PIMCO’s Neel on Western Medicine. Yes, we are treating symptoms and not curing the patient as the high on debt disease is rather hard to cure.
- Liquidity is buying time for European countries, but their economies are growing too slowly to support their debt loads. In the U.S., household debt is declining, but remains high.
- Just as there is no reason to assume U.S. household debt levels will continue to climb, there is also no reason to assume companies that benefitted from that debt-fueled spending will grow at historical rates.
- Until we see sustainable, real economic growth in America, we believe equity investors should carefully scrutinize the assumptions underlying consumer discretionary stocks and consider global companies that are selling into higher growth markets.
Full article here.
Earlier this week Roubini became bullish. We have been waiting for Biggs to show up on our radar screens. Wait no more, Biggs is back. Lack of volume in the market is apparently great. Nobody actually wants to sell stocks, and sellers move higher, while the money on the sidelines desperately must get invovled. The man who was dreaming of huge shorts 20% lower, has now once again increased his bullish bets, in anticipation of this “nobody wants to sell stocks” rally to take out new highs. Warning signals are flashing. From Bloomberg;
“There’s a huge amount of money that has been caught on the sidelines in a market that continues to creep its way higher,” Biggs, the founder of hedge fund Traxis Partners LP in New York, said in a phone interview yesterday. “I interpret it as a positive sign that not much of the potential buying power has been consumed by the advance so far.”
Insiders are active again, this time they are selling. Sure enough, last year was different….From Market Watch;
Corporate insiders are now selling their companies’ stock at a rate not seen since late last July.
That’s a scary parallel indeed, since that late-July spike in selling came just days before one of the more painful two-week periods in the stock market in years.
In early August, as you may recall, the U.S. government lost its triple-A credit rating, and the bottom dropped out of the stock market. Between the last week of July and the second week of August, the Dow Jones Industrial Average DJIA +0.22% dropped 2,000 points. (Full reading here).
Guest POst by D Short.
About 4 1/2 months have passed since the latest Federal Reserve intervention, Operation Twist, was officially announced on September 21. We’ve now seen several bouts of aggressive Fed attempts to manage the economy following the collapse of the two Bear Stearns hedge funds in mid-2007 about three month before the all-time high in the S&P 500.
Initially the Fed Funds Rate (FFR) underwent a series of cuts, and with the bankruptcy of Bear Stearns, the Fed launched a veritable alphabet soup of tactical strategies intended to stave off economic disaster: PDCF, TALF, TARP, etc. But shortly after the bankruptcy filing, the Fed really swung into high gear. The FFR fell off a cliff and soon bounced in the lower half of the 0 to 0.25% ZIRP (Zero Interest Rate Policy). The thud to the FFR bottom coincided with the first of two rounds of quantitative easing in an effort to promote increased lending and liquidity.
Guest post by Macro Story.
I found an interesting pattern in studying corporate debt. Specifically yield spreads which is the difference between investment grade and below investment grade yield. As investors grow risk averse they prefer to move to the safety of investment grade debt thus driving yields lower. They do this buy selling below investment grade debt thus driving yields higher. The result are higher spreads.