Thursday, December 6th, 2012 @ 11:58am
In order to “save the world”, the Federal Reserve lowered interest rates to zero. It meant ostensibly, that companies that were laden with debt could refinance at advantageous rates. It also meant that those who “lived off the interest” saw their low-risk income dwindle to zero.
So Widows, Orphans and the incompetent or degenerate second and third generations of wealth had to find new income. But there was none, so they have been “living on the principal” for the past four years. It has served to eat away at the accumulated savings of the United States of America.
This policy was designed primarily to aid banks so they may rebuild their balance sheets after trillions in malinvestment. And now we have entered the second act in the “world with no yield.”
In this phase, corporations will eat through their savings in order to pay shareholders and keep them interested and happy. They are declaring special dividends from retained earnings or borrowing cheap money in order to pay dividends. These payouts are designed to attract the old yield-oriented investor because there is no place to get yield in the bond market without significant risk, even more so than ostensibly owning an equity.
So now corporate American and the world are burning through their savings to stay relevant. The Federal Reserve will burn through American’s cash in order to save the TBTF banks, and its working. Who will have to burn through their cash next? Will their be any left?
Tuesday, December 4th, 2012 @ 7:06pm
Just a few observations:
This Cliff shit is just Washington doing what it does best; mostly nothing. Can it be “solved”? Of course, eventually, and it won’t look like anyone expects. We are a crisis nation; when the government closes, then there will be a deal. But the media’s obsession with it is nauseating.
Where is Santa’s rally? Aside from the Thanksgiving Sprint it has been non-existent. I know everyone is hoping, looking and expecting one but we may just have a few false breakdowns and snap-backs before going nowhere.
After the holiday, market seasonality is not on the Bullish side. Whatever corporate earnings growth is expected is really just illusory and mostly non-existent. As the year ends, there is much position squaring and adjustments as the calendar year comes to a close, not unlike the end of the fiscal year that ends in October. And the media is still seemingly in election mode, with histrionics in every story, designed to scare you.
Look, we are in a world of economic problems as we have been for quite some time. Nothing has really changed other than Maxine Waters will be the ranking Democrat for the House Financial Services Committee. It should make for comedic gatherings.
One of the market’s biggest stories recently in the hunt for Steve Cohen as SAC Capital. Once day I’ll tell you the story about my job interview there in the mid-1990′s when they had a whopping $400 million under management.
I’ll bet that Steve is untouchable. But Ichan? Neflix ran 15% on a deal for Disney movies starting four years from now. Really? And Carl Ichan bought 10% of the company through OPTIONS barely one month ago. Please. Where is the SEC when you need them? And a renown journalist is willing to give him a free pass because he’s had losses in the past. Puleeze!
Thursday, November 29th, 2012 @ 12:01pm
Don't you just love the end of the month? You'll also love the end of the year coming right up...
After the end of the Fiscal Year in October, the SPX corrected about 100 points in two weeks. We made back exactly 75 points in the previous two weeks, including the Thanksgiving shortened holiday week.
During the correction, everything was a worry and everyone was pessimistic. Now that the technicals have turned, everyone has lost any semblance of worry and there is optimism about everything again.
I had though that perhaps this year would be an outlier, that we would have a sentiment-breaking down bearish holiday season. It's still early but it looks as it will again be more of same. The "V" bottom in many stocks and indices will keep markets elevated through the scheduled end of the world. But when the Fiscal Cliff has been scaled, it will be a sell the news reaction.
It is Fuckery of the highest order. Enjoy!
Tuesday, November 27th, 2012 @ 12:53pm
The longer you play the game the more predictable it becomes.
We know that the stock market is the last/greatest policy tool for government and thanks to Executive Order 12631, it is fully legal to intervene through whatever methods are necessary to stabilize or rally markets at any time.
Even in 2008, in the midst of the greatest crash of our lifetimes so far, the markets stabilized from Thanksgiving to shortly after Inauguration Day. Then they crashed again until the accounting rules were changed and money printing presses were started.
Like in so many years past, the Fiscal Year (no cliff) ended for money managers in October and profit taking began in earnest and across the board, but primarily in high-beta technology names like Apple. In two weeks the major indices lost 7-9%. But then, when nobody was paying attention, about half of the losses were made back in the holiday shortened week. Apple recovered $80 billion of market value in a few days. If you blinked you missed it.
Stocks are in "Sugar Plum Fairyland" this time of the year as markets trend higher about 80% of the Holiday Season. I'd like to think that this year will be the outlier, but the new reasons for caution, ie. the Cliff, is just another Red Herring Smokescreen to the real state of the economy.
We've just lived through another Black Friday shopping season and it is very much more of the same except more people are buying things with their phones. They are not buying more mind you, just coming through the newer doorway. And it is still very difficult to monetize as is much of the on-line world of advertising and e-commerce.
As we discussed last week, any pullback in dividend stocks was a gift of the first magnitude as there are few things more important to investors than the hunt for safe yield. "Growth" will trade up and down but yield will be the bedrock of retirement portfolios, taxes be damned.
The economic debate is meaningless as it is all just a show. There was a brief need for liquidity from market participants, but that has passed for now. So eat, drink and be merry!
Tuesday, November 20th, 2012 @ 1:42pm
Markets provide few surprises. A different Market Structure takes some acclimation time but market action seems to stay the same, year after year, cycle after cycle. Now that market participants seem to be used to 100% correlations or "the rising tide lifts or lowers all ships", the calendar dictates much while fundamentals remain mostly ignored. Do you mean to tell me that slowing earnings are meaningful to prices now or over the past few weeks versus a few months ago when it obviously began?
How about technicals, the "voodoo" that fundamentalists scoff at but traders worship? Amazing how that long term uptrend remains intact, even if violated by a hair! And in many circumstances, when its obvious, its obviously not (thanks LR).
Without QE Infinity, the market would be significantly lower. But that policy is no longer as powerful as in the past as it is now well known and depended upon by markets. And in a world awash with liquidity, there is none when you need it. Just look at Apple. It fell EXACTLY 200 POINTS or 28.3% in a few weeks. It then rallied 67 points or .335% of that entire loss in less than two sessions. That, my friends, is Bear Market action from a technical perspective. Never mind that each point represents one billion dollars in market value. Its just Monopoly money now.
My thoughts about how the markets are being "used" remains the same as it has been over these past few years: It is simply a tool that buys confidence in our warped and distorted economic system. Forget about everything you know and just think about this: A rising stock market buys hope and confidence and covers a myriad of sins. A falling market destroys that confidence and exposed all sins. If you were in charge of the money, what would YOU do?
Though it is the Boolish Holiday Season, the risk of another market dislocation continues to be a real possibility, especially with the structure of illiquidity that our equity markets have become. But if you must put money to work, buy the highest quality dividend stocks that have recently sold off in anticipation of a dividend tax hike. No matter what the taxes are, capital will continue to circle back to dependable yield because there won't be much virtually anywhere.
Have a safe and happy Thanksgiving!