Change in the Air

All’s Quiet on the Western Front – for now. We expect the action to heat up later this afternoon when Bernanke takes to the mike. The action in the market for the last week and a half has been driven by the fast money guys as real investors have sat still waiting for the latest communiqué from the Federal Reserve. This could be the key moment that investors point to as a change in policy and trend so trading desks will have all hands on deck come the good doctor’s press conference.

The big news prior to the FOMC this week was President Obama’s comments on the Charlie Rose program that hinted that Bernanke’s time at the FOMC may be up. Arthur Cashin went on to surmise that Bernanke may want to start the tapering on his watch so that his successor does not get blamed. A change in chairmanship could portend a change in policy. If you were Ben Bernanke wouldn’t you want to get out now? The prospect of shepherding this economy through the Federal Reserve balance sheet deleveraging is a daunting and long term task. Just the fact that Bernanke may be leaving will have Wall Street on edge. A word of caution. The market has a way of testing newbie Federal Reserve Chairmen and soon to be Chairwoman if the speculation is correct. The last two Federal Reserve Chairmen were tested within months of taking the job. Alan Greenspan was hit with the 1987 crash soon after taking the helm and Ben Bernanke was hit with the financial crisis.

Volatility continues. We are watching for the VIX to hit at least 20 before things settle down and we believe that would indicate a possible buying opportunity. Summer doldrums have us a bit worried as a lack of volume creates a roller coaster market. Round and round, up and down but you just end up back where you started and a little bit poorer in the process. Late fall 2013 and early 2014 could provide some better entry points. Cliff Asness of AQR and the folks over at GMO both have data out that implies less than stellar returns from these entry points in most if not all major asset classes.

Economic bellwether Fed Ex lowered guidance for 2014 before the opening. Wednesday is the big day with the Fed opining. Hold on to your hats. Market may have already priced in a positive press conference and statement. One thing is for sure markets are thin and nervous. Volatility and downward moves continue in Emerging markets such as Thailand and the Philippines. The unintended consequences of QE are increasing. Japan may have sent markets over the edge with their new policies. Today could go a long way in determining the market’s direction over the next 6 months. The Fed may be seeing that the unintended consequences or the costs of QE are outweighing the benefits.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

D-Day

Oversold market needed a bounce and it got one this morning in the way of the latest employment report. If the Fed wanted to settle the markets frazzled nerves it could not have asked for a more favorable report. We can’t fight the market but we still think that the Fed will pull back on QE at the September meeting. The market is focused on the employment situation because that is what the Fed told them to watch. The Fed being academics and not traders did not foresee the latest impediment to their plans of more QE. A lack of supply of bonds. The Fed cannot buy more supply than is on the market. The government is spending less due to the sequester and the Fed is throwing too big of a rock into a shrinking pool of debt. The unintended consequences of which are rising asset prices. Rising asset prices are all well and good but they are getting into bubble territory. It is not about employment. It’s all about supply/demand.

The Fed may be in a bit of a pickle. Jawboning is their greatest weapon. Yesterday Mario Draghi of the ECB stated that the OMT program in place in Europe was THE most successful policy instruments ever. He fixed Europe without ever firing a shot. The OMT was never deployed. All jawboning. Was that a jab at the Fed? How does the Fed keep its word here? The said it was all about unemployment. It is now about the supply of government debt and mortgage backed securities. The purchases by the Fed have grown in their impact due to the shrinking debt pool. Policy has gotten looser as the debt pool has shrunk. The Fed is now distorting markets and creating bubbles. Unintended consequences.

Hang on tight. We don’t think that things are settling down just yet. Currency, commodity and equity markets are still at full boil. Emerging markets have us very unsettled with negative moves especially Thailand and Turkey. Watch the Fed and Congress. The smaller the deficit the smaller the QE.

Never in the field of human conflict was so much owed by so many to so few- Winton Churchill.

Churchill was referring to the Royal Air Force in 1940 when he made this famous quote but he may as well have been referring to the boys who stormed the beaches of Normandy on June 6, 1944. The casualty rates in the first wave at Omaha Beach were over 95%.

