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     May 19, '14

Investors too complacent
Commentary and weekly watch by Doug Noland

I'll begin with a few of last week's notable market moves. The euro/yen declined another 82 basis points, increasing its two-week decline to 1.94%, to the lowest level since February. Greek 10-year sovereign yields surged 75 bps to the highest level since March. The spread between Portugal and Germany bond yields widened 35 bps. Spreads to German bunds widened 17 bps in

Spain and 24 bps in Italy. Italian stocks were hit for 3.5%.

Here at home in the United States, the Bank stock index (BKX) dropped 1.7% and the Broker/Dealers (XBD) were hit for 2.2%.

Let me suggest weakness at the "periphery of the periphery" - out at the "margin" that I look to for subtle market "risk on/risk off" leanings. I'll take last week's trading as added confirmation of the incipient risk aversion thesis.

May 14 - Bloomberg (Kelly Bit, Saijel Kishan and Joshua Fineman): "David Tepper, founder of US$20 billion hedge-fund firm Appaloosa Management LP, said he's nervous about markets as the US economy isn't growing fast enough amid complacency by the Federal Reserve. 'We have this term called coordinated complacency to describe the world's central banks right now,' Tepper said ... 'The market is kind of dangerous in a way.' Tepper ... said he's more worried about deflation than inflation and that this is the time to preserve money. The money manager, who is worth $7.9 billion ... said that while investors can be optimistic on markets, they should hold some cash. 'I think its nervous time' he said ... "

Tepper (who made approximately $400,000 per hour more than me in 2013) said markets are "tough." No disagreement here. But "coordinated complacency" from the world's central banks? Well, the Fed funds rate is locked at near zero - and the Fed has ballooned its balance sheet an unprecedented $1.463 trillion in 79 weeks. Not seeing a lot of complacency there. The Bank of Japan has shown no indication of backing away from their desperate $65 billion monthly "money" printing operation. The European Central Bank has rates near zero and is about to adopt additional stimulus.

I would contend complacency is the prevailing attitude of market participants - and not central bankers. More ...

Doug Noland is a market strategist for the Prudent Bear Funds.

(Republished with permission from PrudentBear.com. Copyright 2005-2014 David W Tice & Associates. All rights reserved.)




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