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Americans Hate Each Other?

The Exchange Writes: Americans Are Losing Faith in … Themselves

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Who are “the American people?”

If you ask politicians (on the record), they’ll tell you the American people are the greatest font of collective wisdom in the history of wisdom. Yet even Americans have growing doubts about their own sensibilities.

A recent Gallup poll found that Americans’ trust in “the American people” has fallen to a record low. Just 61% of respondents said they have a great deal or a fair amount of trust and confidence in their fellow Americans when it comes to making judgments about important issues facing the country. That number peaked at 86% in 1976. In 2005 it was 78%. Even during the 2007 – 2009 recession, the number stayed in the 70s. It began to plunge in 2010.

So Americans seem to be saying to each other, “You’re nuts and I’m not.”

Everybody, of course, has declining confidence in politicians. Confidence in Congress is at a pitiful 10%, the lowest level in the 40 years Gallup has been asking the question. Confidence in the presidency has dropped from a middling 51% in 2009, when Obama took office, to 36% today (though it was slightly lower from 2006 to 2008).

People clearly feel something is wrong in America, and without knowing exactly what it is, they blame government, business, the media , the education system, the wealthy and even organized religion.

Read The Rest Of The Article Here

I highly recommend anyone involved in the stock market to read the article above. While seemingly unrelated, the premise in this article has huge repercussions on the financial markets and/or the overall economy.

It could be successfully argued that financial markets and the overall economy are driven not by fundamentals, but by social mood. Elliot Wave Investment Approach has dedicated decades to that point of view and has legitimate data to prove it.  Whether or not you agree with such a premise, I can attest that in many cases MOOD SWINGS are the primary driver (not the secondary) where the fundamentals simply follow.

For example, you see such a situation in the stock market at March 2009 bottom. Even though the fundamentals were falling apart and will not recover for at least a year, the mood changed and stocks started to go up. In regards to the article, this is an important indicator to watch.

Further, I see a Nation clearly divided along political lines with each side viewing the other as “UN American.” Clearly that is not good  for the future of the country. Basically, this is an important trend to watch. If the indicators above continue to go down, it spells trouble for both the US economy and it’s financial markets. 

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US Corporations Have Saved $700 Billion In Interest Payments. Should We All Celebrate?

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The U.S. Federal Reserve’s efforts to boost the economy by holding down interest rates has saved corporate America $700 billion in interest payments over the past four years. Issuing debt at record-low yields allowed blue chips and shaky businesses alike to invest and expand

That’s great. My question is, at whose expense?

When the economic growth is steady everyone benefits over the long run, yet over the short run it’s a zero sum game. In order for businesses to benefit to the tune of $700 billion, many had to lose that money.  So, who are these poor souls?  

  1. Savers and older Americans who rely on fixed income for survival.
  2. Real economy. As most resources shift to the financial economy.
  3. You and I. Everyone will pay the price for artificially low interest rates.

But there is a bigger problem. Due to artificially low interest rates most of the capital above was misallocated to create financial bubbles and other mispriced assets. Instead of increasing salaries (which is understandable given the current economic backdrop) US Corporations have spent the majority of that money of various financial shell games such as stock buybacks, dividends, off shoring, etc…

Of course, that will come back to bite us in the ass…..big time. Thanks a lot President Obama, the Fed and the US Government. 

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Hello Beijing, Washington Here. Listen, Do We Have Your Permission To Shut Down Our Government?

Reuters Writes: Analysis: Default or not, Asia a hostage to U.S. debt

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SEOUL/BEIJING (Reuters) – Unless the U.S. Congress settles a political showdown to raise the country’s debt ceiling in coming weeks, it will be left on the edge of an unprecedented default. But America’s main creditors in Asia may be the least of its worries.

The creditors – China, Japan and other Asian governments – have a hoard of U.S. Treasuries in their $5 trillion cache of foreign exchange reserves, the equivalent of almost a third of U.S. gross domestic product.

Despite having so much at stake as bond prices lurch violently, they are not about to do anything more than minor tweaking of their portfolios.

“But the expected returns from bond investment will fall greatly in the future,” Choo said. “How to deal with this structural change in investment environment is what all the central banks are agonizing over.”

U.S. bond yields have already risen more than 100 basis points since May, when the Fed first indicated it is going to cut back on its $85 billion per month asset purchases.

