Apr 28, 2014

Jonathan Golub on why the bull market will continue despite weak economic growth

No two recessions are the same, but they tend to follow a similar pattern. Typically, an accelerating economy burns through existing spare capacity. This leads to inflationary pressure, which forces the Fed to act. As markets anticipate rate hikes, the yield curve inverts. Growth slows and, more often than not, the economy rolls over, taking the market with it.

The current economic rebound is the slowest of the post-war period. Growth is being held back by a modest housing recovery and weak business confidence. As a result, abundant spare capacity exists, which prolongs the length of the cycle.

~ Jonathan Golub, chief U.S. market strategist at RBC Capital Markets, "Bull market won't die until a recession hits: RBC," MarketWatch.com, April 28, 2014

Apr 14, 2014

RBC strategist Jonathan Golub thinks momentum stock bust is contained

I think the selloff is probably over.  If you look at the economically sensitive stuff in the market, it's not really selling off. It's tech. It's bio-tech, [which makes up about 10 percent of the market].  The other 85 to 90 percent is in perfectly fine shape.

~ Jonathan Golub, chief U.S. market strategist at RBC Capital, as appeared on CNBC, April 14, 2014

Apr 13, 2014

Ken Fisher remains bullish because "We're stil straddling skepticism and optimism"

Running out of steam is best seen via legendary investor John Templeton’s four-phase quote: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Upon reaching euphoria bull markets lack energy to propel them further. Bulls climb the legendary “Wall of Worry,” and when all worries wane to well-worn whitewashing, you’re out of steam.


So I wait, watch and remain bullish, noting we’re still, in Templeton’s parlance, straddling skepticism and optimism, and, hence, abundant force propels this bull on. Without a wall we’re maybe halfway through.

~ Ken Fisher, "Only Two Things Can Stop The Bull Market," Forbes, March 26, 2014 (online version), April 14, 2014 (print version)

MarketWatch columnist: "The main causes of a genuine bear market are not on the horizon"

Now other sectors fueled by speculative fever and cheap money — biotech, post-IPO social network companies and high-momentum stocks — are getting their comeuppance. But the broader stock market has a long way to go before it’s even in a decent correction.
Plenty of things can cause that, including weak first-quarter earnings, poor economic reports, and the fact that we’re entering two of the worst quarters for stocks in the four-year presidential election cycle.
But the main causes of a genuine bear market — impending recession or deflation, ultra-high stock price-to-earnings ratios or rapidly rising interest rates — are not on the horizon.
So unless you’ve borrowed to the hilt to buy Twitter or the biotech ETF, you should stay invested and not lose a minute’s sleep. As far as market shocks go, this looks like a mild tremor, not the big earthquake everybody fears.

~ Howard R. Gold, "Don’t let these stock market gyrations scare you; Opinion: It’s likely that we’ve seen the end of recent declines," MarketWatch.com, April 13, 2014

Apr 12, 2014

Walter Block on how the truth about Friedman, Reagan, and the Great Depression is distorted by language

Walter: Well, we spoke of being free to choose earlier; that’s of course the title of a famous book by Milton Friedman, an economist highly regarded by most free-market type people. I must say a word or two about Milton Friedman.

Q: Okay, shoot. Metaphorically; no sectarian violence allowed.

Walter: Murray Rothbard used to say that mainstream economists specialize in what they are bad in. If you look at Milton Friedman’s work, you can see that he’s very good on free trade, minimum wage, rent control, occupational licensure, and other topics…

Q: But he was a monetary interventionist.

Walter: Yes, he was a monetary interventionist – and that was his main thing, apart from educational vouchers, which are also a horrible idea. If someone says “monetarist,” who will most people come up with by association? Milton Friedman. He was just horrible on this; he favored fractional reserve banking, he favored the Fed, all sorts of government monetary and tax intervention, and he had the audacity to name his book Free to Choose. But when people were free to choose, what did they choose? Gold. He’s a disgrace!

Q: Don’t hold back, Walter – tell us what you really think.

Walter: [Chuckles] Well, I don’t mind disagreement. We have to have Krugmans and Keyneses – but the problem is that everyone thinks Friedman was a champion of free enterprise, and people will come to you, and me, and Doug, and tell us were wrong because “even Milton Friedman concedes…”

Q: It’s like the problem arising from Ronald Reagan using libertarian rhetoric to get elected, and then overseeing the biggest acceleration of growth in government ever seen until that time. That had typical results of too much regulation and government spending, and people think that the Reagan years showed that free enterprise doesn’t work. Just as people are taught that the Great Depression proves that “unbridled laissez-faire capitalism” doesn’t work – when, in fact, the Depression was the result of government intervention into the economy.

Walter: Precisely.

~ Walter Block, "Walter Block: Doug Casey is an Optimist," LewRockwell.com, April 13, 2013

Apr 6, 2014

Manoj Narang on lumping high-frequency traders in with Wall Street

Basically, what we don't like is that, rightly or wrongly, the public view of the financial industry has really plummeted since the financial crisis. I think much of that is well-deserved but the problem with that is there's been very little differentiation between good actors and bad actors in the industry. And what I don't like - and what I tend to take personally - is being lumped in with people who had something to do with the financial crisis. Nobody ever heard of high-frequency trading, nobody ever cared about high-frequency trading before the financial crisis, and because the financial crisis happened to coincide with when people first heard of high-frequency trading, I think those things got conflated, even though they have nothing to do with each other whatsoever.

