Consensus Now Believes Abenomics "Recovery" Will Fail

Despite Shinzo Abe proudly proclaiming at the Tokyo Stock Exchange that “Abenomics will be a ‘buy’ next year as well,” Bloomberg notes surveys of economists believe his policies will fail to spark the wage increases required to outpace inflation. In fact – due to the collapsing JPY – those surveyed expect consumer prices to rise 3% next year – 5 times faster than wage growth at a mere 0.6%. Officials are concerned; Japan can’t wait one or two years for salary gains, which are needed sooner for the economy to enter a virtuous cycle of rising profits, wages and growth, Deputy Economy Minister Yasutoshi Nishimura said. But, any increase in wages depends on a pick-up in demand, not just pleas by Abe for companies to do their part for economic recovery.

 

Via Bloomberg,

Japanese employers will fail in the next fiscal year to heed Prime Minister Shinzo Abe’s goal of wage increases that outpace inflation, highlighting risks that the nation’s recovery will stall, surveys of economists show.

 

Labor cash earnings, the benchmark for wages, will increase 0.6 percent in the year starting April 1, according to the median forecast in a poll of 16 economists by Bloomberg News. Consumer prices will climb five times faster, increasing 3 percent, as Japan raises a sales tax for the first time since 1997, a separate Bloomberg survey shows.

 

The squeeze on consumers from higher prices risks undermining public support for Abenomics and dragging on retail spending, unless Abe can convince companies to boost wages to cushion the blow.

 

 

Wage increases will be slower than the rise in prices at least until 2015, dealing a blow to Prime Minister Abe,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “It will take a while for companies to change their mind-set, which is still mired in deflation.”

 

 

Abe said today at a Tokyo Stock Exchange closing ceremony that Abenomics will be a “buy” next year as well.

 

The prime minister has pressed Japan Inc. to pass some of the windfall to workers through higher base pay, in meetings with business and union leaders since September. The three sides said in a joint statement this month that increased profits should be linked to wages. Japan can’t wait one or two years for salary gains, which are needed sooner for the economy to enter a virtuous cycle of rising profits, wages and growth, Deputy Economy Minister Yasutoshi Nishimura said.

 

 

Any increase in wages depends on a pick-up in demand, not just pleas by Abe for companies to do their part for economic recovery, said Kaoru Yosano, a former finance minister, in an interview in October.

Now, where’s the anti-diarrhea medicine?


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/WTbEhTUiW_I/story01.htm Tyler Durden

Consensus Now Believes Abenomics “Recovery” Will Fail

Despite Shinzo Abe proudly proclaiming at the Tokyo Stock Exchange that “Abenomics will be a ‘buy’ next year as well,” Bloomberg notes surveys of economists believe his policies will fail to spark the wage increases required to outpace inflation. In fact – due to the collapsing JPY – those surveyed expect consumer prices to rise 3% next year – 5 times faster than wage growth at a mere 0.6%. Officials are concerned; Japan can’t wait one or two years for salary gains, which are needed sooner for the economy to enter a virtuous cycle of rising profits, wages and growth, Deputy Economy Minister Yasutoshi Nishimura said. But, any increase in wages depends on a pick-up in demand, not just pleas by Abe for companies to do their part for economic recovery.

 

Via Bloomberg,

Japanese employers will fail in the next fiscal year to heed Prime Minister Shinzo Abe’s goal of wage increases that outpace inflation, highlighting risks that the nation’s recovery will stall, surveys of economists show.

 

Labor cash earnings, the benchmark for wages, will increase 0.6 percent in the year starting April 1, according to the median forecast in a poll of 16 economists by Bloomberg News. Consumer prices will climb five times faster, increasing 3 percent, as Japan raises a sales tax for the first time since 1997, a separate Bloomberg survey shows.

 

The squeeze on consumers from higher prices risks undermining public support for Abenomics and dragging on retail spending, unless Abe can convince companies to boost wages to cushion the blow.

 

 

Wage increases will be slower than the rise in prices at least until 2015, dealing a blow to Prime Minister Abe,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “It will take a while for companies to change their mind-set, which is still mired in deflation.”

 

 

Abe said today at a Tokyo Stock Exchange closing ceremony that Abenomics will be a “buy” next year as well.

 

The prime minister has pressed Japan Inc. to pass some of the windfall to workers through higher base pay, in meetings with business and union leaders since September. The three sides said in a joint statement this month that increased profits should be linked to wages. Japan can’t wait one or two years for salary gains, which are needed sooner for the economy to enter a virtuous cycle of rising profits, wages and growth, Deputy Economy Minister Yasutoshi Nishimura said.

 

 

Any increase in wages depends on a pick-up in demand, not just pleas by Abe for companies to do their part for economic recovery, said Kaoru Yosano, a former finance minister, in an interview in October.

Now, where’s the anti-diarrhea medicine?


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/WTbEhTUiW_I/story01.htm Tyler Durden

A New Chapter in Egypt's Power Struggle

Submitted by Pater Tenebrarum of Acting-Man blog,

Muslim Brotherhood Designated a Terrorist Organization

It has become quite a steep fall from grace. Within 18 months, Egypt's Muslim Brotherhood has moved all the way from winning the presidency and ruling the country to once again becoming outlawed. During the Christmas holidays the military council currently administering Egypt saw fit to declare the Brotherhood a 'terrorist organization'. Anyone taking part in demonstrations on behalf of the Brotherhood or otherwise supporting it henceforth faces a minimum of five years imprisonment. Its leaders face imprisonment for life, and perhaps even the death penalty. This includes former president Mohammed Morsi.

The pretext used for the promulgation was an attack on a police station (the Daqahliya Security Directorate in Mansoura)  that killed 16 policemen and left an estimated 140 people injured. However, a different organization actually claimed responsibility for the attack, namely the Sinai-based radical Islamist militant group Ansar Beit al-Maqdis. In August the Egyptian army let it be known that the group had been 'dealt with', so we are evidently looking at a case of miraculous resurrection here (it's either that, or the army wasn't entirely truthful). Reuters reports on the outlawing of the Brotherhood:

 

“The Egyptian government intensified its crackdown on the Muslim Brotherhood on Wednesday, formally listing the group as a terrorist organization after accusing it of carrying out a suicide bomb attack on a police station that killed 16 people. The move marked a major escalation in the army-backed government's campaign to suppress the Islamist movement that propelled Mohamed Mursi to the presidency 18 months ago but has been driven underground since the army toppled him in July. It gives the authorities the power to charge any member of the Brotherhood with belonging to a terrorist group, as well as anyone who finances the group or promotes it "verbally, or in writing".

