The Swiss have better ads than the Americans, and they don’t have to be politically correct:
“How lovely leasing can be.”
I bet the Swiss women hate this one — they do not exactly have a reputation for charm, and Asian girls appear have great success in marrying eligible men.
I’m trying to make a point of carrying a camera for these — some of this stuff is too good to miss.
The recovery of the US stock indexes and big new highs in the Russell 2000 and Nasdaq seem to have convinced a lot of people that we are either entering the next phase of a sustainable bull market, or about to at least crawl up another 10% before finally exhausting. I don’t see it that way. This feels to me like October 2007, when the market had smartly recovered from a hard break on the leadership of the secondaries, but the trend had been broken and stocks were strenuously overbought on extreme complacency.
This rally has mostly been a small-cap, tech stock and speculative affair. Larger stocks are not getting the same kind of bid, nor are commodities.
I have turned very short-term bearish this week on the extreme low in the equity put:call ratio. You can see here that the 10-day moving average is lower than at any point in the last three years, which at 0.51 might actually be the lowest ever (since this includes the Goldilocks spring of 2007):
Indexindicators.com
How could you possibly be long given a reading like this?
Before concluding that we are blasting off here, take a look at oil, which has gone nowhere for five months, with each advancing impulse weaker than the last, and the latest looking particularly anemic:
Stockcharts.com
Even gold and silver, which have dependably found a strong bid whenever stocks have rallied and even when they have not, have stalled out well under their fall highs:
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Silver is weaker than gold, and this measure of risk appetite (silver:gold ratio) peaked all the way back in September:
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Perhaps the greatest beneficiary of the risk impulse has been the junk credit market, which by one measure is actually showing the narrowest spreads in history over quality. This is absolutely astounding given the economic conditions, and only explainable by the notion that the investing public, twice burned by stocks in the last decade, has decided that bonds are safe, without making any distinctions among them. You can see this trend here in the ratio of the price of JNK (junk bond ETF) to LQD (investment grade bond ETF), though this chart appears to show waning momentum:
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I’m not calling for an immediate crash, but certainly at least for a smart set-back, which may in retrospect turn out to be the start of a decline to new secular bear market lows. With the credit system still clogged with bad debt at the personal, corporate and state level, the economy simply has no ground from which to launch a new phase of business growth. What we have seen for the last year is simply unsustainable government spending and an overeager investing public that still trusts Keynesian economists and bogus statistics like GDP.
We are not out of the woods. We are entering a long phase of write-downs, defaults, bankruptcies and generaly frugality. We are not going to get away this time without our Schumpeterian event.
The put:call ratio, the best timing indicator I follow, bar none, is giving a screaming sell signal. Are there any bears left to take it?
Indexindicators.com
From the National Times:
WHEN house prices soar, you can hear the silent cheering all around you. Most of us own homes, so rising prices increase our notional wealth. They mean someone else will have to pay us more in future to buy our homes.
Market analysts and the media bombard us with data on what are the ”best-performing suburbs” – meaning the suburbs where prices rose most. They see it as self-evident that rising prices are a good thing – and the higher, the better for us.
Well, sorry, but they’re wrong. Rising prices may be good for those of us who own homes – but far less than we assume. And they are not good for ”us” as a society.
Let’s be blunt. No social change in recent times has done more to make younger Australians worse off than the waves of house price rises since late 1987, when Labor restored the tax break for negative gearing.
Since September 1987, the Bureau of Statistics tells us, average house prices in capital cities have risen by 433 per cent. In other words, a typical house that was an affordable $100,000 in September 1987 cost $533,000 by December 2009.
But haven’t incomes risen too? Yes, they have: but by only 195 per cent. So if a typical household had a disposable income of $30,000 in September 1987, it has risen to $88,500 now. (There are no figures for median household disposable incomes, but these are in the right ball park). The cost of a typical home, in this example, used to be 3.33 years’ disposable income. But now it costs six years’ income…
…Rising prices are inflation. We don’t think higher petrol prices or higher fruit prices are a good idea, although they certainly make someone better off. Why do we think inflation is such a good thing when it applies to owning a home?
This is one area of policy where government intervention has made things worse for the group they say they want to help: aspiring home owners. That is clear from the sharp fall in home ownership among younger age groups (indeed, among all age groups under 55). (cont…)
The author makes some good points, such as calling asset prices inflation (they are indeed a symptom of inflation, an expansion of money and credit), but he doesn’t seem to get that prices can form bubbles and crash without any changes to the tax code or the traditional supply/demand curve. What matters is cheap credit made available by the moral hazard extended to banks by the existence of a central bank and its ability and willingness to print gobs of money and bail them out.
