Posts Tagged ‘wealth effect’



the fed, bernanke Courtesy of The Pragmatic Capitalist 

As usual, the latest Hussman letter is an honest and realistic perspective on what is going on today.  This week’s letter is a scathing criticism of Federal Reserve policies and their blatant manipulation and counterproductive policy responses.  The primary target of this week’s letter is quantitative easing.  In discussing Mr. Bernanke’s Washington Post op-ed Mr. Hussman refers to the Chairman’s comments as “the most ignorant remarks ever made by a central banker”.  I entirely agree and believe that these same comments will forever haunt Mr. Bernanke.  Naturally, I think Mr. Hussman is right and it’s clear in my opinion that the Federal Reserve is becoming part of the problem and not the solution.

The most interesting part of the criticism is Hussman’s debunking of the “wealth effect”:

“Historically, a 1% increase in the S&P 500 has been associated with a corresponding change in GDP of 0.042% in the same year, 0.035% the next year, and has negative correlations with GDP growth thereafter (sufficient to eliminate any effect on the long-run level of GDP). Now, even if one assumes – counter to reasonable analysis – that the GDP changes are caused by the stock market changes (rather than stocks responding to the economy), the potential benefit to the economy of even a 10% market advance would be to increment GDP growth by less than half of one percent for a two year period.

Now, as of last week, the total capitalization of the U.S. stock market was at about the same as the level as nominal GDP ($14.7 trillion). So a market advance of say, 10% – again, even assuming that stock prices cause GDP – would result in $1.47 trillion of market value, and a cumulative but temporary increment to GDP that works out to $11.3 billion dollars divided over two years. Moreover, even if profits as a share of GDP were to hold at a record high of 8%, and these profits were entirely deliverable to shareholders, the resulting one-time benefit to corporate shareholders would amount to a lump sum of $904 million dollars. In effect, Ben Bernanke is arguing that investors should value a one-time payout of $904 million dollars at $1.47 trillion. Virtuous circle indeed.

So what have investors done to themselves?  They’ve added an excess risk to their portfolios purely based on Fed speak and manipulation:

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TrimTabs Asks: Who Is Responsible For The Non-Stop Market Rally Since March; Gives Some Suggestions

This is an interesting post from Zero Hedge which I’m reprinting to get into the Favorites. – Ilene

TrimTabs Asks: Who Is Responsible For The Non-Stop Market Rally Since March; Gives Some Suggestions

Courtesy of Tyler Durden at Zero Hedge

Male magician performing on stage, aided by young female assistant

Submitted by TrimTabs’ Charles Biderman

Are Federal Reserve and U.S. Government Rigging Stock Market?  We Have No Evidence They Are, but They Could Be.  We Do Not Know Source of Money That Pushed Market Cap Up $6+ Trillion since Mid-March.

The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion.  The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock.
We cannot identify the source of the new money that pushed stock prices up so far so fast.  For the most part, the money did not from the traditional players that provided money in the past:

  • Companies.  Corporate America has been a huge net seller.  The float of shares has ballooned $133 billion since the start of April.
  • Retail investor funds.  Retail investors have hardly bought any U.S. equities. Bond funds, yes. U.S equity funds, no.  U.S. equity funds and ETFs have received just $17 billion since the start of April.  Over that same time frame bond mutual funds and ETFs received $351 billion.
  • Retail investor direct. We doubt retail investors were big direct purchases of equities.  Market volatility in this decade has been the highest since the 1930s, and we no evidence retail investors were piling into individual stocks.  Also, retail investor sentiment has been mostly neutral since the rally began.
  • Foreign investors.  Foreign investors have provided some buying power, purchasing $109 billion in U.S. stocks from April through October.  But we suspect foreign purchases slowed in November and December because the U.S. dollar was weakening.
  • Hedge funds.  We have no way to track in real time what hedge funds do, and they may well have shifted some assets into U.S. equities.  But we doubt their buying power was enormous because they posted an outflow of $12 billion from April through November.
  • Pension funds.  All the anecdotal evidence we have indicates that pension funds have not been making a huge asset

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Phil's Favorites

The Byzantine history of Putin's Russian empire


The Byzantine history of Putin's Russian empire

Courtesy of Theodore Christou, Queen's University, Ontario

Russian athletes were conspicuous in their neutral colours during this year’s Winter Olympics and Paralympics due to a ban based on doping allegations.

