Is this a market bubble?

When stocks go vertical as investors ignore technical, fundamental and economic evidence trouble is brewing.

By Anthony Mirhaydari Jan 23, 2013 4:17PM
Red arrow digital Riko Pictures PhotographerThe market dislocations reached an extreme on Wednesday as mega caps IBM (IBM) and Google (GOOG) boosted a small portion of the market, while the rest melted lower. While the Dow Jones Industrial Average ($INDU) goes vertical and pushes to new highs, the NYSE actually has a few hundred net declining issues. If this isn't a blowoff top, than the market has truly broken.

The central bank-fueled market fantasy continues as stocks keep ignoring all the technical, fundamental, and economic catalysts saying caution is warranted. Even long-dated VIX contracts remain buoyant as the volatility term structure steepens -- a harbinger of downtrends. Sentiment has reached a bullish extreme, with newsletter writers recommending their largest net long positioning in the Nasdaq since July 2000.

That's right folks: We're looking at dot-com bubble levels of market idiocy.

Then, it was the belief that slapping ".com" on any mediocre business idea was a license to mint money. Now, the belief that that central bank interventions will solve all the structural ills that still plague us: Excess indebtedness, structural budget deficits, stagnant wages, dilapidated infrastructure, and an employment-to-population ratio mired at early 1980s levels.

Not just here, but around the world.

That the European Central Bank's commitment to "do whatever it takes" via unlimited bond purchases will solve the loss of competitiveness of economies like Greece, an imploding real estate market in Spain, and youth unemployment in Portugal amid signs Germany -- the center of strength in the Eurozone -- is falling into a recession.

Or that the Bank of Japan's announcement Tuesday of a 2% inflation target will end its multi-decade debt-deflation malaise caused by zombie banks, massive government indebtedness, an insular culture, and a rapidly greying workforce.

Or that yesterday's comments from the Bank of England -- that it could embark on its own competitive devaluation as it warns of a currency war -- will erase huge household debt loads and signs the country is falling, yet again, into recession.

This is fiat currency manipulation and maltreatment on a scale the world has never seen. It's a sign that global policymakers are acting in desperation.

They are scared that the normal business cycle is trying to run its course, pushing the economy down into a natural pullback after a multi-year expansion. But, since the required improvements haven't happened, the housing market hasn't fully recovered, consumer balance sheets haven't healed, government deficits haven't closed, they cannot allow it to happen.

So they are trying, as we enter the sixth year of 0% interest rates, to use more cheap money to stave of recession by juicing the stock market. Fed chairman Ben Bernanke has repeatedly pointed to the Russell 2000 small cap index as a measure of his success.

 

 

They are not succeeding in helping the real economy. Many rich-world economies are already in technical recessions. And here at home, the Citigroup Economic Surprise Index has crashed through the zero line as the economic data continues to disappoint as the stock market disconnects from reality. Such as the big miss in yesterday's Richmond Fed manufacturing report.

 

With more taxation and spending cuts coming out of Washington very soon, spiked with the drama of a possible government shutdown, a loss of consumer confidence, and the 1.5% GDP hit from the fiscal cliff deal, the United States could see an outright economic contraction this year.

 

Clearly, the stock market and bullish investors aren't considering this line of thinking at all.

 

 

They just see cheap money being pumped into a system already drowning in liquidity. And they see that as rerating equities higher despite a stalling of earnings and revenue growth; ignoring the problems this monetary stimulus is causing, from a massive accumulation of excess reserves at the Fed to a decline in net interest margins at financial institutions to signs of excessive risk taking by the likes of JPMorgan (JPM). 

 

 

Eventually, with crude oil marching towards the $100 a barrel level, inflation concerns will also enter.

 

Which is why I've moved into precious metals and the related mining stocks -- an area of the market that's been forgotten over the last few months and is poised for a turnaround.  Today, I'm adding Golden Star Resources (GSS) and Silver Wheaton (SLW) to my Edge Letter Sample Portfolio.

 


Disclosure: Anthony has recommended GSS and SLW to his clients.

 

Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.  

103Comments
Jan 25, 2013 11:15AM
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Anthony has the reputation of being a doomsday type person...
Jan 24, 2013 4:47PM
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Under normal circumstance, today's jobs report would have been a major boost to the markets, the fact that the S&P is virtually unchanged tells me we're near the ceiling.  I predict bear markets (hopefully) to begin soon.

