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Feeling Flush with Cash?

By Rick Ackerman Posted on March 8, 2013, 7:29 am EST Last Updated March 8, 2013, 7:29 am EST

Here’s a Wall Street Journal headline to brighten your day:  Freshly Flush, the Consumer Is Back.  A little premature, wouldn’t you say?  Are you feeling flush?  That’s what we thought. Of course, this kind of hubris is always going to go down a lot easier with the Dow Industrial Average trading at all-time highs, as it currently is. But isn’t this the way major tops are supposed to feel – i.e., with a bullish drumbeat from the news media so shrill and persistent that we skeptics are about to bleed from the ears? We’ll give the Journal credit, though, for showing a little more restraint than “Easy Al” Greenspan did when, stumping for home equity loans, he repeatedly described inflated real estate values as “wealth.”  The Journal avoided repeating this egregious falsehood by noting with a touch of reserve that Americans are “feeling” wealthier because of rising home values and share prices. No matter that stocks are being kept buoyant by an unprecedented tide of easy money, or that the rise in home prices has been slight, or that the dead-cat bounce in real estate is occurring because cheap loans for poorly qualified buyers have been resurrected with a vengeance by GSEs whose swagger has unsurprisingly returned.  And it hasn’t exactly hurt our collective “feelings” of wealth that the Federal Reserve has been warehousing virtual mountains of shoddy paper for U.S. banks.

The pretense that the U.S. banking system is somehow healthy at a time when the central bank itself is swollen to the bursting point with toxic debt is the folly of this age. Stupid and crazy as the idea is, it got a big boost yesterday with the announcement that 17 of America’s 18 largest banks had passed a “stress test” conducted by the Federal Reserve. This ceremonial claptrap was meant to convince us that the banks have enough capital to keep lending if the economy turns down sharply. The nitwits who conducted the test, and even moreso those who are trumpeting the results, have conveniently overlooked the fact that it is borrowers who will be in short supply if the economy collapses, not lenders. That’s what deflation is all about. And considering how much pushing on a string it has taken to get housing prices to temporarily stabilize, we shudder to imagine what this fragile achievement will look like when interest rates start to uptick, as they eventually will.  Interest rates aside, Obamcare is going to hit small businesses that are the backbone of America’s prosperity like a wrecking ball.  Factor in higher taxes and other depredations of our crypto-Marxist president  and there are enough negatives to wipe the stupid grin off Wall Street’s face. Who knows? If the Second Great Depression is as deep as the first, it could cure us of the terminally diseased idea that an economy that has barely recovered from the Great Financial Crash is best served by a new binge of credit-financed consumption.

  • nonplused March 12, 2013, 5:05 pm

    The first great depression lead to a whole host of bad ideas and a world war. I am not sure this one will be any different.

  • mava March 9, 2013, 8:05 pm

    Gary,

    I hear you. You claim that even though your forecasts did pan out, you are still no being acknowledged as having a system or a view that can produce a valid forecast, despite all the evidence.

    And on the surface, you are right. And you can turn out to be right for next 2 years. May-be next 4 years. May-be next 10 or 20 years. Fundamentally, you’re wrong though.

    But, then, doesn’t the argument of your opponent sound like a broken clock that is bound to be right eventually? It does. Obviously, predicting the crisis, one will eventually be proven right, once there is a crisis. Because predicting the crisis without timing is not unlike stating that all the future movements of the market must necessarily include some that will be sustained movement downward. Whoa. Such a wisdom.

    Yep. So, I do understand your concern. And yet, I disagree with you. How to find a point of mutual understanding? I do not know.

    The sad part of holding the position that I have (and may-be RA and some other will agree), is that it is rather hard to point out the timing.

    ============
    I do not know to which extent the government is willing to burn this country inside out just to take it one more day longer but with the glory. I would have stopped long time ago. I would probably never even start burning the true capital just to purchase the mere appearance of doing good.
    ============

    Do you understand me?

    It is like watching a bad kid wasting all his money and going down. You know this will end. Not in general, because everything has an end. No. Specifically, you know that this gig is up. But, day after day, you see him shining around, doing many more stupid things, because, somehow, there was yet one more person so incredibly stupid as to loan the bad kid some more juice.

    I can not time his collapse. Because it is unknown to me how many gullible lenders will come his way. All I can say is that he is going deeper and deeper into the red, and that anytime anyone cares to audit his business, this will be found out.

    You, on the other hand, take the position that because the bad kid still swimming, then therefore it makes sense to look at the statistics that he puts out. Even if all of it is fake. You predict that he’ll be around another four years, – and lo and behold, he is, someone else came around and loaned yet more juice!

    Does this describe the situation well?