In Vancouver in 2010 and in Sochi in 2014, however, Russia’s Olympic hockey jerseys prominently featured a two-headed eagle exactly where Canada’s jerseys highlighted the maple leaf.


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Zero Hedge

"Where Will It Stop?": Libor Spread Blows Out Beyond Eurocrisis Highs, Central Banks Intervention Awaited

Courtesy of ZeroHedge. View original post here.

Until two days ago, the critical level for both the Libor-OIS and FRA-OIS spread was the "psychological level" of 50bps. This, however, was breached on Wednesday when as we reported Libor pushed significantly higher without a matching move in swaps. And yet, despite the sharp push wider, both spreads remained below the peak levels observed during the European sovereign debt crisis of 2011/2012, with some speculating that open ce...

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Connor Browne - FAANG Stocks Dominance

By VW Staff. Originally published at ValueWalk.

They are known as the FAANGs but Facebook, Amazon, Apple, Netflix and Google/Alphabet should also be dubbed the great disruptors. They have created new businesses and destroyed old ones, changing the way we conduct our personal and business lives in the process.

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Digital Currencies

Anthill 23: Bursting the Bitcoin bubble


Anthill 23: Bursting the Bitcoin bubble


Courtesy of Annabel Bligh, The Conversation; Gemma Ware, The Conversation; Kelly Fiveash, The Conversation, and Will de Freitas, The Conversation


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Insider Scoop

BofA: Lyft, Magna Could Be The First Of Many Autonomous Vehicle Partnerships

Courtesy of Benzinga.

Related MGA Benzinga Pro's 5 Stocks To Watch Today Earnings Scheduled For February 22, 2018 ... more from Insider

Chart School

Selling Extends For A Third Day

Courtesy of Declan.

Indices extended loses for a third day but didn't change the picture from yesterday.  The S&P is still sitting on a support level of the former channel as On-Balance-Volume extended on yesterday's 'sell' trigger.

The Nasdaq confirmed its 'bull trap' but it still has a support level from the last swing high to use. Technicals remain net bullish with relative performance particularly strong.


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How your brain is wired to just say 'yes' to opioids

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.


How your brain is wired to just say ‘yes’ to opioids

A Philadelphia man, who struggles with opioid addiction, in 2017. AP Photo/Matt Rourke

Courtesy of Paul R. Sanberg, University of South Florida and Samantha Portis, University of South Florida


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Members' Corner

Fatal Flaws of our Enlightenment?


David Brin is an astrophysicist, technology consultant, and best-selling author who speaks, writes, and advises on many topics including national defense, creativity, and space exploration. He’s also one of the “World’s Best Futurists.” Find David’s books and latest thoughts on various matters at his website and blog. In ...

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Mapping The Market

The tricks propagandists use to beat science

Via Jean-Luc

How propagandist beat science – they did it for the tobacco industry and now it's in favor of the energy companies:

The tricks propagandists use to beat science

The original tobacco strategy involved several lines of attack. One of these was to fund research that supported the industry and then publish only the results that fit the required narrative. “For instance, in 1954 the TIRC distributed a pamphlet entitled ‘A Scientific Perspective on the Cigarette Controversy’ to nearly 200,000 doctors, journalists, and policy-makers, in which they emphasized favorable research and questioned results supporting the contrary view,” say Weatherall and co, who call this approach biased production.

A second approach promoted independent research that happened to support ...

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Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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NewsWare: Watch Today's Webinar!


We have a great guest at today's webinar!

Bill Olsen from NewsWare will be giving us a fun and lively demonstration of the advantages that real-time news provides. NewsWare is a market intelligence tool for news. In today's data driven markets, it is truly beneficial to have a tool that delivers access to the professional sources where you can obtain the facts in real time.

Join our webinar, free, it's open to all. 

Just click here at 1 pm est and join in!

[For more information on NewsWare, click here. For a list of prices: NewsWar...

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Kimble Charting Solutions

Brazil; Waterfall in prices starting? Impact U.S.?

Courtesy of Chris Kimble.

Below looks at the Brazil ETF (EWZ) over the last decade. The rally over the past year has it facing a critical level, from a Power of the Pattern perspective.


EWZ is facing dual resistance at (1), while in a 9-year down trend of lower highs and lower lows. The counter trend rally over the past 17-months has it testing key falling resistance. Did the counter trend reflation rally just end at dual resistance???

If EWZ b...

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All About Trends

Mid-Day Update

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Click here for the full report.

To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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