Ben Bernanke's Magic & Fund Managers Frustration

When market believes in magician, it will be a tricky market....

O Ashuji







Ben The Magician....

 

Just like creating money out of thin air...Central Bankers have been able to create stunning rally across equity markets out of thin air. Its been a market melt up within worse set of economic data points. Its been one of the most hated rally and investors/traders are being forced to participate. "Search for yield", "Rotation out of bonds", "Valuation Benchmarks Relative to Bond Market" (which is the most intervened market), etc are being used to justify the move and participation in the equity rally. Too Many "This Time is Different" has been created since last couple of months. (Please refer Previous Post)

Most of the veterans in the market believes that this will end badly and price action is certainly confirming that (melt up never ends with consolidating markets). I will quote few veteran Hedge Fund Managers who have been at the forefront of bashing "The Great Magician" Ben Bernanke, partly due to, not able to participate in the up move of equity markets and partly due to awareness of ultimate outcome of such tricks of Central Bankers.

Notes from Ira Sohn Conference 2013, New York (Source - www.marketfolly.com) 

Stanley Druckenmiller - Duquesne Family Office (previously of hedge funds Duquesne Capital and Soros Fund)

US Market & Quantitative Easing

Druckenmiller noted everyone is saying, "love the market long term, looking for a correction." He believes the opposite, loves market short-term, but hates it long term. Strongly disagrees with quantitative easing by Bernanke now. Only agreed with the first QE.

"His bond buying is controlling the most important price in the US economy." Says it will end badly, despite money-printing being beneficial to financial assets currently. When Fed slightly tightens, that will hurt things he says. Bernanke completely ignored strong economic data in January and February, but with slightly soft data later, he printed even more money. Expects a "melt-up" in the short-term, due to Fed's current policy.

 Paul Singer of Elliott Management ($ 20bn Hedge Fund)

Financial Overview & History of Markets

Singer gave a “history of financial markets since WWII.” There was less debt back then. Sound financial institutions. "Long term entitlement programs are the effective equivalent to debt." Countries are unwilling to even do non-threatening changes to these entitlement programs.

In Japan, it is 800% of GDP. In US, 500% of GDP. "Obligations that cannot possibly be met, no matter what the tax rate, or the growth rate." Financial institutions are now doing not just loans, but they are doing a lot of principal trading. Typical bank now: 200B equity, 2- 3T of assets, and 50-80T of notional value of derivatives. He claims it is hard or impossible to know what those derivatives actually are. Still completely opaque, and their risks are not understandable. VAR totally misstates risks. Also highly levered.

"Central Banks have revealed in their role, flooding the market with money, they think printing money is 'free' and they don't see the cost- since there is no inflation." We have modest growth, and build-up of risk. "The world needs growth; from innovation." Quantitative easing has caused a distorted recovery. People owning bonds, stocks, is doing fine. Ordinary citizens are not feeling the effective equivalent of Dow 15,000. Causing class warfare.

Other Noted Comments Recently

Bill Gross on Twitter

Gross: Never have investors reached so high in price for so low a return. Never have investors stooped so low for so much risk.

 Marc Faber

“In the 40 years I’ve been working as an economist and investor, I have never seen such a disconnect between the asset market and the economic reality ... Asset markets are in the sky and the economy of the ordinary people is in the dumps, where their real incomes adjusted for inflation are going down and asset markets are going up.

“Something will break very bad.”