Thanks to all of those who serve and especially those boys who gave their lives in the defense of freedom on that day. Below is a picture of Ed Regan who came from the Pennsylvania coal mining country to liberate France. Sgt Regan went on the graduate from Fordham University and settle in the Atlanta area. If you are in the Duluth area stop by Kathleen’s Catch one of the best fish stores in the Atlanta area. Kathleen is Ed’s daughter. Thanks Ed.

http://www.kathleenscatch.com/

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Locksmith?

Market is showing signs of weariness as the summer doldrums approach. We are struck by the volatility of late and, in particular, the moves in emerging markets such as Indonesia, the Philippines and Thailand. These may be the canaries in the coalmine. The Philippine stock market is down over 5% this week. Indonesia and Thailand have been hit less so but their volatility and downward moves are disconcerting. A landslide begins with a pebble. Japan is not a pebble and its stock market is on the verge of being down 20% off of its recent highs. Are monetary and fiscal policies in Japan rocking the boat too much? Volatility in bond markets in the US and Japan needs to settle down.

Central bankers have the market on its heels as Esther George and Richard Fisher are making renewed calls to back off on QE. Here is what Esther George had to say on the subject yesterday.

 ”the mkts are showing signs of an unwelcome addiction to the central banks cheap money. Several sectors in the economy are becoming increasingly dependent on near zero short term interest rates and QE policies and for many, unprecedented actions taken by the FED are simply coming to be seen as normal.”

Fisher compared the market to a bunch of addicts addicted to monetary cocaine.

We cannot live in fear that gee whiz, the market is going to be unhappy that we are not giving them more monetary cocaine,” he said.

Perhaps more importantly he called recent bond market moves the end of the 30 year bond market rally. Strong stuff.

One thing that we had hoped would not raise its ugly head is the specter of trade wars. It seems as though Europe and China are raising that banner. Europe, angry at China for dumping solar panels on their market, responded with a tariff on solar panels made in China. China quickly responded with an investigation of dumping by European wine makers.

Rise in tariffs? Check. Hot money flows in emerging markets? Check. Bond market volatility? Check. Long summer. Stay nimble. Make a list.

When you find the keys to the market they change the locks. (H/t Arthur Cashin.) The Locksmith came to the market on Tuesday. Even blind squirrels find nuts once in a awhile. We swung and missed on the market move for Friday but we nailed Monday and Tuesday. We called for an end to the string of up Tuesday’s at 20 straight. No crystal ball just probability and a dose of trader’s intuition. Players in the market got caught counting on the market to deliver something. The market has a way of waiting for the precise moment to make a fool out of the most people possible. When everyone gets caught leaning in one direction the market can only do the opposite. When everyone has bought it can only go down. It always good to have a dose of contrarian thinking.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Changing the Locks

Japan continues to call the tune. It seems as though the Central bank that eases the most gets to cal the tune. Is Europe next? Unemployment continues to surge. Austerity has been pronounced Dead On Arrival and the economies in Europe continue to sag. The ECB may be forced to compete with Japan’s devaluation. Things could get tricky as Japanese investors may be the ones bringing down European sovereign debt yields.

We read an interesting interview of Bond King Jeff Gundlach from Doubleline in The Street.com yesterday. Gundlach has been spot on of late and had some thoughts on QE.

QE is going to devolve into a big fat tail. This is not a solution. This is a temporary way of keeping things together, while somehow hoping that global growth appears, but that’s not going to happen. What you’ve got is this policy that’s very short-sighted and will have immense long-term consequences. It will spiral out of control. When will that happen? That’s why you have to watch the markets. Maybe it’s starting right now. It is interesting Japan fell 10% in three hours. It’s wildly overbought, it might not mean a lot. Things are starting to get volatile.

Volatility is the key. Watch volatility. The volatility in bond and currency markets around the world is feeding into equity markets. Volatility is a sign that all may not be well and that thought processes may be changing. Watch vol. He goes on to say that QE is here to stay.

