Weekend Topic Suggestions
Please post topic ideas here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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I read that alot of Argentinians are putting their money in real estate in their own country . You can’t lose money in real estate comapared to currency devaluation. Chinese are buying homes in California since they are experingcing a bubble in China. Everybody wants to own a home in California. We ‘Clifornia’ have the perfect weather and the best looking people on earth.
“the best looking people on earth”
http://www.peopleofwalmart.com/category/location/ca/
Best looking and smart are mutually exclusive in CA.
They used to say that 9 out of 10 California girls are pretty. The 10th goes to Stanford.
I thought the tenth girl went to UCSD
I have seen some very beautiful women at Stanford. Don’t kid yourself.
“You can’t lose money in real estate comapared to currency devaluation.”
Conversely, you can lose your shirt buying overvalued real estate just before a decades-long correction.
Moreno Valley will soon be entirely Chinese.
Bought with worthless, useless, unbacked fiats that were traded for lots of precious Chinese-made junk not all that many years ago.
Where did all the folks go that used to visit this message board and laugh among themselves as to what fools the Chinese were for willingly accepting our dollars in exchange for their junk?
We, us smart Americans, collectively shipped our already generated wealth - our dollars - to China AND we shipped our potential to generate wealth - our jobs - to China at the same time. And we laughed at the Chinese at the same time were doing it.
People are smart.
Moreno Valley will soon be entirely Chinese.
They’re snapping up the inland empire? LOL! They’re welcome to it! I guess it’s less smoggy than Beijing, so it’s all good.
I read that alot of Argentinians are putting their money in real estate in their own country . You can’t lose money in real estate comapared to currency devaluation.
That’s exactly what Mexicans did when the SHTF in the early 80’s. And if you couldn’t afford to buy property, piles of rebar and and bags of cement would do for hoarding, as you could always sell them later and not lose value to inflation.
An anecdote: My dad owned a plastics injection biz in Mexico city in the near hyperinflation riddled late 70’s. He was able to procure a special government loan for firms that export, it think the interest rate was about 10%, while inflation was about %40-50. He used the loan to buy a mountain of raw, granular plastic. The bags were stacked up to the rafters in the warehouse. It was probably enough to supply the business for 10 years. As expected, over time the raw plastic’s price mushroomed with inflation and he slowly but steadily sold it off. He made more money doing that than from the actual business.
Good play in the greatest expansion of credit in history. What’s the play in deflation?
How are your submerging market stock investments faring?
Submerging markets are not the norm (so far)
January 31, 2014 10:51 am by James Mackintosh
It’s easy to get the impression from the media that a new emerging market crisis is upon us. I wouldn’t rule it out, but so far what we’ve seen barely counts as a crisis even in countries such as Turkey, hit the hardest.
Turkey is having some serious political problems and this week hiked overnight interest rates from 7.75 to 12 per cent at a midnight emergency meeting. It looks bad, but in the context of Turkey’s history, this is mere noise. Turkey’s last coup was in 1997 – the “postmodern coup” – and there had been one each decade since 1960. The unusual thing is that the military went throughout the 2000s without taking charge.
Here’s the long view on Turkish interest rates (note this is the overnight borrowing rate, the longest-running of the multiple Turkish rates; it is no longer the main rate, but was more than doubled from 3.5 to 8 per cent this week):
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January 24, 2014, 5:02 pm
Submerging Markets
By VIKAS BAJAJ
Argentine money
Leo La Valle/Agence France-Presse — Getty Images
Currencies in formerly fast-growing emerging markets have been falling sharply this week. The Argentine peso and the Turkish lira, for example, were each down more than 1 percent against the dollar on Friday afternoon.
The market turmoil should come as no surprise to anyone who has been paying attention to the global economy in recent months. Economic growth has been slowing steadily in many developing countries and civil unrest has rocked several nations including Ukraine, Thailand and Argentina. In a column earlier this week, Ruchir Sharma, an executive at Morgan Stanley, pointed out that most emerging markets with the notable exception of China haven’t been growing faster than the United States in the last two years, which is a big change from the previous decade when they were growing much faster.