    • gary leibowitz March 10, 2013, 6:46 pm

      I did give precise reasons for why my long standing view is working. I also stated that it is even possible for this crisis to pass without any major fallout. I gave one answer, time. Given enough time all things heal. Is the 4 years so far time enough? No. Is 6 or 8 or 10? Maybe. I have no crystal ball but assume this government will not be able to juggle all aspects of the economy before it stumbles. That is my premise for why it will fail. No real dates, just guestimates. I do assume that if we do get a 3 percent GDP number it will cause major problems. If interested I will give you my own warning flag if/when I see it. I am sure you aren’t interested.

      You are angry over what you percieve as global high order atrocities, with the fact that it might go unpunished. Should I have a sit in until we get justice? Shoul I show my support by betting against the market?

      As for the “faked” data, you once again confuse real data with government intervention to produce that result. Yes this government, like all governments in same position, have done what it thought is in the best interest of the nation. I use the word interest loosely. It usually gravitates to the people with the most imfluence.

  • gary leibowitz March 9, 2013, 7:41 pm

    If anyone remembers Bill Gross back in 2009 where he presented a very sobering economic expectation. Most of which came true. He now forecasts a 3 percent GDP for 2013, almost double his earlier expectations. Now thats a big move. Are you still going to ignore trends just to stay indignant? The world is what it is, and if you want to change it get involved in politics.

    My long standing macro view is coming together. We are entering a period that will show signs of accelerated growth. 3 percent is growth not seen in a long time. You might not like how we get there, but given the world cooperation and control, it really wasn’t such an unexpected result. The big question is what eventually derails it. Make no mistake, with such unprecedented man altering economic control, it is bound to fail.

    http://www.bloomberg.com/news/2013-03-08/gross-raises-u-s-economic-growth-forecast-to-3-in-2013.html

    • Erin March 9, 2013, 10:23 pm

      Gary,
      The only thing I am going to ignore is your complete disregard for people and their lives. As the fed continues to print, more and more people here and around the world are becoming poorer and more desperate. The sickness in your mind makes me physically ill. This is not about the stock market. You advocate the plundering of the poor and every one of us who is getting poorer everyday. Society is being raped and pillaged by these policies. Take your stock market and your sick mind and shove it!

    • gary leibowitz March 10, 2013, 6:27 pm

      Erin, what a bizarre statement. I should stand with principles when deciding to make my bets? I must be unpatriotic to acknowledge there are problems affecting the middle-class and poor, and at the same time bet with Wall Street. You got me there. I do however seem to remember that I among a select few were blasted off this board for daring to suggest “fairness” in the tax code, all inclusive social programs, disgust for WalMart type practices.

  • ter March 9, 2013, 7:51 am

    The name-callers refuse to concede their “fools” understand what’s going on before their eyes–a massive flooding of liquidity into stock markets here and abroad. The way to play this unethical,immoral, economically imbecilic activity is to be long stocks. The more one knows about the unbridled credit creation, the harder it is to buy and hold, but that’s been where the money has been made in stocks for FOUR years, and in bonds for 30 years. It’s likely to
    continue for weeks, perhaps months. Until it ends, the sensible policy is Buy the Dips.

    • Rick March 9, 2013, 10:11 pm

      All of us name callers perfectly understand what’s “going on,” TER, and we have not shied from playing the long side of the market (currently, via hyper-bullish butterfly spreads in Google. Current target for the Dow: 14969). We just don’t care for Gary’s smiley-face spin on the economy, nor for his obliviousness to the fact that it could all come crashing down in the blink of an eye. Only a fool could think that the crash will be telegraped in a way that allows smart guys like Gary to escape.

  • bc March 8, 2013, 11:05 pm

    Four billion a day note purchases by the Fed and still long rates are easing higher. Soon the magic number will be six billion then eight billion and then it will start taking real money to hold rates down. Eventually even Gary will get the joke being played by all the central banks.

  • Jill March 8, 2013, 7:45 pm

    Thanks, Ter, for the explanation of what Rich was predicting in bonds.

  • Jill March 8, 2013, 7:44 pm

    Wow, Gary, here are some folks agreeing with you– me, Ter, and also Pat on a previous comment section a day or two ago. And Rick has a higher Dow target now. Maybe this will turn completely into a bullish board. If it ever does, then that will definitely be the top in the market, LOL.

    &&&&&

    Not so bullish a board that we are ever going to overlook the fact that the global financial system is sustained by mass insanity and monstrous lies. At least we know which side of the argument you guys are on.     RA

    • redwilldanaher March 8, 2013, 10:43 pm

      Jilly, once the fool always the fool but really? A second-fiddle fool???

      You fools need to be able to delineate between cynicism and bearishness.

