Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

[NCR85]

The big story in the market right now is the incredible outbreak of bullishness.It's not just an attitude towards stocks, but a general view that a corner has been turned in terms of the economy and the long-lasting economic crisis.
Earlier today we brought you a sentence form SocGen's Kit Juckes that explains a lot about why nobody's bearish:
The reality is that we are short of things to worry about and long of liquidity which tends to weaken the resolve of any bear.
We're seeing this all over the place.
-- David Tepper said you have to be long stocks, because he just can't think of anything to be worried about.
-- A new Bloomberg investor poll showed a huge breakout in bullishness.
-- A SocGen economist talked about how America's "watershed" moment was near.
-- Mohamed El-Erian hinted that the "New Normal" might be over, and that it might be a return to the "old normal."
-- A BofA poll found that professional fund managers were getting bullish in record levels.
The economy is still weak. Unemployment is too high and growth is meh.
But with the GOP caving on the debt ceiling, Europe reducing its tail risk, and China growing, people are just having a really hard time being anything other than bullish.

http://www.businessinsider.com/bulli...utbreak-2013-1

I think most of us here have some awareness of this recent development, but I think we would benefit from having a thread to discuss it specifically.

Is this trend maybe starting to gain self-reinforcing momentum? I think we at itulip are united in the belief that there is something unbalanced and corrupted about the current economic climate. Acknowledging that we are currently in a bullish upswing would not mean abandoning that belief; we might simply be looking at the start of a new bubble period. So let's put the question out there to play devil's advocate: are we at the start of a (bubble-based) recovery phase?

[lektrode]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

.....we at itulip are united in the belief that there is something unbalanced and corrupted about the current economic climate. Acknowledging that we are currently in a bullish upswing would not mean abandoning that belief; we might simply be looking at the start of a new bubble period. So let's put the question out there to play devil's advocate: are we at the start of a (bubble-based) recovery phase?[/FONT][/COLOR]

+1

some people seem to think so?

[don]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

Isn't the role of the fed's QE series obvious to all in goosing the market . . .

[lektrode]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

Isn't the role of the fed's QE series obvious to all in goosing the market . . .

apparently not to all, when some seem to think that we can somehow afford to 'reform' 1/6th of the economy by decree?
(or that 2500pages of legal gobbledeegook will somehow make things more 'affordable'....)

[globaleconomicollaps]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

Isn't the role of the fed's QE series obvious to all in goosing the market . . .

If I understand EJ's stance on this, The fed has achieved it's goal of reflating the stock market and can stop now.

[GRG55]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

If I understand EJ's stance on this, The fed has achieved it's goal of reflating the stock market and can stop now.

I believe EJ's stance is that The Fed thinks it has achieved it's goal of reflating the economy sufficiently to achieve self-sustaining GDP growth this year and The Fed thinks it can therefore stop increasing its efforts at reflation now.

[ProdigyofZen]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

I believe EJ's stance is that The Fed thinks it has achieved it's goal of reflating the economy sufficiently to achieve self-sustaining GDP growth this year and The Fed thinks it can therefore stop increasing its efforts at reflation now.

Aka the Fed is going to pull the punchbowl away.

As Richard Koo warns, this is a very very bad idea.

In his latest research note, Nomura Chief Economist Richard Koo – who pioneered the concept of "balance-sheet recession" – says he feels the need to respond to those who are saying that the age of private-sector deleveraging in the U.S. is over.According to Koo, that assertion stems from an incorrect read of the Federal Reserve's latest Flow of Funds report, released in early December.
The report showed that for the first time since 2007, the financial surplus of the U.S. household sector turned negative. In other words, the value of financial liabilities – or debt – was larger than that of financial assets in the household sector, meaning the net savings of households turned negative.
The graph below shows this shift. The white bars are assets – notice how they have exceeded the red bars (liabilities) since 2007 as households paid down debt in the wake of the collapse of the credit bubble. The blue line shows the difference between the two (assets minus liabilities).
[IMG]file:///C:\DOCUME~1\ajohnson\LOCALS~1\Temp\msohtmlclip1\01 \clip_image001.png[/IMG]
Nomura

