Stocks soared today as the Wall St's pump machine turned it's focus over to equities and away from bonds.
Warren Buffet led the charge today:
He was not alone:
"Fortune's Street Sweep blog points out that the 10-year Treasury yield has dropped to under 2.5 percent from 4 percent over the past six months.
FDIC Chairwoman Sheila Bair told CNBC there "a bit of a bond bubble now", longtime bond bull Goldman Sachs believes bonds have peaked and will be heading lower from here, and Pimco's Steve Rodosky tells Dow Jones today that "the best day in Treasurys is probably behind us." He hasn't bought them since July."
My Take:
Hmmm...Call me a skeptic.
You know, the longer I watch this act the more I learn. Isn't it convenient that PIMCO, Goldman Sachs, the FDIC's Sheila Bair, and Warren Buffet all come out on the same day and declare that equities now look much cheaper than bonds.
The minions of course didn't disappoint their blowhard leaders. The DOW closed the day up 200 points.
Today reminded me a lot of that infamous day in March of 2009 where all of the banking CEO's came out on the same day and told the world that business appeared to be improving.
The market soared that week and never looked back.
In hindsight, what really triggered that massive rally was the suspension of the mark to market accounting rules. Once word got out that the banks didn't have to take their losses the banking stocks instantly turned into screaming buys because they were priced like they were all about to go under.
What amazes me about days like today is the fact that these cast of characters still have any credibility left. You would think investors would have learned to put all of these clowns on ignore after seeing what they have done to the economy.
The problem with the recent rally is there is nothing behind it other than a string of bad debts. The last time we heard a Wall St. chorus like this there were fundemental reasons to buy the market.
Although the fundemental change was fraudulent(mark to market accounting changes), it nonetheless made stocks a buying opportunity.
Think about it:
Wouldn't you want to own a stock that just found out it didn't have to ever take their losses after it's value had dropped by 80%?
Now let's fast forward to today. What catalyst made stocks more attractive today versus yesterday? QEII?
I seriously have my doubts. Look at what's happened to the dollar and gold since they even discussed pulling the QE lever.
More on this in The Bottom Line. I wanted to talk a little bit about Buffet first.
Warren Buffet
Is it just me or does Warren Buffet make you want to make you vomit when you listen to him spew total BS to the masses. Talk about a fall from grace. With each speech it's clearly becoming evident that the "Oracle of Omaha" basically sold himself to the devil when he took a significant position in Goldman Sachs.
It's sad to listen to him today. Before our recent collapse, Buffet was deeply respected and trusted by the American people as being a sound voice of reason when it came to investments. Today he is just another sounding board for the elite.
I really don't understand why he did this. The guy was a legend of the game. He was a first ballot entrant into the Financial Hall of Fame.
His reputation was cemented during the tech bubble when he consistently warned investors to be careful because none of it made sense to him.
He stuck to his guns during this insanity despite being highly criticized, and he ended up being right. This turned him into an instant icon.
If I were him I probably would have taken my billions and walked off into the sunset at that point. He should have pulled a "Bill Gates" and just focused on philanthropy.
I would have totally understood it if he had chosen this path. It's probably the right thing to do when you have more money than you know what to do with.
Just look at all of the good that Bill Gates has done for Africa and the rest of the world with his genorosity.
BTW let me sidebar here real quick and add that I have the utmost admiration for Bill Gates. In fact, I can't think of another human being who I have more respect for. He has spent the majority of his life trying to make the world a better place with his fortune.
On the other hand, other billionaires have chosen a different path:
Some for example have decided to stay in the game and tell it like it is. They don't care if they piss of the elite because they already have more money than they know what to do with.
Jim Rogers or George Soros come to mind if you want a couple of examples. I don't have to provide you with sound bites from either one of these two fellows.
Both of them are predicting Financial Armegeddon. Soros owns over $600 million in gold. Jim Rogers "got out of Dodge" and now lives in Singapore. His fortune is invested mainly in commodities. The rest of it is most likely more short rather than long the market.
I have a lot of respect for the paths that these two fine fellows have taken as well. If you are gonna stay in the game at least try and tell the truth. Do they talk their books sometimes? Sure, but at least they didn't join the dark side.
Sadly, Warren Buffet chose neither of these two options. He has chosen instead to joing the pigmen and earn more billions at your expense.
For example, he has taken your taxpayer dollars via the AIG bailout because Goldman Sachs was paid out to the tune of $12 billion in the process. As a result, Buffet made a small fortune on his $10 billion investment in GS as Goldman's shares recovered.