 

"This is a turning point in the confrontation. This is an important tool for the government to close any door in the face of the Brotherhood's return to political life," said Khalil al-Anani, a Washington-based expert on the movement. The Brotherhood condemned the attack on Tuesday in the Nile Delta city of Mansoura, north of Cairo. Earlier on Wednesday, a Sinai-based militant group, Ansar Bayt al-Maqdis, had claimed responsibility for the attack that wounded some 140 people.

 

In Washington, the State Department also condemned the attack but urged Egypt to have an "inclusive political process." "We condemn in the strongest terms the horrific, terrorist bombing yesterday. There can be no place for such violence. The Egyptian people deserve peace and calm," State Department spokeswoman Jen Psaki said but added: "We also note that the Muslim Brotherhood in Egypt condemned the bombing shortly after it occurred yesterday. We are concerned about the current atmosphere and its potential effects on a democratic transition in Egypt," she added.

 

The Brotherhood, which estimates its membership at up to a million people, was Egypt's best organized political force until this summer's crackdown. A political and social movement founded in 1928, it won five elections after the downfall of President Hosni Mubarak in 2011.

 

"The government decision aims to liquidate its political opponents," Mohamed Touson, a member of the Brotherhood's Freedom and Justice Party, told Al-Ahram online, a state-run news portal. Since Mursi's overthrow, the state has killed hundreds of his supporters in the streets and arrested thousands more. Mursi and other top Brotherhood leaders were last week charged with terrorism and plotting with foreign militants against Egypt. They could face the death penalty. A court ruling has also formally outlawed the group.”

 

 

(emphasis added)

This means that the Muslim Brotherhood returns to the state in which it has found itself for the bulk of its history: an outlawed organization operating in the underground. Its supporters will be jailed (and quite likely tortured), so in this respect the difference between Mubarak era Egypt and post Mubarak era Egypt has now been reduced to precisely zero. Many believe (and they may well be right) that Ansar Beit Al-Maqdis is loosely affiliated with the Brotherhood, a kind of self-anointed military arm of the organization, as the group's attacks on Egyptian security forces have reportedly vastly increased after Morsi was deposed by the army. However, as always in such cases, it is impossible for outsiders to actually know the truth. Who is who in the zoo in the murky world inhabited by these terrorist splinter groups cannot be discerned from afar. Whether it truly was an attack perpetrated by a group close to the Brotherhood, or perhaps even a 'false flag' operation to give the ruling junta the opportunity to take the step of banning the Brotherhood we will never really know.

The situation once again underscores the fundamental problem the West faces  with regard to supporting the introduction of Western-style democracy in Middle Eastern countries. Since the Brotherhood has been the main force of organized resistance during Mubarak's dictatorship, it tends to win elections. This latter fact explains the rather lukewarm reaction of the US state department to its outlawing. Now that it has been officially declared a terrorist organization, it can obviously no longer win any elections, which removes a big headache. However, an even bigger headache may be the result.

 

< span style="font-family: verdana,geneva,sans-serif;">How Stable is Egypt?

It needs to be interjected here that the biggest problem facing the Arab world is not a lack of democracy, but a lack of freedom and an associated lack of capitalism, a point we have discussed in detail before (see “How the Arab Winter Could Become a Spring”). The army is said to control 40% of Egypt's economy and it doesn't take a big leap of the imagination to realize that it has very strong economic incentives to want to cling to power. However, the Brotherhood certainly hasn't shown any ability to deal with Egypt's economic problems either. Morsi faced increasingly violent protests against his rule precisely because he failed in this respect. In fact, his rule appeared in many ways not much different from Mubarak's – he seemed to simply take over the same apparatus of oppression that existed before so as to use it for his own ends. Moreover, the Muslim Brotherhood does of course have an agenda inspired by religious dogma and wanted to use its control of the government to impose its views of proper morals by legislative fiat, running roughshod over its opposition in the process.

Unfortunately the latest escalation of the power struggle between the military and the Muslim Brotherhood may have the effect of destabilizing Egypt and with it the entire region even further. While there can be little doubt that the army has all the firepower it needs to remain in power, the Brotherhood is unlikely to just slink away quietly now that it has tasted freedom and political power. Reuters continues:

 

“Since Mursi's downfall, at least 350 members of the security forces have been killed in bombings and shootings. The government has declared itself in "a war on terror". Analysts say the government decision points to the influence wielded by hawks in security services. Though it has been outlawed for most of its existence, this marks the first time the group has been formally designated a terrorist movement. In a statement, the government said: "All of Egypt … was terrified by the ugly crime that the Muslim Brotherhood group committed by blowing up the building of the Dakahlyia security directorate." The statement did not say what evidence the government had to back up the accusation or name any suspects.

 

Ansar Bayt al-Maqdis, meaning "Supporters of Jerusalem", has claimed responsibility for a number of the attacks since Mursi's downfall, including a failed bid to kill the interior minister in September. In its statement claiming responsibility for the Mansoura attack, Ansar Bayt al-Maqdis blamed the army-backed government for fighting "Islamic legitimacy" and spilling the blood of "oppressed Muslims".

 

The government is pushing ahead with a political transition plan. A mid-January referendum is the next step, to be followed by parliamentary polls and a presidential election. Army chief Abdel Fattah al-Sisi is widely tipped to win, assuming he runs. The Brotherhood says it remains committed to peacefully resisting what it calls a bloody military coup against a freely elected leader. Its supporters are pressing a campaign of protest focused on university campuses. Anani said: "The only party that will benefit from this is the radical Islamists who will capitalize on the despair and disenchantment."

 

Some observers have drawn parallels with Algeria, where a civil war erupted in 1991 when the army aborted an experiment with democracy because the Islamists looked set to win. "We might witness another insurgency, an Algeria scenario. You might see the emergence of a violent faction in the Brotherhood," Anani said.”

 

(emphasis added)

We don't know whether the 'Algerian scenario' will indeed repeat in Egypt. Actually, we think the chances are quite good that it won't, but while the probability is smaller, the ramifications would be larger. In any case, one must agree with Mr. Anani's assessment that radical Islamists are bound to benefit the most from the decision. With their political aspirations once again quashed, many of the more moderate members of the movement will be open to radicalization (as to how such things happen, see our recent article on Nelson Mandela and the formation of Umkontho we Sizwe). Even if Egypt is not likely to experience outright civil war, it seems highly probable that attacks like the one that was used as the pretext for outlawing the Brotherhood will continue to proliferate and escalate.

