It's working (so it seems)
It looks like Federal Reserve chairman Ben Bernanke is getting what he wants. Retailers are reporting surging sales compared to last year. Abercrombie & Fitch, for example, reported a 22% jump in same store sales (a key retail metric).
"The consumer is feeling better about their situation and is more inclined to spend on discretionary purchases," says Ken Perkins, president of research firm Retail Metrics. This is exactly what Helicopter Ben is trying to do: make people feel wealthier by propping up the stock and bond markets. He knows if people are making money in the market, they'll spend more.
Like I said on Tuesday, I think consumers are just borrowing more. Consumer debt held by banks was up 36% in the third quarter.
Don't count on the financial press to help you fight the Fed's trillion-dollar inducements to behave as irresponsibly as possible. The press will egg you on as though its paycheck were signed by Bernanke himself. Interest rates are at record lows, stocks and bonds have been rallying for a year and a half, and Barron's latest cover says, "How to keep the income flowing."
Inside, it simply lists all the riskiest income plays and says you should buy them: junk bonds, municipal bonds, emerging market debt... You name it, Barron's is bullish on it.
We've all lived through times like this before... 2000... 2007... and now, 2010-2011. And how does the thundering herd respond? According to the American Association of Individual Investors (AAII), it falls in line like robot Army recruits.
The AAII says Mom and Pop's allocation to equities hit an all-time high in November, at 62.3%. It's the fourth consecutive increase, and above the long-term average of 60%. Stock allocations hit 77% at the peak of the tech bubble in early 2000.
Investors – pardon me, make that casino patrons – are all in. The AAII says they're holding less cash than they have since (gulp) 2000, at around 15.9%. The historical cash average is 25%.
The Fed is trying to screw you. The financial media is trying to screw you. And the people who claim to be there for you are trying to screw you...
Self-avowed communist, U.S. Senator, and man of the people Bernie Saunders simply doesn't recognize the plight of his foreign brothers and sisters as well as that of his countrymen. He's up in arms over data released yesterday, showing foreign banks UBS and Barclay's were among the largest users of $3.3 trillion of U.S. government emergency loan programs designed to prop up the financial system. UBS was the single largest borrower under the Fed's commercial paper market bailout program, borrowing $74.5 billion total.
Saunders says we should investigate banks that might have received low-interest emergency loans and bought higher-yielding Treasurys with the proceeds, as if that'd make any difference at all. If you've seen one counterfeit dollar gifted to an Ivy League-educated financial moron hell-bent on blowing up the world for fun and profit, you've seen 'em all.
Why isn't Saunders screaming at the top of his lungs about the effects inflation will have on the meager earnings of his (purportedly) beloved, downtrodden, proletarian masses? The less money you have, the worse inflation will treat you. Komrades Obama and Bernanke never mention that.
The Federal Reserve isn't the only one propping up stock and bond markets... A report by Standard & Poor's says a substantial number of weak European companies with $302 billion of leveraged loans due by December 2015 could have trouble refinancing. Naturally, the European Central Bank is doing all it can to help. According to the Financial Times, the ECB was in the market today, buying more government bonds than it has since May.
If you feel like world leaders, Wall Street moguls, that Parliament of Whores in Washington D.C., and all manner of other fiduciaries and representatives are definitely not on your side... well, cupcake, you're right. They're not.
In this month's Extreme Value, I'm going to show you how the markets are screaming to be shorted and give you a short sale that should easily return 50% over the next year or so, as reality reasserts itself in overvalued stock and bond markets.
Just yesterday, this overvalued, overloved, overhyped company delivered the quintessential sell signal. I didn't look for it. It looked for me. It's a business everybody loves... which is trading at 75 times earnings, and whose profit margins are now coming under pressure from market forces well beyond its control.
If you want to see how I expose the financial media's attempt to sell you down the river of quantitative easing and find out which darling of the stock market I believe will fall 50% in the next year, click here for details on Extreme Value.
New Highs: Almaden Minerals (AAU), Denison Mines (DNN), Esperanza Resources (EPZ.V), Fronteer Gold (FRG), Keyera Facilities Income Trust (KEY-UN.TO), MAG Silver (MVG), Sliver Wheaton (SLW), Silver Standard (SSRI), Coca-Cola (KO), Prestige Brands (PBH), Automatic Data Processing (ADP), Puda Coal (PUDA), CARBO Ceramics (CRR), Barrick Gold (ABX), HMS Holdings (HMSY), iShares Silver (SLV), BLADEX (BLX), Magnum Hunter (MHR), Vanguard Natural Resources (VNR), Hatteras Financial (HTS).
Another light mailbag today. Please send some feedback. Stocks, bonds, and other securities are overpriced. The Fed is printing money to beat the damned. Gold is hitting all-time highs. The Oregon beer tax is higher than ever. These are interesting times. Let us know what's on your mind: feedback@stansberryresearch.com.
"I read yesterday that the world's largest printer, the US Government, has publicly declared they would back stop Europe with more dollars for bailouts if needed. If there is no more risk to be had, which used to be the rational for seeking larger gains, what is investing all about? It must be as easy as reading the paper (if you're older like me) or tuning in a Talking Head to see where ol' Sam is throwing his money next and just get on board. After all, if the ship starts to sink, there's plenty of dollars to plug the hole, so we'll never lose, right?" – Paid-up subscriber Charles W. Johnson
Ferris comment: Your e-mail is slathered with the barbecue sauce of sarcasm. But yes, that's what the Fed thinks. And I suspect that's what a bunch of folks in the market think, too... judging by the prices of just about everything. Of course, the more dollars they print, the less they're worth. So... look out below.
"Since you always are complaining about government interference in the economy, can you explain why if this is such a bad concept, why is China so prosperous? Last I checked they were still run by the Communist Party and many of their industries are State owned. It doesn't seem to be hurting them any. What's the deal on that?" – Paid-up subscriber Rob Englert
Ferris comment: It doesn't appear to be hurting them any, because they're more privatized and free now than they've been in several decades. They're doing better because they have less government than they used to, because the state owns less Chinese industry now.
What's happened in China the last several years is wonderful. But nobody is perfect. They're as prone to overdoing it as any other country. And China is making buildings like crazy. Sean Egan of Egan-Jones Ratings Agency said China's supply of office buildings would double in the coming year or so. And the vacancy rates are already in double-digits in places like Beijing and Shanghai.
Good investing,
Dan Ferris
Medford, Oregon
December 2, 2010