I’m not criticizing anyone. My job is not to set government policy or monetary policy or fiscal policy. My job is to manage money for people. We deal in the world of what is, not what should be. What is quantitative easing? One of the most interesting quotes today was one of these guys at the Fed, his name is Williams. He said “If we taper off quantitative easing, it doesn’t mean it’s going to 0 necessarily. We may taper off quantitative easing, and then double it. In other words, this is now identified as THE policy tool. We’re going to create absolutely stable economic growth through quantitative easing. I just think that’s highly implausible. I just think it’s very interesting that if we slow down quantitative easing, don’t take it as a sign that it won’t come back again.

Gundlach theorizes that QE is set to rise and fall with the deficit. He makes an interesting point that QE must rise and fall with the deficit in order to be a controlled force. If you recall the Tepper interview on CNBC a few weeks back he theorized that QE must be tapered as the deficit shrank because to not do otherwise risked a melt up in asset prices. What happens when the deficit rises again? QE will rise as well. We are now financing the government’s deficit and have begun to use a policy tool that was meant for emergency purposes only as THE main policy instrument. Not only are markets addicted to QE but so are governments and central bankers.

Calendar may help as window dressing helps hold gains for the last day of the month. Investor statements go out next week and investment pros want to make themselves look good. Monday marks the first day of the month and that always brings in new pension money which helps lift the market. Tuesday is still Tuesday with a 20 for 20 streak on the line. Call it trader’s intuition but we think that the streak may be broken here. Everyone is counting on a rising Tuesday. So much so that it is expected. Never expect anything when investing. The market owes you nothing. There is only probability. When you find the keys to the market they change the locks. (H/t Arthur Cashin.) Locksmith coming on Tuesday?

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Summer and Your Portfolio

Is the Real Estate bubble back? The Cash Shiller Index came out his week and shows a 10% year over year gain in real estate prices around the country. The biggest gainers were the sections of the country that had been the hardest hit. Places Phoenix and Las Vegas saw prices jump over 20%!! Things are still hopping in HotLanta where real estate prices were all the talk at BBQ’s over the Memorial Day weekend. If the bubble is back why are lumber prices cratering? Investor money and slowing foreclosures are crimping supply and low interest rates are increasing demand.

Well, that makes Tuesday’s 20 for 20. Yesterday’s gains in the market gave Tuesday’s their 20^th straight up day. Market is starting to count on it. Maria Bartiromo was positively giddy yesterday on CNBC. When the anchors get giddy the trade is about done. Yesterday’s price action was really nothing to write home about. The market felt especially weak and as it began to come off of its highs and panic seemed to be at the door. The market managed to hold up but had given back half of its gains by the close. The market feels weak here as the summer begins in earnest. Calendar may help as window dressing helps hold gains for the month as investor statements go out next week.

Bond prices may be signaling the market a warning. Bond proxy stocks such as REIT’s and Utilities were especially hard hit in an up market yesterday as bond yields continued to creep higher. Don’t say we didn’t warn you about the valuations of utilities. Reaching for yield can get expensive. A large part of the equity bull’s argument has had to do with record low yields on US Treasuries. Higher yields will not justify higher stock prices. Quite the opposite.

Rising bond yields could pressure equity valuations at an especially bad time. The summer doldrums in the market lead to low volume. A lack of players at trading desks may hint at a lower level of support for stocks in a rising yield environment. It is going to be harder to justify higher equity valuation given rising bond yields. The increased volatility in the summer months could slow capital commitment.

Emerging markets may be the canary in the coalmine. The unintended consequences of QE may show up in Asia first as it effects the smaller economies of Thailand, the Philippines, Vietnam and or Malaysia. They have all been in the news of late as volatility in the Far East is increasing. The concept of capital controls is being thrown around. Never a good sign. The unintended consequences of QE are rising both in the US and emerging nations. Japan could be the trigger as Japanese bond yields have begun to rise. A breach of the 1% level could get dicey. Japan may hold the key.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

What Happened Last Night?

The action this week has been all about central bankers and the perception of QE in the marketplace. Here are some of what we think are some key snippets from the FOMC minutes. Central bankers wanted to be very clear that they are not taking away the punchbowl. They are just going to vary how much alcohol that they put in it. They are concerned that partygoers may be getting a little too drunk and they certainly don’t want there to be a hangover.

Participants also touched on the conditions under which it might be appropriate to change the pace of asset purchases. … more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate.

