Tuesday, January 25, 2011

Everything is Just Fine

Today's market is is so stuffed with cheap money that it reminds me of a turkey that's about to be served for Thanksgiving.

The dislocations are unprecented.  Treasuries are soaring despite the stock rally so far this week:


Meanwhile, the dollar continues it's collapse as the Fed continues to rain money all over the markets:


The USD unsuccessfully tried to rally today after it broke through the critical 78 level like butter on Monday.  We now risk breaking back down to the recent November lows of 75.63 which was when the Fed announced their ridiculous QE program.

Folks, if there was any confidence in this rally then bond yields would be soaring right now because the markets would be worrying about inflation and a falling dollar as the economy recovers.

The fact that investors are flocking into bonds despite the above risks tells you that the market is scared ****less.  No one that believed in an economic recovery would be in bonds at this point.  The inflation risks would simply be too high.

The Bottom Line

The deady combination of Helicopter Ben and high frequency trading robots has turned the markets into a total mess.

"Cheap money" is sloshing all over the system and it's ending up everywhere:  Stocks, bonds, and commodities(until recently).

I don't know why anyone would want to touch this cesspool at this point.  This is a total frickin speculative DISASTER.

Everything's fine for now as long as the music doesn't stop. 

The problem we have here is that history has showed us time and time again that the music always stops when the fundementals are ignored.

Betting "the house" on equities thinking that "the Bernanke" will always have your back is simply foolish.

Bernanke will continue this game as long as he can get away with it.  However, since this is unsustainable he will eventually have to stop.  It will end in one of two ways:  The dollar will crash or the bond market will take yields to the moon.

Like I have said before:  THERE IS NO FREE LUNCH!

3 comments:

Anonymous said...

Manhands, to answer your question, while Jeffy's analysis is pretty good from a 30,000 foot level, on the individual metro level where I operate, it seems a bit hamfisted.

When I made my call for DC housing, I relied not only on the factors Jeffy noted, I also looked at multiple factors which are absolutely unique to this area. Specifics include but are not limited to:

- Disparities in inventory peaks, DC vs US.

- Disparities in sales troughs, DC vs US

- So called "demographic inversion" which will presumably benefit cities like DC until 2025 or so

- Disparities in subprime & Alt-A concentration (and performance), DC, vs. US, vs. bubble areas

- Typical govt response (vis a vis the great depression & panic of 1907) and how this generally plays as a boost to housing now, and likely will act as a drag later during austerity

- Discrepancies in income gains, DC vs. US, perticularly some spectacular ones in the earlier half of the last decade.

- The effect of "home rule" and its affect on DC residents access to various types of loans.

You will note thats why I made my claim as to DC ONLY and did NOT make any predictions as to the rest of the US. If necessary, I promise to get more into these in the coming months, but right now, I would prefer to wait til a bit more data comes out, and to see Jeff thrash about punching into the darkness as he tells us of the upcoming "collapse" in DC housing :)

OK, sorry for that parting shot, but I just cant help myself. I think Jeffy can handle it - he gives as well as he gets...

ManHands said...

Anon, while I remain skeptical as to the levitation skills of DC housing, the last 2 years has taught me "its different here" is sometimes more true than I would like to believe.

Still, its good to see you have apparently done your homework on this. I have a sister who is looking to buy in that area, and (despite my advice to wait for lower prices) she continues to report stagnation to price gains. Again, while I remain skeptical, I am open to learning things contrary to what I believe.

Yes, please elaborate more when you have time. I want to know what I am talking about when I talk to my sis. Curious, are you a realtor? If so, you seem unique as most realtors I know are completely uneducated on anything other than buy buy buy!!!

getyourselfconnected said...

I think home prices went up in Belmont here in massachusetts over the past two years, so that's great for that town.