The shift to negative net savings in the household sector is supposed to be bullish for the U.S. economy. The implication is that at the end of 2012, households finally started borrowing again – spending again – as opposed to paying off past debts.
Koo, however, suggests that observers are missing the details, which paint a much bleaker picture.
In fact, according to Koo, the way in which the household sector shifted to net negative savings at the end of 2012 has only been observed twice before in recent memory. The first time was following the collapse of the internet bubble in 2000, and the second time was following the collapse of Lehman Brothers in 2008.
Koo writes:
Financial deficit due to drawdown of financial assets
We then have to ask why the broader household sector ran a financial deficit in Q3. The answer can also be found in Figure 1: the fact that the latest white bar is below zero means households drew down financial assets in the quarter.
And that is hardly a good sign. It has happened only three times since 2000, including the present occasion.
The first instance (barely visible in the graph) was in 2000 Q4, when the Internet bubble collapsed. The second was in 2008 Q4, when the failure of Lehman Brothers sparked a global financial crisis. People faced cash flow problems in both periods and probably were forced to draw down existing savings to make necessary payments.
Consumption driven by asset drawdowns not sustainable
During the bubble period towards the middle of Figure 1, much attention was paid to the fact that the US household savings rate had turned negative. While the sector did run a financial deficit during this period, the deficit was attributable to the fact that the increase in financial liabilities (ie growth in borrowing) was greater than the increase in financial assets (ie growth in savings). There was no drawdown of financial assets.
[b]Hence we need to pay attention to the fact that the latest figure shows only the third drawdown of financial assets since 2000 and that this drawdown is responsible for the financial deficit in the broader household sector. The reason: if household consumption is being financed by the drawdown of financial assets, it is not likely to be sustainable.
This pattern of drawing down financial assets while reducing financial liabilities has been frequently observed in Greece during the last two years and is definitely not a positive development, in my view. [b]
Meanwhile, Koo notes that the corporate sector in the United States remains a net saver, per the latest Flow of Funds report:
[IMG]file:///C:\DOCUME~1\ajohnson\LOCALS~1\Temp\msohtmlclip1\01 \clip_image003.png[/IMG]
Nomura

So, what is the outlook for corporate sector releveraging, then?
Koo writes that it's unlikely to return for several more years:
Even in the aftermath of the Internet bubble collapse, during which the necessary adjustments were far milder, it took 12 quarters—three full years—for corporate sector behavior to return to pre-bubble norms.
Given that the shock of the housing bubble collapse was several times greater, I suspect that at least several more years will be needed before US companies stop increasing savings and resume borrowing money to expand operations.

And with both the corporate and household sectors refusing to borrow, Koo writes that "fiscal stimulus is currently the only thing preventing the US economy from falling into a deflationary spiral, since both households and businesses are increasing savings in spite of zero interest rates."
Bottom line: Koo thinks the releveraging argument is "premature," to say the least.

[Chomsky]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

I believe EJ's stance is that The Fed thinks it has achieved it's goal of reflating the economy sufficiently to achieve self-sustaining GDP growth this year and The Fed thinks it can therefore stop increasing its efforts at reflation now.

Indeed.

EJ also recently noted: "The stock market always -- always -- rallies into a recession."

http://www.itulip.com/forums/showthread.php/24355-It-s-official-Deal-reached-on-fiscal-cliff?p=246881#post246881

He also said: "As I wil demonstrate in my next article all of our major recession forecast indicators are flashing orange or red. I expect a recession and major market correction in 2013. Stay tuned."

http://www.itulip.com/forums/showthr...723#post246723


This report on bullishness seems to be in line with EJ's observations.

[charliebrown]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

I think both the cliff avoidance, and the debt ceiling delay both point to more debt/money flowing around in the system lifting all ships.
Japan has joined the print club too.