While each country’s circumstances are unique, they all seem to share one thing in common: their governments are a big part of the problem.
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Global Economy and International Finance
Words into Action
Submerging markets
Barry Eichengreen
Economic Historian, UC Berkeley
Emerging markets have thrived in the years of easy money and economic boom. But as interest rates rise, they are increasingly vulnerable to a downturn in global growth.
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Australia: The Submerging Market
By Greg Canavan • January 28th, 2014
Is Australia an emerging market? Is the Aussie dollar akin to an emerging market currency? It’s sure looking that way. We’ll have a crack at answering those questions in today’s Daily Reckoning, because the emerging markets rout is back on.
You’ll probably remember that it began back in mid-2013. That was when the US Federal Reserve started talking about slowing its rate of quantitative easing (QE). It was also around the time that China had its first credit market scare, with its interbank interest rate, the ’shibor’, spiking higher.
The combination of less easy Fed money and the first signs of trouble in China saw capital begin its long haul from the periphery to the core. That is, capital began fleeing emerging markets, moving to the safety of the ‘core’ global financial centres.
There was some respite throughout the second half of the year. The Fed backed off on its commitment to slowly end QE and China, spooked at the prospect of a slowing economy and credit market troubles, tried to pump up its economy once again.
But the Fed finally announced the start of the QE wind-down in December, providing a good excuse to sell emerging market assets and currencies. At the same time, more strains began showing up in China’s money and credit markets. In the New Year, we discovered that economic growth in China is slowing and the latest manufacturing data shows the sector is no longer expanding.
Over the past five years, China has no doubt been the best customer for many emerging market economies. Slowing economic growth there will cause some pain for months to come.
It’s no surprise that you’re seeing the Fed’s ‘taper’ and a slowdown in China at the same time. China loosely pegs its currency to the US dollar. As a result, it broadly imports US monetary policy. Low US interest rates and QE provided plenty of fuel for China to light a credit fire in 2009/10. The problem was that it got completely out of hand over the next few years.
Continuing QE in the US and unwillingness by China’s leaders to tame the flames saw China’s economic growth become hopelessly unbalanced…and unproductive. Now, at the same time the Fed is pulling back, China seems to have a new found resolve to restructure its economy.
No doubt this will be a good thing for China in the long run. And that means it will be a good thing for Australia too. But what happens in the ’short run’? After all, that’s all politicians and central bankers in the West care about. The next 12 months, the next election, the next ‘upswing’, the next recession to be avoided at all costs.
The short run, we think, will tough for Australia. That means you could see your first recession since the early 1990s. We’re not an emerging economy by definition, but we’re going to feel like one pretty soon.
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Global Economics
Emerging-Market Tremors Shake the World Economy
By Peter Coy
January 30, 2014
A protester confronts the police during a clash in Kiev on Jan. 22
Photograph by Xinhua/eyevine/Redux
Emerging-market crises were supposed to be passé—a relic of the rocky 1990s, when investors suffered through the Tequila Crisis and the Asian Contagion in rapid succession. But history is stubbornly repeating itself. Emerging markets erupted afresh during last summer’s Taper Tantrum—who comes up with these names, anyway?—and as 2014 begins there’s turmoil from South America to Asia.
Most at risk are poorly governed countries such as Argentina and Ukraine that became addicted to hot money from foreign investors in search of high returns. Those capital flows are sloshing back to developed economies like the U.S., leaving submerging economies behind. Countries with stronger finances and a unified citizenry are in less trouble, so the likelihood of another full-blown emerging-markets crisis remains low. Yet some of them could be dragged down if investors flee in a panic. “Events can unfold very rapidly if a disorderly process takes hold,” Morgan Stanley (MS) analysts warned clients on Jan. 27.
Each emerging country is unhappy in its own way, making it hard to predict what happens next—and prescribe a one-size-fits-all policy fix. “You don’t have a silver bullet here,” says Pablo Goldberg, head of emerging-markets research at HSBC Securities (HSBC).