A number of participants expressed willingness to adjust the flow of purchases … Most participants emphasized that it was important for the Committee to be prepared to adjust the pace of its purchases up or down as needed to align the degree of policy accommodation with changes in the outlook… one participant expressed the view that, in light of the substantial improvement in the housing market and to avoid further credit allocation across sectors of the economy, the Committee should start to shift any asset purchases away from MBS and toward Treasury securities.

Members generally agreed on the need for the Committee to communicate clearly that the pace and ultimate size of its asset purchases would depend on the Committee’s continued assessment… the Committee was prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.

You get the picture. The Fed is not leaving the party any time soon. It seems as though they think that things might be getting out of hand. Tepper’s comments this month as to the state of QE may have hit a nerve. Market participants are seeing the current purchases as having an outsized impact on the market due to the lower level of government borrowing. Some are speculating that this could lead to a melt up in markets. We don’t disagree.

The committee went on to say the following. However, issuing revised principles (on the size and scope of the Fed’s balance sheet and QE exit) relatively soon could give the public additional confidence that the Committee had the tools and a plan for eventually normalizing the conduct of policy. (So what they are saying is that they really don’t have a plan for their eventual exit.)

What seemed to be the biggest takeaway this week and not mentioned widely in the mainstream press is that the Fed is now addicted to QE. Normalized policy options are seemingly out the window i.e. Fed Funds. Interest rate changes don’t even seem to be on the Fed’s radar. What the Fed is saying is that QE is here to stay but they need to decrease its size and scope because they are running out of things to buy and QE’s impact on markets is growing. The unintended consequences of QE are rising. The Fed is willing to adjust the flow of purchases. They are clearly not stopping and are only trying to slow the ascent of the market. Buy the dippers will be pleased.

The September FOMC meeting is looming large. Bernanke and Dudley have both alluded to that time period as one in which they would see the necessary data to support a pullback in QE.

Chinese PMI miss did not help this week. Japan looks rocky. Massive 7% selloff was followed by a dead cat bounce last night. Japan may hold the key. Good news is becoming bad news as the glass on QE may be getting half empty. Overbought market was looking for an excuse to sell off. Three day weekend may have some on the edge of their seat. That is a long time to be exposed when gains from 2013 are sitting at the table and you are trying to pay attention to the wife and kids in the Hamptons. I can hear the wives from here! Put your phone away! Buyers will be there to meet any selloff but pros are heavily exposed. Look both ways. Sell in May?

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Smooth Sailing?

Geeks that we are we have our favorite Federal Reserve Governor and that is Richard Fisher from Texas. In a speech yesterday he outlines his ideas about cutting back on Fed purchases which have heavily influenced the stock market and the housing market. Here are some of the bullet points from his presentation on the economy, the housing recovery and Federal Reserve mortgage backed security (MBS) purchases.

Time to Reset the Fed’s Sails?

With that caveat in mind, my staff and I think there is a better-than-even chance that the present GDP growth consensus forecast of 2.4 percent by professional economists may be underestimating the underlying pace of growth.

Monetary policy is hyper-accommodative, driving interest rates to historic lows and equity markets to historic highs; if anything, it may be giving rise to excessive speculation and risk taking. (In addition to the pricing of CCC debt and the surge in low-covenant lending, margin debt is climbing rapidly.)

I have advocated that we begin to reef in the sails, beginning with our MBS purchase program. In my view, the housing market is on a self-sustaining path and does not need the same impetus we have been giving it. In recent months, under its balance-sheet expansion program, the Fed has bought about 50 percent of gross issuance of agency MBS, partly to replace prepayments of our MBS holdings. When refinancing activity eventually shifts down, the Fed could soon be buying up to 100 percent of MBS issuance if the current purchase program continues.

I think we can rightly declare victory on the housing front and reef in (or dial back) our purchases, with the aim of eliminating them entirely as the year wears on.

He goes on to note that the Federal Reserve’s action may be all for naught if the Fed does not get help on the fiscal side from Congress.

I argue that the Fed has no hope of moving the economy to full employment unless our fiscal authorities get their act together. Those economic agents with the wherewithal to expand payrolls and put the American people back to work must have confidence that our fiscal authorities and regulation makers—the legislative and the executive—will reorganize the tax code, spending habits and the regulatory regime so that the cheap and abundant money we at the Fed have made available to invest in job-creating capital expansion in the United States is put to use. Until then, I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for a massive shipboard fire of eventual inflation.

