October 25, 2013
Bulls: There Are Bears Everywhere!
Brief updates on gold and earnings... Our macro strategist Dan Amoss explains bulls’ talk of bears and the reality of the situation... Plus, Bill Bonner on the barbarous Fed… Janet Yellen… and where they leave the dollar...
Peter Coyne, rolling into this weekend with your market update...
Peter Coyne

Gold gained $10 to reach $1,348 before the market opened. At writing, it's in a holding pattern. As for stocks, all three major stock indexes are in the green this morning.

"Stock market bulls keep saying everyone's bearish, therefore, this market full of pricey stocks has more upside," writes our macro strategist, Dan Amoss this morning. "But it's hard to find any real bearishness." The bearish narrative and bullish reality is portrayed on the latest Barron's cover:

Inside is the semiannual Big Money poll. According to it, 68% of professional investors are bullish. Meanwhile, back in April, 74% of money managers identified themselves as bullish on U.S. stocks.

"This poll is a good contrarian indicator," Dan continues, "because it reflects how the typical investor is already positioned. The two prior peaks in the Barron's Big Money poll occurred in 2000 and 2007, just months ahead of nasty bear markets."

Market news is still being dominated by earnings season. At writing, 1,000 companies still have to report. In keeping with Monday's missive, 62% of the companies who have reported so far have beat earnings expectations. Share prices of companies who have missed estimates have been crushed… those that have hit the mark have been rewarded.

“Share prices of companies who have missed estimates have been crushed… those that have hit the mark have been rewarded.”

While the earnings beat rate has been pretty strong, guidance has been weak, which is nothing new to this market. At the moment, the percentage of companies raising guidance minus the percentage lowering guidance stands at negative 5.3 percentage points. As shown below, if the guidance spread remains in negative territory through the end of earnings season, it will be the ninth consecutive quarter in which more companies have lowered guidance than raised guidance.

Meanwhile, "momentum darlings like Netflix and Tesla," adds Dan, "rising on little but fantasies about the future, are losing momentum. That's not a good sign for the bulls."

Ah yes, the future. Not to be confused with the foreseeable future -- whatever that means. We make the distinction only because Reuters reports today that "economic data underscored views U.S. monetary stimulus will be in place for the foreseeable future…"

Hrm… Who are these people who can foresee the future? How far into the future can they see? If any of you crystal-ball gazers out there are reading this… would you help a brother out and tell us if it's going to rain next Thursday? We're planning to go pumpkin picking with our fiancee. You can reach us at dr@dailyreckoning.com.

“We don’t have a crystal ball. Still, we don't think we need one to know the Fed will cause a crisis one way or another.”

We don't have a crystal ball. Still, we don't think we need one to know the Fed will cause a crisis one way or another. It will come in the form of a downturn if the Fed tapers… or an overdose if it doesn't. Our guess is the latter. People --including Fed chairmen -- prefer pleasure sooner and pain later.

Your editor has had the displeasure of making academic presentations to Charm City's Fed heads twice. In fact, Daily Reckoning HQ is within a few miles of the banking cartel's regional office. We tried telling them then that they were trading one crisis for another. Quantitative easing wouldn't be the hard part, we said. Quantitative tightening would be. We recall being laughed out of the room. We expect to have a few laughs of our own when all is said and done.



Until then, Mr. Bernanke and Ms. Yellen tell us the economic data are calling the shots. In the meantime, the Fed will keep printing… stocks will only head higher… and this investing stuff will only get easier! Weeee!

In today's episode, Daily Reckoning co-founder Bill Bonner demonstrates how little Janet Yellen knows about how much she knows. It's part of a broader question he considers: Is the Fed a civilized or archaic institution?

Read on…

The Daily Reckoning Presents

The Federal Reserve: Civilized or Archaic Institution?

by Bill Bonner

Stock investors are still acting as though Janet Yellen will be good for the economy… or at least good for stock prices.

Gold investors must think so too.

But will she be?

Yellen has no business or investment experience. Her entire career has been spent in academia and in public policy institutions. She has never started a business or had a job in the private sector.

Does she have any idea how an economy functions? Not on the evidence…

In 2005, she described the developing housing bubble as a "good-sized bump in the road." Was she worried about it? Apparently not. "The economy ought to be able to absorb the shock," she claimed.

But how would she know?

And when, two years later, the economy hit the "bump" it turned out she didn't know anything. The economy wasn't able to absorb the shock at all. Instead, the wheels flew off... and the economy went into a ditch.

And now, it's late October and Yellen will soon be running the biggest, most powerful banking cartel the world has ever seen. Good luck to us all!

Are we the only ones here who are thinking about the Fed's interest rate policy? We're clearly the dumbbell in this group. Most people have better things to do.

But now we're going to go back to thinking about how the Fed and the dollar fit into the general scheme of things – the really big picture, looking back 10,000 years and beyond.

The critical change came around 5,000 years ago. Little by little, man became "civilized." We use the word cautiously. It is like a hand-grenade without a pin. It could blow up on us at any moment.

What is civilization, anyway? Is it a good thing? A bad thing? Who's really civilized, and who's not? No matter what you say, you are bound to offend someone with deep prejudices on the subject…

But what the heck? Damn the torpedoes… full speed ahead!

Civilization is different from barbarism. Most anthropologists, archeologists and philosophers focus on the wrong things – art, culture and technology, for example. They miss the key differences – money, matrimony and the mandates that people follow.

People did not suddenly awake to a civilized dawn. Instead, the progress from barbarism to civilization came in fits and starts, with much backing up and many detours.

Don't bother to tell us the Germans were supposed to be civilized… yet they exterminated more than a million at Auschwitz… or that Americans are supposed to be civilized, but are sending drones to kill people they've never met. Even the most civilized peoples do uncivilized things. And most peoples, no matter how civilized they have become, still maintain some archaic, barbaric habits and institutions.

As civilization became more complex, the rules grew simpler. Typically, people became monogamous, monotheist and monetarist.

You can see this progress in the Bible. The Old Testament is full of war… and many rules for how people are to get along with one another. In the New Testament, Jesus proposes only one rule, which leaves little place for making war: Do unto others as you would have them do unto you.

In pre-civilized days a man might have as many wives and concubines as he could manage. Civilized, modern men typically have only one. (And that is more than enough for many men.)

“How do you think the economy of the US – heavily persuaded by the padded force of the Yellen-led Fed – will fare?”

In pre-civilized days, commercial transactions were difficult and complex – usually involving a credit-based system which left obligations stretching forward into the future, often unresolved over many generations. Civilized man developed modern money – typically gold – which made it much easier to settle up and move on.

But the most profound difference was that barbaric people used force and violence to get what they wanted; civilized transactions are based on mutual consent and cooperation.

But wait. Where does that leave the dollar and the Fed?

Does the Fed allow willing buyers and sellers to set interest rates as they choose? Or does it force the issue… pushing interest rates around as though they were travelers in the airport security line?