The storm brewed up just as the world’s elites were in the Swiss Alps for the annual meeting of the World Economic Forum. A Jan. 23 report of contracting factory output in China raised the specter of slower Chinese demand for commodities and goods from its trading partners. That same day the Argentine government devalued the peso by the most in 12 years, abandoning attempts to prop it up by buying pesos with dollars. Other countries had their own troubles: A corruption investigation in Turkey undermined the authority of Prime Minister Recep Tayyip Erdoğan; Ukrainian President Viktor Yanukovych infuriated opponents by pushing through antiprotest laws (since rescinded under pressure); Thailand imposed a state of emergency in Bangkok; and Egypt experienced a fresh wave of street violence.
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Photo Essay: Uprising in Ukraine
The Ukraine situation appears quite incendiary.
Life
Streaming the uprising: Ukraine protests go viral
January 29, 2014
Social media have given international resonance to the events in Ukraine but also had a much more practical effect of helping to spread news from Kiev to other parts of the country. — Reuters picSocial media have given international resonance to the events in Ukraine but also had a much more practical effect of helping to spread news from Kiev to other parts of the country. — Reuters picKIEV, Jan 29 — For every Ukraine protester smashing in a window, throwing a Molotov cocktail or being hit by riot police, there will be several people standing nearby with their smartphones aloft livestreaming the event.
Web channels have sprung up — some with presenters in improvised studios commenting in real time on the live feeds from protests in Kiev and beyond — and clips of some of the most shocking clashes have gone viral on social media.
Social media have given international resonance to the events in Ukraine but also had a much more practical effect of helping to spread news from Kiev to other parts of the country, where copycat protests have broken out in recent days.
The live web-streaming has been a huge feature of the protests, allowing anyone a multichannel 24-hour view of the main protest zones to check the numbers on the streets and watch for police abuses.
“It’s a technology that is available to protesters and they are using it in diffusion to the regions,” said Olga Onuch, a research fellow at Oxford University’s Nuffield College in Britain who has been analysing Internet use.
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VDIGX. Bought it at $9.60 in 2009. Now $20. Getting some nice dividends the whole time. It seems to be holding up very well, thank you.
Genius is a rising market.
What is the intelligence equivalent of a falling market?
A non politically correct word.
One could argue that investing when the rest of the world is scared sh*tless is wise. It was the second half of that doubling that was the rising market (as opposed to the first half, which was rebounding off of the fear-driven low).
Part of the strategy is buying a dividend mutual fund, using the dividends to dollar cost average into the fund over time. If the price goes down, the dividend just buys more stock. More stock pays more dividends. It is sort of a self hedging strategy.
High dividend paying mutual funds will be especially wiped out during the incipient period of rising rates, as will rental properties.
Surely you jest…..you probably said the same thing in 2009. In the meantime, I have exceeded a 100% ROI on both counts. That’s the kind of wipe with which I can live comfortably.
wipe out…..
No.
We said housing is a loss in 2009 and it was. And it is now.
Emerging-market currencies catch breath, but Roubini sees further pain
January 30, 2014, 5:09 PM
While hard-hit emerging-market currencies took a breather Thursday from their recent losses, they’re not done falling, according to economist Nouriel Roubini.
“I see — given the macro risk, the political risk, the growth and inflation — further downside to some of the fragile EM,” he told MarketWatch on Wednesday.
Rate hikes like Turkey’s this week have helped, but officials also have to keep voters happy, according to Roubini.
The tightening in Turkey will “restrain further weakness in the Turkish lira, but the question is for how long they can keep the interest rates high in all of these countries when growth is slowing and you have elections coming,” he said in an interview after his speech at this week’s Inside ETFs conference.
He also said: “They have not tightened enough. Eventually they will.”
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Watch out for falling BRICs! I guess these stocks’ high betas and positive correlations with headline U.S. stock indexes don’t help in the least!
