Fighting the Business Cycle – Longest War in History
The one war that never ends is how people constantly try to fight the trend. The ECB will buy bad government debt they created instead of doing what was necessary from the start – consolidate all state debt. That would have enabled the Euro to be a viable currency creating a reserve base that does not exist today. Instead, leaving each country with its own debt that was then reserve quality for the banking system was the greatest mistake in history. European banks are really in trouble. They do not mark-to-market sovereign debt. Government PRESUMESthey are always the best.
Europe is a failure for they just will not reform Euroland. Instead, this is like a Chinese Water torture or an NSA Waterboarding vacation – a slow gradual and painful process. This Euro Crisis cannot be resolved in such a manner. Buying in sovereign debt is DEFLATIONARY for it is effectively retiring the debt that is worthless. It is bailing out banks, not inflating the economy, since the banks will not lend that money out again. The banks will crumble to dust for their reserves are worthless. This is a very interesting problem that nobody wants to discuss publicly for it is the biggest political manipulation in history gone really, really bad.
Government has NEVER accepted the economy or free markets. They assume they have the ability and the right to manipulate society. They have failed each and every time. They cannot just recognize the natural order of things driven by human nature (character). They constantly work against the business cycle and attempt to change what cannot be changed. Therein, they are engaging in a perpetual war they can never win.
The Romans tried to outlaw prostitution by saying you could not pay them with a coin that bore the image of the emperor when all coins displayed the image of the emperor. Solution, they created private coinage. You cannot outlaw human nature. It never works. There will always be prostitutes as there will always be people who drink or do drugs. All you can do is regulate the trade for you will never eradicate human nature no matter what the subject might be. Government cannot win against the business cycle. All they ever do is aggravate the cycle and increase the velocity resulting in panics.Equity Dividend Yield > 10 Year Treasury
The underlying support for the US share market is starting to unfold for the long-term (not short-Term trading). The yield on the S&P 500 has exceeded the 10-year Treasury warning that we are indeed entering the Bond Bubble. The peak in this relationship was 1931 when dividend yield reached about 9.5% after bottoming in 1929 at about 2.9%. The yield is starting the rise exceeding 2%. Effectively, the peak in dividend yield was 1931 and the historic low came in 2011 when we warned the Dow would rise to new highs.
As we turn in the Bond Bubble, capital will shift and turn to equities with individual flows also to things like gold. With yield starting to exceed the 10 year Treasury, we are in the consolidation phase for stocks and the end phase for bonds. Plus, when this indicator rises, we are often in a recession. This is not speaking well for post 2015.75.
Are Hedge Funds Really Sophisticated?
The hedge fund CANARSIE CAPITAL, LLC of New York City lost more than 98% in a single year. Owen Li, former Raj Rajaratnam’s Galleon Group trader, lost just about everything out of $100 million leaving just $200,000 behind. In a letter to investors he apologized stating he was “acting overzealously”.
Even a simple oscillator would have warned him he was on the wrong side. They turned negative December 8th. Way too many of these people really trade based upon what they simply read in the mainstream press.
A real professional listens to the market. Amateurs trade fundamentally. This is a lesson everyone should pay attention to. Make sure you do not invest with funds that trade only fundamentally. The period ahead will see devastating losses especially in bonds. The new saying may not be Gentlemen Buy Bonds – butFools Buy Bonds.