by Lance Roberts
I was having lunch with a very dear friend of mine yesterday, who is also a very successful financial planner and advisor, who stunned me with an obvious question: “Has the dumb money become the smart money?”
What we were discussing is that, collectively, the majority of the conversations that we were having with our clients was “when will all of this Fed manipulation end in the next crash?”
As discussed yesterday, the Federal Reserve’s monetary interventions have certainly boosted asset prices, but has done little for the real economy. With asset prices excessively extended and valuations at the second highest level in history, it seems to be a “fire in search of a match.”
This is the crux of this weekend’s reading list which is a variety of views on the Fed’s latest actions and the potential of a major correction. But this reminds me of something I heard once about the “fear of flying:”
1) Bond Market Got It Right by Josh Brown via The Reformed Broker
I was having lunch with a very dear friend of mine yesterday, who is also a very successful financial planner and advisor, who stunned me with an obvious question: “Has the dumb money become the smart money?”
What we were discussing is that, collectively, the majority of the conversations that we were having with our clients was “when will all of this Fed manipulation end in the next crash?”
What is more interesting is that, despite the media
rhetoric about the surging bull market, the vast majority of our
interactions with individuals has been focused on the preservation of
their invested capital rather than chasing returns.
Of course, after two major bear markets, and now just barely getting
back to even after 15 years, you can certainly understand their
concerns.As discussed yesterday, the Federal Reserve’s monetary interventions have certainly boosted asset prices, but has done little for the real economy. With asset prices excessively extended and valuations at the second highest level in history, it seems to be a “fire in search of a match.”
This is the crux of this weekend’s reading list which is a variety of views on the Fed’s latest actions and the potential of a major correction. But this reminds me of something I heard once about the “fear of flying:”
“The good news is that you will be the first to the scene of the crash.”
1) Bond Market Got It Right by Josh Brown via The Reformed Broker
“This week’s FOMC statement and presser provides just one more example demonstrating the power of markets. The nation’s top economists had arrived at a consensus for the first Fed Funds rate hike of the cycle to take place at the June 2015 meeting. The bond market, stubbornly, had indicated a traders’ consensus that pegged the first rate hike for the September meeting or even later.”
Read Also: Dot-Dot-Dot-Dash-Dash-Dash-Dot-Dot-Dot by Macro Man via Macro Man Blog
2) No Rate Hikes In 2015 by Peter Schiff via Yahoo“The Fed has been bluffing the entire time,” says Schiff. “It has no intention of raising rates. But it can’t come clean and admit that, so it has to pretend that it is going to do something it’s not going to do,” he believes, “so it doesn’t reveal the fragility of the U.S. economy.“
Read Also: It’s Already Too Late To Raise Interest Rates by Akin Oyedele via BI
And Read: Slow Growth For US Interest Rates by Alex Friedman via Project Syndicate3) Ray Dalio Warns Fed Of 1937-Style Rate Risk by Henny Sender and Stephen Foley via FT
“Ray Dalio, founder of the $165bn hedge fund group Bridgewater Associates, said in a note to clients and followers that he was avoiding large bets on the financial markets for fear that the Fed’s expected change of policy could have unintended consequences.But Also Read: IMF Fears Emerging Market Instability by James Crabtree via FT
‘We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart,’ Mr Dalio and Mark Dinner, his colleague, wrote. ‘What we do hope the Fed knows, which we don’t know, is how exactly it will fix things if it knocks it over. We hope that they know that before they make a move that could knock over the apple cart.’
‘We are cautious about our exposures,’ they added: ‘For the reasons explained, we do not want to have any concentrated bets, especially at this time.'”
4) The Black Swan In Plain Sight by Charlie Bilello via Pension Partners
“Based on Taleb’s criteria, it would seem that the Dollar’s advance over the past nine months would qualify as a Black Swan event. If King Dollar is indeed a Black Swan, though, why haven’t we seen reverberations in the U.S. equity market? Probably because it has not yet been elevated to that status among the consensus. Similar to how stocks ignored the initial decline in housing in 2006-07, the stock market is dismissing the abnormal strength in the Dollar.image: http://streettalklive.com/images/1dailyxchange/misc/Dollar-vs-equitydefaults.jpg
The bullish narrative that has supported shares has been that a strong dollar is a positive because it means U.S. growth is booming. A quick examination of the facts, though, dispels this notion as U.S. real GDP growth in this expansion continues at its slowest pace in history.
The truth is that the Dollar is strong this time around not because the U.S. economy is booming but because Europe and Japan (the largest components of the Dollar Index) are intent on crashing their currencies.”
Read Also: Extremes In Every Pendulum by John Hussman via Hussman Funds5) A Correction Is Still Coming by Rana Foroohar via Time
“Up until yesterday’s Fed meeting, America’s central bankers said they were going to be “patient” about the timing of an interest rate hike, which most experts believe will ultimately result in a significant stock market correction (see my recent column about why). So why did that make markets go up so dramatically yesterday?Read Also: The Stock Market Top Is In by David Stockman via Stockman’s Contra Corner
Because everything else about the Fed’s communication said “we’re going to be more patient than ever” about when and how to raise rates. The central bank downgraded its forecast on the US economic recovery, saying that the pace of the recovery had “moderated somewhat,” in large part because of the strong dollar.”
And Read: The Next Bear Market Could Be A Whopper by Cam Hui via Humble Student Blog
Bonus Read/View:
Paul Tudor Jones Warns Of “Disastrous Market Mania” TED Blog via ZeroHedge“It’s a good time for companies: in the US, corporate revenues are at their highest point in 40 years. The problem, Tudor points out, is that as profit margins grow, so does income inequality. And income inequality is closely linked to lower life expectancy, literacy and math proficiency, infant mortality, homicides, imprisonment, teenage births, trust among ourselves, obesity, and, finally, social mobility. In these measures, the US is off the charts.”
“If there’s one thing I learned in prison it’s that money is not the prime commodity in our lives… time is.” – Gordon Gekko (Wall Street 2)Have A Weekend.
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