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Minyan Mailbag: This Market is Impressible



Professor Succo,

Obviously the financials have shown excellent relative strength despite a rising interest rate environment and what seems like substantial credit/mortgage risk. Perhaps I am over thinking this, but the markets seem to be discounting an end to interest rate hikes, cheap oil, or something more obscure.

Did Fannie Mae (FNM), JPMorgan (JPM), and their ilk suddenly become 'less risky' or is it just 'traders being traders?'


Minyan Ron


Impressive is not the word I would use for the action I see in stocks in general. Our president conveniently invented a new word this morning, "impressible," that seems to aptly describe what I see.

The stock market has almost always been an impressive "crystal ball" if you will, discounting future economic paths readily through millions of individual investors who seek to maximize their return for risk. But "impressible" more aptly describes that crystal ball today as it has been clouded with intervention of all kinds from monetary and fiscal policy to outright buying of bonds and stocks by the government conditioning investors to believe rescue is always near. The necessary discounting process I believe has been interrupted.

As readers shake their heads thinking "conspiracy" theory and stop reading, I continue to write having substantial circumstantial evidence on my side. The Federal Reserve itself has said that they would take measures like this to keep the "asset" ball rolling. Market action (stocks unnaturally going up faster and more violently than they go down) as rumors of 990N buying at strategic times, and again on Friday, are substantiated by my contacts.

The facts betray the action as "real money," that which incorporates velocity, continue to decline rapidly. Savers are no longer as the consumer is addicted to a borrow and spend mentality: there is a point where more risk is taken because there is little hope (the gambler betting what's left).

The financials are a place where the last of the money goes. Certainly Citicorp can make money where others can't, the thinking goes. It's a cheap stock if we only look at today's earnings. But it isn't when we look at tomorrow's risks: a flatter yield curve along with rising rates and burgeoning systematic debt. Don't get me started on the concentration of derivatives.

And so I see the process of compression continuing.



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