Archive for June, 2013
Here’s the million trillion dollar question, the only one worth that much, and the one that matters for America’s future: who will be the next chair of the Federal Reserve System?
I was just asked by a couple of blokes putting together an article on that question to comment on the likely contenders, and to add a name if I had one.
Since my comments aren’t likely to be published without significant edits, or at all, I’ll give you them straight from both barrels right here.
Stand back, there’s going to be some splattering here.
What’s causing the market selloff? And I mean all the markets. Because they’re all selling off.
And what should you do about it? I mean, how can you make money? Because you can.
First of all, the good news is the storm is only just beginning to brew at this point.
The bad news is it could be a perfect storm.
Most importantly, correlation is back – with a vengeance. All asset classes are being whacked today. Rising bond yields (lower bond prices) are leading the way down. Stocks are following bonds. Commodities are following stocks. Precious metals are following commodities, real estate and mortgage securities are following each other down.
It’s a global rout. It’s a sharp reminder, in case anyone forgot what happened in 2008, that interconnectedness, or correlation of asset classes, makes things worse when they are bad.
The reasoning is simple…
Want to make some money in the markets? Here’s what you need to know.
First of all…welcome to the new Abby Normal. For those of you that didn’t catch it, that’s a Mel Brooks reference. And it means this thing ain’t normal.
In fact, this thing, this Frankenstein of a market, is about to go into cardiac arrest.
Volatility is the new normal, and it’s going to be here, there, and everywhere.
The Federal Reserve, the real creator of Frankenstein, just hit the master switch to electrify the monster.
Here’s what happened…
Don’t you just love how some things are named?
Like the Federal Reserve System, for instance. It’s a central bank that was conceived in the private study of a private hunting lodge on a private island by a bunch of private bankers who didn’t want to use the word “bank” in its name to fool taxpayers who thought it was a “system” to safeguard the public… from the very bankers who conceived it.
I don’t know about you, but the feeling of safety I have is just overwhelming… NOT.
Then there’s the Fed’s Open Market Committee. That’s a committee of top plotters that meets in private to discuss what’s going on in “free” markets so they can figure out how to manipulate them.
The Open Market Committee, or the Old Boys Club (they have a woman on the committee, but she’s just a token “dove” who plays “Follow the Beard”), meets tomorrow and Wednesday to check on how their manipulations have stopped unruly free markets from sinking the banks that secretly run the Fed (you know it’s not a secret, but there are a whole lot of taxpayers who don’t).
For some time now, far too long in fact, the Open Market Committee has been buying a smallish $85 billion a month of various types of bonds to save the world and their masters.
They’re buying $45 billion a month of government bonds to save the government from having to tax taxpayers to pay for government waste. And they’re buying $40 billion a month of mortgage-backed securities (because they’re so safety-minded they’re only buying “agency-backed” mortgage bonds. Agency-backed? That means taxpayer-backed, which is why they’re supposedly safe).
Who are they buying all those bonds from? Go on, take a guess…
Pssst…Want to buy a watch?
I don’t have one for sale, but I know some folks that are willing to sell you… well, it’s not a watch, but it’s something much, much better. They’ll sell you time. You want to buy some time?
Turns out, and who knew, you can buy time. You, yes you, can buy a few seconds for a whole bunch of money. High-frequency trading outfits and apparently tons of other “traders” and “investors” are buying this time. You can, too.
For a “Fistful of Dollars,” what you get is a few seconds head start on knowing some very important economic data points.
It’s amazing what money can buy.
Forget integrity, it’s not for sale because it’s out of stock. But if you want to buy the University of Michigan’s highly regarded and market-moving report on consumer confidence, you can get it, right alongside the “investors” like the HFT boys and girls who pay the University to get the numbers two seconds before the rest of the world sees them.
Or you can pony up next to the same crowd that buys the Institute for Supply Management’s manufacturing index numbers before the world sees them.
It’s not insider trading. It’s totally legal.
I’M NOT KIDDING.
Well, this ought to be interesting – not for what might be revealed, but for what will likely remain in the shadows.
One of the weakest, least effective regulatory bodies around, the Financial Industry Regulatory Authority (FINRA), is now saying they want to shed some light on “dark pools.”
FINRA is the self-regulatory body, backed and stacked by the broker-dealers and brokerages that channel your trades from your desktops and through brokers, whom FINRA is responsible for registering and regulating, to various exchanges for execution.
They’re going to be looking into dark pools, which are off-exchange trading venues where stocks are traded “blindly.” That’s supposed to mean buyers and sellers don’t know who’s who. But the truth is, even dark pool customers are blind to how these shadow operators really operate.
Here’s the deal…
I’ve got some great Q&A for you today.
Let’s dig right in.
Q [re: “Why I’m Calling a Market Top Today“]: Shah, It sounds as if you are “playing both sides against the middle.” You say “near term top.” In trader parlance, that sounds like a correction (maybe -10%), then it’s off to the races again – at least, for “a while.” You are not advising investors to make a tactical reallocation (out of stocks). Instead, you say be careful – but we are still in a bull market. ~ HCB
A: HCB, indeed, you can consider my call that we’re near, if we haven’t yet gotten there, a market top and my advice as “playing both sides against the middle.” That’s because I am bullish, in a big way, in a long-term way, as in I believe we are in the midst of a generational bull market.
But it’s not a one-way trip to paradise.
We haven’t had a correction. That scares me, because it means nervous participants are afraid that the higher we go, the deeper the correction. Sometimes that becomes self-fulfilling, when lots of stops are hit and buyers sit it out waiting for the selling to stop. And, more than anything, that scares me… that there may be no buyers in a wicked downdraft.
The problem isn’t the bulls or the bears; it’s the little piggies. The high-frequency trader lads will turn off their machines if they are in danger of catching falling knives. If we see a dramatic move, harsh day-after-day selling on big volume, the HFT players won’t be active buyers or even bidders.
The biggest problem I have with equity markets is that, mechanically, they now reside on quicksand. So, playing both ends to me means being in the market – because there are fundamental reasons and technical reasons to be in – and being ready to exit when the possibility of a steep uncontrollable tumble is inherent, permanently, in the machinery we rely upon to facilitate risk transfer and price discovery in our capital markets.
All that said, when it’s over – and frankly I’m hoping for a kind of crash (to get regulators to fix what they’ve allowed to happen) – and the damage is done, I’ll be grabbing equities with both hands and expect to make another fortune.
Now here’s Jack’s question about protective stops….
Party like it’s 1999.
I’m not talking about celebrating the new millennium all over again. I’m talking about celebrating the markets roaring ahead, like they did in 1999.
Just remember: There will be a price to pay. There was then, and there will be again.
Look what happened this morning. We got some weaker-than-expected economic numbers and the Dow cut its gains in half… for about a minute.
Then it was like, oh, wait a minute, those bad numbers are good numbers for the market, because the Federal Reserve won’t be tapering any time soon if the economy is tapering. And the Dow roared up by about 65 points… in about a minute.
So go ahead and party like it’s 1999. But if you get hammered by the coming crash, you’ve got no one to blame but yourself. And it is coming.
Here’s why I’m calling a market top today.