So, let’s go back revisiting that great bull of 2012. Investors are once again massively bullish, and the latest to add to the uber bullish argument is Mr Biggs. As we mentioned yesterday, this is probably a big warning signal for the market. Many talk passionately about the bull, but prices have actually not been that bullish at all. Looking over the past 30 days of action, many indices are flat or even minus in Europe (that’s where the problems still are). The uber bull we saw in January and February is clearly fading, at least when looking at some of the European indices. Is it worth the risk putting the money to work for the past 30 days with many indices at flat or minus, you decide.
Guest post by Azizonomics.
Sounds like Goldman has some equities (AAPL?) to dump on its muppet clients.
Goldman portfolio strategists Peter Oppenheimer and Matthieu Walterspiler are out with a doozy of report, basically presenting a big bullish case for stocks, relative to bonds.
In 1956, George Ross Goobey, the general manager of the Imperial Tobacco pension fund in the UK made a controversial speech to the Association of Superannuation and Pension Funds (ASPF) arguing the merits of investing in equities to generate inflation linked growth for pension funds. He became famous for allocating the entirety of the funds investments to equities, a move that is often associated with the start of the so-called ‘cult of the equity’.
Prior to this, equities were largely seen as volatile assets that achieved lower risk adjusted returns than government bonds and, consequently, required a higher yield. As more institutions warmed to the idea of shifting funds into equities, partly as a hedge against inflation, the yield on equities declined and the so-called ‘reverse yield gap’ was born. This refers to the fall in dividend yields to below government bond yields; a pattern that has continued, in most developed economies, until recently.
In his speech to the ASPF, Ross Goobey talked about the long-run historical evidence that the ex-post equity risk premium was positive and that investors ignored this at their own peril.
The long-run performance of equities was much greater than for bonds having adjusted for inflation. As he said: ‘I know that people will say: ‘Well, things are never going to be the same again’, but … it has happened again, and again. I say to you that my views are that it is still going to happen yet again even though it may not be the steep rises which we have had in the past.’ Over the 50 years that followed Mr. Ross Goobey’s pitch, his predictions proved very successful. The annualized real return to US equities (as a proxy) between 1956 and 2000 were 7.4%.
Biderman on the markets. To sum it up, keep close to the exit….
Last year, at the start of 2011, the stock market was boosted by the impact of QE2, and after rising just over 10% year to date by the end of April, two months before QE2 ended, the stock market started to sell off eventually dropping more than 20%. Two years ago in 2010, after a similar seemingly healthy 10%+ gain to start the year, stock market also started to sell off by the end of April, also plunging by more than 20%.
How quickly we forget the past. This year, the bulls are hoping that this time the US is in a real recovery. Unfortunately it is not. The job market is growing, by about 100 to 150,000 new jobs per month, but no where near the 250,000 bogus jobs reported by the Bureau of Labor Statistics. Similarly wages and salaries so far this year are growing by about 3% year over year, a rate of gain roughly equal to inflation, but no where near the 5% nonsense number estimated by the Bureau of Economic Analysis.
Finally the housing market is also reportedly improving numbers based upon seasonally adjusted numbers boosted by an exceptionally warm January and February. The reality, as I have previously reported on my video blog, is that the housing market is still at least a year away from a bottom, let alone a recovery.
To repeat, the only source of new money with which to buy stock is coming from companies buying back many more shares then they are selling. However, that could be changing. Full video below.
When innovation goes absurd. We have written extensively on the HFT subject over the months. Yes, algos are here to stay, and yes they help us trade more efficiently, but the “extreme” HFT stuffing is not creating any social plus. In order to reach these super fast speeds, the machines need good cables. So, what do you do if in Tokyo and you want to be fast in the UK session? You build a cable, and spend 1.5 Billion USD. Hopefully this is profitable for the strategy, but it sure is not profitable for the society as a whole. Welcome to the absurdity of trying to win the “race to zero” game. From ExtremeTech.
Starting this summer, a convoy of ice breakers and specially-adapted polar ice-rated cable laying ships will begin to lay the first ever trans-Arctic Ocean submarine fiber optic cables. Two of these cables, called Artic Fibre and Arctic Link, will cross the Northwest Passage which runs through the Canadian Arctic Archipelago. A third cable, the Russian Optical Trans-Arctic Submarine Cable System (ROTACS), will skirt the north coast of Scandinavia and Russia. All three cables will connect the United Kingdom to Japan, with a smattering of branches that will provide high-speed internet access to a handful of Arctic Circle communities. The completed cables are estimated to cost between $600 million and $1.5 billion each.
Remember that 1 Trillion of hidden German debt that faded away last year? More from Golem XIV.
When the Chief Market Analyst of FX Solutions, Mr Joseph Trevisani, in an interview on CNBC on 23rd Sept 2011,was asked about fluctuating currency values, his reply created a stir. What he said was that you had to look at what was going on in Europe – everyone then expected him to mention Greece – but instead he said,
“There was a story out in a German newspaper this morning talking about a trillion euros, supposedly, unconfimed. of losses hidden in German Banks.”
He offered nothing further but the implication was that big players believed that the one stable and solvent European nation, the nation that was supposed to bail out the others was sitting on a time bomb of its own. Which would mean that Germany, the nation that liked to lecture others about lying, was lying. Lying about a potential trillion euro hole in its banks.
Xia Bin, a researcher with China’s State Council’s Development Research Center and a former adviser to the nation’s central bank, talks about the outlook for the country’s economy and monetary policy. Mr Bin is assuring the world everything is fine, there is no property bubble, growth falling is apparently a “ridiculous” assumption and more. According to Xia Bin, a hard landing is impossible. At least we know one thing after listening to this interview, a hard landing is definitely possible, especially when the currency war starts boiling for real. Full video below.
Saudi Arabia’s powerful oil minister, Ali Naimi, made a rare intervention into overheating oil markets on Tuesday, declaring that high oil prices were “unjustified” and vowing that the kingdom would boost its output by as much as 25 per cent if necessary. As the west’s nuclear stand-off with Iran escalates, oil prices have rallied this month to a post-2008 peak of $128 a barrel with markets bracing for European Union sanctions on Iranian crude that could knock out a chunk of global supply. http://www.ft.com/intl/cms/s/0/f9f8eb00-729e-11e1-9be9-00144feab49a.html#axzz1pj9puJ70
European banks are preparing a new type of securitised vehicle bundling together loans to commodity trading houses to try to resolve the credit crunch in the commodities industry. The banks, including BNP Paribas and Société Générale, are testing the appetite from European pension funds and insurance companies for the instruments and hope to launch the products before the end of the year, executives said. The move comes after French banks, the main financiers of trading houses, reined in their lending due to a shortage of US dollar liquidity. BNP Paribas and a handful of other European banks provide most of the credit lines that underpin the business of the Swiss-based traders that dominate global raw materials markets. Commodities bankers and industry executives said the securitisation would allow the industry to access fresh credit. http://www.ft.com/intl/cms/s/0/f8f4c83c-72b2-11e1-ae73-00144feab49a.html#axzz1pj9puJ70
All news below.