Sunday, September 20, 2015

I'm Back: Fed Cornered

Hello All!

I know its been awhile(2 years?).  My life got busy and my priorities had to change for a tad.  That's how life works at times isn't it?

I wanted to share a few thoughts on our markets as we head into chaotic times.  My fears are pretty much summed up in this chart:

We've had an epic stock run that was abruptly slammed shut in August with a sharp 12% pull back in a matter of days.


The money printing by the Fed via QE has led to historic asset prices via zero rates.  This has pushed the stock market to historically high levels. At the same time however its creating massive distortions in the markets.  Oil and other commodities have crashed as a result of this easy money. The reason for this is these conditions have enabled industries such as the oil companies to leverage up at insanely low borrowing costs and build thousands of wells and pump massive amounts of oil.  This is all well in good as long as prices stay high.

However,  China is borderline crashing which has cut down on their demand for oil and other commodities.  Europe's slow economy has further exacerbated these problems.

This economic shock then pushes all emerging market oil dependent countries to the brink of collapse.  There are rumors that Brazilian giant  Petrobas might default as a result of these issues.  This oil shock will eventually wreak havoc on the high yield debt markets(mark my word).  Just look at HYG's price action for a peak into the future.

Housing is booming since again thanks to zero rates and an improving jobs market combined with overseas billionaires looking to buy real estate as a hedge to their own crashing economies.  I suspect in the big cities this will continue but we are nearing a top IMO. 

I'm seeing similar behavior to 2008 in housing  When bidding wars reappear it's NOT the time to buy.  You want to buy when assets are hated not loved.  I realize inventories are low but if the economy softens into recession or rates rise you will regret buying now.

Overall, my concerns are reflected in the chart above.  Debt loads of Americans are soaring, wages are shrinking, and home ownership is becoming a pipe dream for the younger generations.  Baby boomers are also downsizing as they retire.  All of this will pressure housing in the future.

The Bottom Line

America is heading in the wrong direction.  The Fed's refusal to raise rates is proof of this.  They had a legit chance to raise last week with decent economic numbers and they punted.  My question is why?  What are they seeing that the rest of us are not?

This was a huge mistake IMO because it creates uncertainty.  Making matters worse is the fact that the economy moving forward is most likely weakening which means they wont have another chance to raise rates. 

Please play defense on your retirement accounts.  I see lots of volatility and lower prices in the near future. 


Unknown said...

"When bidding wars reappear it's NOT the time to buy. You want to buy when assets are hated not loved. I realize inventories are low but if the economy softens into recession or rates rise you will regret buying now."

Sigh - while I kinda agree with you I wonder now if buying will ever happen for me and my family.

As sad as it is, I posted here YEARS ago - so long ago, I dont even rember my screenname. I come back from time to time to read the graveyard of old posts. It seemed like there was a lot of camraderie - we just had to wait a bit and WE would be rewarded - patience grasshoppers!!!

Anyway, like everyone else I ranted and raved as to how 2008-2009-2010 is NOT the time to buy! Year after year I kept saying it will be "in a year or two" and year after year, prices went higher and higher.

The end result of this has been devastating for me and my family. After years of listening to me and trusting my judgment, my wife has lost all confidence in my ability to judge how long this would take. I am now pushing 40 and our rent is now higher and higher - it never stops.

Yet despite all that, I STILL think now is not a good time to buy - but if I dont buy now, WHEN? Will I be 50 still waiting - 60? Will you and I still be here checking in every year or so?

I dont know what to think anymore. In 2009, I was brimming with confidence...this is NOT the time to buy I explained to anyone in earshot. All that brought me was financial pain and ridicule from friends and family as I dug in deeper and deeper to my position.

In many ways, I would love to travel back in time to 2009 and beat the everloving shit out of myself for making my current life so bad. Will my 2020 self come back and want to do the same to my 2015 self for waiting to buy now?

Jeff said...