~ Manoj Narang, "In the Worx: What Manoj Narang thinks about regulation, Europe, volatility and a lot more," Automated Trader Magazine, April 1, 2013

Apr 5, 2014

Mark Cuban on the risks of high-frequency trading

CNBC: [Michael] Lewis maintains that high frequency traders are front running smaller investors in his words, legal front running is how he puts it.
Cuban: Yeah, they are. I mean, there's no question about it. You know, they know if you go to the store every day to get a snickers bar, well, if i run to the store first, get a little bit of a discount and sell you your snickers bar, you know, they're going to make a little bit of money. especially if they do it millions of times. it's almost like taking advantage of a regulation that's not quite right. it's what they do. and they've been doing it for a long time. and it's reality. but i don't think that's even the greatest risk of high frequency trading. that's just part of the deal.
CNBC: What is the greatest risk then?
Cuban: The greatest risk is that, A) there's no such thing as buck-free software.  All this is software-driven. It's actually even going to processor driven.  And because of -- because there's no such thing as bug-free software, when you have fat finger bugs, you don't know what's going to happen to the market. So there are structural risks, trading risks, and I think that plus the fact that when you have algorithms trying to figure out routes and how to get ahead of orders.  It's not like there's just one player jumping in front of all these orders. you've got all these different algorithm traders, it's not about small investor or any investor giving up some amount of money to somebody who jumped in front of them, the risk is all these different high frequency traders playing a game with their algorithms to get in front and make that trade. Because we don't know the in factorial all the ways they may interact and the negative consequences that occur as a result, that introduces a market risk. That market risk has an unquantifiable cost.  We saw it in one instance with the flash crash.  We see it every day with little mini-flash crashes. We've seen some -- it's gotten a little bit better with the circuit breakers per stock, but we just don't know.   And that's even without the possibility of a malicious algorithm being intentionally introduced into the mix.  There are so many things that can go wrong as all the different high frequency traders jockey to get in front of that order. That to me is the biggest problem.  I think as a result you'll see people not staying with their positions as long because they're not quite sure what's going to happen with the market.  When you see something start to go bad in the market, they don't trust the system to say, you know what, somebody will jump in there and pick up the trades.  For all they know the chair might be pulled out and the whole market could fall even further.  And then we have such strong correlations between different markets and different types of equities and financial devices that even though there are circuit breakers involved, one trade down, limit down, might lead to something happening in another, might lead to something happening in another equity might lead to something happening in a full market and who knows how far down that can cascade.  All those things introduce risk.  All those things take a lot of money to try to understand and combat.  Because of that that's a cost...
~ Mark Cuban, as appeared on CNBC, March 31, 2014

Apr 3, 2014

Ed Yardeni and China's expected soft landing

The Chinese are doing everything to keep their economy growing.  Maybe it's a soft landing, but it's certainly not a hard landing over there.

~ Ed Yardeni, as appeared on CNBC, April 3, 2014

Apr 2, 2014

H.L. Mencken on free speech

I believe there is a limit beyond which free speech cannot go, but it's a limit that's very seldom mentioned. It's the point where free speech begins to collide with the right to privacy. I don't think there are any other conditions to free speech. I've got a right to say and believe anything I please, but I haven't got a right to press it on anybody else. [...] Nobody's got a right to be a nuisance to his neighbors

~ Henry Louis Mencken (1880-1956) in 1948 interview with Donald H. Kirkley for the Library of Congress

Murray Rothbard on libertarianism

There are libertarians who are indeed hedonists and devotees of alternative lifestyles, and that there are also libertarians who are firm adherents of “bourgeois” conventional or religious morality. There are libertarian libertines and there are libertarians who cleave firmly to the disciplines of natural or religious law. There are other libertarians who have no moral theory at all apart from the imperative of non-violation of rights. That is because libertarianism per se has no general or personal moral theory.

Libertarianism does not offer a way of life; it offers liberty, so that each person is free to adopt and act upon his own values and moral principles. Libertarians agree with Lord Acton that “liberty is the highest political end” – not necessarily the highest end on everyone’s personal scale of values.

~ Murray Rothbard

Lew Rockwell on libertarianism

Libertarianism is concerned with the use of violence in society. That is all. It is not anything else. It is not feminism. It is not egalitarianism (except in a functional sense: everyone equally lacks the authority to aggress against anyone else). It has nothing to say about aesthetics. It has nothing to say about religion or race or nationality or sexual orientation. It has nothing to do with left-wing campaigns against “white privilege,” unless that privilege is state-supplied.  Let me repeat: the only “privilege” that matters to a libertarian qua libertarian is the kind that comes from the barrel of the state’s gun. Disagree with this statement if you like, but in that case you will have to substitute some word other than libertarian to describe your philosophy.

~ Lew Rockwell, "What Libertarianism Is, And Isn't," LewRockwell.com, March 31, 2014

H.L. Mencken on President Warren G. Harding's writing style

He writes the worst English that I have ever encountered. It reminds me of a string of wet sponges; it reminds me of tattered washing on the line; it reminds me of stale bean soup, of college yells, of dogs barking idiotically through endless nights. It is so bad that a sort of grandeur creeps into it. It drags itself out of the dark abysm of pish, and crawls insanely up the topmost pinnacle of posh. It is rumble and bumble. It is flap and doodle. It is balder and dash.

~ H.L. Mencken