 

Financial Markets and the Economy

Egypt's stock market is still marching higher, continuing the uptrend that began when it became increasingly obvious that Morsi's rule was likely to be cut short. However, given the huge decline in the exchange rate of the Egyptian pound (which has yet to show any signs of reversing), it is possible that the stock market simply reflects the effects of the underlying monetary inflation – in other words, people are quite likely buying stocks in an attempt to preserve the purchasing power of their savings rather than due to hopes for an economic upswing. After all, stocks have been on a tear in Venezuela as well, even as the country is increasingly plagued by shortages of basic consumer goods as a result of the mismanagement of the economy by the socialist government. Monetary inflation spiraling out of control is clearly the culprit in this case. It should be pointed out in this context that Egyptian stock prices began to rise from their lows in late 2012/early 2013 just as the country's currency began its free-fall.

 


 

EGX-30

Egypt's EGX 30 stock index over the past decade (weekly candles) – click to enlarge.

 


 

EGX-30-close-up

A close-up of the action over the past three years. In mid 2013 there was a brief spike lower when the army's coup that deposed Morsi took place. However, the currency failed to recover and stocks quickly found buyers again – click to enlarge.

 


 

Egyptian-pound, weekly

A weekly chart of the Egyptian pound vs. the US dollar. At its 2008 high, the currency traded at slightly below 5,30 pounds to the dollar. The free-fall started in the final two trading days of 2012, after about three weeks of violent confrontations between supporters and opponents of former president Morsi in the streets of Cairo. When Morsi was deposed by the army, it briefly spiked above the level of 7.10, then recovered slightly and has since then moved sideways near the 6.90 level. It is noteworthy that the currency has been unable to recover the losses it suffered in the wake of the protests against Morsi – click to enlarge.

 


 

To summarize, it is not possible to conclude that the relatively firm stock market signals that everything will turn out just fine and that Egypt will return to a state resembling 'business as usual' (i.e., a version of Mubarak's rule, with relatively little disturbance). It could well be that the stock market is simply anticipating further declines in the pound. Looking at other major crosses, the Egyptian pound is already plumbing new lows against the euro, which is currently the strongest major currency. The ups and downs of Egypt's stock market actually seem to follow the EGP-EUR cross more closely than the EGP-USD rate. This likely reflects the fact that the EU is Egypt's largest trading partner by far. Overall, Egyptian trade has vastly declined over the past two years – trade with the US and the EU has essentially been cut in half. The disaggregated statistics can be downloaded here: Egyptian trade with the US (pdf) and Egyptian trade with the EU (pdf).

While almost every category of exports and imports has been hit hard, we would draw attention specifically to the collapse in imports of capital goods, foodstuffs and agricultural products ex cotton. The former is testament to the miserable situation Egyptian industry is facing, while the latter indicates that the supply of basic consumer goods like food remains severely restricted. That is important because soaring food prices and a declining food supply were major factors in destabilizing first Mubarak's and then Morsi's government. The military administration led by general Abdel Fattah al-Sisi will sooner or later face the same problem if the population's provision with food cannot be improved.

 


 

EGP-EUR,weekly

Egyptian pounds per euro – against the common currency of euro-land, the pound has already declined to new lows – click to enlarge.

 


 

Conclusion:

Much of the Arab world remains in upheaval in the wake of the so-called 'Arab Spring'. Egypt has always been considered a pivotal Arab state – it is both the most populous as well as located in a strategically important spot. When the army deposed Morsi, it presumably hoped to get the wave of protests and clashes in the streets under control. Hardliners in the military junta saw a chance to suppress the Muslim Brotherhood once and for all and decided on a brutal crackdown when the protests failed to cease (for details on how they played both US and European diplomats, see this NYT article from August). However, violence has increased even further, with street protests continuing and leading to even more bloodshed and Islamist militants stepping up their attacks as well. The latest escalation clearly shows that the hardliners remain firmly in control in Al-Sisi's government, and it is yet another dangerous gamble. The calculation seems to be that restoring the status quo ante by pushing the Brotherhood back into the underground where it was during Mubarak's regime and jailing and/or executing its leaders, something like the deceptive calm of Mubarak's era will eventually return. That may turn out to be yet another miscalculation. Too many in Egypt feel they have little to lose and it is well known from historical examples that creating martyrs isn't likely to stop a movement that enjoys fairly broad popular support.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/K7NDV21_5p8/story01.htm Tyler Durden

A New Chapter in Egypt’s Power Struggle

Submitted by Pater Tenebrarum of Acting-Man blog,

Muslim Brotherhood Designated a Terrorist Organization

It has become quite a steep fall from grace. Within 18 months, Egypt's Muslim Brotherhood has moved all the way from winning the presidency and ruling the country to once again becoming outlawed. During the Christmas holidays the military council currently administering Egypt saw fit to declare the Brotherhood a 'terrorist organization'. Anyone taking part in demonstrations on behalf of the Brotherhood or otherwise supporting it henceforth faces a minimum of five years imprisonment. Its leaders face imprisonment for life, and perhaps even the death penalty. This includes former president Mohammed Morsi.

The pretext used for the promulgation was an attack on a police station (the Daqahliya Security Directorate in Mansoura)  that killed 16 policemen and left an estimated 140 people injured. However, a different organization actually claimed responsibility for the attack, namely the Sinai-based radical Islamist militant group Ansar Beit al-Maqdis. In August the Egyptian army let it be known that the group had been 'dealt with', so we are evidently looking at a case of miraculous resurrection here (it's either that, or the army wasn't entirely truthful). Reuters reports on the outlawing of the Brotherhood:

 

“The Egyptian government intensified its crackdown on the Muslim Brotherhood on Wednesday, formally listing the group as a terrorist organization after accusing it of carrying out a suicide bomb attack on a police station that killed 16 people. The move marked a major escalation in the army-backed government's campaign to suppress the Islamist movement that propelled Mohamed Mursi to the presidency 18 months ago but has been driven underground since the army toppled him in July. It gives the authorities the power to charge any member of the Brotherhood with belonging to a terrorist group, as well as anyone who finances the group or promotes it "verbally, or in writing".

 

"This is a turning point in the confrontation. This is an important tool for the government to close any door in the face of the Brotherhood's return to political life," said Khalil al-Anani, a Washington-based expert on the movement. The Brotherhood condemned the attack on Tuesday in the Nile Delta city of Mansoura, north of Cairo. Earlier on Wednesday, a Sinai-based militant group, Ansar Bayt al-Maqdis, had claimed responsibility for the attack that wounded some 140 people.

