The Bulls Return as S&P Soars During “ROCKTOBER”

»Posted by on Oct 30, 2015 in Bonds, CNBC, Commodities, Geopolitics, Shop Talk, Stocks | Comments Off on The Bulls Return as S&P Soars During “ROCKTOBER”

The Bulls Return as S&P Soars During “ROCKTOBER”

raging bull

“As the world focused on China and the crude market declined in August and September, investors entered the month of October with all the anxiety associated with global turbulence.”
~ Jack Bouroudjian, CEO

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3,2,1 … Time for Fed Blastoff!

»Posted by on Sep 16, 2015 in Announcements, Bonds, CNBC, Commodities, Geopolitics, Options, Shop Talk, Stocks | Comments Off on 3,2,1 … Time for Fed Blastoff!

3,2,1 … Time for Fed Blastoff!

space shuttle blast off

space shuttle blast offI remember watching the Apollo space flights as a child, whether it be at home on our small black-and-white television or the big-25 inch TV at school, and the most exciting part was the countdown to liftoff. It was exciting and gave us all a reason to be proud of being Americans (My old teacher would make us recite the pledge of allegiance every time we saw a space flight).

But soon afterwards, it was over. The spacecraft was on its way to orbit the moon or land and drive a car on the surface, but it was over nonetheless. The feeling is essentially the same as we wait for theFederal Reserve to make the move and lift off into “normalcy.” Janet Yellen and company should begin liftoff but let the world know that it’s over for now.

Let’s be clear about a few market fundamentals. We all understand that the current interest-rate environment is not normal and want the market forces to drive the market to a value area. But the market we have is one in which the central bank acted as the vanguard of the financial system and subsequently ended up supporting the entire system. Check me if I’m wrong, but one of the reasons for the creation of the Fed in the first place was to create some semblance of stability at times when the market called for it. Was there ever a better time for real, hard-core intervention than in 2008? (Maybe in 1929, but the Fed was still in it’s infancy with no real power.)

The real difference of opinion among traders and managers falls in the myth that this is a Fed-driven rally caused by cheap money. I would argue that, if that were true, we would see valuations well over the current 15 times S&P 500 earnings. Many of us remember a time when the market traded at 20 to 25 times forward earnings and we had Soviet missiles aimed at our borders! This is a fairly priced stock market — and one might even argue underpriced in the current interest-rate environment.

The second fundamental that we should all agree upon is that quantitative easing did not cause a debasement of the U.S. dollar and inflationary pressure is nonexistent. This was the result of a twin miracle which happened simultaneously. First, the dollar started to rally against other major currencies as we started to see improvement in our economy while others were late to the game (Trichet!!) Second, the technological advancement here at home in energy.

The U.S. has cemented its place as a leader, not only in military, economic and technological power, but in something the world sees as even more important — energy power. This has created a stable inflationary picture — something the Fed has worked toward successfully.

Employment and housing have reached pre-crisis levels, which show growth in the economy. And underlying conditions of opportunity have improved. The Fed has told us they are data-dependent and the data have been good. The employment number is the best single barometer of the health of the economy. With job creation at levels that can be called fairly normal and housing working through its own issues, the time has come to start to take interest rates back to where they should be … slowly.

The reasons behind those who argue against a rate hike are varied, from the turmoil in the Chinese markets to the migrants in Europe to the strength of the dollar. One fact remains: There will never be a perfect time to start a Fed liftoff. The reality is that the U.S. economy is a global leader. If we do well, the rest of the world usually does well, and it’s one of the ancillary effects of exporting U.S.-based free-market capitalism all around the world.

Now is the time to come off of crisis mode and take the long, long road to normal interest rates and send a message load a clear to the rest of the economic world that the US is healthy and ready to lead. Will it be messy? Absolutely. But the time is right and it’s necessary for the health of the economy. Dr. Yellen, three, two, one … and we have liftoff?

~ Jack Bouroudjian, CEO

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Almost Time For A Victory Lap

»Posted by on Aug 19, 2015 in CNBC, Commodities, Geopolitics, Shop Talk | Comments Off on Almost Time For A Victory Lap

Almost Time For A Victory Lap

victory lap

Chair Yellen, Please Take Your Victory Lap!

Professor Jeremy Siegel gave one of the best descriptions of present market conditions in a CNBC interview last week. When asked about the FED and the chances of a September rate hike he said,

“The anticipation of raising rates is worse than the actual act of raising rates for the market.”

Being the wonderful teacher he is, the message was clear. Nothing is as bad as your imagination makes it out to be. The truth is that today’s FED minutes, which gave us a blinding glimpse of the obvious, showed the central bank can and should move in September, even with looming concern about China.

There are two good reasons: First, the FED needs to show the financial world that they are consistent in their ‘data dependent’ stance (perfect data does not exist in this world).

Second, to paraphrase Paul McCulley, for Janet Yellen to take a victory lap.

The hardest pill for us to swallow is the waiting game.

Let’s understand that we have never been in a zero interest rate environment like we are now and any move by the FED from these historically low levels would be…well, historic! But the moves will certainly be slow and gradual with no drastic surprises. Let’s keep in mind that the market has traded in a counterintuitive manner for the last seven years and a dogmatic approach to the end of ZIRP (zero interest-rate policy) would be shortsighted. With strong numbers coming from the housing sector coupled with solid, consistent job creation over the last few months, the time has come for Janet Yellen and company to finally make their move and raise rates.

When Quantitative Easing was introduced to the United States, the unanimous consensus amongst market observers was that it would end badly. The final result was thought to be the debasing of our currency and runaway commodity inflation. Brilliant central bank watchers became ‘Soothsayers of Doom’ warning of the impending disaster created by such reckless monetary actions.


Neither inflation nor dollar debasement became a reality and the fears generated by those worried about an expanding balance sheet have all but disappeared. Guess what, the FED was right.

One thing we must be reminded of is that the FED has a dual mandate. Not only must they be concerned about the prospects of inflationary or deflationary pressure but they need to be the vanguard of growth for the entire economy. In a business climate which fosters over-regulation, tax ambiguity, hints of protectionism and the total lack of pro-growth policies out of the congress, this dual mandate becomes a heavy burden. To borrow an old Armenian saying, the FED has pulled a two horse wagon alone. And has done a magnificent job.

There are some very good things which have happened because of ZIRP over the last few years. Aside from saving the housing market and the banking system, the zero interest rate environment has allowed corporate America to refinance its collective balance sheets using the historic low rates to become stronger than ever. When the FED starts to move rates higher, it will be for the right reason. Growth will be approaching a level which comforts the doves and would signal the start of interest rate normalcy, thus making hawks ecstatic!

The minutes of July’s FOMC meeting showed that the combination of a strong dollar and velocity of the move in crude forced the FED to hold off longer than they probably wanted, but the time has now come for the FED to make the first move. It will very likely be followed by another long pause but, finally, the wait will have ended.  As those who are long and convinced it’s a FED driven rally, run for the exit, those who are wise enough to understand market structure will find the next leg of the move higher in equites.

Remember, bull markets don’t end because the central bank starts to raise rates – they end when the central bank stops raising rates.

~ Jack Bouroujian, CEO


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