Read The Rest Of The Article Here

With a lot of theatrics going on in Washington, I do not believe Asian countries debt holders should worry about any sort of a default. At the end of the day, the US Government will pay on all of its obligations.

The biggest story here is not the shut down or the potential default, but the eroding confidence in the US Economic and political system.  The US politicians are acting like a bunch of 5 year olds on the playground (I guess no surprise there) while the rest of the world is watching. Why is this important? Very simple.

Not a good idea when you OWN $16.5 TRILLION 

If Asian creditors see this continue, they could (well, they should) in theory start reducing their US Debt exposure.  As that happens, yields would spike leading to a significant stock market and the US Economic decline. So, as the US Politicians aimlessly point fingers at each other while scarring the rest of the American people with Economic Armageddon,  our creditors are watching very closely. That’s what we should be really worried about. 

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Epic Credit Bubble…..Says World’s Largest Hedge Fund

CNBC Writes: Blackstone: We’re in an ‘epic credit bubble’

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One of the world’s largest investment firms believes the financial system is overly leveraged.

“We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity,” Joseph Baratta, The Blackstone Group (BX)’s global head of private equity, said Thursday night at the Dow Jones Private Equity Analyst Conference in New York City. “The cost of a high yield bond on an absolute coupon basis is as low as it’s ever been.”

“We’re not just levering up U.S. GDP into multiples today,” Baratta said. “I do expect mean reversion to happen at some point on interest rates, on credit spreads, on the cost of some investment grade corporate credit.”

The high valuation of many companies today makes it harder for them to grow. “The biggest risk to returns of this vintage is that exit multiples are depressed,” Baratta said.

Read The Full Article Here

I strongly agree with Blackstone on this point.  In relative terms we are in the largest credit bubble mankind has ever seen. The situation we find ourselves in now is like a very bad runaway science experiment that cannot be stopped.

How will it end? No one knows, but the outcome cannot be pretty. What we have experienced in 2007-2009 was just a preview. Now that the credit bubble is much bigger only time will tell us how this experiment will end.  Perhaps with a bang or perhaps with an extended period of economic suffering.

What I do not agree with is that Blackstone doesn’t necessary see it as a problems by indicating that they are still bullish on the economy. The only reasons we haven’t seen the full impact of this massive credit bubble is because “so far” the Fed has been able to control the interest rates. As soon as the Fed losses this control (and they will) the interest rates will zoom up.  At that point anticipate the credit bubble to implode and take the housing market, the stock market, car sales, retails sales and the overall economy down with it.

So, what’s the point here? I am not the only crazy person running around and screaming that we are in a massive credit bubble that is soon to explode. World’s largest hedge fund believes that much as well. As such, you have been warned. 

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Stock Market Update, September 27th, 2013

daily chart Sept 27, 2013

Summary:  Continue to maintain a LONG position.

Even though I am BEAR, I am not the dumbest bear in the woods.  The economy and the stock market will fall apart soon enough, yet for the time being we cannot ignore the technical picture of where the market is going.  Doing so would lead to capital losses for my clients and myself.

As such and with the market sitting near all time highs I maintain my “HOLD” position for the DOW if you are long.  Technically speaking nothing really happened this week. The market did give up some gains but that is to be expected after 900 point rally from August lows. There is a open gap in the 15000-15100 range and the market might go that low in order to close the gap. Overall, the long time chart remains strong and bullish.

From a bearish stand point we continue to wait for an indication or a confirmation that the bull market that started in March of 2009 is over and the bear market is back.  If no such confirmation surfaces over the next 6 weeks I would have to shift my DOW TOP forecast to the next inflection point occurring in March of 2014. For now we wait while maintain a LONG position. 

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German Special Forces Confiscate The Greek Island Of Santorini For Debt Nonpayment

BusinessWeek Writes: Greece’s Financial Woes Are Far From Over

IMG_1841

 

German Chancellor Angela Merkel, whose resounding election victory guarantees her a dominant role in managing the Greek crisis, has tried to quiet talk about a haircut. Demanding more sacrifices from Greek bondholders could “trigger a domino effect” that would undermine confidence across the euro zone, she told the German magazine Focus in August.

Xafa says the longer a writedown on the bonds is delayed, the greater the risk that the debt burden will prevent Athens from meeting the terms of its €240 billion in rescue loans from the IMF, the European Central Bank, and Greece’s European neighbors.