Since the collapse he has decided to take 50% of his fortune and invest it into one railroad.
Question here:
If he is so bullish on stocks then why would he spend so much money on something so antiquated like a railroad? Why wouldn't he be buying equities hand over fist if he actually believed the venom he spewed?
Also:
How many times did he tell people to invest in 2008 before the market crashed?
Then ask yourself:
Is this who I should be listening to when it comes to investment advice?
The Bottom Line
I would trust Warren Buffet about as much as I would trust a realtor who is telling me that "now is the time to buy a home".
I don't know what today's motive was but Wall St definately sent a coordinated message today. The fact that all of the talking heads came out at once and tried to tell you to get out of bonds and into stocks was not a concidence.
What's interesting here is for the most part they were ignored by the bond market. Bonds held up pretty well relative to the big move in equities.
So what could be the motives of the Wall St PR machine?
There are many potential reasons:
Fear of the move into gold and out of US dollars?
Fear of scaring too many investors into bonds which has threatened the liquidity of the stock market?
Pressure from the elite on Wall St as they see investors bailing on NY and heading into the safety of bonds in Chicago?
Anyone of these or a combination of these makes sense to me.
Folks, one thing is clear: Today's "equities over bonds" announcement was definately calculated and I smell a rat.
Tuesday, October 5, 2010
A Quick Warning
A few comments on the price action today so far. I see warning signs all over the place.
First of all the long bonds are not selling off nearly as hard as they should ne considering this huge stock rally. This is NOT a good sign. Take a look at the 30 year:
The dollar however is selling off hard:
Oil is also soaring on the weaker dollar news. We are now back over the $82 per barrel level. Folks, the economy will be stopped dead in it's tracks if we get back over $100.
Gold and silver are soaring as they respond to the move in the dollar. It's also reacting to last nights Japanese interest rate cut. The market is pricing in some huge inflationary risks here as the central banks race to the bottom with their currencies.
The market is moving higher on the weaker dollar but we have seen this game before. This works for the market until the surging cost of commodities like oil collapse the consumers discretionary income.
The 53.2 ISM number helped the market a tad as well but I don't think the market is moving on this because the number was hardly inpressive.
Buyer of stocks beware here. The pricing action we are seeing here is a monetary phenomenon and It's EXTREMELY dangerous. The central banks are playing with fire with all of these currency wars.
The moves in the bond market tell you they are not comfortable with the dollar action. The short end help up well today and the long end did to.
Why aren't the bond guys asking themselves: Why hold a long bond priced in dollars if the dollar is going into the crapper?
Today's action is confusing to say the least.
It's been a great day for my portfolio which is invested for inflation so I am not complaining, but I thought it was important to note the distortions that we are seeing out there.
The market is increasingly becoming a VERY juicy short.
Until later today!
First of all the long bonds are not selling off nearly as hard as they should ne considering this huge stock rally. This is NOT a good sign. Take a look at the 30 year:
The dollar however is selling off hard:
Gold and silver are soaring as they respond to the move in the dollar. It's also reacting to last nights Japanese interest rate cut. The market is pricing in some huge inflationary risks here as the central banks race to the bottom with their currencies.
The market is moving higher on the weaker dollar but we have seen this game before. This works for the market until the surging cost of commodities like oil collapse the consumers discretionary income.
The 53.2 ISM number helped the market a tad as well but I don't think the market is moving on this because the number was hardly inpressive.
Buyer of stocks beware here. The pricing action we are seeing here is a monetary phenomenon and It's EXTREMELY dangerous. The central banks are playing with fire with all of these currency wars.
The moves in the bond market tell you they are not comfortable with the dollar action. The short end help up well today and the long end did to.
Why aren't the bond guys asking themselves: Why hold a long bond priced in dollars if the dollar is going into the crapper?
Today's action is confusing to say the least.
It's been a great day for my portfolio which is invested for inflation so I am not complaining, but I thought it was important to note the distortions that we are seeing out there.
The market is increasingly becoming a VERY juicy short.
Until later today!
Monday, October 4, 2010
Are High Yield Investments The Next Bubble?
Stocks sold off today as a Microsoft downgrade and an investigation into American Express spooked the markets.
I wanted to talk about the high yield market today. We can thank the Fed and their reckless zero rates policy for creating yet another bubble. This time it's in high yield debt and I gotta admit folks: This one really pisses me off.
It's one thing to blow one up using assets like housing which are a necessary part of our daily lives. The Fed was reckless when it created this mania but it was not meant to be malicious.
