Buyer’s Remorse

Posted on October 10, 2014 by MN Gordon

The stock market was clobbered on Tuesday.  The DOW sold off 272 points.  What did it mean?  Was it an indicator the market is finally rolling over, as we’ve anticipated for some time?  Or was it just another head fake on the way to new highs?

On Wednesday we thought we had our answer.  The DOW ran back up 274 points…recovering all of the prior day’s losses, plus two points.  It was the market’s best day of the year.  Wall Street was euphoric.

Even gold stocks rose.  Junior mining stocks, as measured by the Junior Gold Miners ETF (GDXJ), jumped up 9.61 percent.  Fixed income investors also joined in on the fun.  Yields on the 10 year treasury note fell to just 2.32 percent, nearly to their 52 week low of 2.30 percent.

What was the cause for the elation?  Is GDP soaring?  Are incomes finally rising?  Is Putin packing up Russian troops and vacating Ukraine?  Was a vaccine for Ebola discovered?

Nope.  It was nothing of the sort.  What produced the buying frenzy was something we call worshiping utterances. Continue reading →

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An Autumn Encounter with the Headless Horseman

Posted on October 7, 2014 by MN Gordon

A pleasing land of drowsy head it was,
Of dreams that wave before the half-shut eye;
And of gay castles in the clouds that pass,
Forever flushing round a summer sky.

CASTLE OF INDOLENCE

Apple Country

Oak Glen, California, located just past the outer limits of Southern California’s sea of concrete, is a world apart.  The air is clean and crisp at its mile high elevation.  The pace of play is slow and relaxed…not frenetic and mad.

There are no stoplights or franchise drive-throughs.  Billboards and transmission lines do not blight the landscape.  These, and other aesthetic lacerations to the eye, remain with the wide Euclidean Boulevards in the valley below.

The built milieu hardly scars the natural environment.  Just a windy and narrow mountain road extends upward.  Apple orchards fill the gentle slopes that are nestled between the larger and steeper topography. Continue reading →

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Pouring Buckets of Ice Water on the Fed’s Delusion

Posted on October 3, 2014 by MN Gordon

Just two weeks ago President Obama said it would be unlikely if we had a case of Ebola virus in this country.  On Tuesday the Center for Disease Control and Prevention confirmed the first known U.S. Ebola virus case.  No doubt, it didn’t take long for the unlikely to happen.

From what we gather the infected adult traveled from West Africa to Texas on September 19.  Several days later, on September 24, he started developing symptoms.  After first being turned away from the hospital and sent home on September 26, he was finally admitted for treatment on September 28.

During this time he came in contact with a number of others…including five schoolchildren.  Enterprising individuals used the occasion to buy shares of biotech companies working on Ebola treatments.  Tekmira Pharmaceuticals Inc. surged over 30 percent.

Speculating on Ebola treatments could be a profitable bet.  Perhaps it’ll also bring about a vaccine in short order. Continue reading →

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The End of Extend and Pretend

Posted on September 30, 2014 by MN Gordon

About 60-years ago twentieth century economist Hyman Minsky developed his Financial Instability Hypothesis.  His main premise was that economic stability breeds instability.  How’s that possible?

As Minsky observed, financial crisis follow periods of economic stability and prosperity.  Moreover, it’s these periods of prosperity that sow the seeds of the next calamity.  In short, the extended stability encourages borrowers and lender to progressively take on greater risk.  This results in ever greater increases in credit and debt, which inflates asset prices.

Eventually, excess optimism leads to instability…lending and debt move to unsustainable levels.  Debt levels move beyond what the economy can support.  Financial bubbles then burst.  Asset prices crash and the mistakes of the preceding boom are corrected.

Last week the DOW offered a stark reminder that stocks don’t always go up.  What’s more, in addition to not always going up…something else can happen.  Stocks can go down.

After a soft slide on Monday and Tuesday, followed by a robust rally on Wednesday, the bottom fell out on Thursday. Continue reading →

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