Jan 24, 2013 2:58PM
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Not a surprise at all what's going on down here today...We have been up what. 9 out of the last 10 sessions or so...Manipulators in panic mode, pulling their hair out, the little they have left, so at 1130 hrs they started selling big time, orders coming in left and right...Please do not blame it on Apple, that is a complete farce, Apple is still the most profitable and best company there is. Don't have enough time to go over why these crooks are selling Apple...If you have any knowledge of the markets and the economy and government you should know the reasons...Oh well, about 2 hours left, we will see how things develop...This one may go to the scumbags; never give up though.
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This is the year everything goes south folks.

 

Be prepared -- stock markets in the western world are going to crash and burn as the Chinese and it's trading partners have almost completely moved over to Chinese banks and the yuan running the global economy now.

 

As China has used it's 1 trillion dollars in US T-bills to secure it's lastest building craze when the US dollar falls later this year the western banks that loaned China 1 trillion dollars to build the buildings are not going to be able to foreclose on the building rather they are going to be forced to except defunct US T-bills as payment when the Chinese default on the loans and the US T-bills by then will be useless.

 

I expect by summer the $12 trillion in US T-bills coming due will pretty much none of it will roll over and that will collapse the US economy and take Europe and Japan with it.

 

Opening the way for China to sail into the economic power vacuum which it is already doing by setting up trades with everyone in yuan. The US is about the only country not trading with China in yuan right now.

 

Pretty much it's going to be the Fat Lady singing ....

Jan 24, 2013 12:01PM
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Anthony likes to chart the ups...And DOWNS...."A blind squirrel finds........"
Jan 24, 2013 11:51AM
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Tony you are apparently too young to remember what a real tech bubble looks like.

We're talking about companies with little to no income selling for outrageous prices.

Today's compagnies make piles of money while interest rates are to the floor.

To talk about bubble at this point is sheer stupidity

Money has started moving from bonds to stocks because investors have begun to realise the end of the world promised by overreacting medias is not going to happen. This is just the beginning.

Jan 24, 2013 11:04AM
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Yeah double ought...can shred a few things, but I like the knock down power..

Of course you have to to be a fair shot and practice...I do very well with a slug barrel, even on moving targets,,,,00 is usually only good in the brush/bush. At close range, 30-75 feet.

 

Normally the racking of a shell, scatters many or makes everybody pay attention.

 

I could relate a sad story about troopers and other cops in Oklahoma....They cornered a nutball and the Troopers had been using there Cruiser guns, out bird hunting over the weekend..They forgot to change out shells in the guns...Several were killed, but not the purp...Made National News.

Relative took slug to leg and crippled him for several years, but he lived..

The killer comes up for parole about every 5 years now...They should have killed him in Prison. 

Jan 24, 2013 10:35AM
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Morning Re-Tog;  You are sooo correct about this Apple thing. Totally uncalled for.  BUT...  I suspect this is a sell signal to the insiders.  I look for Monday to most possibly be the day for their "big" move.  No technicals just many memories of how these cats operate.   JMHO
Jan 24, 2013 10:12AM
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Anyway maybe we are going to go through a little shuffling today...?

Apple is going to rule,....To me that is just BS.

 

Yesterday not great on our Ports, even with Markets up, reversals on a little money..

Happens when you have some equities that RUN BIG for 2-3 weeks..

Someone shall take a little profit....I did on a couple over the last few days..

Cash on table, looking for the next soft ice cream.. 

Jan 24, 2013 10:01AM
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Fontana School Cops?....With assault weapons ?

Do they have a lot of gangs roaming the halls or hanging outside ??

Maybe a sidearm, is a bad choice against the auto rifle, i'd rather have a shotgun w/00.?

 

To many auto rifles going off w/o exact targets usually cause much collateral damage..

They shoot through doors, walls, etc,etc...

I think Billy Green may have a slight problem too, maybe send him back to Iraq.?

Jan 24, 2013 9:28AM
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"Fontana Unified School District police purchased 14 of the Colt LE6940 rifles last fall, and they were delivered the first week of December — a week before the CT school shooting. Over the holiday break, the district's 14 school police officers received 40 hours of training on the rifles. Officers check them out for each shift from a fireproof safe in the police force's main office.
Fontana isn't the first district to try this. Other Southern California districts also have rifle programs — some that have been in operation for several years. Fontana school police Chief Billy Green said he used money from fingerprinting fees to purchase the guns for $14,000 after identifying a "critical vulnerability" in his force's ability to protect students. The officers, who already wear sidearms, wouldn't be able to stop a shooter like the one in CT, he said Wednesday.
"They're not walking around telling kids, 'Hurry up and get to class' with a gun around their neck,"
$$$$$$$$$$$$$$$$$$$$

Give them time and...

