Wednesday, February 9, 2011

"Juggle Mode"

Have you ever gone to the circus and watched a juggler?

It's always so cool watching all of those balls fly so effortlessly through the air.

If you are a big fan of jugglers then I have some great news for you!!!  You no longer have to pay for a ticket to the circus in order to watch it.  In fact, you no longer even need to leave your house.

These days all you have to do is turn on CNBC and you can see all the juggling you want for FREE. 

Some of today's best juggling was seen in the bond market:

"The government's auction of 10-year notes drew greater interest than expected from investors, including foreign buyers. Indirect bidders, a rough proxy for foreign funds and banks, took 71 percent of the notes, the largest share since May 2003."

At the same time bonds were soaring the currency dropped sharply:

Quick Take:

This makes no sense of course.  Why would a dollar denominated asset like bonds soar on a day the dollar sells off hard? 

Answer:  Because the world's juggling central bankers are printing money like madmen and throwing it wherever they have to in order to keep all of the "balls" in the air. 

Today's  gaping hole was in bonds so that's where the money went.

Juggling Creates Distortions and Inflation:

There are unintended consequences when you decide to pursue reckless monetary policies.  The banks of the world have decided to pursue this reckless path and theyare desperately doing everything in their power in order to keep this pig of a market propped up.

Remember folks, this is a globally coordinated central banking system at this point.  If one domino falls they all do so they are all in this together and for now they are loaded with boatloads of cheap money.

This will likely allow keep the game going in the near term.  The problem is it's creating a boatload of inflation.

Just look at Cisco after hours:

"Cisco Systems reported financial results Wednesday that topped expectations, but investors punished shares after hours as weaker margins added to concerns about increasing competition.

Cisco, which sells computer networking equipment to businesses, earned 37 cents a share excluding special items in its fiscal second quarter, against 40 cents a share last year. The company's net profit for the quarter ending Jan. 29 fell to $1.5 billion from $1.9 billion.

The company garnered sales of $10.4 billion in the quarter. This time last year, Cisco reported sales of $9.815 billion."

Take Continued:

OK, so let me get this straight:  Sales are up from $9.81 billion to $10.4 billion, but profits are down about 25% from $1.5 billion from $1.9 billion from the same time a year ago????

HUH????...Bbbuuttt...Ben Bernanke said there was no inflation!

I can't think of another reason why Cisco's profits would get creamed like they did.  Another possible cause for this drop is if Cisco had to drop prices a bit in order to hold share.  I don't buy that excuse for one second.  Their "profit pain" came from a weakening dollar and higher costs.

Either way, this is not good news for Cisco or the stock market.

The Housing Collapse Rolls On!

It appears that the only thing that doesn't rise in price in this market are houses:

"The number of borrowers who owe more on their mortgages than their homes are worth took a huge leap in the fourth quarter of 2010. A full 27 percent of borrowers are now “underwater” on their mortgages, up from 23 percent in the previous quarter, according to a new report from Zillow. Foreclosure moratoriums and falling home prices are to blame."

Take Continued:

I have said for a long time now.  Housing is deader than dead and is never coming back in our lifetimes. 

Things are only going to get worse as more and more people end up underwater in their homes because they will not have the ability to sell them.  These borrowers will then eventually be forced to default after running out of options.  This is going to then put even more pressure on already depressed housing prices as inventories continue to rise.

Let me also add that I am starting to see some blue skies:

Some areas like Miami, LasVegas, and some areas of California are now starting to show signs of stabilization after seeing 70% price declines.   This makes sense in these areas at this point.  About 25-50% of these buyers are paying cash. 

We could very well be nearing a bottom in these devastated areas.  However,  I don't think you will see any appreciation in these properties for years, and many of these buyers will likely see losses over the next several years before things turn around.  Nonetheless, if you are paying cash and can rent them out, do you really care?

Food for thought. 

Let me repeat....Don't misconstrue what I am saying here:  Most housing markets are going to see devastating housing declines and are nowhere near the bottom.  A 50-70% drop in prices will be the norm in the majority of housing markets by the time this is all said and done.  We are only down about 30% nationally at this point so there is a ways to go.

The Bottom Line:

That juggler at the circus is really cool until he drops a ball.  We all know what happens after that. 

If you forgot then go buy some tennis balls, start juggling, and watch what happens after you drop the first one.  

The market's miraculous juggling show is about to drop it's first ball, and IMO, it will be triggered by June's "QE Crisis".


getyourselfconnected said...

From the film "Police Academy 2":

"Mahoney, what kind of clown do you think I am?"

"A juggling clown sir?"

ManHands said...

Anon, what was your prediction for DC (Case Shiller)?

Jeff said...