 

In Washington, the State Department also condemned the attack but urged Egypt to have an "inclusive political process." "We condemn in the strongest terms the horrific, terrorist bombing yesterday. There can be no place for such violence. The Egyptian people deserve peace and calm," State Department spokeswoman Jen Psaki said but added: "We also note that the Muslim Brotherhood in Egypt condemned the bombing shortly after it occurred yesterday. We are concerned about the current atmosphere and its potential effects on a democratic transition in Egypt," she added.

 

The Brotherhood, which estimates its membership at up to a million people, was Egypt's best organized political force until this summer's crackdown. A political and social movement founded in 1928, it won five elections after the downfall of President Hosni Mubarak in 2011.

 

"The government decision aims to liquidate its political opponents," Mohamed Touson, a member of the Brotherhood's Freedom and Justice Party, told Al-Ahram online, a state-run news portal. Since Mursi's overthrow, the state has killed hundreds of his supporters in the streets and arrested thousands more. Mursi and other top Brotherhood leaders were last week charged with terrorism and plotting with foreign militants against Egypt. They could face the death penalty. A court ruling has also formally outlawed the group.”

 

 

(emphasis added)

This means that the Muslim Brotherhood returns to the state in which it has found itself for the bulk of its history: an outlawed organization operating in the underground. Its supporters will be jailed (and quite likely tortured), so in this respect the difference between Mubarak era Egypt and post Mubarak era Egypt has now been reduced to precisely zero. Many believe (and they may well be right) that Ansar Beit Al-Maqdis is loosely affiliated with the Brotherhood, a kind of self-anointed military arm of the organization, as the group's attacks on Egyptian security forces have reportedly vastly increased after Morsi was deposed by the army. However, as always in such cases, it is impossible for outsiders to actually know the truth. Who is who in the zoo in the murky world inhabited by these terrorist splinter groups cannot be discerned from afar. Whether it truly was an attack perpetrated by a group close to the Brotherhood, or perhaps even a 'false flag' operation to give the ruling junta the opportunity to take the step of banning the Brotherhood we will never really know.

The situation once again underscores the fundamental problem the West faces  with regard to supporting the introduction of Western-style democracy in Middle Eastern countries. Since the Brotherhood has been the main force of organized resistance during Mubarak's dictatorship, it tends to win elections. This latter fact explains the rather lukewarm reaction of the US state department to its outlawing. Now that it has been officially declared a terrorist organization, it can obviously no longer win any elections, which removes a big headache. However, an even bigger headache may be the result.

 

How Stable is Egypt?

It needs to be interjected here that the biggest problem facing the Arab world is not a lack of democracy, but a lack of freedom and an associated lack of capitalism, a point we have discussed in detail before (see “How the Arab Winter Could Become a Spring”). The army is said to control 40% of Egypt's economy and it doesn't take a big leap of the imagination to realize that it has very strong economic incentives to want to cling to power. However, the Brotherhood certainly hasn't shown any ability to deal with Egypt's economic problems either. Morsi faced increasingly violent protests against his rule precisely because he failed in this respect. In fact, his rule appeared in many ways not much different from Mubarak's – he seemed to simply take over the same apparatus of oppression that existed before so as to use it for his own ends. Moreover, the Muslim Brotherhood does of course have an agenda inspired by religious dogma and wanted to use its control of the government to impose its views of proper morals by legislative fiat, running roughshod over its opposition in the process.

Unfortunately the latest escalation of the power struggle between the military and the Muslim Brotherhood may have the effect of destabilizing Egypt and with it the entire region even further. While there can be little doubt that the army has all the firepower it needs to remain in power, the Brotherhood is unlikely to just slink away quietly now that it has tasted freedom and political power. Reuters continues:

 

“Since Mursi's downfall, at least 350 members of the security forces have been killed in bombings and shootings. The government has declared itself in "a war on terror". Analysts say the government decision points to the influence wielded by hawks in security services. Though it has been outlawed for most of its existence, this marks the first time the group has been formally designated a terrorist movement. In a statement, the government said: "All of Egypt … was terrified by the ugly crime that the Muslim Brotherhood group committed by blowing up the building of the Dakahlyia security directorate." The statement did not say what evidence the government had to back up the accusation or name any suspects.

 

Ansar Bayt al-Maqdis, meaning "Supporters of Jerusalem", has claimed responsibility for a number of the attacks since Mursi's downfall, including a failed bid to kill the interior minister in September. In its statement claiming responsibility for the Mansoura attack, Ansar Bayt al-Maqdis blamed the army-backed government for fighting "Islamic legitimacy" and spilling the blood of "oppressed Muslims".

 

The government is pushing ahead with a political transition plan. A mid-January referendum is the next step, to be followed by parliamentary polls and a presidential election. Army chief Abdel Fattah al-Sisi is widely tipped to win, assuming he runs. The Brotherhood says it remains committed to peacefully resisting what it calls a bloody military coup against a freely elected leader. Its supporters are pressing a campaign of protest focused on university campuses. Anani said: "The only party that will benefit from this is the radical Islamists who will capitalize on the despair and disenchantment."

 

Some observers have drawn parallels with Algeria, where a civil war erupted in 1991 when the army aborted an experiment with democracy because the Islamists looked set to win. "We might witness another insurgency, an Algeria scenario. You might see the emergence of a violent faction in the Brotherhood," Anani said.”

 

(emphasis added)

We don't know whether the 'Algerian scenario' will indeed repeat in Egypt. Actually, we think the chances are quite good that it won't, but while the probability is smaller, the ramifications would be larger. In any case, one must agree with Mr. Anani's assessment that radical Islamists are bound to benefit the most from the decision. With their political aspirations once again quashed, many of the more moderate members of the movement will be open to radicalization (as to how such things happen, see our recent article on Nelson Mandela and the formation of Umkontho we Sizwe). Even if Egypt is not likely to experience outright civil war, it seems highly probable that attacks like the one that was used as the pretext for outlawing the Brotherhood will continue to proliferate and escalate.

 

Financial Markets and the Economy

Egypt's stock market is still marching higher, continuing the uptrend that began when it became increasingly obvious that Morsi's rule was likely to be cut short. However, given the huge decline in the exchange rate of the Egyptian pound (which has yet to show any signs of reversing), it is possible that the stock market simply reflects the effects of the underlying monetary inflation – in other words, people are quite likely buying stocks in an attempt to preserve the purchasing power of their savings rather than due to hopes for an economic upswing. After all, stocks have been on a tear in Venezuela as well, even as the country is increasingly plagued by shortages of basic consumer goods as a result of the mismanagement of the economy by the socialist government. Monetary inflation spiraling out of control is clearly the culprit in this case. It should be pointed out in this context that Egyptian stock prices began to rise from their lows in late 2012/early 2013 just as the country's currency began its free-fall.

