news – Page 26150

The #1 Investment Going into 2014?

By: Chris Tell at http://capitalistexploits.at/

What should we expect after eating an exceptionally spicy 3-day-old, reheated “jungle curry” from a Mumbai Street Hawker?

Decisions made when investing, trading, and in fact almost any business all center around the calculation of probabilities. Probabilities for some things are easier to determine than others, which is where I’m headed with my lead question.

We can infer what may happen in the future by looking at the past, but very few people like to look to the past. We know this by simply reading history and watching humans repeat the same errors time and again.

Clearly humans take little notice. Perhaps because history is replete with misery, simply ignoring it makes more sense. More likely it gives people the creeps, being full of the stale breath of the dead, like an old persons home, full of knowledge but depressing nonetheless.

Deciphering the future or forecasting, as far as I can tell, is by and large a con game. A big joke, and very rarely a good game for those buying into the forecasts. It’s a conduit to sell something. The prophet/forecaster needs to only sound convincing, have a cleft chin, be tall in stature, twinkly blue eyes, swagger a little and voila. Don’t say I didn’t warn you.

Most of what I have read already this year amounts to economic porn. What makes sense to me is identifying business people with a knowledge of their own space that exceeds their competition. For example, an experienced farmer is likely better-positioned to know whether he’ll need additional stock feed in the coming year than say the owner of the local burger joint. These people don’t publish forecasts, they run businesses.

Deep down most of us know this. It doesn’t stop most from buying into forecasts. The financial markets are not unlike religions, where prophets seek to lead their followers, and there is no shortage of followers. People love to outsource their thinking to Manila and Mumbai, which is how my street vendor can sell his 3-day-old, reheated “jungle curry”. I told you everything is interconnected.

Saner minds will look to deepen their understanding of any market in which they’ve chosen to participate. This knowledge will, hopefully provide them with insight and a clear edge. If they’re lucky the masses will then follow like sheep.

The probability of a stock going up versus down these days may have less to do with whether the company who issues the stock certificate is profitable or not, and more to do with whether the company has a team of lobbyists in DC. It may also depend upon whether the black boxes on Wall Street like the trading pattern, and ultimately whether QE continues, is increased, tapered or some other genius idea is brought to the fore by our overlords.

Right now I’m ready for anything, including Janet Yellen going completely loopy, biting off the head of a chicken on CNBC, pole dancing naked and threatening “a good time” with anyone who’s interested. Unfortunately she’s likely to do far more harm than that.

We do know that there are consequences to actions. Fundamentals do matter. Much like the probability of a violent and disgusting bowel movement following our reheated 3-day-old Jungle Curry surely outstrips the probability of something similar occurring after consuming a granola bar.

Probabilities exist in the world of finance. There are serious problems, which we’ve discussed in these pages occasionally, not the least of which would be a bond bubble which continues to inflate unabated. A crash would seem to have probabilities not dissimilar to that of giving a 16-year old the keys to your new sports car and a complimentary pub crawl all in one.

That rant behind us, let’s move on to some predictions for 2014. These are worth exactly what you are paying for them. Buyer beware!

Gold, the yen and the dollar

There are many factors at work affecting currencies. Interest rates typically play a major role, though today we live in the twilight zone where market correcting forces have been temporarily suspended. All are intertwined, as one affects the other, which affects the other and so on.

The fundamentals:

Gold is and has historically been a medium of exchange, though far less so today than possibly at any other time in history. I don’t care what the gold bugs say, gold is not always and ever something to own. It’s also not necessarily always a store of value. Gold will have its day just as soy, wheat and biotech start-ups will. The question is one of timing and risk/reward.

The stock market is largely overvalued and the current bull market is not young, at nearly 58 months in length. Knowing from history that the average bull run is just 29 months, we’re clearly not in a position where the probabilities of more gains lie in our favour.

The sovereign bond market was bubblicious a decade ago, yet it continues to inflate with no end in sight. All countervailing forces have been suppressed for the time being. Thanks Ben, Mario and Haruhiko.

The currency markets are increasingly volatile and manipulated by sovereigns.

Based on the above you’d be silly not to own some gold, but is it time to trade it for a net long position? Probably not.

Remember that everything is interconnected. Right now we have this insane set of circumstances where central banks are acting in collusion to destroy their currencies and prop up their bond markets, and in all honesty they’re succeeding, at least so far.