Break up the cartel and allow a free banking system, and bubbles would be localized and contained by bank runs and the mere risk of bank runs. Bankers need the “fear of God” as on old-time chairman New York’s Chemical Bank put it when asked how he managed to redeem his notes in gold and silver through panics that sank so many others.
Maybe legislators are finally ditching Keynesianism for some real solutions, while acknowledging the reality of what is likely to be a decades-long slump:
WASHINGTON—In a bold new measure intended to address unemployment among young professionals, lawmakers from across the political spectrum agreed on legislation Tuesday to subsidize the cryogenic freezing of recent college graduates until the job market recovers.
The bill, expected to swiftly pass in both houses, would facilitate the subzero preservation of any graduate of a two- or four-year educational institution. Sponsors of the initiative said that with the national unemployment rate at just under 10 percent, it only made sense for young job-seekers to temporarily enter a state of supercooled stasis.
“Finding employment is extremely difficult for today’s college graduate,” Sen. Kay Bailey Hutchison (R-TX) said. “Our current economy offers few options for the millions of young men and women desperate to join the workforce.”
“Were we to freeze these graduates at the height of vigor and ambition, however, there’s a chance we could revive them during a more prosperous time,” Hutchinson continued. “When the economy finally bounces back—10, 20, even 30 years from now—we’ll have an entire generation thawed out and ready to contribute.”
The trend was smartly broken back in January, and now this bounce looks like it’s exhausting right about where the old support line would be. These are the various popular commodity indexes, from Bloomberg:
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You can see this loss of momentum in the former leaders: gold, silver, oil, copper, sugar and cocoa have all failed to make new highs as stocks have surged over the last month.
This is a strong sign that the urge to speculate is fading. Without that, there is nothing to keep prices up, since demand is very low for everything from oil to wheels of parmesian cheese (remember the cheese bailout in Italy?) compared to the 2008 commodity peak. When commodities fall, they often drop straight down. No class of assets declines faster. See this weekly chart of sugar for a case in point:
futures-tradingcharts.com
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If you are looking for short ideas among commodity stocks, this is a neat tool: miningalmanac.com (I think so anyway, but then I’m part of the team that’s building it).
Select the exchanges you trade on, then look for stocks without a lot of “burn time,” in other words those that may be running out of money. Or look at the “financial strength” tab to see who has too much debt and too little cash. Right now this beta version has mostly Canadian companies, but it’ll have almost every mining stock in the US, Canada and Australia before long.
So we finally know the structure of the Greek bailout. 16 EU nations pledged to throw good money after bad and extend taxpayer-financed loans to Greece when the country starts to default. From Bloomberg:
March 16 (Bloomberg) — European finance ministers laid the groundwork for a financial lifeline to debt-stricken Greece, breaking a taboo against aid to cash-strapped governments in order to avert a crisis for the euro.
Officials from the 16 countries using the currency worked out a strategy for emergency loans in case Greece’s plan for 4.8 billion euros ($6.6 billion) in tax increases and wage cuts fails to stave off fiscal disaster.
“We clarified the technical arrangements that would enable us to take coordinated action which could be swiftly put into place in the event it is necessary,” Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday after leading a meeting of euro-area finance officials in Brussels.
With the euro undergoing the harshest test in its 11-year history, the unprecedented pledge reflected concern that Greece’s budget woes could spread, poisoning investor confidence and aggravating the currency’s 10 percent decline against the dollar since November…
…“The objective would not be to provide financing at average euro-zone interest rates, but to safeguard financial stability in the euro area as a whole,” the ministers said in a statement.
Of course almost everyone has it wrong about the implications for the euro. Sovereign defaults would be good for the euro, even if those nations end up leaving the monetary union for their drachmae, lire and pesos. Defaults are by definition deflationary, since they reduce the amount of outstanding credit balances, thereby increasing the value of the remaining euros. If everyone but Germany defaulted and left the EMU, the euro would be stong and they’d call it the Deutschemark again.
This is the dynamic that has propped up the strong Yen for 20 years even as the government has run up huge debts, and it is the same reason the dollar finds a bid whenever panic enters the financial markets. In a credit crisis, the very condition of having piles of debt denominated in a currency creates demand for that currency by both debtors and creditors.
What these bailouts are going to do is reduce the relative demand for euros and likely result in an accommodative ECB printing up hundreds of billions more. The politicians are lying or ignorant or both when they say that their goal is to save the euro — this is nonsense. Their goal of course is to save the bankers who own them.
