Bubbles, busts, news and policies: Full economic and market analysis
I’m working on a Latest Positions review with new Revolution Investing ratings and updated analysis for each of our positions. And we’ll do this week’s Trading With Cody Live Q&A Chat tomorrow (Tuesday) morning at 9am ET. I’ll also take questions over the phone on our conference call line (Dial-in: 641-715-0700 Access Code: 709981) or just hit reply on this email to send us your question.
In the meantime, I have some more economic and market analysis about how hard it is for people to see through the headlines and the policies and then to try to be objective in their analysis.
Along the way, I have to call out a few headlines that are driving me crazy with their hypocritical obtuseness as the 10-year anniversaries of the 2008 Financial Crisis and Too Big Too Fail Bank Bailouts continue.
First, this, from the New York Times. They published the following two articles next to each other and ran it on their home page for days. The first tries to explain to you that, “the engineers of the American crisis response [ie, the bankers and bureaucrats who bailed out Wall Street together] got the economics mostly correct.”
But then the very next article wants you to understand that “since the Bailouts of bankers, shareholders and investors helped set them off on a rebound that Americans who rely on savings or income from their weekly paycheck have yet to see.” Look at this mess:
The Policymakers Saved the Financial System. And America Never Forgave Them.
But for all that anger, the engineers of the American crisis response got the economics mostly correct, and more right than most of those — including leading economic thinkers and prominent politicians — who were second-guessing them.
But for all that anger, the engineers of the American crisis response got the economics mostly correct, and more right than most of those — including leading economic thinkers and prominent politicians — who were second-guessing them.
The Recovery Threw the Middle-Class Dream Under a Benz
Bailouts of bankers, shareholders and investors helped set them off on a rebound that Americans who rely on savings or income from their weekly paycheck have yet to see.
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Cody back in real-time here. Excuse me NYTimes, but it’s the economics and the policies of those bailout architects behind that have given you the post-Bailout economy that isn’t benefitting Americans who rely on savings or income from their weekly paycheck! But you want us to think that those guys got the economics right? @(*&@#(*&! I don’t understand.
It’s the same logic of people who are like, “Obamacare is great even though it’s a giant corporate giveaway instead of the universal health care that would actually have helped poor people get access.”
Or its like all the fake conservative Republicans who sit around going, “Well, I’m conservative and I’m for capitalism and I’m worried about entitlement spending. But hey, we better send farmers billions in welfare checks and we better create some jobs by giving this billionaire a new stadium and this trillion dollar company a free headquarters and we better create tax loopholes so those same billionaires and companies don’t ever have to pay the taxes that the little guy and small businesses do.”
And then there’s this from Mr. Welfare Bailout Baby himself, Jamie Dimon, the CEO of JP Morgan, as printed in the WSJ: “Mr. Dimon also took a shot at Mr. Trump’s wealth, saying ‘this wealthy New Yorker actually earned his money. It wasn’t a gift from Daddy.'”
This Dimon character is a third generation global banker who went to an expensive exclusive private school in NYC and didn’t exactly come from middle class kind of money:
Dimon was born in New York City. One of three sons, he attended The Browning School in his youth.[12] His paternal grandfather was a Greek immigrant who changed the family name from Papademetriou to Dimon to make it sound more French,[13] and worked as a banker in Smyrna (today’s Izmir) and Athens. He has an older brother, Peter, and a fraternal twin brother, Ted. Dimon’s father and grandfather were both stockbrokers at Shearson.[14]
But Jamie says his wealth wasn’t a gift from daddy? And more to the point, you do realize all the times (here, here, here, more) I’ve explained that Jamie Dimon would be broke without your welfare and bailouts:
Is The JP Morgan Trading Loss Bombshell an Isolated One Day Event? and Costly trading loss for J.P. Morgan Chase and Dimon and How Wall Street Killed Financial Reform and Wall Street’s immunity – Taxpayers are providing the capital that JP Morgan is trying to say that the bank is “trading for its own account”. These guys get to keep all the profits when they make money on these trades using taxpayer funds provided to JPM at 0% interest by the Republican/Democrat Regime’s Federal Reserve. But when JP Morgan loses money like this, they know that their shareholders and lenders are protected because they’re Too Big Too Fail. Doesn’t it feel like these TBTF banks and the idiots who take billions of dollars out of the company in bonuses and payouts every year are something out of the Soviet Union days? JP Morgan Chase is a socialist or even communist entity. This is what Occupy Wall Street gets and what Jamie Dimon doesn’t get.