Without a valid exit for market participants central bankers can continue to push the limits of absurdity. History shows us that when imbalances have occurred in the past the market has moved to correct those imbalances.

When the Pound Sterling lost ground there was an alternative, there was an exit available for capital. That exit was the USD. Today no such alternative to the dollar exists. It’s not Gold, it’s not Norwegian Kroner, it’s not yet Bitcoin, as none of these markets are deep or liquid enough to take meaningful capital flows. I discussed this very topic a long time ago in a post entitled “Ugly, Uglier, Ugliest”.

Given this setup, and an ever increasing bond bubble, I’m inclined to look to the weakest link in the chain. That link I believe is the Japanese bond market. Their current account deficit has just blown out, revealing a $5.7billion shortfall, the largest deficit in 29 years! The pressure is clearly mounting. Wasn’t Abenomics meant to increase Japanese competitiveness? Oh dear!

Furthermore, I’m inclined to agree with our colleague and trader extraordinaire Brad Thomas, who believes this year will see the yen at 120 IF THINGS HOLD TOGETHER. If not watch out below. Brad’s staggered option trades on the yen, which you can get complimentary here, will soar by much more than the 77% we’re already up from just a month ago. It’s early days, but once again this is simply playing the probability game.

What therefore happens if/when the JGB market finally cracks?

If you’re a fund manager who has to move a few hundred million dollars quickly you need a liquid market, and fast. Money will flood into the US treasury and bond markets. A US dollar rally will happen as a knee-jerk reaction to the panic, and Janet will push the liquidity pedal to the floor…because that’s all the Fed knows how to do!

Check out this dollar chart. Things look ready to pop.

Courtesy of Stockcharts.com

I don’t pretend to know how gold performs in this scenario, though I do think that being long gold and short yen won’t hurt. It’s a strategy I’ve been employing for a while, and first mentioned here. So far I am about break even. This of course sucks when you’re watching the S&P make new highs and your position sits their like a poodle waiting for a walk!

I’m sticking with it because the risk/reward on the trade gives me comfort. I’m trading one of the cheapest, most fundamentally sound currencies for one of the most fundamentally flawed, expensive currencies. It feels like the safest trade for me, though if you’re a trader you may want to go long USD into 2014 and leg out of the greenback on strength, picking up some more shiny stuff.

Once the market settles down and figures out how the world’s second largest bond market (Japan) got toasted, I think we’ll be in a better position to get long more of the precious metals, including the stocks…in a really big way.

On Tuesday next week we will throw out some other “guesses” for 2014, including updates on Mongolia, Bitcoin and our favourite…private equity (and crowdfunding). Then Thursday we will have a classic contrarian play that we think makes a lot of sense. It comes to us from our friend Mark Schumacher, portfolio manager at Thinkgrowth.

– Chris

P.S. No quote, just a final thought… The second I think I “know” what is really going to happen my ego takes hold. Ego is the death of intelligent, critical thinking investors. Please read this post with skepticism and think long and hard about it. Compare it with whatever else you’re reading on the subject and feel free to throw rocks at my ideas. I could care less about having my theory play out and you won’t damage my ego, trust me. I care much more about being on the right side of a trade. Money talks and BS walks!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ySOgghgCmLY/story01.htm Capitalist Exploits

Argentine Stocks Soar As Black-Market Peso Hits Record Low (Implies 40% Devaluation)

Argentina is not Venezuela… yet. Following Maduro’s comments yesterday capping Venezuelan profit margins and making black-market FX transactions practically punishable by death (our exaggeration), the Argentine Peso is collapsing…

*ARGENTINE PESO FALLS 2.9% IN BLACK MARKET TO RECORD 11.55/USD (Spot is 6.77 – implying a 41% devaluation!

Of course, this is great news for stocks and the MERVAL is surging once again towards all-time record highs (+130% from the beginning of 2013). No news on toilet paper shortages (yet) in Argentina.

