A Holiday flavored ‘breakfast with Dave’
Bob Farrell’s rule number 9 – “When all the experts and forecasters agree, something ELSE is going to happen.”
Fish, Chips & Latkes with Dave: Market & Data Musings
December 3, 2010
Hope-based rally now, shock therapy later
While we continue to refrain from hyperventilating as others throw in the towel, it is completely understandable that investor sentiment has improved. Moreover, the incoming economic data, at least when benchmarked against the double-dip fears that prevailed in July and August, currently look “green shooty” in nature. But is the U.S. economy really out of the woods? Hardly.
The recovery is obviously still so fragile that the Fed felt the need to expand its balance sheet by an additional 25% and policymakers in Washington fear that the economy can slip back into recession if the Bush tax cuts and the 99-week emergency jobless benefit plan are not extended. When you get through the WSJ’s op-ed piece today (The Fed’s Bailout Files) it is readily apparent as to how the financial system can be rigged and manipulated by government officials, elected and non-elected alike. We don’t claim to be monuments to justice and perhaps Bernanke et al saved the world from imminent collapse in early 2009, but since when is a 14x P/E multiple “cheap” or even “fair value” for a period in economic and financial history in which capitalism went on a prolonged sabbatical? The Reagan Revolution this is not.
In as far as a couple of worthwhile quotes, here are TWO we walk away with:
Let’s also not forget that the peak in real GDP growth was posted in Q4 2009 and the high in ISM was back in April of this year. So whatever green shoots we are seeing now are really more about comparisons to low-balled summertime expectations.
AND
With most surveys showing a bull-bear ratio of three to one and the recent Barron’s Big Money poll showing 20 equity bulls for every bond bull, it would seem as though we have an overwhelming consensus on our hands as far as the 2011 outlook is concerned.
To which we respond by dusting off Bob Farrell’s rule number 9:
“When all the experts and forecasts agree, something else is going to happen.”
So it is with THAT in mind we’ll pass along what seems to be standard BOND-BEARISH fare these days:
Today’s range has been 3.04% – 2.90%. Price action has been disappointing, reflecting the long position held in weak hands. Supply, year end, extension risk, eroding technical backdrop… these factors have so far outweighed the disappointing NFP report. The poor price action reflects the probability that higher yields beget further liquidation: the path of pain is higher yields.
This commentary (from UBS) was accompanied by:
IF you ask us – and you didn’t – we think it sounds TOO easy, especially with a 9.8% U-Rate that some (g’man) are going to ‘sell’ as good news … ’nuff for now. Crawling back underneath the rock from which we came…