Bill Browder: Putin’s Foreign Enemy #1

A hedge-fund-investor-turned-human-rights-activist, he has made a career out of being Vladimir Putin’s archnemesis.


A Force Greater Than the Fed

This post A Force Greater Than the Fed appeared first on Daily Reckoning.

Yesterday the Donald announced he’s ready to reduce North Korea to dust.

Today the Fed announced it’s ready to reduce its balance sheet to normal.

Neither is good for stocks.

So how did they take the news?

Exactly as you’d expect — with another record setting day.

The Dow closed today day 42 points higher… eclipsing its previous high.

The S&P scratched out another record of its own.

Only the Nasdaq ended the day in red. And only by five points.

The larger question:

Why are stocks setting records in the face of such uncertainty?

The news is noise, say the optimists…

“Stocks are making record highs because the U.S. economy is on a roll,” says Yahoo Finance.

It’s because exports are rising… corporate earnings are soaring… and sales are booming, adds one analyst at Contrarian Outlook.

Stocks set records “not because central bank balance sheets are so expansive, but because companies are still lean and profitable, and corporate shares still represent value compared to other assets,” chirps the editor of Momentum Strategies Report.

Perhaps they’re right.

We bring a disbelieving outlook to the business… and a jaundiced eye.

It may blind us to the booming sales, the corporations representing value, the rising exports… the economy on a roll.

But the Atlanta Fed’s GDPNow updated growth forecast came out yesterday.

It projects third-quarter growth at an annualized rate of 2.2%… down from a projected 4% at quarter’s start.

The New York Fed releases its own updated estimate Friday. Its last estimate had third-quarter GDP even lower… at 1.3%.

Meantime, Kiplinger estimates full-year growth will total 2.1%.

Are these the numbers of an economy “on a roll”… or an economy at a crawl?

If the latter, what force is thrusting stocks to record heights?

Is some unseen hand working unseen levers… some mysterious alchemy transmuting Main Street lead into Wall Street gold?

One possible clue:

The Fed has taken the federal funds rate to 1.25%, from just about zero in December 2015.

Still low. But higher than zero. And trending higher.

Yet… the Goldman Sachs U.S. Financial Conditions Index is now at its lowest point since 2014.

So despite the Fed’s tightening and all of hell’s angels, money is looser and cheaper than at any point in three years.

The Fed Tightens, Money Becomes Easier

How can this be?

Bank of America’s Michael Hartnett may have the answer…

The Fed is not the world’s sole central bank.

It shares the road with the European Central Bank (ECB), the Bank of Japan (BOJ), the Bank of England (BOE), the People’s Bank of China (PBOC) — to name some.

And Hartnett notes that central banks have purchased nearly $2 trillion of financial assets year to date.

That nears the amount of assets the Fed purchased under QE1… during the breathless and foot-free days of the Great Recession.

Those foreign central bank purchases translate to a vast sea of liquidity supporting stocks.

Hartnett calls it the “supernova of liquidity”… the “flow that conquers all.”

By our lights, it better explains today’s record markets than rising exports… booming sales… or the “rolling” economy.

We are not alone.

Analyst Tony Cherniawski, for example, argues:

Stocks have continued to rise, hitting new all-time highs in both the U.S. and globally, oblivious of any news and fundamental developments — as one would expect from a massive asset price bubble, and in line with what Hartnett has dubbed a liquidity supernova.

Some months back, MarketWatch even scoffed:

Quantitative tightening? Oh, please. Central banks, courtesy of the eurozone and Japan, are still buying financial assets with both hands.

The “liquidity supernova” may explain today’s record stocks.

But what about the future?

The BOE completed its own QE program this spring. The ECB has indicated it will begin to taper its asset purchases this autumn. The BOJ has backed off its own in recent months.

As we first reported this summer, the “flow that conquers all” will eventually stop rising… level off… and finally recede.


By the third quarter of next year — under a year from today.

And stocks may wash away with the ebbing tide.

But Hartnett thinks it could start long before the tide rolls out next year…

He believes the “most dangerous moments for markets” actually occur within the next two months, when markets suddenly grasp the reality of falling liquidity.

Hartnett expects the S&P to rise an additional 100 or more points, to 2,630, before the tide recedes later this fall.

Peak Market?

We make no prediction of course.

But it was Warren Buffett who said, “You only learn who has been swimming naked when the tide goes out.”

When the great liquidity tide goes out… we fear much of Wall Street will be caught in the buff…


Brian Maher
Managing editor, The Daily Reckoning

The post A Force Greater Than the Fed appeared first on Daily Reckoning.