 


 

EGX-30

Egypt's EGX 30 stock index over the past decade (weekly candles) – click to enlarge.

 


 

EGX-30-close-up

A close-up of the action over the past three years. In mid 2013 there was a brief spike lower when the army's coup that deposed Morsi took place. However, the currency failed to recover and stocks quickly found buyers again – click to enlarge.

 


 

Egyptian-pound, weekly

A weekly chart of the Egyptian pound vs. the US dollar. At its 2008 high, the currency traded at slightly below 5,30 pounds to the dollar. The free-fall started in the final two trading days of 2012, after about three weeks of violent confrontations between supporters and opponents of former president Morsi in the streets of Cairo. When Morsi was deposed by the army, it briefly spiked above the level of 7.10, then recovered slightly and has since then moved sideways near the 6.90 level. It is noteworthy that the currency has been unable to recover the losses it suffered in the wake of the protests against Morsi – click to enlarge.

 


 

To summarize, it is not possible to conclude that the relatively firm stock market signals that everything will turn out just fine and that Egypt will return to a state resembling 'business as usual' (i.e., a version of Mubarak's rule, with relatively little disturbance). It could well be that the stock market is simply anticipating further declines in the pound. Looking at other major crosses, the Egyptian pound is already plumbing new lows against the euro, which is currently the strongest major currency. The ups and downs of Egypt's stock market actually seem to follow the EGP-EUR cross more closely than the EGP-USD rate. This likely reflects the fact that the EU is Egypt's largest trading partner by far. Overall, Egyptian trade has vastly declined over the past two years – trade with the US and the EU has essentially been cut in half. The disaggregated statistics can be downloaded here: Egyptian trade with the US (pdf) and Egyptian trade with the EU (pdf).

While almost every category of exports and imports has been hit hard, we would draw attention specifically to the collapse in imports of capital goods, foodstuffs and agricultural products ex cotton. The former is testament to the miserable situation Egyptian industry is facing, while the latter indicates that the supply of basic consumer goods like food remains severely restricted. That is important because soaring food prices and a declining food supply were major factors in destabilizing first Mubarak's and then Morsi's government. The military administration led by general Abdel Fattah al-Sisi will sooner or later face the same problem if the population's provision with food cannot be improved.

 


 

EGP-EUR,weekly

Egyptian pounds per euro – against the common currency of euro-land, the pound has already declined to new lows – click to enlarge.

 


 

Conclusion:

Much of the Arab world remains in upheaval in the wake of the so-called 'Arab Spring'. Egypt has always been considered a pivotal Arab state – it is both the most populous as well as located in a strategically important spot. When the army deposed Morsi, it presumably hoped to get the wave of protests and clashes in the streets under control. Hardliners in the military junta saw a chance to suppress the Muslim Brotherhood once and for all and decided on a brutal crackdown when the protests failed to cease (for details on how they played both US and European diplomats, see this NYT article from August). However, violence has increased even further, with street protests continuing and leading to even more bloodshed and Islamist militants stepping up their attacks as well. The latest escalation clearly shows that the hardliners remain firmly in control in Al-Sisi's government, and it is yet another dangerous gamble. The calculation seems to be that restoring the status quo ante by pushing the Brotherhood back into the underground where it was during Mubarak's regime and jailing and/or executing its leaders, something like the deceptive calm of Mubarak's era will eventually return. That may turn out to be yet another miscalculation. Too many in Egypt feel they have little to lose and it is well known from historical examples that creating martyrs isn't likely to stop a movement that enjoys fairly broad popular support.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/K7NDV21_5p8/story01.htm Tyler Durden

The Bifurcated Housing Bubble; From "Why Didn't I Buy?" To "This Is Crazy"

Never was ‘location, location, location’ more important than in the current housing ‘recovery’. From the Bay Area to Pittsburgh and from Denver to Oklahoma, the divergence in price movements is incredible. As the WSJ reports, while headlines gloat of several cities enjoying full-scale rebounds, these cities are largely exceptions with prices in many part of the US still well below the peak. In some 1,500 cities, values are still at least 25% lower than their previous highs. For the ‘bubble’ zip-sodes, “what you’ve got is something other than a sensible market-deciding price. You’ve got it goosed by the terms of finance, which are extraordinary,” warns one realist realtor, “prices shouldn’t be up this high, this quickly. It’s a big, flapping yellow flag saying we’re back in territory that we should not be in.”

Massive divergence in price gains and losses from the 2008 peak…

 

Via WSJ,

Home prices have zipped back into record territory in a handful of American cities, a milestone that comes seven years after the housing bust ravaged the market and the broader economy.

 

Values are up more than 13% from their 2007 high in Oklahoma City and by more than 6% in the Denver metro area. Prices are back to all-time highs in 10 of the nation’s 50 largest metropolitan areas

 

 

Home prices in some parts of the country that did experience a bust have benefited from low supplies of homes for sale and historically low interest rates that have boosted prices—and sparked concerns that prices could again be overvalued.

 

 

But in those areas that did experience a downturn, he added, “I’m surprised that we are back to peak levels so quickly.”

 

 

Nearly 10% of municipalities have seen prices reach new highs this year when compared with their previous peak, and prices are within 5% of their previous highs in 300 more.

 

These cities are largely exceptions, and prices in many parts of the U.S. are still well below their peak. In some 1,500 cities, values are still at least 25% lower than their previous highs.

 

 

The Zillow data also reveal the extreme variation—even within a particular metropolitan area—of the housing boom, bust and recovery. Prices are up 40% from their prior highs in Palo Alto, Calif., which is just 50 miles from San Pablo, a working-class suburb north of Oakland. Values there are still 54% below their peak.

 

 

Some well-off communities in coastal California, Boston and Washington, D.C., which saw modest price declines during the bust, are rebounding quickly and reaching new highs because of supply shortages and better-than-average job growth.

 

 

Some economists worry that home buyers along the coasts could again be looking at homes as investments rather than as places to live.