      Far more artificial than even 12 years ago and you fools still can’t spot it…

    • Jill March 9, 2013, 12:50 am

      I never said that all Bernanke’s printing is a sane thing to do or that the big mega-banks are not lying about their balance sheets. What I think is that, given the system that we are in, we do have a rising stock market, an improving employment picture, and increasing home prices– if only for a couple of years before the mega-banks mess it up again with more reckless gambling.

      BC, it sure looks like the banks are putting the Fed money into stocks, not bonds.

  • ter March 8, 2013, 7:35 pm

    Jill, Rich is forecasting the 10 year note rate will rise to 2.80%, the 30 year bond rate to 4.30%. These market rate/yields are much higher than where they now trade.
    I agree with most of Gary’s cogent comments. Fighting the maniacal Fed has been a fool’s errand. It will end badly. But who knows when, as Gary also has observed.

    • gary leibowitz March 8, 2013, 7:57 pm

      Ter, Rick’s assumption makes sense if my macro view was to play out. An improved economy will push yields higher. The tipping point can be 2.8 percent or higher. I have no clue as yet. Will look into trying to determine the danger range. I am also looking at China’s eventual housing implosion. That will be much harder to view, and I suspect we will only know after the debacle takes hold. That in itself will be a world game changer. So in a sense there is always external events that can cause a flash crash, but I’ll stick with the odds that enough accumulated data will warn us in time. A bear with an optimistic view that we will be forewarned of a major crash. Naive? Maybe, but time has become my friend.

    • Pat March 8, 2013, 10:26 pm

      Just so you know, Rich also predicted a “quick drop to 1492” for the SPX a few days ago….WRONG, so keep that in mind about his predictions.

    • Rich March 9, 2013, 1:25 am

      Thanks ter.

      Pat: One day doth not a market move make:

      “Rich March 7, 2013 at 6:56 am
      Looking for a quick selloff to 1492 SPX…

      REPLY

      Pat March 7, 2013 at 2:22 pm
      No way, new all-time highs coming in SPX soon. SPX will go to 1700 by year end, Dow to 16000…

      WRONG, so keep that in mind about his predictions.”

      People who say, ‘No Way, quickly judge others as WRONG may get ample lessons in humility and patience…

    • Jill March 9, 2013, 2:49 am

      Time will tell. No big deal anyway. Everyone is wrong about the market sometimes. Show me someone who’s claims to be always right about the market & I’ll show you a liar.

  • gary leibowitz March 8, 2013, 7:15 pm

    The articles presented have a theme that hasn’t changed since I visited this site. The assumptions that the market will react violently against the Fed’s policies has been proven wrong. In fact the market loves the notion of placing support under the distressed financial institutions as well as housing. Why no one can fathom the notion that the federal government’s unlimited resources will support a sick economy is very strange to me. All segments of the economy that was on deaths door has been treated with rule changes, money, and most important time. Why you argue that this formula can’t work when 4 years later all indications show it has is something i will never understand. The proof is in corporate earnings. They found a way not only to suirvive but to thrive. Anyone dealing with wall street must realize by now that human suffering and corporate strength need not be diametrically opposed. There are times when corporations can take advantage of this disparity, as it clearly has these last 4 years.

    I stated 15 months ago that the end of this cycle will not be a result of failed policy, but rather of a fragile economy that will not withstand an economic acceleration. This doesn’t mean we go back to the heyday of overspending and extreme indebtedness. I give the analogy of a very sick patient that decides he is well enough to go home and start resuming his/her daily practice. If it is too soon he will collapse and be right back in the hospital. Has this happened yet? Not sure but every indication points to a patient that believes he is healthy enough to go home.

    I have been ignored or dismissed even after my macro views has played out. Instead of acknowleding this you pretend the economic data is falsified, or you revert back to the heyday and compare those numbers to dismiss my view. All you really have to do is look at the last 4 years of data to see we are accelerating on all fronts towards recovery. Let me make this point very clear; I do not mean to say we will recover anywhere near where we started from. I merely state that the path to recovery has risen and seems to have traction.

    I will state here and now that my assumptions from here on out could very well be wrong. I think the error might be in assuming we stall out in 3 months. We might actually have a much longer time frame before we see another crisis and deep economic downturn.

    On a tchnical basis there is nothing to suggest the crash is anywhere near (within 1 month). On a fundamental basis we are clearly not getting worse, and most indicators show a marked improvement. But I am sure the real world data points, excluding Rick’s micro method, will once again be ignored in favor of a “flash crash” happening anytime where it morphs into a long drawn out winter. Good luck with that. It certainly hasn’t worked when we were 50 percent lower, but perhaps we will lose 60 percent from where we are to justify this stubbornness.

