Chair Yellen is no Joe Namath

All I’m going to say is the Fed chair Yellen is no Joe Namath.

On Wednesday in a speech the Fed head said, “Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”

Namath guaranteed the New York Jets would win Super Bowl III and backed it up.

Yellen, who seems to be on the path of bursting asset bubbles with a credit-busting, rate-raising strategy, also said, “asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates.”

Even if you discount the 2.5% drop in Google yesterday on the huge European regulator’s $2.7 billion fine for skewing its search results, stocks sold off hard on her comments.

Now I’m not one to pandered to ageism, however at 70 years old, Chair Yellen has a different time horizon than the rest of us.

But if the Fed thinks it can burst stocks, art and home asset bubbles by constricting credit in a low inflation environment, then Yellen & Co are looking at a possible deflationary crisis, which they have little in their toolbox to combat.

One can think that the Fed can always lower rates again and expand its balance sheet to fight deflation, but that’s just continuing the boom/bust cycles.

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FAANGs are the teeth for 2017 returns

As we begin the second half of 2017 astronomically , let’s look how the stock markets did so far.

  • The Dow Jones industrial average is up 8.3%.
  • The S&P 500 rose 8.7%
  • The Nasdaq soared 15.9%

On the backs of FAANG stocks, the tech index is a very crowded trade. The ironic part of the gains in Facebook, Apple, Amazon, Netflix and Google is held by “hedge funds” and foreign central banks.

  • Facebook: +33%
  • Apple: +25.7%
  • Amazon: +33.5%
  • Netflix: +25.1%
  • Google: +23.2%

Certainly there are losers in the tech sector during this run up in prices. Twitter and Snap are two of the once promising darlings that failed to attract investor interest.

Now why would hedgies be in these stocks, unless the hedge is not to show negative returns on their other bets.

As a point of comparison bitcoin is up roughly 64% for the first half of 2017.

Many market pros are saying this could be the top for these stocks. That makes sense from the strong first half returns, but my question is if this is true, then where will capital go to find the next crowded trade? Because that’s where you make money.

Markets ignore Euphrates line in the sand

This will be a brief posting today, since I have to remove a large tree limb that came down on my wife’s art studio during Monday’s storm.

As I wrote yesterday, the markets are immune to a sell off despite global events. Monday’s development in the Middle East.

Humans are said to have developed in the Euphrates Valley, well this week we could see the ramping up of our demise in the same region as US-Russian warplanes may be having dog fights over the Crescent of Civilization.

Given this difficult situation where the Pentagon came out and said that US fighters will defend the airspace against all hostile actors, equity markets hit new highs, the VIX, or fear index, almost had a 9-handle and bonds are at very low yields. It’s too strange to be true.

Look no further than the price of crude. At $44 a barrel there is no premium being paid for the unrest in the Gulf Oil states as well as Middle East.

I’ll have more on this as I dig further, but there’s a limb that needs to be removed from the roof.

No fear or loathing in the markets

Do you recall the days when markets would pull back when there was a terrorist event in the world?

When investors would at least pause when the fired FBI Director was speaking on Capitol Hill about events and conversations with the White House?

Some of these market participants would even sell when the Federal Reserve raised rates. Speaking of the Fed — the ultimate backstop on falling security prices — it said last week it would begin pulling some $2 trillion out of the markets over the next 2 years or so.

What did we get from the markets?  Crickets

These investors used to be called skittish. But they seem to be gone. They have been muscled out by money that seems to know something. There are so many signs that the market is ready for a pull back.

What that something is that the markets know could certainly be helpful to small investors.

However, this is the time market pros say when the “dumb money” comes into the market. Small investors seeing new record highs most days and who have been on the sidelines fearing a repeat of 1987, 2001 and 2008.

I’m of the opinion that you don’t need to catch the last 5% move upwards, when the risk is you could get caught in a 50% downside collapse. It’s not a zero-sum game, you can take some profits and leave some positions for the possibility markets will go higher.

 

Investors double down on new to chase returns

Out with the old and and in with the new at double the price.

That’s what we have in the markets today. Wal-Mart has a market cap of $236B, while Amazon’s value is twice that at $478B with a share value of nearly $1,000 as compared to $78 for the predominantly brick and mortar retailer.

Also, bitcoin in the next few minutes may be worth twice the price of an ounce of gold, again.

On Tuesday it was reported that former SAC Capital chief Stevie Cohen is looking to raise at least $10B to add to his own $11B for his new hedge fund to launch in January.

Cohen was riding high until the Securities and Exchange Commission forced him to shut it down in 2013 and accept a four-year ban from the industry for not properly managing his staff when some SAC employees were charged with insider trading by then NY Federal Prosecutor Preet Bharara.

The doubling down on the new seems to be a signal of a top to the markets as the tried and true cannot find the legs to go to the next level as valuations are stymied thereby forcing capital to find a newly formed bubble.