The Greek taxpayers of course, if they have half a brain and some guts, should refuse to service this debt and simply force an honest default. All of Europe is conspiring to make them debt slaves forever, and the only Greeks who benefit are the political gangsters and government unions.
According to the NYTimes, $700 billion in high-yeild corporates mature from 2012 to 2014:
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More from the Times article:
With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies.
The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.
Indeed, worries about the growth of national, or sovereign, debt prompted Moody’s Investors Service to warn on Monday that the United States and other Western nations were moving “substantially” closer to losing their top-notch Aaa credit ratings…
Sovereign debt aside, the approaching scramble for corporate financing could strain the broader economy as jobs are cut, consumer spending is scaled back and credit is tightened for both consumers and businesses.
Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.
That is because the record number of bonds and loans that were issued to finance those transactions typically come due in five to seven years, said Diane Vazza, head of global fixed-income research at Standard & Poor’s.
In addition, she said, many companies whose debt matured in 2009 and 2010 have been able to extend their loans, but the extra breathing room is only adding to the bill for 2012 and after.
The result is a potential financial doomsday, or what bond analysts call a maturity wall. From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014.
The credit markets have gradually returned to normal since the financial crisis, particularly in recent months, making more loans available to companies and signaling confidence in the pace of economic recovery. But the issue is whether they can absorb the coming surge in demand for credit.
“Returned to normal” apparently means lending money to people who can’t pay it back. And of course junk bonds are just part of the debt load:
TheTreasury Department estimates that the federal budget deficit in 2012 will total $974 billion, down from this year’s $1.8 trillion, but still huge by historical standards.
Next in line are companies with investment-grade credit ratings. They must refinance $1.2 trillion in loans between 2012 and 2014, including $526 billion in 2012. Finally, there is the looming rollover of commercial mortgage-backed securities, which will double in the next three years, hitting $59.7 billion in 2012.
Even if most of the debt does get refinanced, companies may have to pay more, if heavy government borrowing causes rates for all borrowers to rise.
“These are huge numbers,” said Tom Atteberry, who manages $5.6 billion in bonds for First Pacific Advisors, and is particularly alarmed by Washington’s borrowing. “Other players will get crowded out or have to pay significantly more, because the government is borrowing so much.”
Most critics of deficit spending have focused on the budget gap alone, but Washington will actually have to borrow $1.8 trillion in 2012, because $859 billion in old bonds will come due and have to be refinanced in addition to the deficit. By 2013 and 2014, $1.4 trillion will have to be raised annually.
In the late 1990s, the federal government ran a surplus and actually paid down a small portion of the national debt. But with the huge deficits of the last few years, the national debt has grown to more than $12 trillion.
All this debt is simply unpayable, and soon unserviceable. There is no solution but default. When the government bumps up against the limits of its credit, that will be the coup de grace.
Yahoo! Finance
I can’t draw on this chart, but you can clearly see the similarities in price, RSI and MACD between the last 6 months and the period leading up to final top of the even bigger bear market rally of 2003-2007. Will we levitate up here for a year like we did back then? I doubt it, since this is a smaller degree wave and the time scale is more compressed. It appears to be running out of steam after 12 months, not 4 years.
Since summer, the bears have been demoralized by time, not price — we’re only 1000 pts higher than last August. The bullish complacency and dejected state of the bear camp is what you need for a final top.
RSI and put:call signals like we have right now are what you need for a smaller-degree top. One of these smaller degree tops will turn out to be the big top. This is not the time to give up on shorting.
Here on Bloomberg. Very long but worth the time — just put it on in the background.
He says that the only guys doing serious credit analysis on mortgage bonds in 2005, 2006 and 2007 were those looking to find the very worst and go short.
Also, Goldman would have been just another bagholder if the market had cratered a year before it actually did. They didn’t start to get their trading book in order until Spring 2007.
So, who does he think were the villians? Not just guys who were going with the flow, but the knowing perpetrators. He fingers bankers such as those at Goldman who created and sold synthetic CDOs and pushed them on firms like AIG. Goldman and certain people there are among the “genuine elites” and don’t have a “sense of social obligation.” Basically, they have no shame.
The TARP recipients were “unnaturally selected.”
As much as I like Michael Lewis as a narrator, I do not agree with his take on the role of government. He still believes that regulation can contain the market. When Goldman owns the regulators, it just can’t. Markets find a way around regulations, and connected players find ways to use regulations as a weapon. Simply take away the moral hazard of the Treasury and Fed, and these firms would have had the incentive neccessary for caution.