    %%%%%

    Every idea that you present in this forum, every argument that you make, every theory that you espouse, every statistic that you cite, rests on a massive lie — a lie that you fatuously demand we respect. You seem to think that the Dow’s rally to 14000 makes you right, but the simple fact is that it’s no more than the metastasis of an epic fraud. It is Western Civilization’s death rattle. RA

    • Pat March 8, 2013, 10:23 pm

      Gary, stop thinking about a crash of any kind, it ain’t gonna happen bro. This rally is likely to go on till at least the end of the year, maybe longer. The economy is picking up steam, the payroll tax increase and sequester were non-events, as predicted. Actually I’m disappointed the Dow isn’t up at least 1% today, even with the huge gains this week and YTD. But the Dow will probably go up another 50 points into the close.

      Benny and the Boyz are going to obliterate every last bear they can sucker into shorting this market, and thats exactly what they deserve. They will crush the life out of permabears. I am so glad I got out of the doom and gloom camp 2 years ago and started making good money again.

      If you want to make money, be LONG this market. Buy calls, sell puts, whatever, but the market is going much higher.

    • DK March 8, 2013, 10:33 pm

      Gary, Jill, Ter, Pat (according to Jill),

      Please read this interview:
      http://news.goldseek.com/GoldSeek/1360357533.php

    • gary leibowitz March 8, 2013, 11:40 pm

      The epic fraud is well known by anyone viewing the Fed’s action. You can classify it anyway you want but it doesn’t change the end result of allowing corporations to make money. Any system, including 180 degree rule change reversals, must be used and evaluated to determine if Wall Street makes money. You insist it is immoral, and therefore must be recognized and punished immediately.

      You might be right about a world shift from capitalism to destruction of wealth, but not accepting that it can take time will only result in emotional frustration.

      Finally, regarding the last 4 years, tell me why we are about to “fall over the cliff”? Surely something has to trigger this. Has anything triggered your concern more so than at any time in the last 4 years? Rates, earnings, yields, external events, etc… will telegraph a possible heightened concern. Is any marker in any danger zone?

      You can’t and shouldn’t put emotional attachments when evaluating investment decisions. You continue to pretend that the last 4 years was a mistake even as corporations made record setting profits. If you can consider 4 years as a foolish mistake, why not 10 or 50 years? With that argument you will never lose since eventually we will have another bear market. Placing money on the short side for 4 years yields a dramatically different point of view.

      You of all people know that there are systems in place, if correctly understood, that can yield good results. You use a system yourself, without thought of government intervetion, to place your bets. How can your system work if you claim everything is rigged? A rigged system, without being an insider that knows how it is being manipulated, can’t possibly make money using a system. You claim your system works, despite the massive manipulation, but others can’t?

      I urge you to become more objective, like your micro system does, and try to determine on an unemotional level where we are in this rise up, and what are the early warning signs that it is about to change.

  • Jill March 8, 2013, 6:55 pm

    What you just said is mostly Greek to me, Rich. The only prediction I can understand clearly is that you are predicting the dollar to rise significantly from here. For TNX, and TYX, are you saying you expect them to rise by those percentages? TNX is already up by a greater percentage than that today, so I guess that prediction is already fulfilled, if that’s what it is.

    With regards to the supposed double top on the SPX/Silver ratio, it looks like you are predicting that silver will rise and/or that the SPX will fall, if this does turn out to be a double top? Seems like a lot of double tops tend to be just momentary pauses within an uptrend.

  • Rich March 8, 2013, 6:08 pm

    $TNX Target 2.8%
    $TYX Target 4.3%
    $USD Target 103

    SPX:Silver double top:

    http://bit.ly/smnvUS

    Let the games begin…

  • John Jay March 8, 2013, 4:18 pm

    It will be interesting to see where the Fed will step in to support the bond market.
    My guess is right about at 140 for ZBM13.
    That is roughly the floor they have maintained since September 2011 with a couple of brief dips to 137 since then.
    For ZNM13 the magic number seems to be roughly 130.
    That line has to be held to keep the housing market going as well as the new auto market.
    That and the sub prime lending that has been more and more making a comeback in housing and autos.
    Quite a show to see all the world currencies plunging against the anemic Dollar in spite of Ben’s best efforts.
    The race to the bottom is on!

    &&&&&

    From a technical standpoint, the Fed has stepped in each and every time my charts have flashed red. The next time that would occur is if the June T-Bond, currently at 141^02, falls more than a few ticks beneath a 138^09 target. There looks to be a kind of gradualism at work, though, as though the Fed is slowly and quietly acceding to market forces that lie beyond its control.

    In theory, however, They could put 30-year rates anywhere They want, even rallying the bonds back to 150. That They don’t is probably due to the possibility that it would attract unfavorable attention. Also, it may be unecessary as long as private buying is still sucking up a nominal 20% of the supply. RA

    • redwilldanaher March 8, 2013, 10:40 pm

      Exactly Rick. And that’s what the PPT has always done.


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