 

To the extent that gains aren’t supported by rising rents or incomes, “you start to go, ‘Geez, did people get a little too excited?’ “

 

 

“They say, ‘This is crazy. This can’t continue,'” she said. “The rest are like, ‘Why didn’t I buy in 2010 or 2011?’ “

 

 

 

What you’ve got is something other than a sensible market-deciding price. You’ve got it goosed by the terms of finance, which are extraordinary,” said Robert Albertson, chief strategist at Sandler O’Neill + Partners, an investment-banking firm in New York. “Prices shouldn’t be up this high, this quickly. It’s a big, flapping yellow flag saying we’re back in territory that we should not be in.”


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EEwbWggTsyM/story01.htm Tyler Durden

The Bifurcated Housing Bubble; From “Why Didn’t I Buy?” To “This Is Crazy”

Never was ‘location, location, location’ more important than in the current housing ‘recovery’. From the Bay Area to Pittsburgh and from Denver to Oklahoma, the divergence in price movements is incredible. As the WSJ reports, while headlines gloat of several cities enjoying full-scale rebounds, these cities are largely exceptions with prices in many part of the US still well below the peak. In some 1,500 cities, values are still at least 25% lower than their previous highs. For the ‘bubble’ zip-sodes, “what you’ve got is something other than a sensible market-deciding price. You’ve got it goosed by the terms of finance, which are extraordinary,” warns one realist realtor, “prices shouldn’t be up this high, this quickly. It’s a big, flapping yellow flag saying we’re back in territory that we should not be in.”

Massive divergence in price gains and losses from the 2008 peak…

 

Via WSJ,

Home prices have zipped back into record territory in a handful of American cities, a milestone that comes seven years after the housing bust ravaged the market and the broader economy.

 

Values are up more than 13% from their 2007 high in Oklahoma City and by more than 6% in the Denver metro area. Prices are back to all-time highs in 10 of the nation’s 50 largest metropolitan areas

 

 

Home prices in some parts of the country that did experience a bust have benefited from low supplies of homes for sale and historically low interest rates that have boosted prices—and sparked concerns that prices could again be overvalued.

 

 

But in those areas that did experience a downturn, he added, “I’m surprised that we are back to peak levels so quickly.”

 

 

Nearly 10% of municipalities have seen prices reach new highs this year when compared with their previous peak, and prices are within 5% of their previous highs in 300 more.

 

These cities are largely exceptions, and prices in many parts of the U.S. are still well below their peak. In some 1,500 cities, values are still at least 25% lower than their previous highs.

 

 

The Zillow data also reveal the extreme variation—even within a particular metropolitan area—of the housing boom, bust and recovery. Prices are up 40% from their prior highs in Palo Alto, Calif., which is just 50 miles from San Pablo, a working-class suburb north of Oakland. Values there are still 54% below their peak.

 

 

Some well-off communities in coastal California, Boston and Washington, D.C., which saw modest price declines during the bust, are rebounding quickly and reaching new highs because of supply shortages and better-than-average job growth.

 

 

Some economists worry that home buyers along the coasts could again be looking at homes as investments rather than as places to live.

 

To the extent that gains aren’t supported by rising rents or incomes, “you start to go, ‘Geez, did people get a little too excited?’ “

 

 

“They say, ‘This is crazy. This can’t continue,'” she said. “The rest are like, ‘Why didn’t I buy in 2010 or 2011?’ “

 

 

 

What you’ve got is something other than a sensible market-deciding price. You’ve got it goosed by the terms of finance, which are extraordinary,” said Robert Albertson, chief strategist at Sandler O’Neill + Partners, an investment-banking firm in New York. “Prices shouldn’t be up this high, this quickly. It’s a big, flapping yellow flag saying we’re back in territory that we should not be in.”


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EEwbWggTsyM/story01.htm Tyler Durden

Correcting Some Misconceptions About A New Secular Bull Market

Submitted by Lance Roberts of STA Wealth Management,

As I was preparing to write my annual "Outlook and Forecast" for 2014, I read many different views from major Wall Street firms to get a general feel of the consensus.  However, during the course of my research I read one piece of work in particular that tried to build the case that we have entered into a new "secular" bull market as last seen in the early 1980's.   However, while the thesis is interesting, it was based on some flawed assumptions interest rates, valuations and time frames.

Interest Rates

The first assumption was that interest rates have now begun a secular shift higher based on the premise that the current pickup in rates was akin to what was last seen in 1946 as shown in the chart below.

Saut-Interest-Rates-123013

While the chart clearly shows that interest rates have hit the same levels as last seen in 1946, the view that rates will rise strongly from current levels assumes that the same economic drivers exist today.  In 1946, the United States had just exited WWII which left Europe and Japan in ruins.  The United States became the manufacturing center of the industrialized world as we assisted in the rebuilding of Germany, Britain, France and Japan.  That is no longer the case today as much of our industrial manufacturing has been outsourced to other countries for lower costs.  The chart below shows interest rates overlaid against the annual changes in economic growth.

Interest-Rates-Economy-123013

While there are many "hopes" that economic growth will pick up in 2014 the ongoing demand for lower prices on goods and services requires continued wage suppression through "job exportation" and lower financing costs to maintain profitability.  This will likely keep a lid on interest rates for quite some time to come.  Furthermore, the currently low savings rate, which reduces productive investments, combined with an aging population provides additional headwinds to the ability of interest rates to rise.   This has been the ongoing problem for Japan which has seen interest rates stuck at low levels for over a decade.

Japan-Liquidity-Trap-123013

While there are many arguments that we are not Japan, with which I agree, there are many similarities from an economic perspective. 

Valuations

The second argument for entry into a secular bull market was based on valuations.

"The S&P 500 currently trades at 16.45x this year's bottom up operating earnings estimate.

 

In their seminal book 'Security Analysis,' Graham & Dodd publish an equation about how to calculate a proper Price to Earnings Ratio (P/E).  The formula was:

P/E = 8 + (2 x Expected Earnings Growth)

 

So, even if I haircut earnings growth to 4.5%, the P/E would be 17x.  If next year's earnings estimate of $122.42 is anywhere close to the mark, that would suggest a price of 2081."

That statement should get just about everyone excited as that would imply a rise of 13% in 2014 from the current price levels.

However, there is a huge problem with this analysis.  Graham & Dodd never used forward operating earnings in the analysis as such metrics were not used when they published their seminal work.  Graham focused on reported trailing earnings and always suggested in using an average of earnings (using a 5,7 or 10 year time frame) to smooth out anomalies.  This smoothing of earnings was the basis for Professor Robert Shiller's work on smoothing inflation adjusted earnings using a 10-year average.

