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  • Why The Fed Will Not Taper [View article]
    Unless they can get 30-year mortgages down to 2%, there's probably not much more QE can do for the real economy. The Treasury market is probably going to start creeping up regardless now, unless the Fed really gets crazy and starts buying $200B a month. If they do that though, it's really just an admission that the US economy will never stand on its own feet again, so they won't.

    How sad - if the Fed as much as "thinks about starting to plan how to begin implying that they will soon discuss how to formulate a way to eventually talk about evaluating a future tapering strategy", the market falls off a cliff and everyone freaks out.

    How can they actually buy less than $85B a month? I've suggested that the Fed just announces an automatic tapering policy - say $5B less per month until they're not buying anymore, then sell $5B more each month until they've unwound. That's 17 months of taper, followed by probably five years of unwinding. Then, it will be time for another recession and they can begin the whole QE hokey-pokey again. Actual overnight rates? I'd be surprised to see 3% this cycle before they go down again.
    Jun 12 03:00 PM | Likes Like |Link to Comment
  • Fed Pushes On String As Velocity Of Money Dies [View article]
    The only way that money can be circulated is if someone borrows it and therefore goes deeper into debt. For about half the country, there isn't anything worth buying with the debt, and for the other half, they would love to have the money but they have FICO scores under 500, if they have credit at all. So the money sits and everyone wonders why our debt-based economy is not going anywhere.
    Jun 12 02:14 PM | 3 Likes Like |Link to Comment
  • GM Just Curbed Tesla [View article]
    Others have already made the point, but a Volt competes with a Tesla as much as a Cadillac competes with a Bentley.

    The Volt is an ugly, small, outdated, "nerd-mobile" that screams "Government Motors Subsidy", and shares interior parts with GM's sub $15,000 economy cars. The real street value of a brand new Volt is probably around $22k - equal to the also-nerdy Prius.

    The Tesla is a stylish and completely integrated vehicle that (for now) appeals to the $200k+ income set in California. Are they practical as an only car? Maybe not, but that's not the point.

    Tesla stock is overvalued because it went up 100% in a few weeks. General Motors cutting prices on unwanted 2007-tech leftovers has nothing to do with any TSLA movement.
    Jun 11 03:43 PM | 4 Likes Like |Link to Comment
  • Gold: Time To Short [View article]
    I agree with the author that man's "obsession" with gold is a bit silly - what's it really good for besides looking at (and maybe a few high-end electronics uses)?

    But silly or not, at least at this point nearly EVERY human on the planet would value and protect any and all gold in their possession. So unless this changes, gold will probably continue to be valued and desired as a store of wealth by humans for the next 5000 years, as it has the last.

    One thing would change my mind in an instant:

    If the Federal Reserve Bank of New York, holder of the world's single largest concentrated gold hoard, suddenly threw open the doors to their vault and invited the public to haul away all that useless clutter, perhaps declaring that they "no longer buy into the illusion of gold's value" and will be storing something else there, perhaps baseball cards or old collectible Apple II computers. That would really lay waste to gold's value, and it might be priced like a real commodity from that point on.

    So what are the chances that the FRBNY will give up valuing gold anytime soon?

    I do also agree that gold might see $1000 or less soon. But this recent spike to $1900+ is probably more like the 1974 spike in your "inflation adjusted gold price" chart, rather than the 1980 spike. Let's get five to eight years of 10%+ inflation like the late 1970s and see where metals prices go. I'm a buyer under $1000, and twice the buyer at $500 if it ever gets there again.
    Jun 11 03:26 PM | 6 Likes Like |Link to Comment
  • Deflation - Would It Really Be All That Bad? [View article]
    Food inflation or deflation is usually very hard to detect, because there are so many other costs involved.

    The actual wheat, salt, and oil content of your box of Triscuits probably make up about 15 to 20% of the cost - the rest is marketing, packaging, transportation, etc. A change in any of those can influence the price significantly.

    What you need to look at is basic food - milk, eggs, flour, raw fruits and vegetables. I've been monitoring these things for the last four to six years, and haven't seen any lasting inflation in any of them. Milk went up about 25% in 2009 or 2010, then dropped back below the 2008 price, and has stayed there since. Meat has seen real inflation, but sales prices usually remove all of it.

