One of the challenges investors face today is how to reconcile seemingly conflicting messages coming from different markets. Is Dow 13,000 consistent with a 10 year U.S. Treasury at 2 percent and gold at almost $1,800? Is $125 Brent oil consistent with cyclically low implied volatility in many market segments, as well as widening CDS spreads for Middle Eastern oil producers?
These are but some examples of what some market participants regard as inconsistencies (and what some policymakers feel is "typical" market irrationality). Yet they are rooted in four factors that investors need to understand well in order to navigate what is a remarkably fluid outlook for markets and, to use Federal Reserve Chairman Ben Bernanke's phrase, "an unusually uncertain" global economy:
Multi-speed world: While emerging countries are slowing and Europe is slipping into recession, the U.S. economy continues to heal. You see this in the recent numbers for the labor market, housing, confidence and other indicators. The net result is a rather complex and perplexing picture for the world economy as a whole. Importantly, some believe that the improvement is sustainable and, accordingly, the U.S. can regain its role as a locomotive for the globe; others feel that it is just a matter of time before external headwinds once again interfere with the country's growth momentum, similar to what happened in the last two years (and especially as the U.S. is yet to sufficiently address impediments that stand in the way of large and durable improvements in employment, housing and income distribution).
Impact of policies: Unusual policy activism on the part of central banks -- including floored interest rates and balance sheets that have ballooned to a previously unthinkable 20 percent of GDP for the Federal Reserve and 30 percent for the European Central Bank -- has inserted multiple wedges between valuations and the underlying fundamentals. It has also altered liquidity conditions and affected the functioning of certain markets. Moreover, as the real economy is unable to properly absorb all the liquidity injections, the spillover effects are consequential.
Difficulties in pricing geopolitical risk and bimodal distributions: Markets understandably find it very difficult to properly assign a risk premium to complex developments in Iran and Syria -- two countries that, given regional network effects, could emit a series of cross-border waves and, in the process, could greatly weigh on the oil market and, therefore, production costs, consumption trends and global economic activity. They also find it hard to price what is now a bimodal outlook for Europe. The result is a differentiated approach among market segments, with those closest to the phenomenons reacting differently from others.
Short-termism: As many investors remain on the sideline, and as the obsession for daily and weekly performance continues to dominate, short-termism is a major driver of market action. Momentum overrides fundamentals as investors "stay in the trade" until they see overwhelming evidence that the "trend has turned." This takes market differences to extremes.
All this is real and will be with us for some time, though the net impact will vary as the relative weight of the four individual influences fluctuates. Some investors will opt for tactical positioning that is subject to rapid changes. Others will prefer to focus strategically on the long-term.
Those investors who combine a deep understanding of the destination with an agile handling of the journey stand to benefit most.
This post originally appeared on CNBC.com.
At what point is is allright to admit truth and let Greece default?
Observing OUR property getting shredded as parachutes protecting a couple of billionaires, including Germany's, is getting quite tiresome. Shadow puppets, would be a much less dangerous game to play. It would be over much quicker. March is the presumed date of implosion. Buying any more euros Bernanke?
Is it A-OK to siphon trillions of gallon of potable water from American aquifers and offshore it to another country that has poisoned it's resources? THEN force Americans to pay ungodly water prices to intl held private water companies?
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UK Footsie is 20% overvalued. We pretend there are good reasons for the stupidly high market. Truth is money got nowhere else to go. Correction before summer.
Goldman, Morgan, BOA, etc etc have rigged the markets and everyone knows it.
i.e., the FIFTH "Inconsistency"
Placing money on the market is no longer an investment, but rather a long shot gamble.
Real Estate - the same thing.
A steady job - the same thing.
Education being able to support you and the price tag to obtain it - the same thing.
No longer investments - but gambles.
Greed - will be our undoing.
It's not an "inconsistency gauging" issue - but rather a mindset (issue).
Free markets mean free to gouge people for as much as you want with no interference.
Look at Oil & Gas prices. Wildly out of control. Why? Oil companies are busy soaking every last possible dime out of you and making what anyone with any sense of proportion would consider to be obcene profits. I mean $11 billion per quarter? Really? And that's just for one company for three months!
Ditto Pharmaceuticals. Ditto Health Insurance. Ditto healthcare Which we always forget to blame for jacking up the prices for medical care 15 -20% PER YEAR! I could go on but why bother?
De-regulation is code word for free-for-all of gigantic price increases to feed the ever greedier maw of the rich investor class. They demand more profit or else!
