Submitted by Lance Roberts via STA Wealth
Management,
I was having
lunch with a very dear friend of mine yesterday, who is also a very
successful financial planner and advisor, who stunned me with an
obvious question: "Has the dumb money become the smart
money?"
What we were discussing is that, collectively, the majority of
the conversations that we were having with our clients was "when
will all of this Fed manipulation end in the next crash?"
What is more interesting is that, despite the media rhetoric
about the surging bull market, the vast majority of our
interactions with individuals has been focused on the preservation
of their invested capital rather than chasing returns.
Of course, after two major bear markets, and now just barely
getting back to even after 15 years, you can certainly understand
their concerns.
As
discussed yesterday, the Federal Reserve's
monetary interventions have certainly boosted asset prices, but has
done little for the real economy. With asset prices excessively
extended and valuations at the second highest level in history, it
seems to be a "fire in search of a match."
This is the crux of this weekend's reading list which is a
variety of views on the Fed's latest actions and the potential of a
major correction. But this reminds me of something I heard once
about the "fear of flying:"
"The good news is
that you will be the first to the scene of the crash."
1) Bond Market Got It Right by Josh Brown
via The Reformed Broker
"This week’s FOMC statement and presser provides just one more
example demonstrating the power of markets. The nation’s top
economists had arrived at a consensus for the first Fed Funds rate
hike of the cycle to take place at the June 2015 meeting. The bond
market, stubbornly, had indicated a traders’ consensus that pegged
the first rate hike for the September meeting or even later."
Read Also: Dot-Dot-Dot-Dash-Dash-Dash-Dot-Dot-Dot
by Macro Man via Macro Man Blog
2) No Rate Hikes In 2015 by
Peter Schiff via Yahoo
"The Fed has been bluffing the entire time,” says Schiff. “It
has no intention of raising rates. But it can’t come clean and
admit that, so it has to pretend that it is going to do something
it’s not going to do,” he believes, “so it doesn’t reveal the
fragility of the U.S. economy.“
Read Also: It's Already Too Late To Raise Interest Rates by
Akin Oyedele via BI
And Read: Slow Growth For US Interest Rates by
Alex Friedman via Project Syndicate
3) Ray Dalio Warns Fed Of 1937-Style Rate Risk by
Henny Sender and StephenFoley via FT
"Ray Dalio, founder of the $165bn hedge fund group Bridgewater
Associates, said in a note to clients and followers that he was
avoiding large bets on the financial markets for fear that the
Fed’s expected change of policy could have unintended
consequences.
'We don’t know — nor does the Fed know — exactly how much
tightening will knock over the apple cart,' Mr Dalio and Mark
Dinner, his colleague, wrote. 'What we do hope the Fed knows, which
we don’t know, is how exactly it will fix things if it knocks it
over. We hope that they know that before they make a move that
could knock over the apple cart.'
'We are cautious
about our exposures,' they added: 'For the reasons explained, we do
not want to have any concentrated bets, especially at this
time.'"
But Also Read: IMF Fears Emerging Market Instability by
James Crabtree via FT
4) The Black Swan In Plain Sight by
Charlie Bilello via Pension Partners
"Based on Taleb’s criteria, it would seem that the Dollar’s
advance over the past nine months would qualify as a Black Swan
event. If King Dollar is indeed a Black Swan, though, why haven’t
we seen reverberations in the U.S. equity market? Probably because
it has not yet been elevated to that status among the
consensus.
Similar to how stocks ignored the initial decline in housing in
2006-07, the stock market is dismissing the abnormal strength in
the Dollar.
The bullish narrative that has supported shares has been that a
strong dollar is a positive because it means U.S. growth is
booming. A quick examination of the facts, though, dispels this
notion as U.S. real GDP growth in this expansion continues at its
slowest pace in history.
The truth is that the Dollar is strong this time around not
because the U.S. economy is booming but because Europe and Japan
(the
largest componentsof the Dollar Index) are
intent on crashing their currencies."
Read Also: Extremes In Every Pendulum by
John Hussman via Hussman Funds
5) A Correction Is Still Coming by
Rana Foroohar via Time
"Up until yesterday’s Fed meeting, America’s central bankers
said they were going to be “patient” about the timing of an
interest rate hike, which most experts believe will ultimately
result in a significant stock market correction (see my recent
column about why). So why did that make markets go up so
dramatically yesterday?
Because
everything else about the Fed’s communication said “we’re going to
be more patient than ever” about when and how to raise rates. The
central bank downgraded its forecast on the US economic recovery,
saying that the pace of the recovery had “moderated somewhat,” in
large part because of the strong dollar."
Read Also: The Stock Market Top Is In by
David Stockman via Stockman's Contra Corner
And Read: The Next Bear Market Could Be A Whopper
by Cam Hui via Humble Student Blog