Emerging markets
Locus of extremity
Developing economies struggle to cope with a new world
Feb 1st 2014 | HONG KONG | From the print edition
THE central bank of Turkey boasts an impressive art collection, including a canvas by Erol Akyavas entitled “Locus of Extremity”. That was pretty much where the central bank found itself at midnight on January 28th. Turkey’s currency, the lira, had fallen by 13% against the dollar in the previous six weeks, one of the worst casualties of a broader sell-off in emerging-market assets. Prices were rising (by 7.4% in the year to December) and yet the political pressure to suppress interest rates remained firm. At its unscheduled, nocturnal meeting, the central bank dramatically simplified and tightened monetary policy, raising what will henceforth be its key rate from 4.5% to 10%.
The Turks were not alone. Earlier that day India’s central bank also surprised people by raising rates (albeit by a less extreme 0.25 percentage points) for the third time in five months. South Africa’s monetary authorities followed suit the next afternoon, lifting rates by 0.5 points. The trio deemed their tightening necessary to keep a lid on troublesome inflation and to give a lift to their battered currencies. But it gave their exchange rates only a fleeting lift; late on January 29th they were wobbly again.
These three economies, alongside Brazil and Indonesia, belong to the “fragile five”. Their currencies suffered dramatic declines last year, after Ben Bernanke, the chairman of America’s Federal Reserve, was tactless enough to say that it would not keep printing money to buy bonds at the same pace for ever. The beleaguered five enjoyed some respite in September, when the Fed decided to maintain its “quantitative easing” for a few months more. But in the past two weeks foreign investors have once again found reasons to sell (see chart 1).
They did not have to look too hard. In recent months Argentina has squandered a big chunk of its foreign-exchange reserves in a doomed defence of the peso, which eventually fell by about 20%, despite the government’s fitful efforts to curtail capital outflows. On January 23rd a widely watched index of manufacturing in China fell by more than expected, raising the prospect of slowing growth amid excessive credit. In Turkey, the sons of three cabinet ministers were arrested in December in a corruption scandal. Meanwhile, in both icy Kiev and balmy Bangkok, protesters are on the streets.
These local difficulties, not all of them little, are unfolding against the backdrop of a gradual rise in global interest rates, as America’s economy strengthens and the Fed moderates its bond purchases. Yields on ten-year Treasuries are still low: about 2.8%. But that is more than one percentage point higher than nine months ago. At Mr Bernanke’s last meeting as chairman, on January 29th, the Fed decided to cut its monthly purchases by another $10 billion, having done the same in December.
The Fed’s bond-buying was not popular in emerging economies. Brazil’s finance minister, Guido Mantega, once accused the rich world of unleashing a currency war: the Fed’s easy money cheapened the dollar, reducing the demand for emerging-market goods. But now that quantitative easing is slowly ceasing, the developing world faces the opposite problem: the Fed’s cutbacks will cheapen American bonds, reducing the demand for emerging-market assets. Alexandre Tombini, governor of Brazil’s central bank, has likened rising rates in the rich world to a “vacuum cleaner” that will suck foreign money out of emerging economies.
How dependent on that money are emerging economies? The amount of emerging-market bonds and equities that foreigners have accumulated is impressive (see chart). But the income and wealth of the emerging economies have also grown over that period. The 30 most prominent such economies account for almost 40% of global GDP, notes the Institute for International Finance, which represents global banks. Yet their weight in benchmark portfolios of global stocks is only about 13%.
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Hedge Funds Sniff for Even Bigger Payouts From Banks
By PETER EAVIS
http://dealbook.nytimes.com/2014/01/28/hedge-funds-sniff-for-even-bigger-payouts-from-banks/?hpw&rref=business
One of the biggest bets on Wall Street rests on a theory that also deeply unsettles Wall Street.
The provocative theory is that the big banks have not paid enough in recent legal settlements to make amends for their role in stoking the subprime housing boom and bust. Hedge funds, contending that the banks have so far underpaid, have bought subprime mortgage-backed bonds, which they hope will rise in value. That would happen if Wall Street banks ultimately pay out a lot more money to settle other, more stringent litigation tied to these bonds. And the hedge funds holding the bonds may often be behind these more demanding lawsuits.