Jamie Dimon: Address to HBS MBA Class of 2009, Class Day June 21, 2009 – And finally to follow up on David’s link above about McD’s and Wall Street, how about this video classic. I wonder if Dimon would be applauded at anywhere but a place like Harvard where they crank out idiots who create things like “mortgage back securities” and even convince idiots like former Harvard Prez, Larry Summers to invest Harvard’s assets in such crap. Seriously, Harvard is perhaps the worst school in the world. Think about it. Anyway, you gotta this Jamie Dimon idiot talking about things like ETHICS. Yeah, when we think of ethics in 2011, we usually think of the CEO of JP Morgan who was telling his investors about how safe his balance sheet was as he was borrowing $85 billion from the taxpayer a full year after he said he’d been forced to take such welfare. Ethics? From the CEO of JP Morgan in 2011? Seriously? Sigh.
Jamie Dimon Now Trying to Beat Up on Heads of Central Banks – I don’t have a clip of it, but one of my last appearances Fox News was spent arguing against my old friend Neil Cavuto calling Jamie Dimon a “Capitalist”. Jamie Dimon, Hank Paulson, Ben Benanke, Bush, Obama, McCain, McConnell and the rest of these puppets are not capitalist and neither is Warren Buffett or anybody else who’s creating these policies or making money on a system that uses taxpayer money to fund a private corporations bets and bonuses.
Cody back in real-time here. Now I’m not just ranting about this for the sake of ranting. All this underscores how hard it is to keep reality coloring our analysis. You’ve got welfare billionaires arguing about who earned their money, when the answer is clearly that neither of them did. You’ve got liberals propagandizing about how their policies are for the poor when they are clearly not. You’ve got conservatives propagandizing about how their policies don’t redistribute wealth when they clearly do.
You’ve got all the policies and economics in our country — from both, either, same partisan sides — these days being paid for and written by corporations.
Speaking of which, let’s keep connecting these dots here and pull the Fed into the mix because Republicans and Democrats and the corporations they serve all love the central bank:
Fed Should Commit to Future ‘Booms’ to Make Up for Major Busts.
The U.S. Federal Reserve should commit to letting economic booms run on enough to fully offset collapses like the 2007 to 2009 Great Recession, former Fed chair Janet Yellen said on Friday, urging the central bank to make “lower-for-longer” its official motto for interest rates following serious downturns.
Elaborating on how the central bank should think about what to do if rates have to be cut to zero again in the future and can’t go any lower, she said the Fed should promise now that it will keep rates low enough to let a hot economy make up for lost time.
“By keeping interest rates unusually low after the zero lower bound no longer binds, the lower-for-longer approach promises, in effect, to allow the economy to boom,” Yellen said in remarks delivered at a Brookings Institution conference. “The (Federal Open Market Committee) needs to make a credible statement endorsing such an approach, ideally before the next downturn.”
Cody back in real-time again. Isn’t this exactly what I’ve said the Fed has been doing all along? As Mish Shedlock explains, “The dotcom bubble arose when Fed Chairman Alan Greenspan held interest rates too low, too long with irrational fears of a Y2K disaster.
The housing bubble was a direct result of Greenspan holding rates too low, too long in the wake of dotcom and 911 disaster.
The everything bubble, which we are in now, was co-authored by Ben Bernanke and Janet Yellen. They held interest rates too low, too long in the wake of the housing bubble crash.”
Interestingly, Mish Shedlock is a good example something else about people that I never understand. Others have recognized that these policies create bubbles and busts (and why don’t the permabears who get it ever understand that there has to be a bubble before the bust? They always expect just bust!).