The mood on the streets is ugly. Riot police broke up recent strikes by school personnel. And a spate of attacks linked to the far-right Golden Dawn party, including the stabbing death of a young rap musician, has the country on edge. “The anger is rising and rising,” Tzogopoulos says. “People see no light at the end of the tunnel at all.”

Read The Rest Of The Article Here

While the title of the article above seems absurd it is not that far off from reality.  Without taking any demographic issues into consideration or discussing whether or not Greeks are lazy, Greece is basically screwed. 

The EU and Germany in particular have Greece under their heels.  Greece will never be able to repay the debt,  yet under the current arrangement Greece and its people become debt slaves to the EU for the foreseeable future.

Having spend a considerable amount of time in Greece and being in love with Greek people/culture,  I have a suggestion for the Greek politicians.  DEFAULT. DEFAULT NOW.

Default on your debts and tell the EU/Germany to go screw themselves. Your people have suffered enough. Do what Iceland did in 2011. Look how fast their recovery has been and understand that is where Greece can be in a few years.

Default, dump the Euro and go back to Drahma.  Do it before Germany start confiscating Greek Islands or worse, Neo Nazis that are running all around Greece now come into power.   

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Why I Really Hate Christmas & My Gift To You

Bloomberg Writes: Wal-Mart Cutting Orders as Unsold Merchandise Piles Up

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Wal-Mart Stores Inc. (WMT) is cutting orders it places with suppliers this quarter and next to address rising inventory the company flagged in last month’s earnings report.

Last week, an ordering manager at the company’s Bentonville, Arkansas, headquarters described the pullback in an e-mail to a supplier, who said others got similar messages. “We are looking at reducing inventory for Q3 and Q4,” said the Sept. 17 e-mail, which was reviewed by Bloomberg News.

U.S. inventory growth at Wal-Mart outstripped sales gains in the second quarter at a faster rate than at the retailer’s biggest rivals. Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected, and the company has forfeited some sales because it doesn’t have enough workers in stores to keep shelves adequately stocked.

Read The Rest Of The Articles Here

I really, really, really hate Christmas.  Nothing turns me off more than seeing a beautiful holiday turned into Consumer Olympics where the sports of choice are….

  • Trampling your fellow human beings to death at Walmart a day after Thanksgiving because of $149 flat screen TVs.
  • Trying to please everyone you know by buying them worthless and meaningless crap.
  • Crazy expectations that others place on you and so forth. 

In short, don’t expect any gifts from me. Not even a Christmas card. Yes, I am a Grinch, but I am a nice Grinch with some very valuable information that will save you a lot of money.

As the article above indicates Walmart has an inventory problem.  However, I guarantee you that it’s not only Walmart. It is everyone.  Due to structural and economic issues that I talk about on this blog, retailers should expect their holiday shopping season to be miserable at best.  And here is why I am about to save you a lot of money.

Wait for as long as you can this Holiday Season before buying Christmas gifts. The longer you wait the deeper the discounts will be. I have a feeling that most retailers will be close to giving stuff away by the time Christmas comes around this year. As such, I just saved you a lot of money and that is the only gift you should anticipate from me this year.  Well that and guiding you through the stock market ups and downs.

festivus2 investwithalex
Christmas Card I Most Often Get From My Mother

 

P.S. I sure there are at least a few messed up people like me out there. If you hate Christmas as much as I do, please send me a note so we can celebrate Festivus together on December the 23rd. Cheers!!!

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American People Are Sick Of Economic BS

Bloomberg Writes: Americans in Poll Doubt Economy Rebound

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Americans are losing faith in the nation’s economic recovery even as forecasters expect growth to accelerate, according to a Bloomberg National Poll.

Fewer people anticipate improvement in the economy’s strength over the next year than in the last survey in June, with 27 percent saying the expansion will be more robust, down from 39 percent who expected improvement three months earlier.

Forty-four percent of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same, while 28 percent see it weakening.

 “We’re still in a recession; I don’t know why they say it’s over,” says Chris Sams, 28, a disabled Navy veteran from Daingerfield, Texas. “It may be over in Washington, D.C., where the per capita income is higher than anywhere else, but down here the minimum wage is the highest wage.”

Read The Rest Of The Article

President Obama and Mr. Bernanke, I have news for you. American people are no longer buying your bullshit. 

You can attempt to twist economic recovery numbers anyway you wish, but since the reality for most Americans is so much different from your reported number….. it will not work.  Only the richest 5% of Americans benefited from your one sided actions. Only those who had the direct access to your cheap capital reaped the rewards. The rest of Americans see their economic situation erode. The pole above clearly indicates that.

