Thursday, November 11, 2010

The Market That Never Drops

I think this video explains a lot of the sentiment right now among invetors(just listen to the first 5 minutes):

My Take:

I had to laugh watching this.  I think Wall St is now filled with a bunch robots that are throwing darts at this point.  Buy everything:  Stocks, bonds, gold.  It doesn't matter.  They all go up. 

I am starting to think that the market will never ever have another correction.  We have finally created a market that NEVER goes down.  It took us awhile to figure it out  None of the price action makes sense anymore.  Did we dump a little today? Yea but who cares.  Our new enternally bullish market will make up the losses tomorrow!

Ok..Sarcasm off.

I'll tell ya....This all reminds me a lot of the tech bubble.  People just jumped into stocks back then without doing any research.  Like houses back in 2003-2004, stocks "only went up" during those times.  Anything with a .com at the end of it hit triple digits.

I hate to say it, but I see a lot of the same things going on again today that remind me of 1999.  They bulls all believe the market is teflon right now.  Ben's got our back via QE.  They believe the market is now the Incredible Hulk on a triple dose of steroids!

The confidence of the bulls was clearly evident today given the tape following awful news both here and abroad.

Let's highlight the news from last night and this morning:

-  Cisco's offered horrific guidance moving forward and blamed poor consumer behaviour as the key reason as to why they expect slower growth ahead.

-  Ireland's situation continues to worsen.  An EU bailout is now being considered.

-  Chinese inflation numbers came in higher than expected.  Annualized their inflation rate was about 8.5%.  Not good when the majority of your country lives in poverty.

- The world is ripping apart the Fed ahead of the G-20 summit because the cheap dollar is creating inflation around the world since we are the world's currency.

-  Government debt issues are popping up everywhere from Europe to pension funds.

I could go on and on but you get the point.  The fact that we were only down 73 points today was ridiculous.  The NASDAQ should have been slaughtered today.  CISCO is a bellweather stock.  It's one of the most powerful companies in the tech world and their take on the consumer will keep many money mangers wide awake tonight.

The fact that they saw huge drops in their consumer related items should have sent shockwaves throughout the market.

Maybe Krull is right and we head to 20,000.  I don't think there is a chance in hell.  I am kidding of course.

I do find it interesting that the Fed has basically admitted that they are trying to create a wealth effect by pumping up the stock market.  The skeptic in me wonders if there is some type of even deeper manipulation going on with the markets.

Nothing would surprise me at this point.

The problem(and Jeremy's video that I posted this morning touched on this) is that the Fed can only create these bubbles for a few short years before they fall apart.

We all know this is going to end the way all of the previous bubbles have:  Painfully. 

Just look at how the commodity bubble of 2008, the housing bubble, and the tech bubble all ended in the past 10 years.  Everyone is left holding the bag in tears except for Wall St of course.  They cash out as they pump the markets one more time in order to create another round of suckers to sell too.

The bigger problem this go around is there is no money left to blow anymore bubbles after this series ends.  The Fed has shot it's wad with this last one.  Rates are at zero and their pockets are now empty.  Congress has told them that under no circumstances will there ever be another bailout.  The people won't stand for it.

This leaves the Fed with basically zero options.

The Bottom Line:

I'll wrap it up by using the words of the famous Alan Greenspan from 1996: 

"Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"

My my how history repeats itself.  How ironic is it that the same doofus that warned us about "irrational exuberance) is the same guy that kept rates too low for too long in the early 2000's which was was the fuel that triggered the housing bubble. 

If you think these guys at the Fed don't know what they are doing with their bubble making low interest rate/QE machine you are nuts.  Alan already admitted to you above that he knows this isn't healthy and can create irrational exuberance which is a nice way of saying bubbles.

The markets tanked shortly after this famous speech by the way.  I know I know... shocker eh?

Remember folks:   Cheap easy QE money is like crack, it feels great right after you take it but it sucks when you are forced to come off the high. 

The way I see it, the only shot Ben thinks he has to get out of this is by creating an environment of temporary "financial panacea" that tricks people into acting stupid via speculation.  He wants you to max out the credit card and speculate on everything from stocks to real estate and anything else in between.

He doesn't care that you will lose everything down the road when it all comes crashing down.  All he is looking to do is use your money to kick the can a little further down the road.  The status quo is fine for these guys because they live like kings.

He also  knows this is a lot easier then facing the reality that we are broke and must slash all entitlements.

All I can say is:  Don't take the bait and I'll say it again:  Bubbles end the same painful way EVERYTYIME.   It's even more important to remember this lesson this go around because this country will have no money left to take care of you when this series of bubbles all explode because there is no money left to pick up the pieces.

1 comment:

Jeff said...


Futes are getting bounded tonight.

ES down -9.

Rumor that margins requirements are being raised on Commodities.

That's a punch in the stomach to a speculator.