I totally feel your pain. I wish I had an answer for you. The only thing I can tell you is wages are flat to slightly negative for the past 15 years however there are many more foreign buyers.

The banks and builders are not building like they used to and demand is high but few people can qualify because prices have soared since 2009.

Personally id love to buy but I wont with zero rates, flat wages, and a potential recession on the horizon. Ive also noticed prices have flatlined locally since the market dived in August.

A god time to sit tight regarding housing IMO. Best of luck to you!

JM30000 said...

Jeff - I am amazed at how seemingly content you are about this. I assumed you were (somewhat) like me. Late 30s early 40s - college grad - good job, etc? Are you married? Are you still living like you were in college, or did you upgrade to a nice rental and are now being squeezed too?

Maybe its easier to have a "meh" attitude about this if you are a bachelor living in a $500 a month flopper, but its alot tougher when you are shelling out over $2750 to put a roof over your wife & 2 kids in a neghborhood with decent schools. Where are you on this spectrum?

Anonymous said...

Well Jeffy - it took a loooooooong time (and many many many missed opportunities on your part) but I, your anonymous tormentor is now finally becoming bearish as to the Market.

For the record, as of DJIA 16,500 - I am now sidelined. Out in 07 @ 12K, back in late 08 @ 8,000, (scared shitless as it fell to 6,600 before rebounding in Mar 09) now cashing out at a bit over 2X my 2008 posiiton. Not trying to brag but what a FUCKING EPIC AND FANTASTIC RIDE THE LAST 7+ YEARS HAVE BEEN!!!!!! The virtue of NOT being a permabear has served me well and left me richly rewarded.

NOW, that said, lets let by gones be by gones - I only tormented you 09-12 because I thought you were too cluelessly bearish (as you were) - but that is perhaps now not the case. Now here in early 2016 you should be SCREACHING at the top of your lungs - get out now, get out now, the way any true contrarian would, the way I am now.

So again, now that we are on the same side (at least as far as the markets go - not sure on housing), you should be back here ASAP. Fact is, I need guys like you to some degree, and you need me to serve as a co-reality check. When is the next buying opportunity - 14K? 12K? Lower? At what point do I (we) call no joy and get back in 18K? 20K? More?

If I am right about this and this cycle is about finished, NOW is the time to be BIG TIME BEARISH - so come back and lets brainstorm and welcome back the disillusioned who abandoned your blog as it now once again gains traction. Come back Jeff

Your ole buddy - the anonymous (AKA Brad)

Unknown said...


Good luck to you sir. I hope you make millions. If you read above I pretty much nailed everything this cycle.

Anonymous said...

Unknown said...If you read above I pretty much nailed everything this cycle.

Good for you Unknown. Not so much for the rest of us who followed along with Jeff and collectively got raped with a broom handle. I still cant believe I missed the whole 2009-2016 rally fighting the fed - unfucking believable.

Anonymous said...

For the record, I am coming back to eat crow on my Jan 2016 call of bearishness. I did indeed go out at 16,500 when the crash I expected did not come, I reluctantly got back in at 18,5 November of 2016 - missing out on over 2,000 points of gain.

While I am very proud of my ability to see bottom, the last year has made me realize how hard it is to see a top. I regret popping off like I did last Jan, and I apologize to anyone who did listen to me.

Regards - the anonymous (AKA Brad)

Calixto said...

"Anon said...Not so much for the rest of us who followed along with Jeff and collectively got raped with a broom handle. I still cant believe I missed the whole 2009-2016 rally fighting the fed - unfucking believable."

Glad to see that I am not the only one feeling left out and or left in the lurch by the last several years. I remember in the heyday of this site, we were all sitting in the catbird seat. All we had to do was wait for all the madness to subside and we would deploy all our "dry powder" and buy at or near the bottom, living a normal happy life.

Turns out we were all drawing dead as the bottom had come and gone and we were left sitting on the sidelines.