Why The Casino Is Dangerous: There Is Nothing Below
The algos and chart traders are making another run at 2000 on the S&P 500, attempting to convince the wary investor one more time that buying on the dips is a no brainer. And in that proposition they are, ironically, correct. To buy this utterly manipulated market at these nosebleed valuation levels is about as brainless of an undertaking as is imaginable.
Now that is non-sensical Wall Street drivel. Honestly measured earnings have been growing only at a tepid rate, and have no prospects for acceleration given the sharp slowdown in both the global and domestic economy. And, please, how can we discount a distant stream of corporate earnings based on utterly artificial and unsustainably low interest rates that simply can’t be sustained over time without destroying the monetary system. That is, to keep the money market at zero and the ten-year at today’s 2.40% on a permanent basis in a world where inflation plus taxes turn these rates into deeply negative returns is virtually impossible. So sooner or later, and probably the former, there will be a normalization of interest rates, and that will cause a sharp downward re-pricing of equities.
But when it comes to real investors there is really no one home in the casino. Accordingly, when confidence in the central bank con game breaks, markets will gap down drastically, suddenly and violently. And this time there will be no Bernanke style rescue. Were the Fed to attempt to go back to massive QE and thereby substitute its own liqudity for the crisis-driven collapse of corporate stock-buying, it would actually exacerbate the panic and compound the selling.
DYI Comment: "But when it comes to real investors there is really no one home in the casino." That is correct! Here at DYI our two model portfolio (excluding gold mining shares) has left the casino and gone short. This market is completely devoid of value. Any future gains this market obtains will be completely speculative and will be transitory. A 45% to 60% decline is in play.
AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 08/1/14
Federal Reserve Policies Cause Booms and Busts
The Delinquency Problem Just Will Not Go Away
I have also been writing about the serious delinquency problem for four years. Wall Street continues to disregard the issue.
There are two key points which are absolutely crucial for you to understand.
First, the delinquency figures put out by the Mortgage Bankers Association and others are misleading and quite useless. Why? More than 22 million homeowners have had their mortgages modified since 2008. Most of them had been delinquent in their payments. Once the modifications become permanent, the loan is considered current and no longer delinquent. So of course, this pushes the delinquency rate way down. What do you think the delinquency rate would have been without these modifications?
As I have emphasized in article after article, between 40% and 80% of homeowners with modified mortgages have re-defaulted. Take a look at the latest re-default figures through July 2014 from TCW for mortgages held in private, non-guaranteed mortgage-backed securities (RMBS).
5 signs Americans are flat-out broke
DYI
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