Now, a contrarian in me might even argue that this kind of a view from the majority of the population is great news for both the stock market and the economy. However, such an opinion would only be valid if we were at the bear market bottom……not sitting at an all time high.  I believe this is the case of American people finally waking up and saying “Wait a second, even though there are all these great economic news, my situation is not improving, as a matter of fact, it is declining”.

As such realization sets in across the nation and confidence erodes further, financial markets should feel the impact. 

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Why Rating Agencies Are Worthless

Bloomberg Writes:  Gross Says Investors Shouldn’t Trust Moody’s on U.S. AAA Rating

 

I dream of the day when this happens in the US Senate. Why should Koreans have all the fun
I dream of the day when this happens in the US Senate. Why should Koreans have all the fun

Investors shouldn’t trust the opinion of Moody’s Investors Service on the U.S.’s Aaa rating and should rely instead on the company’s competitors, according to Pacific Investment Management Co. founder Bill Gross.

Moody’s and the U.S. Treasury are one “happy family,” Gross, manager of the world’s biggest bond fund, said today in a post on Twitter. “Trust S&P, Fitch & Egan Jones” for credit ratings, he wrote. Mark Porterfield, a spokesman for Newport Beach, California-based Pimco, said Gross was referring to Moody’s stance on the U.S. debt limit and potential for a government shutdown.

Standard & Poor’s cut the U.S. rating to AA+ from AAA in August 2011, a move that reflected the impasse over raising the debt limit as well as the government’s lack of a plan to rein in its debt load.

Read The Rest Of The Article

I don’t know about you, but I wouldn’t Trust Moody’s with watching my dead grandmother. I am not trying to be boastful, but you could have seen 2007-2009 meltdown coming from 10 miles away. I am not sure why an organization such as Moody’s with hundreds of financial analysts on stuff across multiple industries couldn’t see it coming. As you remember they have downgraded companies after the fact. Well, late enough for most investors to lose a lot of their money.

Actually, I do know. It’s called the “conflict of interest”. Bill Gross is absolutely correct. Basically Moody’s and the US Government are now a one entity scratching each other’s back. Should you care? Not really, but I do want you to be aware of the fact. Next time they either upgrade or downgrade something, view it with some skepticism at best. Know that they do not work for you, but large financial interests who’s objective might be counter to yours.  Either way, you should always do your own research and not depend on somebody else’s opinion.

On a related note, there is a parade of Senators and Congressman running around on TV. They are yelling and screaming that if the debt ceiling is not raised, the US Government will shut down and that will lead to a Great Depression. Something along those lines.  Do me a favor and tune them out. The stock market could care less and so should you. They will pass it and everything will be fine. 

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Chinese Government Cooking Books. No, Really???

Bloomberg Writes: China Beige Book Shows Slowdown, Opposite Official Data

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China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed.

The quarterly report, which began last year and is modeled on the U.S. Federal Reserve’s Beige Book business survey, diverges from government figures showing faster factory-output gains in July and August that have spurred analysts from Citigroup Inc. to Deutsche Bank AG to raise expansion estimates. Nomura Holdings Inc. is among banks skeptical that any rebound will be sustained next year.

The results “show the conventional wisdom of a renewed, strong economic expansion in China to be seriously flawed,” China Beige Book President Leland Miller and Craig Charney, research and polling director, said in a statement.

The data “reveal weakening gains in profits, revenues, wages, employment and prices, all showing slipping growth on-quarter — no disaster, but certainly not the powerful expansion suggested by the consensus narrative.”

Read The Rest Of The Article

Continuing our China watch, I want you to read the two paragraphs above very carefully.  I have been saying all along that Chinese miracle growth story is anything but true. Yes,  I would be the first to admit that China has a bright future and a potential. However, as of right now, that is all it is.

Before China can reach that potential and overtake the US Economy it will have to go through significant economic imbalances, bad loans, capital misallocation and property bubbles that Chinese government has baked into the system in return for seemingly amazing Economic growth.  Yet, everything has its cost.

The Chinese government can cook its books all it wants, but sooner or later the reality will catch up to it. With China’s real economic growth slowing down significantly (as per report above), structural issues coming home to roost and global economic slowdown just around the corner,  the moment of reckoning might be close at hand. 

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