It seems Latin America has a lot to learn from Japan… and this wont help

Argentine Unions Seek Minimum 25%-30% Pay Increases: Ambito

and Argentina Bonds are tumbling once again…

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/5H_Ui3MMjx8/story01.htm Tyler Durden

Small Business Warns “Not A Good Time To Expand Substantially”

Submitted by Lance Roberts of STA Wealth Management,

Each month I do a review of the National Federation of Independent Business Small Business survey as it is a reflection of what I see as a small business owner/entrepreneur myself. Last month's report specifically discussed the lack of optimism by small businesses during the holiday shopping season (November and December):

The latest release of the small business survey by the National Federation of Independent Business (NFIB) showed only a small rise in optimism following the government shutdown in October. As discussed previously in "NFIB: Optimism Fades"

'Two components, the outlook for business conditions and the outlook for real sales gains, accounted for 52 percent of the Index decline. A weaker outlook for business produced dissatisfaction with inventory stocks, and fewer plans to create new jobs. The average value of the Index since the recovery started is 91, 8 points below the 35 year average through 2007 and well below readings typically experienced in a recovery. The current reading is hardly something to cheer about.'

Unfortunately, the overall situation did not improve much in November as would have been expected by the onset of the holiday shopping season which did lead increases in employment needs but economic expectations deteriorated. From the NFIB:

'Owner sentiment increased by 0.9 points to 92.5, a dismal reading as has been the case since the recovery started. Over half of the improvement was accounted for by the labor market components which is certainly good news, lifting them closer to normal levels. Expected business conditions though deteriorated further – lots of dismal views of the economy coming next year. The Index has stayed in a “trading range” between 86.4 and 95.4 since the recovery started, poor in comparison to an average reading of 100 from 1973 through 2007.'

The January report showed that small business optimism did end the year slightly higher than November coming in at 93.9. Unfortunately, this is still well below the previous 3 mid-year readings of over 94 and 6 points below the pre-recession average.

The good news is that the report showed improvement in capital spending intentions which rose by by 9 points. Job creation also hit the highest level since February 2006. Unfortunately, all of these levels, included the percentage of firms expecting economic improvement, while improved are still below historical recessionary troughs. This doesn't say much about an economy that is five years into recovery.

Here is some more color from the NFIB:

"While there has been no sign that a real recovery has begun, we can be encouraged that the economy is at least crawling forward and not heading in reverse," said NFIB chief economist Bill Dunkelberg. "Some segments of the economy are showing improvement (manufacturing, construction, professional services), but consumer spending, especially on services (70 percent of consumption), has lagged. Spending on items such as automobiles has certainly increased, however a corresponding rise in hiring has not yet materialized."

However, the real headwind that is keeping businesses from hiring, expanding and increasing wages stems from one primary source. To wit:

"Two monthly advances could be the start of a more positive trend, but there are many threats to improvement, including the majority of respondents feeling the current climate is not 'a good time to expand substantially' blaming the political climate, something that may not improve in an election year."

The chart below shows the two single biggest concerns relating to small business owners from the recent survey: Government Regulations and Taxes.

The issue of Obamacare, as I have addressed several times recently, is going to continue to generate issues for small business owners as well as individual consumers.

"Increasingly, experts in health insurance are becoming concerned that many of these first-time buyers will be in for a shock when they get medical care next year and discover they're on the hook for most of the initial cost.

If we just assume that healthcare costs rise by just $100 per month, based on a national per capita income level of $47,585 as of Q3-2013, that will equate to a $73.25 billion dollar impact to the overall economy each quarter going forward."

Bill Dunkleberg summed it up best stating:

"The President thinks the way to address the malaise in the economy is to give another $26 billion to the long-term unemployed, shown to produce new jobs by 'independent economists' (we know who that is) according to the President. If you borrow $26 billion from China and give it to consumers, it probably does have a positive impact, but does nothing to fix the economy or encourage labor force participation or improve the labor force. Servicing this debt will soon put a real crimp in the government budget.

Also proposed are tax breaks in some part of the country for hiring unemployed people (which only benefits employers who were going to hire anyway; it doesn't produce extra job creation). Add to that a proposed increase in the minimum wage to $10, alleged to create more spending and jobs, proven by real economists (and common sense) to be incorrect. This is further evidence (if we needed it) that economic policy is about politics and winning votes, not improving the economy.

Even with the improved outlook, more owners still expect the economy to be worse mid-year than expect it to be better (27 percent vs 17 percent). Small business owners will also come face to face with the reality of Obamacare as the year progresses. Since it is an election year, the main theme will be addressing the disparities in income and wealth (i.e. tax the rich and increase welfare programs) rather than promoting policies that would create jobs and raise incomes in a growing economy. This year, policy will be all about votes."