I think the cliff deal is going to hurt the private economy. My paycheck went down pretty good. i'm scrambling for ways to get more than $1500 cash back from the grab. I guess we will eat out less. I'm looking for a lower cost internet. I might also shop around for lower cost insurance. We aren't living high on the hog right now. There is not much blood left in the rock.

I noticed the cost of my health care is printed on my W2. I hope I don't have a cadallac plan and get taxed on that too.
Medical device tax kicks in. What is that on? If my mother has to buy a new walker does she pay the tax? (nice). And what about a new hip, heart valve pace maker etc that cost bukoo bucks. Will insurance pick the tax up or does that go directly to the patient?

Oil is up too, and so it the price at the pump. Maybe that will cool the mania.

[don]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

I noticed the cost of my health care is printed on my W2.

What's next . . .

[charliebrown]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

http://www.irs.gov/uac/Form-W-2-Repo...ealth-Coverage

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on the Form W-2 does not mean that the coverage is taxable. The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee's income, and it is not taxable. This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage.

You know ... this info was already reported to us during our annual review process. I think it was to make the no raises pill easier to swallow. So why is this now required to be reported on an IRS form? Now the IRS knows how much i pay and my employer pays in health insurance. I smell a rat. I smell an end to non-taxable health benefits. I see the employer boosting my pay by the amount of coverage, and having me buy my own insurance from the exchange, and me paying payroll and income tax on the higher salary. That's my guess. When does Obama leave office 2017? That's when the new law will take effect. After all it only fair. Not everyone has employer provided insurance.

[lektrode]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

I noticed the cost of my health care is printed on my W2.

What's next . . .

guessing thats the first clue that he's going to be taxed on its 'value' ?

same sort of schtuff happened with the self-empl'd deduction for it - from time it was a 50% deduct, thru 70% and then 100%, the cost increased at more/less same rate as the deduct increased, if i remember correctly, mr don?

that was the biggest CONjob of them all (in this dept), the trading away of the 'association-based rates' for increased deductability.

and i want to know just how is it that big corp (or public sector union) employees cost LESS to 'service' than does a smallbiz/sole proprietor = The Biggest BS Scam/story ever told!

if anything, a sole proprietor uses med svcs LESS because we DONT GET SICK TIME and cant afford to go to the doc, even WITH the insurance 'benefit'!

so i wanna know WHY the big corps (and public sector unions) get such H U G E discounts on premiums?

[lektrode]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

..... I see the employer boosting my pay by the amount of coverage, and having me buy my own insurance from the exchange, and me paying payroll and income tax on the higher salary. That's my guess.


When does Obama leave office 2017? That's when the new law will take effect. After all it only fair. Not everyone has employer provided insurance.

now THERES a clue as to whats going to happen, if there ever was one!

[lektrode]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

Oil is up too, and so it the price at the pump. Maybe that will cool the mania.

and it will continue on UP, just like it has most years, peaking just before the summer drive-athons get planned - and we can almost bet on same mumblings out of the oval office about 'tapping the strategic reserves' or more yammering about 'windfall profits' - that will cause a price drop - just like the prev couple years in particular - and by july4, the prices will go shooting back up again, just as the herd hits the road to dizzyland....

guess the only question is: how to profit from this 'phenom' vs getting gouged by it?

we're back upto/over 4bux out here, with costco about 15-20cents less, with a flattening of price differentials tween the islands (had been as much as 10% spread from cheapest to most exp) - methinks we'll see near 5bux by may this year..
altho somewhat strange, the airlines are charging the lowest prices seen in awhile, for outer isle flts (if one can book a week or so in advance, woe be you if ya dont and it happens to be a busy wknd...)

[DRumsfeld2000]

Re: Weisenthal: Massive Outbreak Of Bullishness Is Starting To Get Crazy

How can anyone quote Weisenthal? That guy and his site is a joke as he a perma pumper.