Flow Chart: Wall Street gets $85 BILLION from the Fed to keep the DOW near 13,000. Increases our indebtedness, doesn't do squat to create restore jobs. Creates delusion of stability via financial tyranny. Markets gains cause family pain and an air of anxiety. Parents fight, lament, live in a state of depression. Kids retreat to video games-- often violent ones. Mom buys a gun. Gun retailer sells her an assault gun because it gets him off (phallic symbol fetish). Gun is in the closet... kid finds gun learns how to use it in the video game, plots a massacre because depressed life is a futile existence. Acts it out until he/she does it. We are shocked.

Guns don't kill but if you allow proliferation of guns, nut cases will kill using guns. Make more laws? WOW... do the ones on the books now do anything more than to confuse the masses?

STOP letting the Federal Reserve fuel our demise? WOW... now that's a good plan! Working people do everything EXCEPT to buy guns. Out of sight, out of mind. Busy people go FORWARD not paranoid and delusional.

Close the banks. End the Federal Reserve. Get RID of Wall Street. You need to wake up. Financial tyranny causes all issues and is killing us. We're America. Make the NEW currency Red White & Blue and distributed on Main Street. Minimum Wage for all paper and button pushers. No such career as a financier. WAKE UP.

Jan 24, 2013 8:43AM
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The decline in Apple last night proves the market is nuts.
Jan 24, 2013 1:02AM
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another lucid, explicit article anthony - well said.  without articles like yours i would be drinking heavily and losing hair for doing the right thing by now  ... 

 

we were one of the "early adopters" and had 75% of our AUM on the sideline by June 2007 and the rest of it out of the market completely by June 2008.  we suffered the slings and arrows of bullish detractors, and of course lost some accounts as the market first pushed to its highs in october 2007 and then seemingly recovered in mid 2008.  our mantra was simply that sooner or later the majority of investors would be forced to admit the emperor had no clothes ... that two plus two did equal four .... and that the goal of a house and car and big screen for every single American was a myth: an unsustainable excessive standard of living beyond the grasp of other nations ...

 

this grandiose concept began in the reagan years and has been perpetuated by pols of all stripes ever since - egged on by all the wanna-be one percenters who now think paying taxes of any meaningful rate on their tens of millions in annual income is somehow "unfair.'  what was unfair is the way we as a society stood around and allowed our spending to spiral out of control and then had the chutzpah to export our madness around the world while blaming it on "socialism," when these other societies were merely aping the apparent  "success" of the American Dream ... even as it turned out to be an American nightmare .... 

 

think i am overly harsh on the old girl?  get thee to usdebtclock.org and spend some time understanding just what we have wrought ... yeeeesh ...  oh, don't get me started .... 

Jan 24, 2013 12:56AM
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Mirahaydari is consistently all over the board. He has called for epic an bull market and epic bear market within the last 18 months or so. If one predicts every possible scenarion, something will finally hit the mark. He has the nerve to include himself with the "smart money" crowd - whoever that is. Flipping a coin is just as helpful as following his advice  would be IMHO.
Jan 23, 2013 9:30PM
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The reality gap between Wall Street and Main Street is so wide now that when it does snap, it'll be a big one.
I've been noticing all my bills going up and listening to others complain about the same. Bills going up, income coming down.
The mucky muck window dwellers are just raising prices to cover their loss. They aren't taking a pay cut, no way. They will just lay it on the backs of the middle class so that they can continue living their same self indulging mucky muck life style while everyone else pays for it. The Wall Street Main Street reality gap will snap.....And when it does, it ain't going to be pretty.

Jan 23, 2013 9:25PM
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Now I think it's time to drink...Ciao.
Jan 23, 2013 8:57PM
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Bulls and Bears both make money and lose money; but Bulls lose more.
Jan 23, 2013 8:51PM
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I wouldn't call it a bubble quite yet.  My analysis puts a fair current S&P value at about 1400, and 5% - 7% higher by the end of the year. 
Jan 23, 2013 8:48PM
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Timothy...Do you think that 10% retraction or retrenchment is going to happen in ONE DAY...??

Or are we talking over a week or month ??

 

1300 or 1400 points is a sizable drop in a short period...

Kinda thinking 2008-2009 huh ?...I just don't see it..

There are a lot of good companies out there with decent fundamentals..Doesn't matter how.

But you are "smackin" a double dip recession...

And in actuality we are "still slowly rising" from the ashes of this one....IMO

Greenspan and Reagan or Bush aren't in charge anymore..

I don't like the debt at all, but little else has worked so far.

And I realize someones gonna have to pay for it...That's a given.

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