Tag Archives: Stock Market

The Biggest Wealth Transfer In History, by Egon von Greyerz

If you’re into hard core doom porn, this is the article for you. From Egon von Greyerz at goldswitzerland.com:

What will happen between now and 2025? Nobody knows of course but I will later in this article have a little peek into the next 4-8 years.

The concentration of wealth in the world has now reached dangerous proportions. The three richest people in the world have a greater wealth than the bottom 50%. The top 1% have a wealth of $33 trillion whilst the bottom 1% have a debt $196 billion.

The interesting point is not just that the rich are getting richer and the poor poorer. More interesting is to understand: How did we get there? and what will be the consequences?

PANAMA & PARADISE PAPERS – SENSATIONALISM

As the socialist dominated media dig into the Panama Papers and now recently the Paradise Papers to attack the rich and tell governments to tackle the unacceptable face of capitalism, nobody understands the real reasons for this enormous concentration of wealth. Sadly no journalist does any serious analysis of any issue, whether it is fake economic figures or the state of the world economy.

Instead, all news is accepted as the truth while in fact a lot of news is fake or propaganda. The media is revelling in all the disclosures of offshore trusts and companies. The British Queen is being accused of having “hidden” funds. The fact that offshore entities have been used legally for centuries for privacy, wealth preservation and creditor protection purposes is never mentioned. The media sell more much news by being sensational rather than factual.

INEQUALITY IS DUE TO IRRESPONSIBLE MONETARY POLICY

Let me first put the facts right. It is not capitalism in its traditional sense which has created this enormous concentration. One definition of capitalism is:

“An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state”

The “controlled by private owners” part of the definition fits our current Western system. But what is missing is that the current economic system could not function without complete state sponsorship and interference. This is the clever construction that a group of top bankers devised on Jekyll Island in the US, in November 1910. This was the meeting that led to the creation of the Fed in 1913. The Central Bank of the US was set up as a private bank, and thus controlled by private bankers for their own benefit.

To continue reading: The Biggest Wealth Transfer In History

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Einhorn Vents his Frustrations about the Crazy Markets, by Wolf Richter

Markets become much less nerve wracking when you quit looking for “logic” in them and realize they are exercises in quite illogical crowd psychology. Hedge fund guru David Einhorn highlights the super-abundant absurdity of the stock market. As an aside, SLL would not at all be surprised if the stock market’s intraday high yesterday turned out to be the ultimate top, and that the devastating bear market of which we’ve frequently warned, most recently in “Hard Core Doom Porn,” has begun. From Wolf Richter at wolfstreet.com:

Why trying to bet against this madness is a widow-maker trade. Logic has nothing to do with it.

Investors who’ve approached this stock market and its ludicrous valuations over the past few years from a point of view of fundamentals and “value” – thus, often on the side of short-selling those stocks – have gotten clobbered, or were at least left in the dust by buy-buy-buy fundamentals-don’t-matter automatons.

This has become an exercise in frustration-management for many – including, apparently, David Einhorn, founder and president of Greenlight Capital, a $7 billion hedge fund that became successful by searching for overvalued and undervalued companies and betting one way or the other. This strategy has hit the rocks in recent years. So far this year, the fund is up 3.3% while the S&P 500 is up 14%.

In a letter to Greenlight’s clients, reported by Business Insider, he unloaded his frustrations about this crazy market.

“The market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy.

“The knee-jerk instinct is to respond that when a proven strategy is so exceedingly out of favor that its viability is questioned, the cycle must be about to turn around. Unfortunately, we lack such clarity. After years of running into the wind, we are left with no sense stronger than, ‘it will turn when it turns.’”

On the short side, he cited Amazon, Tesla, and Netflix, whose ludicrous valuations are glaring examples of what a good short-target looks like, but so far, most of those daring souls who tried to follow logic and profit from shorting these stocks over the past few years have gotten their head handed to them.

Here’s what Einhorn said about the three heroes that he considers “our three most well-known ‘bubble’ shorts”:

Amazon: “Our view is that just because Amazon can disrupt somebody else’s profit stream, it doesn’t mean that Amazon earns that profit stream. For the moment, the market doesn’t agree. Perhaps, simply being disruptive is enough.”

Tesla: “Tesla had an awful quarter both in its current results and future prospects. In response, its shares fell almost 6%. We believe it deserved much worse.”

Netflix: “On the second quarter conference call, the CEO stated, ‘In some senses the negative free cash flow will be an indicator of enormous success.’ To us, all it indicates is that Netflix is capable of dramatically changing the economics of stand-up comedy in favor of the comedians.”

Yet Amazon is up 30% this year, Tesla and Netflix 58%! This market simply doesn’t tolerate logic other than buy, buy, buy – until something changes.

To continue reading: Einhorn Vents his Frustrations about the Crazy Markets

Arms Race in Bubbles, by Doug Noland

Bubbles have become the foundation of economic policy around the globe. From Doug Noland at creditbubblebulletin.blogspot.com:

The week left me with an uneasy feeling. There were a number of articles noting the 30-year anniversary of the 1987 stock market crash. I spent “Black Monday” staring at a Telerate monitor as a treasury analyst at Toyota’s US headquarters in Southern California. If I wasn’t completely in love with the markets and macro analysis by that morning, there was no doubt about it by bedtime. Enthralling.