But as I said I'm just a dummy who hasn't a degree.
here:
http://www.zerohedge.com/news/grantham-nails-it-industry-so-much-prefers-bullishnessso-does-press
http://pshakkottai.wordpress.com/2012/02/26/misunderstood-deficits/
The United States is not mentioned by name anywhere in Bible prophecy but it seems to refer to the United States and in fact all nations in Zechariah 14:2 when the ancient Jewish prophet wrote that at the end of the seven year Tribulation period, all nations will gather in Jerusalem. But before that, the superpower will be the Antichrist, the world dictator who will control a one world economic, political, and governmental system from Babylon in modern-day Iraq. This is foretold in Revelation 18. Under the leadership of Satan, Antichrist, and the False Prophet, this massive body of people will confront Jesus Christ as He returns to the Mount of Olives and then after the Battle of Armageddon, goes into the Temple on the Temple Mount in Jerusalem to set up His kingdom (Zechariah 6:12-13).
http://napoleonlive.info/judas-the-galilean-and-his-unterbrink-books/
http://en.wikipedia.org/wiki/Tulip_mania
AIJ Tokyo Asset Management: Billions In Customer Funds Are Missing
This is more Madoff than Corzine, but the song of unforeseen counterparty risk remains the same.
The Japanese regulators have decided to take a closer look to see how many more of the 299 asset management firms have funding problems like this.
Don't it always seem to go that you don't know what you've got 'til its gone?
Missing Funds at AIJ: Watchdogging Japan
The revelation that BILLIONS of DOLLARS may have gone MISSING FROM CLIENT FUNDS managed by a little-known Tokyo asset management firm highlights a sobering fact about Japanese financial regulation: It’s pretty spotty.
Japan’s financial watchdog Friday said investigators were looking into the alleged disappearance of “most of” the 183 billion yen, or about $2.3 billion, in pension-fund assets managed by AIJ Investment Advisors Co. Details are sketchy: regulators haven’t said exactly how much is supposedly lost, how many clients AIJ had, nor even whether they suspect foul play.
But we do know that if AIJ was doing anything wrong, the chances of its being caught out by Japan’s regulators were pretty slim.
Investment managers like AIJ are required to submit business reports to regulators once a year, Japan’s Financial Services Agency says. If those regulators suspect problems, they can carry out hearings. And some companies actually conduct voluntary audits of their own businesses. (AIJ was not one of them.)
This phenom lead to a huge bubble that exploded a few years ago and is certain to explode again as more boomers look to draw out income rather than simply look at the paper profits -- Those paper profits will simply vanish once it becomes apparent that they are not backed by supportable earnings.
Fiscal policy these past 4 years has been used to mask this obvious state of affairs by pumping the money supply -- Fiat money will not long be able to support what the middle class investors expect as an income stream from these investments.
If you believe the recent deflation of housing has been bad - Wait till it is coupled with REAL deflation of the equities markets.
To prosper requires added value production -- Paper pushing and service industry are in a healthy economic system adjuncts to that production and will never be a substitute for the long term.
The talking heads can explain away with whatever theory is the vogue of the month --- BUT all the explaining in the world can not change the basic laws of economics
as boomers pull money from markets, assets should drop, deflation maintain purchasing power. the problem is that central banks have allowed so much leverage that the financial system becomes insolvent with deflation.
http://napoleonlive.info/economics/unfair-competition-equals-free-trade/
I don't know what will happen.... I do know I have grandchildren that I fear for.
TREASON makes this happen.
Why not support politicians that weaken American's protections?
Trickery is not Fraud, if the stratagem used to deceive is not illegal.
My accusation against Goldman is not Fraud but Trickery.
The BBC has blown the whistle on the strategem that Goldman Sachs created (a type of SWAP) to deceive the markets, some investors, and some Europen governments. The purpose of the G.S. strategem was to hide the true financial state of the Greek Treasury and their economy.
The point I make is this. Trickery whether legal or illegal is a barrier to trust as it's purpose is to deceive. Goldman Sachs, a global American corporation, has now been proven to have used trickery and is therefore untrustworthy. The Federal Reserve, the SEC, the US Treasury have demonstrated their incompetence by not discerning the trickery employed by G.S. and regulating against it, as that is a facet of their "cause d'etre".
The larger questions are these.
a) Has Goldman used, or is Goldman using, trickery in the American marketplace?
b) Are the SEC, Treasury, the FED, properly supervising Goldman and others?
c) Should the FED disallow G.S. from participating in the market for US Gov't paper.