Using reported earnings for Q3-2013, which is the last fully completed quarter, and using the current price of 1841, the current P/E ratio is 19.5x earnings.  (For a variety of charts on market valuations from Tobin's Q-ratio to Shillers P/E refer to "The Market In Pictures")  From just about any historical perspective, the markets are now becoming expensive.  However, if we correctly use Graham's formula using reported earnings and the historical growth rate of earnings of 6% we get the following valuation:

P/E = 8 + (2*6) = 20x

This would imply a target of 1887 for 2014 or a return of 2.4%.   Importantly, a 2.4% rate of return from such levels of high valuation would be consistent with historical norms.

However, if we use the current forward estimates for reported earnings in 2014, which currently stands at $106.00 per share, and use estimated year end reported earnings for 2013 of $96.72, then the earnings growth rate rises to 10%.  Graham's formula then changes to:

P/E = 8 + (2*10) = 28x

Such a valuation would exceed every other secular bull market valuation peak in history with the exception of the "tech bubble" in 2000 and the spike in valuations caused by the "financial crisis" as earnings collapsed in 2008.  The chart below shows the historical P/E ratio using trailing reported earnings from 1900-present.

PE-LongTerm-Reported-123013

However, a P/E ratio of 28x would imply a target for the S&P 500 of 2708 which would be a 47% rise from current levels over the next 12 months.  While such a price rise could conceivable occur, the likelihood of such
a monstrous increase in the current environment is unlikely.  The most likely outcome will either be a disappointment in earnings, prices or both.

Time Frames

Lastly, his discussion focused on time frames stating that:

"I think the odds favor that we are in a new secular bull market like the 1982-2000 affair."

Using the following chart as evidence.

Saut-structural-markets-123013

First, the chart notes that the average of each cycle has been 14 years.  However, that average was skewed by the very short secular bull market of 5+ years leading up to the 1929 peak.  More importantly, as noted, we are currently 13 years into a secular bear market which the average historical secular bear market has averaged 17 years.  In a complete vacuum of other data, it would suggest that the current secular cycle still has roughly four more years, and one more nasty decline, to come.

Secondly, the ability to have a "1982-2000 affair" is highly improbable.  The 1982-2000 secular bull market cycle was driven primarily by a multiple expansion process with a beginning valuation level of 5-7x earnings and a dividend yield of 6%.  Interest rates and inflation were at extremely high levels and were at the beginning of a 30-year decline which would increase profitability as production and interest rate costs fell.  Lastly, the consumer was at the beginning of a period of a leverage ramp up which spurred consumption levels to almost 70% of GDP.

S&P-500-InterestRates-Inflation

With inflation and interest rates currently at low levels, and consumers already heavily levered relative to historical norms, the drivers that led to the secular bull market in of the 80-90's simply do not exist today. 

Conclusion

While being a "stark raving bull" going into 2014 is certainly fashionable currently; as investors, we should place our faith, and hard earned savings, into the reality of the underlying fundamentals.  It is entirely conceivable that the current momentum driven markets, fueled by ongoing Federal Reserve interventions, could certainly drift higher in the months to come.  However, the reality is that the current underlying demographic trends, economic realities and market fundamentals do not provide the base to support current price levels much less the entrance into a secular bull market akin to that of the 80's and 90's.

Of course, with virtual entirety of Wall Street being extremely bullish on the markets and economy going into 2014, along with bullish sentiment at extremely high levels, it certainly brings to mind Bob Farrell's Rule #9 which states:  "When all experts agree – something else is bound to happen."

Hold on to your hats friends – 2014 could well turn out to be an interesting year for all the wrong reasons.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9owSCSEBxXA/story01.htm Tyler Durden

TruPS CDOs Explained – With Charts

Over the past two weeks, Trust Preferred (or TruPS) CDOs have gained prominent attention as a result of being the first, and so far only, security that the recently implemented and largely watered-down, Volcker Rule has frowned upon, and leading various regional banks, such as Zions, to liquidate the offending asset while booking substantial losses. But… what are TruPS CDOs, and just how big (or small) of an issue is a potential wholesale liquidation in the market? Courtesy of the Philly Fed we now have the extended answer.

First, some verbal perspectives – highlights ours:

Developed as a way to provide capital markets access to smaller banks, thrifts, insurance companies, and real estate investment trusts (REITs) by pooling the issuance of TruPS into marketable CDOs, the market grew to $60 billion of issuance from its inception in 2000 through its abrupt halt in 2007. As evidenced by rating agency downgrades, current performance, and estimates from our own model, TruPS CDOs are likely to perform poorly. Using data and valuation software from the leading provider of such information, we estimate that large numbers of the subordinated bonds and some senior bonds will be either fully or partially written down, even if no further defaults occur going forward. The primary reason for these losses is that the underlying collateral of TruPS CDOs is small, unrated banks whose primary asset is commercial real estate (CRE). During their years of greatest issuance from 2003 to 2007, the booming real estate market and record low number of bank failures masked the underlying risks that are now manifest. Another reason for the poor performance of bank TruPS CDOs is that smaller banks became a primary investor in the mezzanine tranches of bank TruPS CDOs, something that is also complicating regulators’ resolutions of failed banks.

Then cutting straight to the conclusion:

… the TruPS CDO market provides important insights into how markets respond to regulations; the symbiotic relationship between investment banks and rating agencies in developing models and ratings; how ratings are adjusted over time; and, most recently, how accounting rules have changed with the crisis and have been applied to valuing untraded securities.

 

 

The poor performance of TruPS CDOs is first and foremost a direct, and largely unanticipated, result of the financial crisis and the broad-based nature of the real estate downturn. Record low numbers of bank failures over the 2003-2007 period as well as the booming real estate market also help explain the concentrations of issuance volume in these years. The very favorable market conditions combined with good returns relative to other structured finance products also may explain why banks became primary investors in securities in their own market.

 

Having said this, the very favorable market conditions masked underlying risks. Since bank TruPS CDOs were made up mainly of debt of banks too small to be rated, and since these banks largely invested in commercial real estate (CRE), these deals were, in effect, indirect investments in unrated and deeply subordinated CRE bonds. By comparison, even the riskiest of the synthetic mezzanine subprime CDOs were composed of bonds at least initially rated investment grade.