While economists are raising their forecasts for 2014, there seems to be little change in the real underlying fundamentals. As I stated previously in "Will Corporate Spending Save The Economy:"

"Corporate decision making is always based around profitability. This is particularly the case with publically traded companies whose executives are compensated through stock options and grants. The problem going forward is the topline revenue is likely to weaken for two primary reasons:

1) The majority of the benefits received from cost reductions has already been seen.

2) With wage growth stagnant personal consumption expenditures have been on the decline as cost of living has risen faster. The onset of higher healthcare costs from the ACA in 2014 and 2015 will likely impede that growth further.

The importance of the second point should not be dismissed. Corporate profits are ultimately driven by consumer demand. If consumer demand weakens, so too will profitability which will keep businesses on the defensive."

It is quite apparent from both individuals and businesses that the government is the real issue that is impeding economic progress. Maybe it's time that the current Administration did a little less talking and did a little more listening to what the real drivers of the economy are saying.

via Zero Hedge http://ift.tt/LkXp13 Tyler Durden

Small Business Warns "Not A Good Time To Expand Substantially"

Submitted by Lance Roberts of STA Wealth Management,

The latest release of the small business survey by the National Federation of Independent Business (NFIB) showed only a small rise in optimism following the government shutdown in October. As discussed previously in "NFIB: Optimism Fades"

'Two components, the outlook for business conditions and the outlook for real sales gains, accounted for 52 percent of the Index decline. A weaker outlook for business produced dissatisfaction with inventory stocks, and fewer plans to create new jobs. The average value of the Index since the recovery started is 91, 8 points below the 35 year average through 2007 and well below readings typically experienced in a recovery. The current reading is hardly something to cheer about.'

Unfortunately, the overall situation did not improve much in November as would have been expected by the onset of the holiday shopping season which did lead increases in employment needs but economic expectations deteriorated. From the NFIB:

'Owner sentiment increased by 0.9 points to 92.5, a dismal reading as has been the case since the recovery started. Over half of the improvement was accounted for by the labor market components which is certainly good news, lifting them closer to normal levels. Expected business conditions though deteriorated further – lots of dismal views of the economy coming next year. The Index has stayed in a “trading range” between 86.4 and 95.4 since the recovery started, poor in comparison to an average reading of 100 from 1973 through 2007.'

Here is some more color from the NFIB:

"While there has been no sign that a real recovery has begun, we can be encouraged that the economy is at least crawling forward and not heading in reverse," said NFIB chief economist Bill Dunkelberg. "Some segments of the economy are showing improvement (manufacturing, construction, professional services), but consumer spending, especially on services (70 percent of consumption), has lagged. Spending on items such as automobiles has certainly increased, however a corresponding rise in hiring has not yet materialized."

However, the real headwind that is keeping businesses from hiring, expanding and increasing wages stems from one primary source. To wit:

"Two monthly advances could be the start of a more positive trend, but there are many threats to improvement, including the majority of respondents feeling the current climate is not 'a good time to expand substantially' blaming the political climate, something that may not improve in an election year."

The chart below shows the two single biggest concerns relating to small business owners from the recent survey: Government Regulations and Taxes.

The issue of Obamacare, as I have addressed several times recently, is going to continue to generate issues for small business owners as well as individual consumers.

"Increasingly, experts in health insurance are becoming concerned that many of these first-time buyers will be in for a shock when they get medical care next year and discover they're on the hook for most of the initial cost.

If we just assume that healthcare costs rise by just $100 per month, based on a national per capita income level of $47,585 as of Q3-2013, that will equate to a $73.25 billion dollar impact to the overall economy each quarter going forward."

Bill Dunkleberg summed it up best stating:

"The President thinks the way to address the malaise in the economy is to give another $26 billion to the long-term unemployed, shown to produce new jobs by 'independent economists' (we know who that is) according to the President. If you borrow $26 billion from China and give it to consumers, it probably does have a positive impact, but does nothing to fix the economy or encourage labor force participation or improve the labor force. Servicing this debt will soon put a real crimp in the government budget.

Also proposed are tax breaks in some part of the country for hiring unemployed people (which only benefits employers who were going to hire anyway; it doesn't produce extra job creation). Add to that a proposed increase in the minimum wage to $10, alleged to create more spending and jobs, proven by real economists (and common sense) to be incorrect. This is further evidence (if we needed it) that economic policy is about politics and winning votes, not improving the economy.

