look back and talk about how stupid we all were. Continue reading »
The Federal Reserve has a two-day meeting this week. CNBC World asked Peter Schiff what he expects the results of the meeting will be. Peter argued that the Fed will continue to bluff about raising interest rates. He believes a fourth round of quantitative easing is more likely in the next year.
Follow along with this transcript:
Peter: The bigger problem for the US market is the softening US data that came out today. And now the weakening US dollar, which I think is about to get a lot weaker as people get their arms around the real predicament that the US economy is in. Continue reading »
Now that the confusion and the initial smoke following the stunning CFTC/DOJ/FBI allegation that the entire Flash Crash was the result of just one high latency UK trader’s actions has cleared, several critical things have emerged.
First: Nav Sarao not a typical massively funded, connected and lobby-protected High Frequency Trader, such as Citadel or Virtu, using countless algos across numerous fragmented markets to frontrun size order blocks, but an old-school “point and click” prop trader. This is how he described his trading style in a response to the UK regulator:
I am an old school point and click prop trader. To this day I am still using the mouse to trade. That is how I trade, that is how I always have traded, admittedly very very fast because I have always been good with reflexes and doing things quick. My trading is for the most part very short term and for very small profits, a large proportion of my profits are 1 price movements, which in the eminiSP’s case would be a quarter of a tick. I have also take longer term positions In the past and my biggest day was actually made for the most part whilst I was sleeping! Continue reading »
Well, the Nasdaq finally did it. It has climbed all the way back to where it was at the peak of the dotcom bubble. Back in March 2000, the Nasdaq set an all-time record high of 5,048.62. On Thursday, after all these years, that all-time record was finally eclipsed. The Nasdaq closed at 5056.06, and Wall Street greatly rejoiced. So if you invested in the Nasdaq at the peak of the dotcom bubble, you are just finally breaking even 15 years later. Unfortunately, the truth is that stocks have not been soaring because the U.S. economy is fundamentally strong. Just like the last two times, what we are witnessing is an irrational financial bubble. Sometimes these irrational bubbles can last for a surprisingly long time, but in the end they always burst. And even now there are signs of economic trouble bubbling to the surface all around us.
The following are 11 signs that we are entering the next phase of the global economic crisis: Continue reading »
There are several notable items in Bloomberg’s comprehensive overnight summary of the epic humiliation America’s market regulators are about to undergo, complete with yet another round of theatrical Congressional kangaroo courts, which will lead to a lot of red faces, a wrist slap or two and maybe even the termination of one or two lowly employees and… nothing else.
Because what difference does it make?
At this point only a bottom-up overhaul can “fix” the fragmented, broken market which by definition can only come after the next market crash, one which will promptly be blamed on HFTs (which leaving the central bankers unscathed).
Back to the Bloomberg piece in which we first discover that it wasn’t even the CFTC that, 5 years later, “figured out” the flash crash was one person’s fault: Continue reading »
“Fed has created abnormal market conditions by printing money and keeping interest rates low. Investors are looking for growth anywhere they can find it and tech companies are good targets – at these values, however, all tech stocks are expensive – even looking at 5+ years of revenue growth down the road. This means that most value-driven investors have left the market and the remaining 5-10%+ increase in market value will be driven by momentum investors. At some point there won’t be any momentum investors left buying at higher prices, and the market begins to tumble. May be 10-20% correction or something more significant, especially in tech stocks.”
Back in December, following the Sony email leak, the world was granted a second (again uninvited) glimpse into the private life and thoughts of the person who had previously suffered another email leak, this time exposing his fraternity days explots: Snapchat founder and CEO Evan Spiegel.
And while many have been quick to mock Spiegel for some of his boyish ways, the reality is that the not only is the 24-year-old the world’s youngest billionaire, but he has quickly won the admiration of Silicon Valley’s brand names like Twitter CEO Dick Costolo who has said “I really think he is one of the best product thinkers out there right now.” Continue reading »
Get ready for another major worldwide credit crunch. Today, the entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever. If you can believe it, the total amount of global debt has risen by $35 trillion since the last crisis. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again. For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“. And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone. On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States. All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.
Over the past six months, the Chinese stock market has exploded upward even as the overall Chinese economy has started to slow down. Investors have been using something called “umbrella trusts” to finance a lot of these stock purchases, and these umbrella trusts have given them the ability to have much more leverage than normal brokerage financing would allow. This works great as long as stocks go up. Once they start going down, the losses can be absolutely staggering.
So the fundamental case for a 20 year bull run as BMO is calling for and certainly many other banks seem to be onboard with that is not looking great YTD. In fact, most perma bulls have shy’d away from even mentioning fundamentals other than to say that generally they aren’t looking great but don’t worry the Fed is still engaged. And so I feel its a worthwhile exercise to have a look at the technicals. Thing about the technicals is that you can cherry pick any baseline point to really make any case, good or bad. But if we take a look at a time period that encompasses several cycles we negate our ability to cherry pick the baseline and we can be much more confident in our overall analysis. Continue reading »
Since most of you are too lazy to read Hussman’s brilliant analysis every week, I’ve picked out the key paragraphs from this week’s letter. For the really lazy, I’ve bolded the key sentences. The lemmings on Wall Street are still confident as they march in lockstep towards the cliff.
“A group of lemmings looks like a pack of individualists compared with Wall Street when it gets a concept in its teeth.”– Warren Buffett
I had very vocal concerns about valuation during the tech bubble and the housing bubble, well before they burst. But it was a specific combination: extreme valuation coupled with fresh deterioration in market internals – the same combination we observe presently – that provided us with timely evidence that market conditions had shifted to urgent risk at what in hindsight turned out to be the very beginning of the 2000-2002 and 2007-2009 collapses. Those collapses wiped out the entire total return of the S&P 500 – in excess of Treasury bills – all the way back to May 1996, and June 1995, respectively, despite aggressive Fed easing in both instances. Don’t imagine that the current bubble will avoid a similar completion.Continue reading »
“I just have the same horrific sense I had” before, Druckenmiller said to an audience at the Lost Tree Club in North Palm Beach, Florida (according to a transcript obtained by Bloomberg). “Our monetary policy is so much more reckless and so much more aggressively pushing the people in this room and everybody else out the risk curve that we’re doubling down on the same policy that really put us there.”