Unbridled Enthusiasm REDUX

The overwhelming balance of opinion into the year end is that Europe is toast and unworkable. As an adjunct to this "it's hopeless- give up" analysis is the US is toast by association and/or a couple of years lag time. SUffice it say, we do not subscribe to this scenario.

Several times in my carreer, 1993, 2005, Jan 2009, and strangely, now, I have found myself in the "Billy Mumphrey Anomoly." Our usual skeptical and "negative" world view is over run by widespread fear. The plunging confidence puts us in the position of "cock-eyed optimist caught up in the high stakes game of world diplomacy and international intrigue." -[Seinfeld: The Doodle episode] In 1994, the Fed doubled the funds rate and a hard credit crunch hit. In 2006, our fears proved too early and the party continued into 2007 until 15 well telegraphed "micro-hikes" inverted the curve. In Jan. of 2009, we went naked long the SP contract into a 2.5 month landslide that required a daring double down at 666 around St. Patrick's Day.

The EZ system pipe may be a fragile duct taped conduit but plumbing it is. The sharp decline in shorter Spanish yields was overshadowed by 10 year focus. The term structure can be more important than the yield level in this delicate environment. That structure, combined with generational low rates provide strong support to the US. The credit crunch remains difficult and attenuated but time is marching forward. The confidence crisis is making new life of contract highs.

We look to experiencing 2012 as the majority of players spout apocalyptic views of 2013.

One thought on “Unbridled Enthusiasm REDUX

  1. Mike Banas

    I attended an alumni symposium on December 8th at Northern Illinois University where the speakers made the case for the “It’s hopeless; give up scenario”. The guest speakers were the following, from most bearish to most bullish: Nick Calamos, Calamos Investments; Laura Lawson, UBS; and Northern Illinois University Professor of Finance Jensen. With the numerous headlines and rumors about European sovereign debt problems, the almost weekly credit ratings downgrades, and the painful political EU circus-seeking-solutions we all routinely have been reading about over the past several months, the speakers were all deeply, genuinely, and appropriately concerned, if not bearish and negative about the economic outlook. All of the reasons which you and I already know why there should be no economic growth were mentioned. All of the reasons why, after such a reckless period of credit expansion, we deserve an economic meltdown or stock market crash were described in paragraphs and by economic charts, graphs, and tables. The historic and immense amount of policy accommodation and quantitative easing were described precisely. Also described, was how investor confidence has been impaired with MF Global, the US debt ceiling negotiations, and other scandals and problems. Because this dire situation all came as “news” to some in the room, I have to presume that we’ve not yet seen the bottom. However, the speakers did cite end of year/ January effects, some still bad but nevertheless improving economic factors, and policy accommodation–all, as positive for investors.

    And yet…AND YET, despite all of the daunting economic factors we face, the official outlook for US stocks by UBS, as presented by the speaker, was neutral. A painful, perhaps, difficult, we prefer to be bearish, but we must leave hope, neutral. But nonetheless, neutral.

    If the S&P 500 finds itself at 1000 or 800 or 600 in the coming months, I can certainly understand why. If, on the other hand, we get the “I-can’t-believe-it’s-not-Apocalypse/ Muddle Through” described in “Unbridled Enthusiasm REDUX” by Contrarian Corner and by my inference of the UBS neutral rating of stocks (with the massive negative sovereign and credit effects being offset or mitigated by monetary policy accommodation), then we may continue to see the volatile, yet range-bound stock market we have seen in 2011 and not Mutually-Assured-Destruction as is widely believed.

    When I consider articles like the following by @Zerohedge with comment “Is something wrong with this picture?”: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/12/Weekly%20Fed%20MBS%20Change.jpg and when I consider the ok stock performance this week of December 12-16 in REIT’s on a pretty rough tape, I do see policy support for the economy, specifically here, in mortgages, as at least beginning to work as manifested in equity prices. I, as a newbie-retail-trader, remain scared to death to be long-only of this stock market, but I am well-aware of what happens when too many traders #OccupytheSameSideOfTheBoat ,to use Twitter-speak, especially if we also somehow get positive FISCAL policy accommodation in the election year of 2012. But the next major buying opportunity, similar to the March of ’09 double-dog-dare-ya buying opportunity, cannot, in my opinion, occur until the last of the slowest-to-understand attendees in the room finally join the sellers; but, although they knew “something” was “bad”, December 8th was the first that some had heard about “It’s Hopeless/ Give Up”


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