Even with the improved outlook, more owners still expect the economy to be worse mid-year than expect it to be better (27 percent vs 17 percent). Small business owners will also come face to face with the reality of Obamacare as the year progresses. Since it is an election year, the main theme will be addressing the disparities in income and wealth (i.e. tax the rich and increase welfare programs) rather than promoting policies that would create jobs and raise incomes in a growing economy. This year, policy will be all about votes."

While economists are raising their forecasts for 2014, there seems to be little change in the real underlying fundamentals. As I stated previously in "Will Corporate Spending Save The Economy:"

"Corporate decision making is always based around profitability. This is particularly the case with publically traded companies whose executives are compensated through stock options and grants. The problem going forward is the topline revenue is likely to weaken for two primary reasons:

1) The majority of the benefits received from cost reductions has already been seen.

2) With wage growth stagnant personal consumption expenditures have been on the decline as cost of living has risen faster. The onset of higher healthcare costs from the ACA in 2014 and 2015 will likely impede that growth further.

The importance of the second point should not be dismissed. Corporate profits are ultimately driven by consumer demand. If consumer demand weakens, so too will profitability which will keep businesses on the defensive."

via Zero Hedge http://ift.tt/LkXp13 Tyler Durden

Driving While Geeky: Gal Ticketed for Google Glass Takes California Cops to Court

cecilia Cecilia Abadie appeared in court today to contest
a ticket she received for driving while
wearing Google Glass. The tech entrepreneur was dinged on
October 30 under a California law that prohibits operating a motor
vehicle while “a monitor, screen, or display is visible to the
driver.” She was also speeding.

The case is being
watched closely for hints about how courts will treat the
novel tech:

“It’s a big responsibility for me and also for the judge who is
going to interpret a very old law compared with how fast technology
is changing,” said Abadie, who wears Google Glass up to 12 hours a
day.

Adabie says her wearable computer was off while she was
driving—or at least her lawyer says that there’s no way the highway
patrol could tell if itwas on—but let’s be honest: People will be
driving while using Google Glass very very soon, if they aren’t
already. There are about 30,000 headsets in operation right now,
with a broader release expected soon.

In at least three states—Delaware, New Jersey, and West
Virginia—driving while Google Glassed may soon be explicitly
illegal.

The Atlanta Journal Constitution reports that all this
is likely the tip of the
iceberg:

Hyundai, the South Korean automaker, is
already integrating technology that will allow Google
Glass to interact with its new-generation Genesis sedan. According
to a Stuff.com.nz report, Hyundai’s new Blue Link application will
allow drivers to access service information and start their car
using the eyepiece.

In the end, though, Google (like beer) may be the cause of and
solution to all of life’s problems. The whole thing could be a moot
point in a couple of years when we start getting around in Google’s
self-driving cars, or at least being shuttled from place to
place in black cabs summoned using our Google Glass via the

Google-funded Uber car service.

from Hit & Run http://ift.tt/1at61eR
via IFTTT

Precious Metals Manipulation Worse Than Libor Scandal, German Regulator Says

Remember when banks were exposed manipulating virtually everything except precious metals, because obviously nobody ever manipulates the price of gold and silver? After all, the biggest “conspiracy theory” of all is that crazy gold bugs blame every move against them on some vile manipulator. It may be time to shift yet another conspiracy “theory” into the “fact” bin, thanks to Elke Koenig, the president of Germany’s top financial regulator, Bafin, which apparently is not as corrupt, complicit and clueless as its US equivalent, and who said that in addition to currency rates, manipulation of precious metals “is worse than the Libor-rigging scandal.” Hear that Bart Chilton and friends from the CFTC?

The Five Most Ridiculous Uses of Government Money

While funding custom-fit condoms was stretching the government’s buck just a little too far for some, the following 5 stunning expenses, earmarks, and pork spending that Bloomberg uncovered are mind-blowing. From over $500,000 on pet shampoo to what to eat on planet Mars; none of these compare with the back-pay for no work paid to Federal employees during the shutdown. Watch this 72 seconds of gluttony without throwing something at your monitor…

via Zero Hedge http://ift.tt/1at4VQc Tyler Durden

Federal Reserve Overstepped Bounds with Monetary Policy

By EconMatters

Checks & Balances

If you think about it, the President has checks and balances, the Supreme Court has checks and balances, and even the two houses of Congress have checks and balances. However as we have seen with the last 5 years of Fed policy that there is no actual checks and balances for what the Federal Reserve can and cannot do with regard to monetary policy, and there should be.