As writers noted this week, there were post-’87 crash economic depression worries. In hindsight, those fears were misplaced. Excesses had not progressed over years to the point of causing deep financial and economic structural maladjustment. Looking back today, 1987 was much more the beginning of a secular financial boom rather than the end. The crash offered a signal – a warning that went unheeded. Disregarding warnings has been in a stable trend now for three decades.

Alan Greenspan’s assurances of ample liquidity – and the Fed and global central bankers’ crisis-prevention efforts for some time following the crash – ensured fledgling financial excesses bounced right back and various Bubbles hardly missed a beat. Importantly, financial innovation and speculation accelerated momentously. Wall Street had been emboldened – and would be repeatedly.

The crash also marked the genesis of government intervention in the markets that would evolve into the previously unimaginable: negative short-term rates, manipulated bond yields, central bank support throughout the securities markets, Trillions upon Trillions of central bank monetization and the perception of open-ended securities market liquidity backstops around the globe. Greenspan was the forefather of the powerful trifecta: Team Bernanke, Kuroda and Draghi. Ask the bond market back in 1987 to contemplate massive government deficit spending concurrent with near zero global sovereign yields – the response would have been “inconceivable.”

Articles this week posed the question, “Could an ’87 Crash Happen Again.” There should be no doubt – that is unless the nature of markets has been thoroughly transformed. Yes, there are now circuit breakers and other mechanisms meant to arrest panic selling. At the same time, there are so many more sources of potential self-reinforcing selling these days compared to portfolio insurance back in 1987. Today’s derivatives markets – where various strains of writing market insurance (“flood insurance during a drought”) have become a consistent and popular money maker – make 1987’s look itsy bitsy.

To continue reading: Arms Race in Bubbles

 

 

The S and P Is A Bloated Corpse, by Raúl Ilargi Meijer

The money sentence: “The S&P is a bloated corpse increasingly filling up with gases that will eventually cause it to explode, with guts and blood and body parts and fluids flying all around.” SLL does not disagree. From Raúl Ilargi Meijer at theautomaticearth.com:

According to Hyman Minsky, economic stability is not only inevitably followed by instability, it inevitably creates it. Complacent humans being what they are. If he’s right, and would anyone dare doubt it, we’re in for that mushroom cloud on the financial horizon. We know that because market volatility, as measured for instance by the VIX, the Chicago Board Options Exchange (CBOE)’s volatility index, is scraping the depths of the Mariana trench.

Two separate articles at Zero Hedge this weekend, one by NorthmanTrader.com and one by LPLResearch.com, address the issue: it is time to be afraid and wake up. And that is not just true for investors or traders, it’s true for ‘everyone out there’ perhaps even more. Central bank policies, QE and ultra low rates, have distorted the financial system to such an extent -ostensibly in an attempt to save it- that the depressed, compressed volatility these policies have created can only come back to life with a vengeance.

Feel free to picture zombies and/or loss of heartbeat as much as you want; it’s all true. Financial markets haven’t been functioning for years, and there have been no investors either, only gamblers and profiteers, as savers and pensioners have been drawn and quartered. Central bankers have eradicated price discovery, nobody knows what anything is really worth anymore, be it stocks, bonds, housing, gold, bitcoin, you name it.

If you make interest rates ‘magically’ disappear anyone can spend any amount of money on anything they fancy buying. And it’s not just traders and investors either. Scores of people think: look, I can buy a house, others think they can buy a bigger house, many will get into stocks and/or bonds, because prices just keep going up. Even savers and pensioners are drawn into the central bank Ponzi, often in an effort to make up for what they lose when their accumulated wealth no longer pays them any returns. Shoeshine boys are dishing out market tips.

To continue reading: The S&P Is A Bloated Corpse

Good Thing Jesse Isn’t Around To See This, by Kevin Muir

If the first precondition for a stock market top, especially one of epic proportions, is that nobody believes it can happen, we’re pretty much there. From Kevin Muir at macrotourist.com:

Think back six months. Do you remember all the warnings from the legendary hedge fund managers about the impending stock market doom? Paul Tudor Jones, Scott Minerd, Larry Fink, Seth Klarman, the list is long but distinguished. At the time I penned It’s too easy to write bearish pieces. Even in late summer, gurus like Gundlach were bragging about the 400% he would make on his S&P 500 put purchases – Billionaire Bears. Given the atmosphere, I knew posts about the coming collapse would be greeted with tons of words of encouragement. Yet if I wrote something about the stock market continuing higher, crickets… Or worse yet, remarks about my cluelessness regarding the problems in the global financial system. I didn’t think stocks were going higher because everything was roses, no in fact just the opposite. Stocks were being pushed higher because everything was so FUBAR’d. Central Bank balance sheet expansion was pushing risk assets higher, and for the longest time, everyone wanted to fade it.

