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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (18326)	7/11/2016 6:23:03 PM
From: The Ox	Respond to of 33421

I greatly appreciate your more detailed explanation, as I certainly didn't want to "put words in your mouth"!!

To: John Pitera who wrote (18326)	7/12/2016 1:12:59 AM
From: John Pitera	3 Recommendations Recommended By 3bar Hawkmoon The Ox Read Replies (1) \| Respond to of 33421

S&P breakout or fake out? 6 Hours Ago Carter Braxton Worth, Cornerstone Macro, goes to the charts to break down the recent rally in the S&P 500. watch the video of the 6 major US asset classes over the past year, their rates of return and the sharpe ratio risk associated with the higher beta of asset classes such as WTIC http://video.cnbc.com/gallery/?video=3000533348 Carter Braxton Worth with a really excellent synopsis that equities have been outperforming US Fixed income market....... the expert asking Carter a question and stating that we have been in a 5 decade rally in bond prices..... does not even know his markets well enough to understand that we are coming up to the 36 year equilibrium point which encompasses the 36 year period from 1946 until oct 19th 1981 when bond prices fell and interest rate rose and then the more recent season (cycle) where bond prices have had a bigger bull market than equities and interest rates have fallen. The rate of return of 30 year US bonds the 20 year returns of 20 year returnsover the past 20 years the S&P 30 year bond return has been 319% and it has outperformed the SPX total return of S&P 500 index by 85%...... the total return has been 219% and when the Sharpe ratio and the much greater beta and draw downs over the last 2 years increases the outperformance of bonds by a doubling of the percentage price outperformance. of course this is looking in the rear view mirror The SPX has not been able to make a new high in real terms (inflation adjusted) since 2000. There has been no upside since the secular bull market in equities that ran from 1976 to march of 2000 basis the SPX and from 1982 to March 2000 basis the DJIA. watch Carter's video it is quite compelling. With Active asset allocation methods and risk management approaches it is possible to create much greater Alpha..... or positiive asset class returns that are greater than the beta returns which are based on the swings (volatility) of the asset class. We have entered a time period where a holistic Global approach has to be used to look at the Different Asset classes that exist and are available to get greater returns from capital invested. With the Endgame of he EUR almost certainly going to break up over time as the solve northern countries exit, coupled with the Trillions of dollars of Negative yield sovereign debt going to for the major global governments, Sovereign wealth funds, Global Insurance and Re Insurance companies and Governmental and corporate pension funds .... this market set up will ultimately unleash vast changed in the way that a number of the Global asset markets are valued and create significant opportunities as well as risks for individual investors, Global Macro Asset managers and indeed society as a whole. This is nothing new... The changes in wealth that took place in the 1930's and then the WWII years was at least as momentous as what we are looking at. JJP

To: John Pitera who wrote (18326)	7/13/2016 9:02:54 AM
From: John Pitera	2 Recommendations Recommended By 3bar roguedolphin Respond to of 33421

Fiction, Meet Facts: The Unintended Consequences Of Central Bankers Gone Mad Jul. 13, 2016 8:20 AM ET\| About: SPDR S&P 500 Trust ETF (SPY), DIA, QQQ, IWM, Includes: TLT The Heisenberg The Heisenberg Ultra accommodative monetary policy comes with unintended consequences. Let me give you a few examples. Have a look at what happened to Sweden when they expanded their asset purchase program last April: Oops. QE is supposed to *drive rates down, not up! So what happened there?* Well, the market started pricing in a liquidity premium. That is, the Riksbank was sucking so much collateral out of the system, that the *market began to worry about liquidity.* So that's country specific. More broadly, think about what ultra low rates and QE facilitate. Far from stoking inflation and growth, they actually encouragedeflation. The US shale space is the poster child for this dynamic. The entire complex should be out of business. Here, have a look: (Table: Citi) But, much to the chagrin of the Saudis, US production has generally lived to pump another day. Why? Simple: *wide open capital markets. Here's Credit Suisse: It encourages 'zombie' capitalism: QE keeps the cost of debt low, and thus the HURDLE RATE for corporates falls, too, increasing the risk that unprofitable projects are invested in.* And here's the classic graphic from Citi's Matt King: (Chart: Citi) Now, more than ever, we should be cognizant of the unintended consequences of central planning gone wild. As stocks will attest to, we're about to witness the implementation of ' helicopter money' in Japan. In other words: the monetization end-game draws nigh. As we enter the final phase of the greatest (or "worst", depending on how you're inclined to look at it) experiment in the history of economics, Deutsche Bank has taken a look back at things and decided that this may not have been such a great idea after all. "Do low rates stimulate growth?," the bank asks, in a note out Tuesday. Below, find facts versus fiction. Note the equities (NYSEARCA: SPY) versus fixed income (NYSEARCA: TLT) allocation point: Premise: Low rates subsidize borrowing costs for households, freeing up resources for consumption. Fact: The tax on the other side of the balance sheet is much larger. Household sectors are large net creditors and hold more cash and fixed income assets than they have debt. Low rates therefore represent a sizable net tax (2.7% of GDP in the US) that is negative for spending and growth;Premise: Low rates encourage front-loading of spending and lower savings. Fact: Lower rates force households to save more (1% of GDP) to meet wealth and retirement income targets, lowering spending;Premise: Lower rates encourage a reallocation into riskier assets like equities, with wealth effects that are positive for growth; Fact: Falling rates encourage the reverse, with a record over-allocation in this cycle to fixed income (+$750bn) at the expense of equities (-$1.7trn);Premise: Lower rates support particular industries such as housing.Fact: They do so at the expense of other industries, such as the Financials, with an ambiguous impact on overall growth;Premise: Central banks' accommodative bias is positive for confidence. Fact: Repeated easing and pushing out of rate normalization has *provided a negative signal and significantly reduced confidence.* And here are a few of the accompanying visuals (out of respect for the original, I won't include them all): (Charts: Deutsche Bank) This isn't going to end well folks. It really isn't. And that's not me being hyperbolic. As I've said time and again, I'm no permabear. I have long-term holdings just like anyone else that benefit when risk assets hit record highs. But the average investor doesn't seem to understand how far policymakers have plunged into the great unknown. There's no telling what happens next. But what we do know is this: Find me a bargain there. We're walking further and further into the monetary Twilight Zone with the unintended consequences conspiring to plunge the world into secular stagnation and we're embarking on this ill-advised adventure with every asset class trading rich. There's no room for error. Anywhere. The life of your portfolio is in their hands... seekingalpha.com

To: John Pitera who wrote (18326)	7/14/2016 12:47:30 PM
From: The Ox	1 Recommendation Recommended By Chip McVickar Respond to of 33421

In a future environment where interest rates rise substantially..... as they did in the 1970's bond prices will decline in price and the price multiple on equity and indeed all investment will contract. The hurdle rate at which a new plant or business is viable goes higher. I think that the longer we are in the cycle of steadily climbing interest rates, you are correct that the "hurdle rate" rises. So, over time, yes, more than likely we'll see some reduction or contraction in the rate at which new investments are being sought out. At the beginning of this cycle, I think we have a different proposition. Because "stagnant money" was outperforming, more money is being directed into stagnation. As this cycle starts to reverse, at least initially, we have a fertile environment for new investments. Those who have struck first and who've "put money to work" are seeing the benefit of the currently low interest rate environment. They have been able to build relatively cheaply, when too many others are still looking at stagnation as being "more profitable".