It might not be so apparent now, but it sure will be five years from now when all is evaluated. The big takeaway will be how in the heck did we let the Federal Reserve conduct all of these ad-hoc policy initiatives with some obvious detrimental effects and unintended consequences for financial markets and the US economy?

Further Reading: Brent Oil to Face Headwinds in 2014

Where would Markets Go without $75 Billion assistance each month?

Let us start with the most obvious detriment to financial markets the bubble that is the US equities market. Despite what Goldman Sachs says with their double speak to appease wealthy clients who they told to be invested in markets last week and this week said the markets are 10% over-valued, but there is no bubble – there is in fact a bubble in stocks.

Seems like a Bubble

The barometer to use is this: If the Fed stopped cold turkey tomorrow all asset purchases, the Dow would drop 3,500-4,000 points in less than a year (maybe even as little as 6 months), and this is a conservative 25% drop in value just in the short term.

If they were never allowed to intervene in financial markets with asset purchases ever again, eventually markets would fall back to sustainable levels, and all the previous liquidity fueled price appreciation in equities of the last 5 plus years would eventually come out of assets like stocks and real fundamental value would be established.

My guess is that the Dow would fall back to around the 1,000 level on its own merits over the next 3 years with no asset purchases whatsoever by the Federal Reserve, something in the order of a 40% drop in value.

Further Reading: Asset Manager’s Dilemma in 2014

Bond Market: A Debt Risk Valuation Mechanism

The Bond market is intended for debt to be issued by parties with parties independent of the debt issuers to then determine a fair market price for the risk of holding said debt in the marketplace, and not a social instrument for creating additional liquidity in financial markets which finds its way into the equities, commodities and currency markets via carry trade liquidity driven fund flows.

It is supposed to be a risk profiler to keep governments and issuers in check in regard to issuing responsible debt at appropriate times. When debt levels reach unsustainable levels, a healthy and natural bond market prices risk accordingly; thereby incentivizing necessary changes to fiscal and monetary policies.

This mechanism has been greatly distorted by Fed policy, and the long-term consequences are hard to adequately calculate at this point, but they are definitely a cost – the debate is just how high a cost?

Stock Market: A Valuation Mechanism

The most important point is this the stock market was intended to be a valuation mechanism for public companies based upon how well their business was being run, the economics of their given business paradigm, and the health of the broader macro-economic fundamentals of the market for their goods and services.

Social Engineering Instrument

It was not built as an instrument for social engineering, manipulation by a government entity, or tool to be used for monetary policy; private companies went public to raise additional financing for their capital structure to grow the business, and the market put a value on the business based upon the future prospects of the given business.

It was never intended as a risk free enterprise. Companies were going to fail, investors were going to lose money; others would flourish, investors would reward these companies with higher stock prices. Fundamentally, the market mechanism would both reward and punish based upon actual operating results of the companies.

This is how a healthy financial market is supposed to work, and we have devolved so far from this healthy and natural market valuation model that there cannot without question be major price discovery distortions in stocks, as in, a bubble in stocks, and the stock market pricing mechanism in general!

The Fed has positively incentivized the more Nefarious Elements of Stock Buybacks

Stock buybacks are bad enough, and have distorted operating results considerably with artificially making earnings appear better than they actually are, it provides incentives for other investors to front-run these company buybacks, and they are not being used properly these days by companies, i.e., buying back when shares are cheap relative to company prospects, and selling shares when they are expensive relative to company prospects – again a natural valuation mechanism.

Instead they are being utilized by management to distort prices not because business prospects are so bright, but rather they can borrow cheaply right now ( again thanks to the Fed) and artificially boost their own stock prices and make shareholders happy in their performance of running and managing the company.

Stock buybacks have in a sense become so perverted from their original purpose that they have become payoffs to like and invest in the company, not because the company is performing so well from an operation`s standpoint, but because they are going to buy back their own stock. It becomes both a deterrent for shorting the stock, and sort of ‘mafia bribe’ for shareholders to invest in the company.

Remember, this isn`t even company money, these companies are borrowing to buy back shares! This is fundamentally as screwed up from a management standpoint as one can get, one should borrow money to grow the business and create long-term value, not create balance sheet liabilities for the company solely for the purpose of juicing up the company`s stock price!

This further distorts actual natural market pricing in stocks, there is no actual business evaluation going on currently in financial markets, there are just liquidity injections or price distorting practices.

