It Hurts When He Thinks

Alan Greenspan thinks stocks are cheap and likely to rise.  This from a guy that help create one of the worst economic downturns in the history of the United States.  Now except for his only lucid moment when as Chairman of the Fed he characterized market behavior as "irrational exuberance" in his testimony before Congress, he has always been a shill for Wall Street.   A tradition not lost with Bernanke.

Kudlow Effect

Fed this week indicated they were holding off on QE3 just in case their real Constant Quantitative Easing All The Time Every Day Forever shows some stalling.  Buying time for corporate America to get their balance sheets in order by cutting jobs and gaming earnings has about run its course and now the Fed is bracing for the double secret elevation market move.  This is not widely known about but has been confirmed by three researchers studying the cause and effect that bullshit has on calming the nerves of people following business news programs.  Often referred to as the Kudlow Effect, it is an phenomenon observed when select pro business individuals or defrocked evangelists try to levitate a dollar bill by concentrating on the first time they were completely honest with themselves.  Needless to say the dollar has yet to be moved.  But, for the vast numbers of Americans, economic elevation is just as hopeless but has fools believing.

Duped

Markets set up participants by producing apparently recognizable patterns only to then present a completely different form and outcome.  The ability to fool investors and traders into profound directional gaffs is repeated without fail with slightly altered timing.  Dupes are always being created by chance and necessity.  

Corporations need dupes such as analysts in order to game earnings reports. The analyst's motto should be, "never have so many been so surprised."  

Business news programs with their constant blabbing help shape amateurish perceptions of cause and effect. Notions of market prowess are always be attributed to market participants in hedge and high frequency trading communities contrary to their less than stellar performances. The reality is high frequency trading is not driven by a sophistication of analysis but by an abject fear of risk.  In the end, the capacity for both speed and returns is finite.

Bernanke Company Store

Article in the New York Times about the purchases of large amounts of distressed homes by private equity folks looking to turn profits by making these homes rental units. Seen as an alternative to other current returns in the market place, these ambitious folks are buying blocks of homes at supposed deep discounts.

Turning the fragmented real estate market into a private equity liquidity block trade seems only natural given the too big to fail environment Bernanke has underwritten. These type of investment strategies come directly out of the Fed stimulus initiatives of pushing liquidity into privileged hands and while in effect restricting capital and rousting many Americans from their homes. The old saying goes that God must love poor people because he made so many so that He and his rich friends can have a good laugh. Real estate has definitely turned and much like the impetus which is driving over valuations in stocks, there is an investment frenzy currently underway spawned from tech stocks and now into the broader S&P 500. Gains in 2012 rival the bull rush in 1998 which of coarse was the beginning of the end.

HF Trading

High frequency trading is going to be getting the once over by SEC and other oversight authorities with ultimately the volume kick backs probably being eliminated. The broader issue of high volume day trading is completely within market making rules and will be here forever. Whether or not they put some type of time throttle on price view is another question whereby no one trading group can see price data faster than a set point of origination from a server.

Many of the HF programs rely on location proximity there by reducing latency and thus by their nature rely on modified front running to make profits because consistent trading program success which depends on unique market insight is rare. Since fundamental market information is practically useless beyond normal bias reinforcement, any edge similar to the old wink wink nod nod is pursued.

What works works. What doesn't is almost everything talked about every day on every business news station. Adaptive programs with alpha producing strategies year in and year out provide a better market view than any earnings, share demand, and growth scenarios.

Correction Time

Systemic price correction is in the offing for almost every market. As with all serious corrections, it is never about the reasons given by market pundits but primarily a structural price recalibration and as such always deeper than the even the bearish forecasts. While it is believed the greatest upside offenders will correct the most, there is really no evidence of any punishment for particular performance. Rather it is more of a random collection of price declines where sectors become the focus of wrath because managers work as a connected organism with limited insight.

All In or All Out

If changing perceptions about values is the main goal of the Fed, it seems to be succeeding. Stocks and treasuries have certainly switched positions on the comfort scale recently with equities now being repeatedly called an "all in " and owning treasuries now being claimed by managers to be the worst investment possible. The bull cheer in stocks comes after a two and a half year bull run along and with a Fed as recently as last month declaring yields would remain at historic lows for several more years.

If the Fed has helped to alter value perceptions then it comes from a lot of work as the great liquidator. Not to be confused with liquifier, rather a proxy liquidator. Banks unable to retrieve debts owned them, Fed in effect liquidates the trade by providing zero cost money to the lender and lets them hold the diminished asset as if to say, go ahead and get whatever you can for it. The same thing is going on by European central banks although not nearly as effectively. Just in case the CDS claims are made, flood the system with cash, though probably no where near the money needed if necessary.

There is a natural bias at work here of coarse. The world is long stock despite what "cash on the sidelines" rant one might believe. The perception of a recovering economy then leads to a bias toward higher rates or bearish bond recommendations.

The Fed has consistently seen a much darker side to the economy. A potential storm's impending arrival seemingly as hard to peg as typical forecasts as to weather to call it a storm watch or a storm warning. Regardless, the Feds actions to prepare for any bad weather has had the effect of herding returns into assets outside the comfort zone of virtually zero risk treasuries. Now these dollars are corralled into a smaller and smaller fenced area as prices for assets such as stock are significantly higher.

If the Feds accommodation is an accurate perception into storm forecasting, then bullish sentiment of stocks and bearish sentiment on bonds probably mark a top for each.

AAPL GOOG Match Up

The battle between these two monsters will be interesting to watch. Here are the number comparisons supplied by Wolfram Alpha

This Time For Sure Again

Waiting for the next leg up in stocks seems to be a given if you listen and read the vested interests, which is just about anyone providing market information these days. Never have so many wanted so much for things to break out on the upside. I have heard endless price forecasts based on the "golden cross" where the 50 day average crosses the 200 day average. It is hard to believe people actually rely on these tools but given the weak state of hedge fund mechanics it is not a surprise. Having looked at enough data for 20 lifetimes it is clear this trick of the trade comes from the secular bull markets developed from the great run originating from the Great Depression. What they don't tell you is the cost against any future gains incurred when the two averages cross back and forth, over and over again before breaking out. I guess they call that the "golden shower".

Anyway, golden cross, money on the sidelines, and describing losses of more than 50% by Greek bond holders as concessions and not defaults are all part of the kool-aid being sucked down. It's a default and CDSs will be exercised in one fashion or another.

Markets have a great habit of using the formula, " this equals that," and as a result, repeatedly makes great errors in pricing.

Facebook Saves Economy

Facebook is now hiring thousands of people to create their own Facebook site. Imagine being paid to put nothing but information about yourself and fellow Facebookians so that millions can experience you and any fascinating facts or not so factual facts. Financial amounts have not been disclosed because negotiations between those who wish to provide important personal information are being interfered with by those who are boring. Just putting a picture of you and your dog is not going to make you rich. You need to put a picture of you and your dog eating together at a table with party hats and T shirts that say Eat Me. And that is only a start.

Now remember, if you cannot get paid for providing personal information you will have to do it for nothing. That means just having a Facebook site and adding pictures of yourself and friends for no particular reason.