The notion that the big banks are getting off lightly in these settlements might seem stretched. After all, in recent months, several large banks have agreed to deals with government authorities and alliances of private investors that carry substantial penalties. The $13 billion that the Justice Department extracted from JPMorgan Chase last year was a record.
Around the same time, JPMorgan entered into a $4.5 billion settlement with a range of prominent investment firms, BlackRock and Pimco among them, over allegations that it packaged mortgages into bonds before the financial crisis that didn’t meet certain agreed-upon standards.
But as large as those penalties appear, some hedge funds believe they may have been too small for the abuses that they say actually took place. After digging deep into the pools of loans that back the bonds, the hedge funds assert that, in the case of certain securities, the banks’ missteps were more widespread than publicized. They argue that the big-name investment firms could have gotten more out of their JPMorgan settlement. To the hedge funds, it is as if an oil producer had to pay compensation only for the most obvious destruction caused by an oil spill, allowing it to escape its liability for large-scale damage that was not immediately obvious.
Now, the hedge funds, sniffing profits, see themselves as the ones to go after the banks for bigger sums. In recent months, the hedge funds have been buying bonds that are the target of lawsuits that typically want bigger payouts than the broad-based private litigation brought on behalf of big companies like Pimco.
If the more exacting lawsuits succeed, and the banks have to plow money into the bonds, the hedge funds stand to make a windfall. And the bond prices could rise merely if investors anticipate legal success, well before any settlement is ever reached.
The overall size of the hedge funds’ bet could be substantial. Nomura estimates that as many as 200 bond deals face lawsuits that aren’t part of the private litigation being brought on behalf of prominent investors. At the time they were issued, those bonds could have had a value of $100 billion to $200 billion. “Those deals are trading very well,” said Paul Nikodem, who is head of residential mortgage-backed securities research at Nomura.
Now, one hedge fund has gone one step further — it is trying to coax other investors out of participating in the JPMorgan settlement with private investors, which was brokered by Gibbs & Bruns, a Houston law firm. Fir Tree Partners last week proposed to buy several JPMorgan bond deals from other investors at set prices, asserting that its offer would give the other holders a higher and quicker return than if their bonds were included in the Gibbs & Bruns deal.
For instance, Fir Tree says that its offer for one bond, which contains first mortgages, is equivalent to 7 percent of the losses incurred on the bond, far higher than the 0.75 percent that the hedge fund says is available under the Gibbs & Bruns deal. (The law firm didn’t comment when asked.)
On five of the deals, Fir Tree, either alone or with others, has directed the bonds’ trustees to start litigation against JPMorgan.
Over all, the hedge funds face several challenges, however. Litigation can be costly. It can be difficult to amass the required level of support from other bondholders — typically 25 percent of their voting rights — to direct the trustee to carry out lawsuits.
And a recent ruling by a New York State appellate court may have made it all but impossible for hedge funds to file new lawsuits on precrisis mortgage bonds. In addition, because of the ruling, some existing legal actions may be thrown out because they were filed too late. (A trustee bank, HSBC, last week filed a motion opposing the ruling.)
The hedge funds may also face an uncomfortable type of counterattack that could complicate their litigation. The banks’ lawyers may question whether a hedge fund trading in litigated mortgage bonds had been unduly influenced by potentially material nonpublic information that the fund gained through the discovery process in their litigation.
Still, the hedge funds say that the numbers are on their side. They contend that the sheer awfulness of the mortgage loans in the bonds gives them a solid chance of victory. Fir Tree, for instance, says that it has been involved in a review of over 40,000 loans. It claims to have found that, in certain bonds, as many as 98 percent of the mortgages had flaws that should have kept them out of the deals.
Because of the deep dives into the loan data, some mortgage bond analysts think the hedge funds’ lawsuits could fare well. “We definitely do think there will be positive resolutions,” Mr. Nikodem, the Nomura analyst, said. “The payouts will likely be higher than for Gibbs & Bruns.”
Wonderful crookery all around in this article. Thanks for pointing this out Polly. Lawyers fighting banksters all colluding for more payouts from insurance policies.