Before that we had tech and it was easy to see how that bubble got going. The Internet was not understood by many and it's potential seemed endless at the time. I know I got caught up in it. Just about all investors did.
The high yield bubble however is a whole different animal. This is not speculators gone wild. This bubble has been created because investors that live off of yield like retirees are being forced to chase risky high yield investments in order to pay the bills.
The way I see it: The Fed stole their "way of lives" when they took interest rates downto zero. Many retirees have been robbed of their security by this development as they dive into risky investments after comfortably sitting in fixed income.
Sadly, the Fed has decided to try and bail out the banks and reckless speculators at the expense of the fiscally prudent.
The biggest losers other than the taxpayers in this debacle have been the prudent elderly savers who worked hard and saved all of their lives so they wouldn't have to worry about money when they retired.
Let me give you a couple of examples of what these victims have been forced to pile into in order to make up for their zero returns in CD's and treasuries:
Let's start with JHAQX which yields 12%. This high yield fund has performed spectacularly since the bottom in 2009 as it finds never ending demand from the desperate yield chasers:
Sure looks purdy doesn't it? The problem is when you wipe the lisptick off this pig you realize that you own nothing but a bunch of garbage.
Here are the holdings of the fund as reported by Yahoo Finance:
"Total Holdings Overall Portfolio Composition (%)
Cash: 9.29
Stocks: 17.45
Bonds: 48.32
Other: 1.26"
Let's dig a little deeper and see what their bond holdings look like:
"Bond Ratings (%)
Sector JHAQX Category Avg
US GOVERNMENT N/A N/A
AAA 0.25 1.73
AA 0.00 0.22
A 0.00 1.02
BBB 0.00 5.52
BB 3.99 27.13
B 22.12 40.49
BELOW B 59.47 19.36
OTHER 14.16 4.53 "
My Take:
As you can see above, about 60% of the bonds this fund owns is B or lower. Folks, we can't find buyers for AAA rated MBS because they are likely worth pennies on the dollar. What in the hell do you think a below B bond is worth when no one wants to buy AAA rated debt?
All Wall St has done here is dressed up this pig by slapping it with a 12% yield. The problem is you own NOTHING of any real value other than perhaps a few stocks this fund owns.
This is a catastrophe waiting to happen! Here is another one I love to look at. Let's take a look the commercial REIT Simon Properties Group(SPG):
As you can see, SPG and it's attractive 2.6% yield(relative to treasuries) has driven this stock back up near it's all time highs since the bottom.
SPG turned into one giant party once they were allowed to roll their debt over(thanks to a gift from the Fed). It turned into a Ponzifest a little while later when they were able to raise cash at low yields in the corporate debt market.
The problem here folks is SPG owns a bunch of commercial real estate that's worth around 50% of what it's marked at. There has been no "mark to market" on what it holds. In a lot of ways it's just like a bank. It holds a bunch of toxic assets at propped up prices that no one wants to own.
Yet, unlike the financials, SPG soared right back to the highs. Meanwhile the banks haven't even gotten close.
In many ways SPG's situation is even worse than the banks: Why on earth would you want to be involved in as stock that depends completly on the consumer in order to thrive? The banks can at least diversify into investiment banking and trading.
SPG has a lot of questions that need to be answered.
The Bottom Line
Needless to say, SPG is hot on my short list. It was up again today BTW despite today's sell off.
The whole market at this point believes that the Fed's got their back. If the recovery fails then they all believe that the Fed will do a QEII which will "save the day" and keep the markets flushed with cash.
People are responding by speculating into risky stocks and dividend funds that fundamentally are 50% or more over priced.
Sadly, when it comes to high yield debt, most of the speculating is being done by retirees who have run out of options.
The reality here is no one here is buying anything for fundemental reasons.
They are basically piling into these assets and hoping they can suck the yield off of it for awhile and then sell it to the next sucker at a higher price.
Gee....Does this type of investing mentality sound familiar?
Bubble anyone???
We were down again today, but I still think we will see some more buying binges in the near future as the speculators continue to pile into stocks for the wrong reasons.
All I can say here folks is this is all going to end badly because people are speculating instead investing.
When the music stops and the fundamentals matter you are going to see one massive run to the exits just like you did about 10 years ago.
Disclosure: No new positions taken at the time of publication.
I wanted to talk about the high yield market today. We can thank the Fed and their reckless zero rates policy for creating yet another bubble. This time it's in high yield debt and I gotta admit folks: This one really pisses me off.