Strong stuff from a straight shooter. Fed pushing on a string. Shipboard fire? Congress is asleep at the switch. (I hope that the IRS doesn’t read my blog.) We could be on the verge of a massive melt up if the market does not pull back soon. Thanks to Congress’ inaction the sequester is serving to goose stock market gains in a roundabout way. No real inflation. No real jobs growth. Only asset price growth. Blowing bubbles. We all know how that ends. For now we dance.

Watch the US Dollar as strength continues. We are left to contemplate over the weekend the currency moves of late in the Yen and US Dollar. A stronger dollar hurts US multinationals and their earnings prospects. Other countries have their currencies pegged to the US Dollar and that will hurt them as well. The strength in the Yen hurts Japan’s competitors in the Asian region the most. Lots brewing. Currency crisis coming? Tariffs next??Looking at page 15 to see what is going to land on Page 1.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

1987 or 1999?

The market seems stuck on replay as the Fed continues to juice and investors continue to chase. Pressure is intensifying on the shorts. The bull market since 2009 is getting very long in the tooth. In the last 18 straight Tuesdays the market has returned (since January 25^th 2013) 9.8%. Without Tuesdays? 0%. (H/t zero hedge)Bad news has been good – more QE. Good news has been good. See its working! At some point good news may become bad news. Good economic news would mean that the Fed needs to taper back on QE.  Will the glass become half empty?

So this is what billionaires do for fun. David Tepper of Appaloosa Management went on CNBC yesterday to tell us what Arthur Cashin has been telling us for the last month. Tepper’s emphasized that the impact of the Fed’s US Treasury purchases were having a greater effect due the sequester and the lessening of the issuance of Federal debt. Tepper points out that the Fed does need to taper off or asset prices will rise too fast. He went on to note that even if the Fed does taper asset prices will still rise only a bit more slowly. Is Tepper right on the market’s reaction to a tapering of QE? That is the key. It seems as though Tepper is betting that the Fed will taper too late. Fed purchases are having more impact and need to be tapered off before the market rides too high too fast. Knowing academics as they are they will not stop QE until the data conclusively proves it to be the right decision. Hint – By then that will be too late.

Are we currently in 1987 or 1999?? Both years had a relentless rally that drove the market up over 30% on the year. Both soon saw major movements downward. 1987 was the beginning of a bull market and the 20% selloff one day late in October was a blip in the charts as markets moved higher throughout the ‘90’s. 1999 was very different. 1999 saw the end of the great Internet Bubble which saw valuations in the stock market rise to nosebleed heights. We are still in recovery mode 13+ years later. We see the current market more like 1987. Things are getting better albeit slowly. If we are correct we foresee a sharp fast correction when the music stops and not a monumental change in sentiment ala 1999 and the bursting of the Internet Bubble. We believe we see an equity market that is overvalued but a bubble. The bubble this time is in US Treasuries. That is why we are short in duration and out of long term Treasuries. Equity market could conceivably rally another 20% before the correction. The market is squarely in Bernanke’s hands. (H/t chart – Jones Trading.)

We are watching Japanese bond yields very closely. The trade has been known as the widow maker on the street because so many have predicted the rise in Japanese bond yields for so long. Things may be changing. Japanese bond yields are rising while the Japanese government is making huge purchases. Watch Japan.

If economic reports continue to disappoint will Bernanke & Co stay on their QE path? This could drive asset prices into the stratosphere. California Real estate. Stock prices. Yield products. In recent blogs we have warned of overvaluations in all of these areas. Our reinsurance contact recently regaled us with more tales of his firm and others being approached by financial advisors to create more yield producing products out of disaster insurance. 2% for the fund manager. 1% for the advisor. The investor? They get 400 basis points above risk free yields. Is that enough when one hurricane could wipe out your entire investment? Read the fine print. He also noted that it is not the earthquakes you worry about. It’s all about wind. Hurricanes season just got even more interesting. Hopefully, some further insights in our blog next week as we will have dinner and drinks with him this weekend.