I’m not even sure you can get a payout from an insurance policy when 98% (see next to last paragraph) of the loans in the bonds were flawed. They may be counting on getting the money direct from the bottom lines of the banks.
Direct from the bottom line of the banks? Is that spelled FDIC? Or do the banks in question have enough cash on hand to pony up without a bailout.
Polly, this is very interesting news. Our HOA was hit with rampant mortgage fraud in 2007 (refer to Cynthia Suratos Lorica and Edwinna Suratos Firmeza in previous HBB posts). We lost over $350,000 in HOA fees due to fraudulent buyers using sub prime mortgages to flip houses to each other, pulling out $millions in cash.
They rented the houses out and never made the mortgage payments OR the HOA dues. We started foreclosing on HOA arreages (some as high as $20,000 with penalties and interest over a 7 year period).
Now the banks are coming in and foreclosing on top of us. HOWEVER, our HOA CC&Rs state the HOA only subordinates to mortgages made in GOOD FAITH.
So far the judge has agreed with us that this strategy has merits and he is issuing restraining orders against the lender. Most lenders are paying our back HOA dues and legal fees, so they can take title, move on and sell the home.
We have a few lenders who are trying to stiff the HOA, claiming their rights as a mortgage holder trump our rights as an HOA. However, the mortgage was made in bad faith and the lender was negligent (lending $1,350,000 to a hotel maid for example, on a $500,000 asset). We have decided to get tough with the banks that are fighting us and we may win the house, wiping out the mortgage. It is so fascinating and so fun….but so time consuming.
I will update you periodically on this action.
Can’t say the EM crisis has been bad for gold investors.
Jan. 31, 2014, 8:19 a.m. EST
Gold pushes higher as global equities fall
By William L. Watts, MarketWatch
NEW YORK (MarketWatch) — A global equity rout on Friday provided a lift for gold futures, which posted modest gains as investors looked for havens, leaving the yellow metal on track for a monthly gain.
Gold for April delivery (GCJ4 +0.70%) rose $5.80, or 0.5%, to $1,248.30 an ounce. March silver advanced 19 cents, or 1%, to $19.32 an ounce.
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How are you feeling as the stock market’s rout plays out:
Optimistic, or fearful?
And given the Dow is off by 4.5% so far in January with more losses expected today, where do you expect it to finish in 2014?
((15,848.61/16,588)^12-1)*100% = -42.1% annualized rate of decline in the DJIA so far this year.
Updated version — this from the all-time high level of the Dow (end of December 2013) to the present:
Year-end 2013 all-time record high = 16,588.25
January 31, 2014 level = 15,698.85
1-month January Effect loss =
(15,698.85/16,588.25-1)*100% = -5.4%.
Annualized rate of loss =
((15,698.85/16,588.25)^12-1)*100% = -48.4%.
Just a little acceleration and momentum might give Uncle Fed her desired 53% pullback!
I am guessing the Dow ends 2014 within 10% of the starting number.
$16,441 + 10% = $18,085
$16,441 - 10% = $14,946
It’s a 3,200 point swing, but a pretty safe forecast.
Futures tumble on euro zone data, emerging market worries
NEW YORK Fri
Jan 31, 2014 8:22am EST
Traders work on the floor of the New York Stock Exchange January 24, 2014. REUTERS-Brendan McDermid
(Reuters) - Stock index futures edged lower on Friday, setting Wall Street up for its first monthly decline since August, hurt by weaker-than-expected inflation data in the euro zone and ongoing concerns about turbulence in emerging markets.
* Eurostat’s first reading of January inflation showed it slowed back down to 0.7 percent, raising pressure on the European Central Bank to consider fresh policy action to counter deflation risks and support a weak euro zone recovery.
* Ongoing concerns about the outlook for emerging markets have been pressuring global equity markets for weeks. The S&P 500 was now on track to end the month 2.9 percent lower. If the broad market index closes lower, the decline would be the biggest since May 2012.