    I've been shopping for a pickup truck for the last few months. A very basic long bed regular cab work truck.

    In June 2001 I bought a Chevy Silverado for about $14000 (sale price). A similar 2013 vehicle costs about $18000 now - a 29% increase in 12 years (with compounding - about 2.1% inflation per year). But the 2013 is a better vehicle - side airbags, stability control, longer maintainance intervals, longer warranty, better build quality. 2.1% a year for all these things is not bad - still an increase in price but hardly excessive.

    Electronics of course are in free-fall deflation all the time, considering what you actually get. In 2000 a 42" plasma flat screen was a $4000 proposition. Now, a 55" LED LCD with twice the resolution of the old 42" is about $600. Cameras, DVDs, computers, phones - easily 20% a year "deflation" when content is taken into account.

    The only real inflation most people have to worry about is housing, medical care, education, and energy costs, but for some people these things can be 50% or more of a budget.
    Jun 11 03:12 PM | Likes Like |Link to Comment
  • Abe's Three Arrows Or Japan's Hail Mary Pass? [View article]
    "The Nikkei rallied back from the 8,000 level in no time. It reached 15,000 before pulling back momentarily"

    Really that's your description of what's happening to the Nikkei? It's dropping 4, 5, 7% in a day and then rebounding, but by no means has it stabilized. Tomorrow the Nikkei could be up 500 points or down, and then the opposite on Thursday. "Momentarily" means that the pullback is already over.
    Jun 11 02:45 PM | Likes Like |Link to Comment
  • S&P 500: Is The Correction Over? [View article]
    Are you talking about the Dow, the Nasdaq, or the Nikkei?
    Jun 10 03:16 PM | Likes Like |Link to Comment
  • The Perils Of Low Mortgage Rates [View article]
    Based on the truth of what you're saying - that rising mortgage rates will put real pressure on house prices, it's likely that as rates rise to a more normal range (6% to 8%), prices might not go anywhere for the next 5, 8, even 10 years. Current price + inflation at best.

    Where the real money can be made is the next time rates start dropping again. The reverse trend - going from 7% to 5% 30-year rates, will allow (desirable) houses to appreciate by 25 to 30% in that rate-lowering timespan. THAT will be the time to sell out and then wait until the cycle rolls around again. Last time, this would have been 2006 or 2007, with purchases in 2010, 2011.
    Jun 10 12:37 PM | Likes Like |Link to Comment
    What "correction"? The market dipped 4.6% from its intraday high on May 22 to the bottom a few days ago. Aren't "corrections" usually defined as 10% drops?

    Seems like something can't be over if it hasn't happened yet. 10% off the peak is closer to 1500 than 1600.
    Jun 10 12:23 PM | 1 Like Like |Link to Comment
  • It's looking like the June policy meeting when the Fed will officially signal it's set to begin tapering asset purchases, according to Jon Hilsenrath. Yesterday's lukewarm jobs reports removed pressure to act right away, but the prerequisite necessary to cut back QE - an improving economy - has been met. [View news story]
    Those were the conditions for ending QE. 6.5% UE and 2.5% CPI.

    They need to go from $85B a month to $0 a month, and it might take a year or more to get there.

    "The Great Wall Street Puppet Taper"
    Jun 8 03:54 PM | Likes Like |Link to Comment
  • Stocks: How 'Bad News Is Good News' Is Very Bad News [View article]
    Both the S&P over earnings chart and the S&P vs. QE period chart you show here support what I believe is the fundamental value of the S&P right now - around 1050 to 1100. That means it's about 35% overvalued now - not ridiculous but a 35% drop would "feel like" a substantial bear market after years of QE levitated Bull.

    One way or the other the taper/unwind/rate increase dance has to begin, and when it does the fundamentals will be the only thing left. Unless earnings grow by 35% in the next couple of years the markets will need to snap back.

    It's been a long wait but unless QE truly does last forever, I'm still only a short-term ETF trader here - the real "buy and hold" opportunity is yet to come. Maybe within the next 12 to 18 months...
    Jun 7 06:43 PM | 5 Likes Like |Link to Comment
  • Meet Your New Boss: Buying Large Employers Will Enable China To Dominate Thousands Of U.S. Communities [View article]
    "Just how hot does the pot have to get before the frog has reason to worry?"

