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Commentary on The Capital Markets- Category [Market Musings]

There are dark clouds on the horizon.....

Revenue misses are coming fast and furious this earnings season, and ignoring that is a very bad idea.

Everyone so far seems to be blaming the strong dollar, but IMHO that's misplaced.

The truth is that QE and it's pal ZIRP have short-term positive impacts with long-term costs that exceed the positive.  The long terms costs are now showing through the balance sheet in revenue misses.

Further, rotational trades into a handful of high-flying zero-earning (or damn near it; 400x P/Es may as well be negative) while the market itself has structural problems, is a pattern we've seen before.  Netfux anyone?

Now it is true that a few of these warnings have been false, particularly when they've come immediately before a further QE announcement.

But few if any have come from this far into overbought territory (1999 and 2007, anyone?) and when they do they tend to be associated with dislocation-style effects in the relatively-near future.

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2015-04-17 07:44 by Karl Denninger
in Market Musings , 287 references

Hope you're ready folks...

The CPI was a "miss", and yet the headline number was hit (as expected) by rising gas prices.  The claims is up 10%, but I don't know how you get there in that locally we went from right near $2.00 to about $2.40, which is closer to 20% than 10%.

In any event the other issue is the obvious one: Economic data surprises have nearly all been negative.

CNBS talking heads continue to rationalize away the facts -- particularly that economic surprises have simply not filtered through to either prices in the markets.

But they will, and when you add into this the fact that most of the non-McJob additions in the employment sector were in the oil patch here in the US, and that hiring has now reversed with low oil prices and these people are being furloughed, well....

You might claim "jobs have recovered" but when the remaining "jobs" are all entry-level and provide little or no upward mobility there's no economic driver involved in them.

Markets, particularly in the no-earning tech sector, have been extremely buoyant, along with the garbage fast-casual food joints.

Unjustifiably so, in my opinion....

Oh, and then there's Greece.... which is coming, and is going to matter.  Not so much because of Greece per-se, but because all that crap paper they wrote went somewhere, and the place it went was probably in places you don't want it with the LTRO gamesmanship and similar.

Remember that in a derivative-linked world this crap is levered 20:1 as allegedly "good collateral" behind those bets, and when the collateral is exposed as trash the loss isn't the face amount, it's 20x as much because governments allowed this garbage to be geared up by so-called "banks" as a means of legalized counterfeiting.

Here it comes.

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Things that make me smiley when it comes to the market...


A rank double on the IPO.  We haven't seen that before, have we?  Oh wait....

Netflix up $78 on "earnings" when its free cash flow is the most-negative in its history, which of course is what's actually in the bank at the end of the day (or more-accurately in this case how much of it is flying out of the bank!)

The CNBS people are running around talking about nonsense like Bitcon (er, "coin"), which has lost somewhere around 75% of its alleged value (or, if you prefer my view, it has reverted 75% of the way to its actual value -- that is, bupkis!) in the last little while -- but it's a "breakthrough" they say.... (sure is -- it's breaking through the bottom of your wallet headed for the toilet!)

I had an interesting conversation with one of the folks who hold a number of these tech stocks; he was the typical early 30s young and full-of-cum dudes when it came to the markets and technology, and of course was a huge believer in them in the public marketplace.  It's hard not to be when you've seen your Apple stock price nearly double in a reasonably short period of time.

My caution to him was the same as it is to everyone else in this space: Know where the door is and be prepared to use it; these prices are being driven by uneconomic acts that are being "validated" and even driven by central bank policy along with pie-in-the-sky unicorn beliefs.

The problem with uneconomic actions is that they're uneconomic.  I know that sounds circular and to some extent it is; the most-important part is that it cannot and thus won't continue forever.  When it stops the avalanche of people trying to get out before their "gains" are gone will make 2000 and even 2008 look like a cakewalk.

It is always said "this time it's different" when a mania takes hold; the parade of people claiming so is never-ending and they get lots of ink because excitement sells -- especially in the financial media.  But the fact of the matter is that debt accumulation never has and never can drive sustainable growth -- in asset prices or anything else.

Were I to have obtained an allocation in ETSY I'd have done exactly what I did back in 1999 with a couple of allocations I did get -- I flipped them immediately.  While this looked dumb a week or a month later with the benefit of hindsight a year later it was in fact extremely smart.

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