It's one thing to blow one up using assets like housing which are a necessary part of our daily lives. The Fed was reckless when it created this mania but it was not meant to be malicious.
Before that we had tech and it was easy to see how that bubble got going. The Internet was not understood by many and it's potential seemed endless at the time. I know I got caught up in it. Just about all investors did.
The high yield bubble however is a whole different animal. This is not speculators gone wild. This bubble has been created because investors that live off of yield like retirees are being forced to chase risky high yield investments in order to pay the bills.
The way I see it: The Fed stole their "way of lives" when they took interest rates downto zero. Many retirees have been robbed of their security by this development as they dive into risky investments after comfortably sitting in fixed income.
Sadly, the Fed has decided to try and bail out the banks and reckless speculators at the expense of the fiscally prudent.
The biggest losers other than the taxpayers in this debacle have been the prudent elderly savers who worked hard and saved all of their lives so they wouldn't have to worry about money when they retired.
Let me give you a couple of examples of what these victims have been forced to pile into in order to make up for their zero returns in CD's and treasuries:
Let's start with JHAQX which yields 12%. This high yield fund has performed spectacularly since the bottom in 2009 as it finds never ending demand from the desperate yield chasers:
Sure looks purdy doesn't it? The problem is when you wipe the lisptick off this pig you realize that you own nothing but a bunch of garbage.
Here are the holdings of the fund as reported by Yahoo Finance:
"Total Holdings Overall Portfolio Composition (%)
Cash: 9.29
Stocks: 17.45
Bonds: 48.32
Other: 1.26"
Let's dig a little deeper and see what their bond holdings look like:
"Bond Ratings (%)
Sector JHAQX Category Avg
US GOVERNMENT N/A N/A
AAA 0.25 1.73
AA 0.00 0.22
A 0.00 1.02
BBB 0.00 5.52
BB 3.99 27.13
B 22.12 40.49
BELOW B 59.47 19.36
OTHER 14.16 4.53 "
My Take:
As you can see above, about 60% of the bonds this fund owns is B or lower. Folks, we can't find buyers for AAA rated MBS because they are likely worth pennies on the dollar. What in the hell do you think a below B bond is worth when no one wants to buy AAA rated debt?
All Wall St has done here is dressed up this pig by slapping it with a 12% yield. The problem is you own NOTHING of any real value other than perhaps a few stocks this fund owns.
This is a catastrophe waiting to happen! Here is another one I love to look at. Let's take a look the commercial REIT Simon Properties Group(SPG):
As you can see, SPG and it's attractive 2.6% yield(relative to treasuries) has driven this stock back up near it's all time highs since the bottom.
SPG turned into one giant party once they were allowed to roll their debt over(thanks to a gift from the Fed). It turned into a Ponzifest a little while later when they were able to raise cash at low yields in the corporate debt market.
The problem here folks is SPG owns a bunch of commercial real estate that's worth around 50% of what it's marked at. There has been no "mark to market" on what it holds. In a lot of ways it's just like a bank. It holds a bunch of toxic assets at propped up prices that no one wants to own.
Yet, unlike the financials, SPG soared right back to the highs. Meanwhile the banks haven't even gotten close.
In many ways SPG's situation is even worse than the banks: Why on earth would you want to be involved in as stock that depends completly on the consumer in order to thrive? The banks can at least diversify into investiment banking and trading.
SPG has a lot of questions that need to be answered.
The Bottom Line
Needless to say, SPG is hot on my short list. It was up again today BTW despite today's sell off.
The whole market at this point believes that the Fed's got their back. If the recovery fails then they all believe that the Fed will do a QEII which will "save the day" and keep the markets flushed with cash.
People are responding by speculating into risky stocks and dividend funds that fundamentally are 50% or more over priced.
Sadly, when it comes to high yield debt, most of the speculating is being done by retirees who have run out of options.
The reality here is no one here is buying anything for fundemental reasons.
They are basically piling into these assets and hoping they can suck the yield off of it for awhile and then sell it to the next sucker at a higher price.
Gee....Does this type of investing mentality sound familiar?
Bubble anyone???
We were down again today, but I still think we will see some more buying binges in the near future as the speculators continue to pile into stocks for the wrong reasons.
All I can say here folks is this is all going to end badly because people are speculating instead investing.
When the music stops and the fundamentals matter you are going to see one massive run to the exits just like you did about 10 years ago.
Disclosure: No new positions taken at the time of publication.
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