Textbook Definition of Bubble: Non Market Price Discovery

Moreover, since all these liquidity injection practices are from the long side, it would stand to reason that value is being distorted heavily to the upside, this is about as close to the text book definition of a bubble that one could possibly create, and the Federal Reserve is at the heart of doing just this act!

The stock market I repeat is supposed to be an evaluator of companies, and not a social welfare program to bring about some higher good for economy policy.

Even if they succeeded in creating a short-term wealth effect for a portion of the population that ended up trickling down to some small extent to the broader economy, the damage to the already shaky financial markets that have crashed three times in fifteen years from a long-term perspective is just a case of the Fed overstepping their bounds and destroying financial markets in the process! On any reasonably weighted Cost/Benefit Analysis this is just too high a price to pay!

Do not Trust Anything an I-Bank says for Public Consumption

Goldman Sachs like many of these investment banks have benefited immensely from the Fed overstepping their bounds in financial markets with asset purchases, they are never going to openly tell the American public whether there is a bubble in stocks.

In fact, they have a long history of not even telling their own clients their actual feelings on markets. And given how many times these investment banks have royally screwed up their own financial investments, half of them probably have no clue of the conditions ripe for constituting a bubble in the first place until after the fact!

Precedents & Moral Hazard

The real overstepping by the Federal Reserve to actually buying up financial assets has severely distorted the market process, and the long-term damage to what financial markets are supposed to be about from an overall philosophy, fundamental and mechanical methodology standpoint with the associated costs is really incalculable.

How do you put a value on destroying natural price discovery in financial markets? You cannot, so despite the current size of the bubble the fed has created short-term, the long-term bubble of completely destroying actual price discovery in financial markets by being able to step in and buy financial assets in markets is the real harm here.

Moreover, that this act has become acceptable fed policy turf, this precedent and the fact that there were no proper checks and balances to restrict and question this intervention is the harmful and malicious fallout that will inevitably become the Bernanke Legacy.

Either Markets are forever Annual Social Welfare Policy Programs or Legislation is Required to Restrict future Fed Intervention in Financial Markets with intermittent Asset Purchases

There are many other measures the Fed could entertain instead of the path that Bernanke chose in destroying forever the concept of what constitutes a market mechanism.

Consequently unless the Fed has forever changed what markets actually are, social good mechanisms for government wealth creation, and that means a socialized commitment for eternity, i.e., the market must appreciate 10% every year regardless of broader economics or fundamentals.

Then they have caused more damage by creating a short-term bubble that is unsustainable on its own, and have set the stage for future ad-hoc interventionist asset purchases in markets on equally subjectivist timeframes and justification!

This is the real area where the Fed is guilty of overstepping its bounds. They have forever destroyed financial markets with interventionist policies, and future legislation will have to be created to limit the Fed`s power in this area, and restore financial markets back to their intended purpose.

Yes financial markets are built and intended to fail at times, once they are no longer allowed to fail, they become state tools for policy outcomes. And this reality is a bigger failure in a democratic state, than any short-term and well-meaning goals that result from such policies.

via Zero Hedge http://ift.tt/1dUmyWN EconMatters

NU Skinned Alive: NUS Stock Plunges, Repeatedly Halted On Company Admission Of Chinese Investigation

After the Chinese news/rumors that pummeled NU Skin the last 2 days, the company has finally been forced to make a statement…

*NU SKIN AWARE CHINESE REGS INITIATED INVESTIGATIONS
*NU SKIN SAYS LIKELY NEGATIVE EFFECT ON CHINA REV
*NU SKIN HAS STARTED OWN PROVINCE-BY-PROVINCE BUSINESS REVIEW

After being halted on news pending, NUS was re-halted upon re-opening, plunged further, and is now re-halted down $45 (39%. Herbalife (down 12%) and USANA (down 12%) are also tumbling on this news.

Bouncing now…

NUS Statement:

Nu Skin Enterprises, Inc. (NYSE: NUS) today issued the following statement in regards to its China business.
“We are aware that Chinese regulators have now initiated investigations to review issues raised by recent news reports. The government regularly monitors all businesses in this rapidly growing marketplace, and as is our practice, we will continue to communicate openly with regulators to address any questions they may have.

