The Recent Bond Market sell off and Equity Market Rally looks to be overdone.
The equity bull run looks to be topping out.
The S&P 500 is priced for around $75 of operating EPS, something most people don't see occurring before 2012.
This rally has been all about multiple expansion — from 15x on trailing EPS at the low to around 23x now. Anybody who says the market is cheap is not paying attention and believes not only in "Green Shoots" but the Easter Bunny as well.
Bond sell off overdone too, notwithstanding the rush of supply as most of the Treasury auctions have actually gone pretty well, so this can't be all about supply. Through a good part of the Treasury yield run-up, private sector rates were unaffected, but now we have the 30-year mortgage rate approaching 5.5% which effectively kills the REFI trade. REFI activity has plunged the last two months which was the only operating metric that wasnt made up by the banks in 1st QTT earnings. Mortgage applications for new home purchases collapsed at a 20% annual rate in May too.
Been hearing from friends that the FED FUND FUTURES CONTRACT is pricing in higher short rates, as the futures market is priced for three Fed tightenings. This is total hogwash, balderdash, and bullshit, Fed Futures are another stupid derivative contract that was created only to make Financial Institutions more wealthy. There is absolutely no value in these what so ever.
Did I fail to mention that the Federal Reserve Board even though they are collectively a bunch of morons, have never raised short rates when the economy is losing jobs? Even those nitwits cant be that incompetent! Can they?
Talking about the FED, Jim Grant has this interesting and downright truthful assessment of the FBR.
I don't agree with a lot of Mr. Grants theories and assumptions, but he does make some interesting points, my thoughts in BOLD.
"If the Fed examiners were set upon the Fed's own documents—unlabeled documents—to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down." - TRUE...nothing else needs to be said.
"The Fed is undercapitalized in the same way that Citicorp is undercapitalized." TRUE...only thing is that FED has unlimited balance sheet expansion
"I think zero is the wrong rate for almost any economy." TRUE...but there are no other alternatives as the die was already cast with the AIG and original Paulson TARP plan. Every time the market goes down, people scream for lower rates, when has the FED ever disappointed?
"So great is the slack in the economy that it will be years before there is anything like a murmur from the inflation front." FALSE...Inflation will be a huge problem in 12 months.
"15 out of 16 primary government bond dealers are in agreement that the Fed will not move before the year end." VERY TRUE...See my comments above
"There are no bad bonds, just bad prices. Treasuries at 2% were a toxic asset." FALSE...Treasuries were the only thing standing in the way of most people living in caves when the credit meltdown hit, it was a panic bubble that needed to unwind, we are seeing that at this moment.
"Citibank is a rogue bank." TRUE...lets also add "Incompetent"
Jim Grant has been negative for 20 years, I guess he was finally right. But in all seriousness, all of the Wall Street honcho's had the same data and access to info, Grant, Granville, Kaufman, and Roubini just put their necks out.
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