The Haiku of Finance for 09/10/14

Bull market going
Pumpers living the good life
Ignoring the end

The Tired Stories of Bull Market Pumpers

The US financial markets are on overdrive thanks to the Federal Reserve's magic ZIRP juice.  Blowing up the Fed's balance sheet works wonders for hedge funds, mutual funds, penny stock pumpers, and anyone else with more pedigree than brains who's willing to ride this gravy train right over a cliff.  The bull pumper stories are everywhere and I'm tired of hearing them.

Want an overpriced hedge fund?  There's plenty of those on the loose.  Rocket scientists with no rockets to launch are paid millions to write algorithms that churn the market.  Net neutrality doesn't slow their servers down but a super-slow exchange routing their orders can eliminate their unfair advantage.  The typical hedge fund bull story is full of swagger about exclusivity and leverage.  It's still just bull.

Up for an underperforming mutual fund?  They're everywhere.  The anomalies from American Funds, Dodge and Cox, and a few others will eventually find their alpha arbitraged away.  They're squeezed from one end by HFTs seeking order flow speed and ETFs at the other end that lower costs.  The typical mutual fund bull story is full of assurances about buying dips and staying with brand names.  It's really just bull.

The penny stock universe is always on my radar.  Tiny companies with no recent successes trundle through town raising PIPE money while their share prices are in the basement.  Going public even with no assets or revenues is a crafty way for founders to cash out of a losing proposition.  The typical penny stock bull story is all about explosive growth just around the corner.  It's pretty much just bull.

The expiration date for this circus is anyone's guess.  I guessed incorrectly that the bull market would have ended over two years ago.  Anyone guessing it will continue indefinitely is probably even more incorrect than I could ever be. 

The Haiku of Finance for 07/26/10

Fund bulls jumping in
Ready to buy at the top
Do they like to lose?

The Haiku of Finance for 10/31/09

Happy Halloween
Bad numbers spooked the market
No treat for the bulls

Dr. Doom's Going To Get It Right Again

Nouriel Roubini, a.k.a. Dr. Doom for his accurate call on the credit crunch, is back with another bold warning for the markets:

Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.
(snip)

Roubini said the dollar will eventually “bottom out” as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and “rush to the exit,” he said.

So is anyone paying attention? Especially serious investors? Some are, but most apparently are not. The bond market swallowed the Treasury's latest issuance without even blinking. Delusional homebuyers are paying premiums for a new housing mini-bubble driven by an expiring tax credit. At least institutional investors are starting to get nervous about an overvalued stock market.

As for me . . . I'm just waiting for a cheap entry point on some ETFs and stocks I've been watching.

ISM's Service Sector Isn't So Rosy

You think today's ISM report heralding an increase in non-manufacturing activity is a bullish sign? Only if you don't read what really drove the increase:

Federal Reserve efforts to unlock credit and government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers are reviving demand and likely helped the economy grow last quarter. Nonetheless, last week’s report showing job cuts accelerated in September is a reminder that gains in purchases may not be sustained as incentives expire.

Come on, folks. Take away the stimulus and you take away the rosy economic results. I can't short the market while these stimulus measures are in place because average investors are piling into what they think is another great bull market. Scared to be left behind, reader? Here are some investment voices who aren't worried about being left behind:

New York University Professor Nouriel Roubini said stock markets may drop and billionaire George Soros warned the “bankrupt” U.S. banking system will hamper its economy, highlighting doubts about the sustainability of the global recovery.

If you don't believe them, believe this guy:

Nobel Prize-winning economist Joseph Stiglitz said unemployment is going to keep rising and should be the main focus for policy makers, and that gains in the stock market indicate investors have been “irrationally exuberant” about a recovery.

These guys are all on the same sheet of music. I'll add my voice to the same choir. IMHO this market is overvalued and headed for a decline, but I'm not going to bankrupt myself by shorting into an overbought rally.

Wall Street and Fed Overestimate The Recovery

At least money managers are starting to mention that a wall of worry just might exist:

“There’s a little bit of a wall of worry right now, but the market just feels like it wants to go up,” said Michael Mullaney, a Boston-based fund manager at Fiduciary Trust Co., which oversees $9 billion. “There’s going to be a very strong near-term economic rebound greater than expectations. I think we’ll end the year higher.”

The first part of that quote is an understatement. Just a little wall, you think? The second part of the quote makes me sad. Wall Streeters are going to stake a whole bunch of other people's money on the hope for a continued rebound through the Christmas shopping season. They're not alone in their misplaced optimism for a fast recovery; the Fed is planting the same meme in the media:

Federal Reserve officials may signal that the U.S. economy has started to recover while maintaining their pledge to keep the benchmark interest rate near a record low for an “extended period.”

Actions always speak louder than words. The Fed is keeping interest rates low because the economy is not at all out of danger. I'm not shorting anymore because all this stimulus action is pushing stocks into blowoff top territory. I may have been a few weeks premature by calling a market top recently but I'm convinced I'll be vindicated soon enough.

The Bull Was Running

In lighter news, there was some bullishness in the Big Apple today.