Trump’s Now ‘Blowing Kisses to Janet Yellen’

This post Trump’s Now ‘Blowing Kisses to Janet Yellen’ appeared first on Daily Reckoning.

David Stockman joined Fox Business network to discuss his latest analysis on the economy, the political

Stuart Varney started his segment noting that David Stockman is traditionally bearish toward the market and continues to miss out on the Dow rally as it hit an all-time high. Varney began his entry to the former Reagan economic official by stating that if he had listened to Stockman, he would’ve lost out on significant earnings. Stockman began by reverberating, “If you had taken my advice in March 2000, you would’ve dodged a bullet. You could’ve taken my advice in November and dodged another bullet.”

“We have a Federal Reserve, the U.S central bank, that is responsible for creating repeated bubbles that last seven or eight years. This one we’re in has gotten to the point of absurdity. The market is trading at 24 times reported earnings at the 100-month point in the business cycle. Nobody has outlawed a recession. It is going to happen. The market will crash.”

When asked how he can continue to make such remarks when there is a cycle of recession Stockman remained level. He noted, “when the pullbacks come they remain at 20, 30 or 40%.”

Varney, in either negligent or confused tone, then asked what the point of warning of such a threat was if he could not get a specific time period. Stockman remained focused noting, “I cannot predict what the Federal Reserve is going to do. I cannot predict a black swan. I can predict that there’s an orange haired swan heading right the financial system right now. Washington is going to be in chaos within two or three months.”

Stockman went on to warn that Donald Trump was a threat to the market and a destabilizing factor.

The Fox Business host prompted the former Reagan official on what Trump could do to produce such a devastating crash.  Stockman, in clear and sober fashion, leveled, “He’s done nothing right. He’s wasted nine months. The top one, two and even three things wrong and hurting America today falls to the Federal Reserve. He was blowing kisses to Janet Yellen. She’s a menace. She should’ve been asked to resign in January.”

“Second, he should’ve got the budget under control. He is now going to preside over the biggest increase in the national debt in the history of the United States.”

“Third, he should be trying to bring in the expansionist, imperialist foreign policy. He said he would do it during the campaign. Instead of working with Putin and greater relations, he’s running away. Now he is focused on the North Koreans, the Iranians and everyone else. We don’t need another war – we’re bankrupt.”

David Stockman Fox Business Yellen

After being pushed from Varney, who seemed to be in a perplexed mood by the sober speaking, Stockman looked directly into the camera to urge clear and collected thinking. “Sell the bonds. Sell the stocks. Get out of this market. It is a dangerous casino. You have maybe 5% upside and a 40% downside.”

“The risk-reward ratio is terrible. We have a government that is out of control. We have a Federal Reserve that is making dead promises. Put it in cash or anywhere safe – but get it out of Wall Street.”

When asked by the Fox Business host how he could make such claims while others are still making considerable gains in the market, the former Reagan official continued the course. “Good for you on the gains. On the other hand, just because “the world did not end” at this moment today, it does not mean that there is not another drop to fall.”

“I hope you are ready for the crash when it drops because you’re going to have to get out of the way of the thundering crash. Why won’t there be, when you have a market that is so overvalued. Instances of this craziness can be seen in stocks like Netflix that is currently trading at 220 times earnings. It is nothing but a cash burning machine.”

Switching gears the host then went on to ask case specifically for the scenario that Stockman warns of. He began by asking whether Microsoft was in on the craziness. “Microsoft is a little more reasonable. It is trading around the same level it was in 2000 despite the fact that trading is up four times and earnings are up five times. Good companies get massively overvalued during bubbles.”

When asked about his views toward the big tech companies, including Facebook, Apple, Amazon, Netflix and Google (FAANGS), the best-selling author did not turn away from his bearish position. “While I don’t have a big view on Apple, what I do know is that most of the FAANGS, including Facebook, are way overvalued.”

“This market is crazy. This is a classic mania. This is fantasy land. While you smile, you would’ve been doing the same thing at the top of the bubble in March 2009 when everyone was saying ‘this time is different.’ But this time it is worse.”

“The Federal Reserve has nowhere to go. It has already announced that it would be normalizing its books, shrinking the balance rate and raising rates. The European Central Bank (ECB) will follow. The Bank of Japan is now lost. We have a world economy that is in very rough shape. I don’t understand why people don’t see that.”

Find the full interview with David Stockman on Fox Business discussing Janet Yellen’s Federal Reserve, and more here.

Thanks for reading,

David Stockman
for The Daily Reckoning

The post Trump’s Now ‘Blowing Kisses to Janet Yellen’ appeared first on Daily Reckoning.