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Markets
U.S. Markets Tumble as Fear Spreads
Stocks Post Worst Loss in Seven Months as Investors World-Wide Confront Pullback in Stimulus, Growth Worries
By Prabha Natarajan, Nicole Hong and Chris Dieterich
Updated Jan. 24, 2014 7:24 p.m. ET
U.S. stocks tumbled Friday to their biggest loss in more than seven months, extending a global selloff that investors fear signals turmoil to come as financial markets adjust to a pullback in central-bank stimulus.
The declines extend a dark beginning of the year for equity investors world-wide, a jarring drop for markets that climbed imperviously through 2013.
The Dow Jones Industrial Average fell 318.24 points, or 2%, to 15879.11. The Stoxx Europe 600 lost 2.39%, and Germany’s DAX, down 2.48%, had its sharpest fall in months. The Nikkei also fell 1.94%.
While those drops were dramatic, much of the pain of investors’ readjustment is landing on developing economies, from Brazil and India to Thailand and South Africa.
In recent years they were buoyed by the high tide of cash from the U.S. Federal Reserve’s stimulus and by China’s voracious growth.
Now, those forces are receding, with the Fed expected to reduce monthly bond purchases again on Wednesday.
Investors are pulling back with them.
“We’re looking at how U.S. policy will hurt the emerging markets,” said Robert Glownia, quantitative analyst at RiverFront Investment Group, which manages about $4.1 billion in exchange-traded funds. “We don’t think the tail is going to wag the dog.”
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How many of you folks believed me when I suggested last year that a rout in Treasurys (roughly 15% correction in the 30-year T-bond) from May through August portended a stock market correction?
And how many believe me now?
What is interesting is Treasuries are not getting routed today. What is your prediction for T’s going forward?
It actually takes a correction of (1/1.26-1)*100% = -20.6% to undo a 26% bubble price gain.
7:44 pm Jan 29, 2014
Markets
As Stocks Decline, Optimists Hold Line
By E.S. Browning
CONNECT
U.S. stocks have started the year with a thud, but it has been a reluctant rout. Wednesday’s 189.77-point decline in the Dow Jones Industrial Average left it down 5.1% for the year.
What’s interesting, though, isn’t that stocks are down but that the declines are coming so grudgingly.
After the Dow industrials surged 26% last year, finishing at a record on Dec. 31, just about every analyst from Wall Street to Main Street has been predicting a 10% pullback at some point in 2014. And they thought it would happen for the very reasons that are causing the recent declines: cuts in Federal Reserve stimulus, uncertain corporate earnings and worries about growth and stability in big developing countries such as China.
After Wednesday’s drop, the S&P 500 and Nasdaq Composite indexes are down 4% and 3%, respectively. But already some money managers said clients are looking for a chance to jump in at discounted prices.
“I know a heck of a lot of people who still want to get money into the market and feel they missed out last year. They are looking for an entry point,” said Bill Stone, chief investment strategist at PNC Wealth Management, which oversees more than $125 billion in Philadelphia.
Mr. Stone is among those who see a 10% decline coming; he is just beginning to wonder if it is going to happen now.
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Did I ever tell you guys how I got in trouble with my parents when I was a little kid for spitting in the general direction of kids attending Sunday School?
10:35 am Jan 31, 2014
Markets
Do Yourself A Favor: Care Less About the Stock Market
By David Weidner
If you’re reading this you probably own stocks. Most readers of this financial publication do, directly or indirectly— usually through a brokerage account or through a pension or retirement account such as a 401(k).
Stock ownership seems as if it’s nothing special these days. Everyone appears to be in the game. And because everyone feels like a player, there is enhanced emphasis in the media on the stock market. In turn, many of us gauge how the economy is doing or will do based on the market’s value – even though we know we probably shouldn’t.
As a result, our collective spirits rise and fall on the market’s moves every trading day. Investors felt last year was great. If your measurement is the S&P 500 Index, then yes, 2013’s 30% gain was cause for celebration. The recent 4% decline? Get nervous and, maybe get out.
The market is really just a yardstick of our confidence, right?
Actually, no.
That’s because most of us who own stocks don’t hold a much and most people don’t own any stocks at all.
How is the market a reflection of this silent majority?
