David Tepper was on CNBC this morning and stated the following (paraphrasing), "If the economy gets better, stocks will go up. It the economy gets worse, the Fed will institute QE II and stocks will go up." In other words, heads you win, tails you win! He believes that the Fed's announcement on Tuesday of this week clearly gives the signal to the markets that the Fed is about to embark on a second round of QE. So far so good, the markets roared ahead today with the S&P 500 up 2.12%. Wow! the equity markets, along with precious metals, definitely believe that QE II is upon us. Maybe with rates, such as the Fed Funds rate at zero, money really is free; and if it takes the Fed to put another $1.8 trillion into the banking system, so be it. The markets love it. Everyone is getting rich. And, who can be against free money.
For those of you whom do not know who David Tepper is, he is the founder and CEO of the hedge fund known as Appaloosa with $12.4 billion assets under management. Last year his fund made $7.5 billion or a return of 132%.
In keeping with our music assortment this week, I want you to sit back and enjoy your new found market gains as you listen to "Money for Nothing" by Dire Straits. It doesn't get any better than this! But make sure you spend some of that prosperity. The economy needs it.
Friday, September 24, 2010
Wednesday, September 22, 2010
Ramification of Fed's Quantitative Easing Policies: Debase the Dollar
Albert Einstein said, "Insanity is doing the same thing over and over again and expecting different results. Well, Mr. Bernanke, you are insane. Quantitative Easing (QE), which is just a fancy name for printing money, has not worked; and your next QE II phase will be an absolute disaster. Just look at Japan's failed experience with QE over the past decade. the only thing that it will accomplish is to further debase the dollar.
To make matters worse, QE has artificially kept interest rates low. The ten-year Treasury Note is currently yielding 2.55%. How? Well, the Federal Reserve System, through its Federal Open Market Operations, has purchased something $1.5 trillion of dubious, quality assets at par from the banking system. In return, those banks have used the proceeds to purchase high-quality Treasury securities. Banks love it, because they have been able to unload questionable assets at par and receive Treasury securities in return. In other words, the Fed has not only propped up the balance sheets of banks but also assisted the Treasury in monetarizing our federal deficits. So, what is the problem? The problem is that such a policy has weakened the dollar to the point that it may decline another 15% or more. (See the following dollar chart.)
Let me put it into perspective with this example. Let's say I am a foreign buyer and holder of Treasury Notes at 2.55%. If the dollar declines, say another 15%, I have just lost 12.45% (2.55% yield minus 15% currency-exchange lost) on my Treasury Note investment. If the dollar continues to decline (As I am writing this post, the dollar is down 15 and Euro is up 1.33%.), the Treasury just may not find any foreign takers willing to finance our federal deficits through the purchase of Treasury securities. That will just leave the Fed to monetarize the federal deficits at the expense of an ever decreasing dollar.
To make matters worse, QE has artificially kept interest rates low. The ten-year Treasury Note is currently yielding 2.55%. How? Well, the Federal Reserve System, through its Federal Open Market Operations, has purchased something $1.5 trillion of dubious, quality assets at par from the banking system. In return, those banks have used the proceeds to purchase high-quality Treasury securities. Banks love it, because they have been able to unload questionable assets at par and receive Treasury securities in return. In other words, the Fed has not only propped up the balance sheets of banks but also assisted the Treasury in monetarizing our federal deficits. So, what is the problem? The problem is that such a policy has weakened the dollar to the point that it may decline another 15% or more. (See the following dollar chart.)
Let me put it into perspective with this example. Let's say I am a foreign buyer and holder of Treasury Notes at 2.55%. If the dollar declines, say another 15%, I have just lost 12.45% (2.55% yield minus 15% currency-exchange lost) on my Treasury Note investment. If the dollar continues to decline (As I am writing this post, the dollar is down 15 and Euro is up 1.33%.), the Treasury just may not find any foreign takers willing to finance our federal deficits through the purchase of Treasury securities. That will just leave the Fed to monetarize the federal deficits at the expense of an ever decreasing dollar.
Tuesday, September 21, 2010
Europe Debt Crisis Is Over, Declares Spanish Leader
Yesterday, we had the NBER stating the recession is over. As a matter of fact, the NBER stated that the recession ended in June 2009. Indeed, looked at all the jobs that have been created since June 2009. Right? Besides jobs, I know there has to be more, but I just can not think of any at the moment. Will someone in the Obama Administration please help me out here!
Today, we have Spanish Prime Minister José Luis RodrÃguez Zapatero declared that the European debt crisis is over. Wait a minute! Isn't he a politician? Believable, I think not. Does anyone really believe that our recession is over or that the European debt crisis is behind us? Folks, perception is not reality. It's all a confidence game, and no one is buying it this time. As a matter of fact, the worse of the crisis is probably still ahead of us! Now, I am wondering what the announcement will be tomorrow. What about "a chicken in every pot and a car in every garage." No, that has already been used by Herbert Hoover. Well, I am sure that there will be some statement to the tone that claims prosperity for everyone is just around the corner.
Keeping with the spirit of "Letting the Good Times Roll," I thought you might you enjoy the music of the Cars from 1978. Hey, at least it is newer than Louis Jordan's 1930 version from yesterday's post.
Today, we have Spanish Prime Minister José Luis RodrÃguez Zapatero declared that the European debt crisis is over. Wait a minute! Isn't he a politician? Believable, I think not. Does anyone really believe that our recession is over or that the European debt crisis is behind us? Folks, perception is not reality. It's all a confidence game, and no one is buying it this time. As a matter of fact, the worse of the crisis is probably still ahead of us! Now, I am wondering what the announcement will be tomorrow. What about "a chicken in every pot and a car in every garage." No, that has already been used by Herbert Hoover. Well, I am sure that there will be some statement to the tone that claims prosperity for everyone is just around the corner.
Keeping with the spirit of "Letting the Good Times Roll," I thought you might you enjoy the music of the Cars from 1978. Hey, at least it is newer than Louis Jordan's 1930 version from yesterday's post.
Monday, September 20, 2010
Illinois' Pension Fund: "10 Years Of Money Left"
This is one analytical reason why I remain bearish not only on the economy (irrespective of today's announcement by the NBER) but on the markets.
Recession Ended in June 2009
The National Bureau of Economic Research (NBER), which is responsible for dating changes in the U.S. business cycle, says the recession ended in June 2009 that started in December 2007. It further stated that "The committee did not conclude that economic conditions since that month (June 2009) have been favorable or that the economy has returned to operating at normal capacity. As worries persist about the struggling U.S. economy and its future path, the NBER warned that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007."
Boy, aren't you relieved! We can now all go out and borrow and spend to our heart's content. To sent the mood for these good times, I thought you might enjoy the following video by Louis Jordan. Now, go out and spend your money. This recession is over. Go on now, what are you waiting for?
Boy, aren't you relieved! We can now all go out and borrow and spend to our heart's content. To sent the mood for these good times, I thought you might enjoy the following video by Louis Jordan. Now, go out and spend your money. This recession is over. Go on now, what are you waiting for?
Sunday, September 19, 2010
Would You be a Buyer at These Current Levels?
The following two charts, SSO and QLD, are bullish ETFs, which are representative of the market. The SSO is the 200% derivative for the S&P 500, while the QLD is the 200% derivative for the QQQ.
Now, for that question, are you buying at these levels?
Now, for that question, are you buying at these levels?
Thursday, September 09, 2010
Subscribe to:
Posts (Atom)