“As part of our ongoing commitment to comply with all applicable Chinese regulations, we have initiated our own province-by-province business review and will invite relevant regulators to provide guidance. Given the substantial growth in our China salesforce over the last year, we are also taking additional steps to reinforce our training and education efforts. As we work through this evolving situation and remain focused on long-term growth, there will likely be a negative impact on China revenue, but it is too early to know whether our previous guidance will be affected.

“We remain committed to working cooperatively with the government to ensure long-term, sustainable growth in this important market. Nu Skin has an 11-year history of doing business in China. We are dedicated to operating in full compliance with all applicable regulations as interpreted and enforced by the government of China.”

Here’s who is hurting the most…

But the analysts still love it..

Though getting out, or in may be tricky: 4 halts so far and counting.

via Zero Hedge http://ift.tt/1dUmvtZ Tyler Durden

GMO Market Commentary: Ignore The “Common Sense”

From GMO via Wells Fargo

“I’ve got plenty of common sense … I just choose to ignore it.”

– Calvin, from Calvin and Hobbes

By the time the Times Square ball landed, U.S. equity markets had closed the books on one of the best years in recent history. Oecember’s further rise of 2.5% put the capstone on an amazing year for the S&P 500 Index, which finished 2013 up 32.4%. New historic highs on this index were reached routinely throughout the month. Small-cap stocks, as represented by the Russell 2000® Index, added 2% in Oecember to finish the calendar year up a remarkable 38.8%. Yes, you read that correctly: Small-cap stocks rose almost 40% in a single year.

The “common sense” justifications for these dramatic moves are now well documented. The Federal Reserve (Fed) model, which compares earnings yields on the S&P 500 Index (the inverse of price/earnings) with the Treasury yield, clearly signals to load up on stocks. Common sense also tells us that profit margins are at an all-time high, so clearly it’s a good time to be buying stocks. Yellen’s dovish background, common sense tells us, is yet further reason to expect continued loose monetary policy and accommodation. And, finally, common sense dictates that recent upward gross domestic product (GOP) revisions, lower unemployment numbers, and a successful holiday retail season, means that of course it’s time to load up on stocks.

Here’s the problem: We don’t buy the common sense. And so, like the philosopher boy above, we choose to ignore it. We suggest you do the same, but for good reason.

First, the Fed model, while intuitively appealing, is a relative measure. Yes, bond yields are ridiculously and artificially low, so of course earnings yields are going to look attractive on a relative basis. But we’re trying to make money in an absolute sense, not a relative one. What if bonds and stocks are BOTH overpriced? Then what? Oh, and one more inconvenient truth-the Fed Model’s track record of forecasting future returns is actually quite abysmal.

Second, yes, we’ll concede that profit margins are at all-time highs-an undeniable fact. Here’s the problem: Profit margins are reliably mean-reverting, which means that hitting an all-time high is not a cause for celebration but just the opposite-a reason to be afraid.

Third, yes, quantitative easing can continue for some time, maybe even decades. But that isn’t a reason to get excited about stocks. In fact, we believe quite the opposite. What it means is that if that is true (and we don’t believe that it will be), then we’ve got much bigger problems on our hands because stock returns going forward are going to be dismally below what they’ve delivered for the past 150 years of our modern industrial society.

And finally, ah, yes, GOP growth! Too bad GOP growth has historically had zero to mildly negative correlation with stock market returns. In other words, even if GOP growth is resuscitated, even if 2014 turns out better than we thought, so what! Economic growth-across developed countries, across emerging countries, across time-has told us absolutely nothing about future stock market returns. Sorry to deliver the bad news.

So, we ignore common sense and instead rely upon the unconventional wisdom of, you guessed it, valuation. Rather than load up on stocks, we remain cautious and nervous because, from a valuation perspective, U.S. stocks look downright frothy. And, if the global markets continue to rally into 2014 and beyond, it is more likely that we’ll trim. By the end of November, our official seven-year forecast for the S&P 500 Index was -1.3 (real) and our forecast for small-cap stocks, at 4.5%, is worse than it was during most of 2007. Quality, a large position in the fund, has also seen its forecast come down as it, too, has had quite a nice run. Forecasts for quality are still quite positive, so we’re happy to continue owning these stocks but becoming less happy by day. Outside of the U.S., the only groups that we are somewhat optimistic about are value stocks, particularly in Europe, and emerging equities, which we think are priced to deliver 3.4% annually over the next seven years.

via Zero Hedge http://ift.tt/1eVcOO5 Tyler Durden