Fast forward to today. Even the most ardent bears have given up and embraced the idea Central Bank buying will push stocks higher. Investors that were previously doom and gloomers are now speaking of blow off-tops. I can hear the capitulation in their voices. No more brave predictions of the coming collapse. Instead, meeker forecasts of a high volume runaway euphoria. There are no bears left. None. Not a soul.

The bears have been replaced by gloating bulls that are openly bragging about how high the S&P 500 futures will gap up Sunday night. They are mocking the bears with taunts of how much money will they lose fighting the rally. They joke about buying the dip, which increasingly is becoming more and more nothing more than a couple of downticks.

I might not know much, but I know the Market Gods do not take kindly to that sort of behaviour. What was that quote from Bernard Baruch? “The main purpose of the stock market is to make fools of as many men as possible.”

Ask yourself what would embarrass most investors right now? Would it be a continuing rally? Not a chance. Given the white flag waving by the bears, and the over-enthusiasm of the bulls, there is little doubt in my mind that a stock market decline is what would hurt most. That wasn’t the case six months ago. Heck, it wasn’t even the case two months ago. But that’s where we are today.

 

To continue reading: Good Thing Jesse Isn’t Around To See This

21st Century Shoe-Shine Boys, by Pater Tenebrarum

This article is pretty much chapter and verse on why the stock market should head down soon. It’s a good primer for those blissfully unaware of downside risk. From Pater Tenebrarum at acting-man.com:

Anecdotal Flags are Waved

“If a shoeshine boy can predict where this market is going to go, then it’s no place for a man with a lot of money to lose.”

– Joseph Kennedy

It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if he wanted a few stock tips. Kennedy was amused and intrigued and encouraged him to go ahead. Bologna wrote a few ticker symbols on a piece of paper, and when Kennedy later that day compared the list to the ticker tape, he realized that all the stocks on Bologna’s list had made strong gains. This happened a few months before the crash of 1929.

 

Joseph Kennedy in 1914, at age 25 – at the time reportedly “the youngest ever bank president in the US”

Photo credit: John F. Kennedy Presidential Library and Museum, Boston.

Kennedy sold all his stock market investments over the next several months and put the money in what he considered the safest banks. He had already made a fortune in the bull market, and reportedly augmented it later by going short in the bear market. We are pretty sure his meeting with the market-savvy shoe-shine boy wasn’t the only reason for which he decided to sell. He did mention the anecdote later in life though and the experience served to solidify a conclusion he had already arrived at: It was very late in the game and the market was likely to  crack badly fairly soon.

We felt reminded of this story when a good friend (who invests for a living) visited us this summer. He inter aliatold us about an acquaintance of his, whom he described as an autopilot investor who only very rarely looks at the market and has a record of getting the wrong ideas at the wrong time. His latest idea was noteworthy: he thought it would be a good idea to “sell volatility” (by writing puts, if memory serves). This was in July, just before the VIX reached a new all time low.

To continue reading: 21st Century Shoe-Shine Boys

Why Trump Claiming Ownership Of “Markets” May Not Be As Crazy At It Seems, by Mark St.Cyr

As Trump heralds each new high in the stock indices, he has predictably been warned that he’s setting himself up for a fall when the averages do. That may not be as self-evident as it seems. From Mark St. Cyr at markstcyr.com:

I want to pose something which I know currently flies in the face of what many (and of those many, many I respect immensely) are currently cautioning the President against. i.e., Claiming credit for the current rise and new lifetime highs in the “markets.”

As of this writing the Dow™ is within spitting distance of (once again) topping the previous never-before-seen-in-human-history-all-time-high, setting the new benchmark at 22,000. (By the time I publish it may be a fate accompli)

Many are calling for caution when it comes to the President taking credit implying this seemingly great “win” could end up being nothing more than a “boat anchor” around his reputation should the “markets” falter, turning a once worthy accolade into the proverbial “kiss of death” signaling the scapegoating to begin in earnest.

Not only is there a lot of merit in that argument, I would also agree with it wholeheartedly if not for just one thing. The President himself, and his long history of how he frames both arguments for accolades, as well as eschews (as in publicly lambaste) those who question his perceived accomplishments.

All one has to do is look at his past performances on both TV, and in public, and it’s there. Again, the clues are everywhere, and he’s been doing it for decades. i.e., I believe this is nothing new. It’s only new to the current political mayhem.

Why I bring this up is in respect to one of the President’s most recent tweets. To wit:

I would like to bring your attention to the one thing in which he is absolutely both defining, as well as being correct with. And it is this: “Was 18,000 only 6 months ago on Election Day. Mainstream media seldom mentions!”

At first blush this appears to be a “Well…Duh!” type statement. However, if you think about how one would use the above as to frame that “Duh” observation into a sword-and-shield for defense against the possible torch-and-pitchfork bearing hordes should the “markets” falter? Defining the message, terms, all while taking credit in a believable construct – isn’t as crazy as it first appears. Especially if you can not only evade the “horde”, but possibly redirect their anger away from you – and onto another. i.e., Welcome to Machiavelli 101.

To continue reading: Why Trump Claiming Ownership Of “Markets” May Not Be As Crazy At It Seems