    Well, like I said, 10% of certain companies would be a threshold to begin worrying - a little.

    But in terms of investment, let's focus on real estate - who cares how much is owned by the Chinese? Did they buy it legally - if yes, then that's the market. They can't actually cut out the chunk of land and ship it back to China, can they? If they want to take the buildings and equipment off - well that's their business. Obviously whatever sat on top of the land no longer had enough value to the previous owner, and they sold it.

    I predict without hesitation that at some point at least 10 to 20% of all real estate in California will be owned by the Chinese (either immigrants or citizens living here or offshore holders), and they'll have to pay all the taxes and fees demanded by the California voters to support the massive welfare state there! They'll learn real quick what it means to own property in certain parts of the USA...good luck to them.

    Are you afraid of too many Chinese faces in the US? Like I said above, the proportion of the world's population that is ethnic Chinese will only fall from here - they've done it to themselves with the OCP - a lot of girls and women "missing" over there. Just like Japan, at some point the Chinese will sell whatever they've accumulated to finance their own old age.

    The US/Chinese trade deficit will also shrink, so their excess FRN cash surplus won't be around forever either. Anecdotal story - a major US electronics manufacturer I know of (chief design engineer is my neighbor) is moving its production from China to Mexico - half the number of workers and 1/3 the transport costs back into the US. On the other hand, China will still need to import a lot of food from the US - they don't have the space, water, or agricultural yield the US does and they know it (hence buying Smithfield).
    Jun 7 05:31 PM | Likes Like |Link to Comment
    This article is a little alarmist.

    Yes, the Chinese have money and people and investment ambitions, but what you've described is still a infinitesimal portion of the US economy. When they own 10% of GE, or 10% of Dow Chemical, or something similar, then let's get worried.

    The fact is, 1 out of 6 humans on the planet is ethic Chinese. Ethnic Chinese will consume 16% of all food, consume at least 16% of all energy, and on and on, as their economy "normalizes" with the developed world.

    In 50 years, based on their 1-child policy, ethnic Chinese will make up less than 16% of the human population (maybe closer to 10%), just as Japanese will go from their current 1.8% to about 1.4%.

    Hey, remember Japan Inc? They were going to buy all our 7-11s and Rockefeller Plaza and we'd all work for them, right?

    Turns out, Japan has become the pitiful old man of the world that has to embarrassingly debase their currency in hopes of sparking some final revival before they fade off into economic oblivion, like Spain (also once keeper of a global empire).

    I'm not worried about China. They are investing in the US because even they know that long-term investment in China will probably not work out as well. They've overbuilt, over polluted, and over centrally-planned their economy and they'd better spend what cash they have now securing food and energy supplies for their rapidly ageing society before all their labor-intensive factories are replaced by robot factories in the Western Hemisphere running on cheap natural gas and shale oil.
    Jun 7 04:51 PM | Likes Like |Link to Comment
  • Non-Farm Friday - Payroll Data Sets The Pace [View article]
    Mr. Davis just needs to cut all the political crap out. It degrades the value of his investment message which is usually not bad.

    That said, he's right that the best outcome today was an in-line jobs number with a "worse" UE rate. Who really knows what the heck the UE rate is, with all the adjustments and seasonal finagling, but as long at the UE is above 6.5 the Fed should keep printing - all that Wall Street really cares about anymore.

    A little surprised by the 200 point pop, but it's rolling off now a little. Also surprised how little the R2000 has moved - only about 2/3 of the pop in the major indexes.

    Might grab a little TZA here - what's left for the next few weeks to continue the re-rally aside from maybe Fed member speeches?
    Jun 7 12:07 PM | 2 Likes Like |Link to Comment
  • The Rising Rate Of Interest In Interest Rates [View article]
    "But let's keep things in perspective - it's going to be a while before I prefer to own a 10-year piece of government paper over equity in a company (or group of companies) with pricing power to compete against inflation."

    Pricing power? Don't be so sure about that. Look at the sales volume for any company that has dared raise prices in the last few years. The consumer is still flat out broke. Verizon can go ahead and try to raise mobile plan costs by 10% and see what happens to their subscription base...
    Jun 5 04:45 PM | Likes Like |Link to Comment