The reality is that stocks are not only owned by a minority of Americans, but by a minority of that minority – and a very wealthy minority at that.
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Will the Fed soon call off the taper if emerging markets continue to submerge?
10:47 am Jan 29, 2014
FX Horizons
Suddenly Thrust into a Bind, Fed Might Well Opt to Halt the Taper
By Michael J. Casey
CONNECT
With the Turkish lira reversing all of its massive overnight gains within just 15 hours of the central bank’s giant interest- rate hike, and then South Africa’s rand plunging despite a rate increase there, it seems like emerging-market authorities have lost control of their financial conditions.
So now, the ultimate question: Does the granddaddy of all central banks still have control?
With the Federal Reserve due to make a monetary decision at 2 p.m. ET today, its yearlong dance with a global market obsessed with its fine-tuning of U.S. monetary liquidity arrives at an extremely difficult phase–an especially awkward pirouette, perhaps.
Does the Fed press ahead with its plan to remove a further $10 billion from its monthly bond-buying program and so maintain an image of predictability in a sea of tumult? Or would that risk an even bigger panic by investors, who fret about the end of a long period of near-free money, and force it to make a credibility-challenging reversal in the days or weeks ahead?
We know what the Federal Open Market Committee wants to do. It wants to stick with the plan. But can it? Are markets in control now? My sense is that this risk-averse Fed–an institution that is still in the hands of Ben Bernanke, the architect of quantitative easing, for three more days – will worry most about that second, worst-case scenario and stand pat.
That isn’t the consensus expectation among economists–who are mostly calling for the Fed to cut its monthly purchase target to $65 billion from $75 billion. It’s also not the best solution. A halt in the tapering effort would open the Fed up to criticism that it is beholden to markets, a challenge to its long-term credibility. The best solution is for the Fed to take a stand against markets and live with the short-term cost of turmoil.
But past experience–for example, the decision in September not to start tapering bond-buying, despite economists’ expectations that it would– suggests the Fed will err on what it sees as the cautious side. It would justify this halt as a temporary move, giving markets time to stabilize. And it could point to the disappointing December jobs report for justification: Official data didn’t show the labor market improving as well as expected.
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Will the Fed soon halt its tapir?
Yes. I think that BB finally did some tapering so Yellen would not have to take all the blame. However, due to the world reaction, I think there will be a pause until the EM stabilize.
Yes, with a “relief rally” in EM stocks ahead (aka “dead cat bounce”).
what is the 10yr bond telling us?
When the SHTF, buy long-term Treasurys.
Much like wall street is in the crapper, without further ado… So, I got real sick a couple months back. Kind of sick where you’re throwing up, and every fart feels like a coin flip. So, anyhow, I manage to down an orange gatorade (If Gatorades were the Miami Heat, Orange is the Mario Chalmers of Gatorades in that it sucks but it’s never going away) and finally drift off to sleep in the guest bedroom. A while later I awake and something doesn’t feel right. There’s something wet and squishy under the sheets. I slowly pull the covers back in a Godfather-horse’s-head-scene kind of way and reveal that I’ve crapped myself in my sleep. Now, I’d crapped myself as an adult before, but that was when I was awake. And when you crap yourself when you’re awake, your butt alerts your brain almost as it’s happening, as if to say “I’m really sorry about this, here’s a heads up so you can get started on problem solving.” But when you wake up to having crap yourself, it’s like a big f- you from your intestines and you have to run through all the stages of grief before you get to the “how do I clean this up?” Since I’m sick, it’s the consistency of one of those Odwalla smoothies. In an effort to not have the mess drip on to the floor, I rip off the sheets and I shove them around my waist, much like you might do if you were trying to stop a leak on a boat. So now I’m totally naked, with a sheet wrapped around me and hanging down on to the floor, like I’m wearing the bottom half of a horrific wedding gown. And as I waddle towards the bathroom I hear the bedroom door open and turn my head just in time to see my wife staring at me, mouth agape. Real litmus test for the relationship, that one.
I take it this story is intended as a metaphor to describe this year’s version of the January Effect on Wall Street?