Here’s Mish in 2011 with his predictions for 2012. I didn’t know if Mish was a permabear when I started this article, I just guessed he would be and did a search:
“Global Equity Prices Under Huge Pressure: Don’t expect the same degree of reverse decoupling of US equities we saw in 2011. The US economy will be better than Europe, but equities globally will take a hit, including the US. Simply put, stocks are not cheap.”
And here he was in 2011:
“Mish discussed his investments ideas and broader economics themes for 2011, including:
- Municipal and state defaults/bankruptcy
- The Irish “bailout”
- Italy being a bigger problem than Spain, and is currently off the radar
- Real Estate: bursting in Australia, and about to burst in Canada, but doesn’t comment about the UK because he doesn’t know enough about it. “Australia is in a particularly nasty spot”, says Mish
- China overheats, has an unemployment problem bigger than the US
- Continuous strengthening of the dollar
- Market sentiment and the extreme bullishness it has reached, both in equities and commodities”
Okay, Cody back in real-time again 2018. Meanwhile, seeing the exact same reality about the policies that would create a new Bubble-Blowing Bull Market back in 2011, I was writing this stuff:
“Look, what we do know is that the Fed’s got interest at negative levels and that they’ve infused trillions of dollars into our banking system in the name of stimulating the economy. We know that the Fed is always late to the trend, and for months we’ve been investing for the inflation cycle they’re just now seeing.
The economy’s stronger than those idiots at the Fed realize too…and more importantly to us as traders, the fundamental earnings are through the roof and seem to be accelerating. Which is also exactly what we’ve been setting our portfolio up for too.
We also know that the Fed’s 0% rates are forcing savers into the stock market and into other riskier assets…and that is again, why I expect we’ll eventually hit new all-time highs in the DJIA and that many of our App Revolution and Cloud Revolution stocks will eventually not just go up big from here, but will likely eventually bubble like it’s 1999.”
Cody back again in real-time and that was the last flash back in a flash back that we’ll do in this analysis here.
So the question becomes, where are we now? Are we about to bust finally? Or are we still in the midst of a Bubble-Blowing Bull Market. My guess is that, unless there is a catalyst of spiking interest rates or a Black Swan event like an outright war with China or something, the most likely path of least resistance for stocks, bonds, Treasuries and corporate earnings is higher still. That doesn’t mean I’m not cautious though.
Indeed, we need to be aware of how far along this Bubble-Blowing Bull Market has come and how high valuations are for many mid-tier stocks.
So we try to have our cake and to keep eating too right now. I hold onto my core Revolution Investing Bubble-Blowing Bull Market stocks, I keep trying to find new ones and I keep trimming my big winners and nibbling some hedges here and there.
If you’re feeling underinvested, I suggest nibbling some of the highest-rated stocks in the Latest Positions update that I’ll be sending out tomorrow — buying maybe 1/5th the amount of shares you want to eventually own in two or three names. And then give it some time, maybe a week or a few weeks and nibble a few more shares of those and/or the stocks that are highest rated in the next Latest Positions update that I’ll be sending out in a few weeks out again.
If you’re feeling cocky or complacent, or maybe you’re worried because you think you’re too long right now and don’t have enough cash or hedges — well trim a little of your big winners and add a few puts of QQQ or just short some QQQ shares outright — I wouldn’t look to build up too big of positions on your shorts right now though.
Perhaps the upshot of all this analysis in today’s column is that we have to be able to hold two or more conflicting thoughts in our heads at the same time and that, as always, we have to strive to be objective.
This simply isn’t 2011 when stocks were indeed cheap and the Bubble-Blowing Bull Market hadn’t kicked in yet. This is 2018 when there is a bubble that’s now popping in cryptos and when many of the stocks we were buying years ago are already up 500-1000% from the levels back in 2011. But I still don’t think it’s time for a 2008-like crash either.
Be careful, be slow. I guess that’s it for now. See you tomorrow morning for the chat and stay tuned for the Latest Positions update tomorrow.