I am starting to feel as though we are playing musical chairs. You know the kids game where everyone is playing excitedly but anxiously waiting for the music to stop. Who will get the chair?

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Looking to Buy a New Car? – Currency Wars

The game changer this week may be the currency markets. The Yen pressed thorough 100 to the US Dollar this morning and the currency wars around the world are heating up. Central banks and governments, as much as they claim that they are not, are clearly in a currency war or debasement scenario. Each country does not want its currency to appreciate against its trade partners. Here is an example and perhaps advice. If you are looking at buying a car this year you may want to look at the Japanese versions. The lower Yen will enable Japanese carmakers to make concessions on price when compared to US or German auto makers. Don’t think for a second that the Korean carmakers are not focused on this fact either. Korea is not going to want to see its currency appreciate versus the Yen – lest its carmakers will suffer. Hence the term currency war. It will not end well and no one really wins.

Commodities and currencies seem to be the current flash point. We watch commodities because they give us insights into the economy. Copper has been falling all year which portends weakness out of China. Lumber is entering a bear market as it has fallen from its recent highs in March. That tells us that the real estate market may be slowing in the US. Currency wars are affecting commodity prices as well. Most commodities are priced in US Dollars and so they will suffer price falls as the US Dollar appreciates. Gold, silver and oil are all taking a hit this morning as a result. We continue to watch oil as its recent rise tells us that the economy could lag as oil prices have risen over $95 a barrel. Watch oil as the summer driving season approaches.

Speaking of hedge funds being negative on the market. Apollo Global Management CEO Leon Black made a comment this week that was widely circulated. He stated at a hedge fund conference in Las Vegas that he was “selling everything that wasn’t nailed down”. Apollo priced a secondary this morning which allows strategic investors and partners to sell portions of their stake in the publicly held company. When the smart money is selling take heed.

The pendulum swing regarding attitudes towards risk is one of the most powerful of all. In fact, I’ve recently boiled down the main risks of investing to two: the risk of losing money and the risk of missing an opportunity… In an ideal world, investors would balance these two concerns. But from time to time, at the extremes of the pendulum’s swing one or the other predominates. Howard Marks – The Most Important Thing Illuminated

The worry that seems to dominate the street right now is that of missing an opportunity. Not the stuff of which bottoms are formed- only tops. Investors are convinced that as goes QE so go asset prices.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Bubbles Back?

In addition to the noise that the US Treasury will be issuing floating rate notes it seems that Congress and the President are on their way to helping out student loan borrowers. There is talk of a bill to be presented that will help student loan borrowers by making their loans of the floating rate variety. We posed the question on Friday. Does the government think that rates are headed even lower? I am from the government and I am here to help. Watch for more hints from the government as to the direction of rates.

Statistics out of China say that it continues to slow and Europe is struggling to get back to growth. Jobs report from Friday was better than expected but it was the revisions that really hammered the point home. Always watch the revisions. Revisions were higher for the last two months. One caveat is that too many part time jobs were created and that has us on edge. Recently, consultants from the restaurant industry expressed to us concerns from management about how to manage their workforce and stay under the 30 hour provision from Obama Care. Could that be why so many part time jobs were created?

Another anecdote, this time from an overheating real estate market. Recently, two friends expressed to us frustrations about buying a home. One was being outbid or outfoxed on homes locally in Atlanta as homes sell in hours and above asking price. The other friend committed to his employer to move to California. He agreed months ago and was waiting for the end of the school year. He has now has seen home prices there jump 30%! Have we just recreated the real estate bubble? The FOMC is full of academics and not traders. They will not anticipate the end results and will look for it in the data. By then, it will be too late. They may be letting this get a bit too far. But remember, the market can stay irrational longing then you can remain solvent. We ride the wave for now.

Investing, when it looks the easiest, is at its hardest. When just about everyone heavily invested is doing well, it is hard for others to resist jumping in. But a market relentlessly rising in the face of challenging fundamentals–recession in Europe and Japan, slowdown in China, fiscal stalemate and high unemployment in the U.S.—is the riskiest environment of all.- Seth Klarman Quarterly Investment Letter 2013 (H/t zero hedge)

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.