Tuesday, April 8, 2014

Bears Have Reason For Caution!

Of course, the market and bears in particular are jumpy.  Over the last several years a pattern of a random statements from the Fed and several other sources have caused crazy and illogical rallies. An unholy alliance of the Federal Reserve, the government, and the too big to fail has left those of us who question the validity of the recovery in a precarious position. For the big boys, its insider information and computer trading, this includes computing patterns that exploit where stops are placed, this improves their ability to wash the timid and weak bears out of their positions in this manipulated market.

Over the years we have witnessed the type of market reversal the big banks supported by the Fed can generate with a concerted effort to buy S&P 500 index futures at crucial support points late in the day. This has proved more than enough to turn the markets from red to green in the blink of an eye.  Even a bad report on job creation is twisted and spun as to mean more Federal Reserve support for easy money policies and a reason to rally the market. It seems no suggestion of weakness no matter how subtle can exist because it may begin to unravel the already fragile consumer confidence.

Efforts to escape our economic morass will continue and most likely take an interesting route going forward. A newly released paper from the IMF indicating concern and critical of central banks recent actions should give us pause. In the paper titled  “Monetary Policy in the New Normal,” the IMF scolds central banks across the world for their unprecedented use of bond purchases as a tool. The IMF argues many of the world’s leading central banks, notably the Federal Reserve, the Bank of Japan and the Bank of England, have gone too far and the cost of their recent actions seem to exceed the benefits.

Much like Fed Governor Jeremy Stein who recently said he would be stepping down from the Fed. the IMF now has come out saying monetary policy should target financial and external stability. Prior to his resignation Stein had been pushing the Federal Reserve to account for just that in setting interest rate policy and has been a leading voice in favor of tapering the central bank’s bond-buying policy which started in December. Looking back few bears saw the end of QE would be a reason for the market to rally, but it did. Note; this is the reason I caution bears to hold back on their celebrations.

While those in power, the politicians, central bankers, and the infamous one percenters appear to have painted themselves into a corner more than once, it seems they have super powers that allow the constant creation of new exits so do not be surprised if they have a few more rabbits in their hat. Until now printing money has been their answer, when that fails the power of the pointed finger and the placing of blame should never be underestimated for they are indeed magical.
The bottom-line is the higher the market goes the more vulnerable it becomes to a major collapse and sudden downward move. For a long time the wisdom has been to buy market dips and pullbacks. With each new rally I feel a bit of deja vu. Way back in 2007 we saw all stocks moving in unison, always upward, often ignoring both the news and reality, it is happening again. This is a reason for caution! If it looks like a Ponzi scheme, sounds like a Ponzi scheme, and feels like a Ponzi scheme, then it is probably a Ponzi scheme, but that does not guarantee that it is over.

Footnote; Please feel free to explore the blog archives and as always you comments are encouraged.


  1. So long as there isn't anywhere else for Insurance Companies, Pension Funds and the like to put their money with the prospect of a decent return this whole charade could continue for longer than many Bears can hold their positions. As a UK resident it was patently obvious back in the mid 2000's that the only thing keeping the economy 'growing' was the unsustainable housing bubble, as wages were not rising in line with inflation but it still took 7-8 years of 'froth' before the whole thing blew up.

  2. When the recent European elections start to sink in more dollars will be bought by Europeans getting the hell out? Not to name drop but the elections give CHINA And RUSSIA a second bigger reason to go AMERICAN. OH THE UNCERTAINTY horrors!

  3. I call a growth bottom! In the future when growth becomes apparent and valuations are future optimistic and become out of line in a permanent change to interest rates policy than the stock and bond markets will become challenged? It is a huge mistake thinking after 30+years of falling rates that the bond market will suddenly LOSS IT? The bond market is the bigger darling than any stawks market and will be made to orderly send its signals!

  4. Still waiting for that sure once in a lifetime buy signal? BTFD! Generational low in stock ownership and since you cant find the top and you missed the bottom maybe a good MMA and letting your dog eat your homework!