 

But having banks both issue TruPS and hold each other’s debt greatly increased those risks, as did the tendency to include the same TruPS issuers in many different CDOs. Banks turned out to be the primary customer for the lower-rated tranches of TruPS CDOs, many of which all models estimate are likely to be fully written down. The rationale for such holdings appeared to be that banks were investing in their own industry, which they ostensibly knew the risks of better than others. While this may not be uncommon for such a niche class of securities, it undoubtedly increased these risks once the downturn commenced. We show that banks’ being the primary investors of the TruPS CDOs in their own industry was publicly reported in the investment banking literature as early as 2004, but none of the major players, dealers or  rating agencies, expressed any concerns or made significant model adjustments until after the TruPS CDO market came undone. Since ratings do not take into account the investor base of a deal, nor do rating agencies keep track of who investors are, this would have to fall to the dealers to police. These agents are conflicted when a primary motive is to generate business.

 

 

There was a regulatory arbitrage point to these investments as well. Banks that hold each other’s equity are not allowed to count these as capital, but no such restrictions were placed on TruPS CDO investments at banks, which are hybrid debt/equity TruPS. Here the opaqueness of the structure itself and the limited disclosure made it difficult for regulators to actually determine how to account for TruPS CDOs for regulatory accounting purposes. Had banks been required to deduct portions of their TruPS CDO investments from capital, this may have limited bank investments in TruPS CDOs, which, in retrospect, would not have been a bad thing.

 

Future TruPS CDO issuance was dead long before Dodd-Frank placed restrictions on TruPS as regulatory capital. More important is the highly uncertain future of existing deals. Defaulting BHCs have yet to resolve their TruPS, but this will have to be done at least by their fifth year of deferral, which is the limit to which they can defer without defaulting. Rating agencies are making a conservative assumption that all existing deferrals are leading to defaults with little or no recovery. This has created disagreements among analysts responsible for conducting valuations. More work needs to be done to determine how these deferrals will play out and what assumptions are most reasonable to make regarding recoveries. In the meantime, efforts to resolve defaulted bank TruPS claims could add greater clarity to assumptions on  recoveries so critical to loss forecasts.

 

… what is needed in ABS/MBS markets is objective, critical analysis from analysts and researchers who are not profiting in any way from new issuance. An important aspect of the development of the TruPS CDO market, and of structured finance markets in general, is the dominance of analysis by companies directly profiting from new issuance. This is not unusual, and, in fact, is necessary. Innovation is greatest with economic incentives, and this process should not be hampered by regulation. Having said this, a more critical analysis of these deals may well have uncovered the high-risk nature of these investments that appeared to be captured in the large spreads and exceptional amounts of subordination in the AAA-rated senior classes of TruPS CDOs. More important, as the above-mentioned market concentrations became clearer, rating agency and issuer pricing models should have taken more account of this.

They didn’t, and the financial system collapsed. As for “objective, critical anslysis”, why who needs that when one has paid-for professors like Craig Pirrong who have made a living of collecting “expert academic” fees simply to sign off on industry memoranda?

Anyway, enough words: here are the promised TruPS CDS charts and figures:

full Philly Fed working paper can be found here.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wMW06uEd1jE/story01.htm Tyler Durden

It's Official: Investors Like Stocks MORE Today Than They Did in 2000!

 

Last year, 2013, will likely go down as the beginning of the end for the bull market in stocks.

 

Since the market bottom in 2009, stocks have rallied over 170%. It’s been an incredible run, but I fear that we’re nearing the end.

 

From 2009-late 2012, most of the rally was driven by mutual funds and other large institutional investors. During this period, individual or “Mom and Pop” investors were largely investing in bonds.

 

 

 

This changed in late 2012. At that point, individual investors joined in and stocks entered a mania. You can see it clearly in the chart above.

 

You can also see this in fund flows movements: from 2009-early 2013, individual investors shunned stock-based mutual funds and poured their money into bonds instead.

 

This changed in early 2013, as investors suddenly found an appetite for stocks again, pouring a RECORD $324 BILLION into US stock mutual funds.

 

To put this into perspective, this means investors put more money into stocks this year than they did in 2000: at the very peak of the TECH BUBBLE!

 

Which brings us to today.

 

Today investors are more bullish than at any point in 20 years. In fact, they are so bullish they are borrowing money (called margin debt) to BUY stocks at fastest pace in history.

 

Companies like Twitter, which have never made a penny in profit, are valued at tens of billions of Dollars.

 

In short, the market, taken as a whole, is overbought, overvalued, and overextended.

 

Now, this doesn’t mean that stocks cannot go higher from here. After all, market manias always tend to last long than you expect.

 

However, it does mean that “the good times” are ending. And the likelihood of stocks posting another massive up year is very slim indeed.

 

In this environment, it’s wise to lighten up on ownership to the longside. It’s even wisier to look for beaten down undervalued companies that offer you good down side protection.

 

For a FREE Special Report outlining how to profit from bear market crashes and bull market runs, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards

Phoenix Capital Research 

 

 

 

 

 

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YfKSS7IBlec/story01.htm Phoenix Capital Research

It’s Official: Investors Like Stocks MORE Today Than They Did in 2000!

 

Last year, 2013, will likely go down as the beginning of the end for the bull market in stocks.

 

Since the market bottom in 2009, stocks have rallied over 170%. It’s been an incredible run, but I fear that we’re nearing the end.

 

From 2009-late 2012, most of the rally was driven by mutual funds and other large institutional investors. During this period, individual or “Mom and Pop” investors were largely investing in bonds.

 

 

 

This changed in late 2012. At that point, individual investors joined in and stocks entered a mania. You can see it clearly in the chart above.

 

You can also see this in fund flows movements: from 2009-early 2013, individual investors shunned stock-based mutual funds and poured their money into bonds instead.

 

This changed in early 2013, as investors suddenly found an appetite for stocks again, pouring a RECORD $324 BILLION into US stock mutual funds.

 

To put this into perspective, this means investors put more money into stocks this year than they did in 2000: at the very peak of the TECH BUBBLE!

 

Which brings us to today.

 

Today investors are more bullish than at any point in 20 years. In fact, they are so bullish they are borrowing money (called margin debt) to BUY stocks at fastest pace in history.

 

Companies like Twitter, which have never made a penny in profit, are valued at tens of billions of Dollars.

 

In short, the market, taken as a whole, is overbought, overvalued, and overextended.

 

Now, this doesn’t mean that stocks cannot go higher from here. After all, market manias always tend to last long than you expect.

 

However, it does mean that “the good times” are ending. And the likelihood of stocks posting another massive up year is very slim indeed.

 

In this environment, it’s wise to lighten up on ownership to the longside. It’s even wisier to look for beaten down undervalued companies that offer you good down side protection.

 

For a FREE Special Report outlining how to profit from bear market crashes and bull market runs, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards

Phoenix Capital Research 

 

 

 

 

 

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YfKSS7IBlec/story01.htm Phoenix Capital Research