• Many market strategists credit the Federal Reserve with the rally that has pushed the Dow and the S&P 500 to record highs.

    The near-zero interest rate policy of the U.S. central bank coupled with millions of dollars worth of asset purchases monthly has essentially swelled liquidity in the market, and those funds have to find a home.

    With the 10-year Treasury yield well under 2% and an economy in (a sluggish) recovery, investors have been pouring money into the U.S. stock market.

    The Fed may have been the catalyst for the start of the stock rally but, according to Mohamed El-Erian, CEO of Pimco which runs the world’s largest mutual fund, “the latest surge is really not on the back of the Fed but the Bank of Japan.”

    In early April Japan’s central bank announced a massive program of monetary easing that would double the country’s money supply and target a 2% inflation rate—all in an effort to once and for all slay the deflation dragon that has plagued Japan for at least a decade.

    Fed

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  • Facebook (FB) reports after the bell today. Consensus estimates for Facebook are EPS of 13-cents on $1.44 billion in revenue. Unofficially, analysts don't care about the numbers as much as they do the story. On that front, Lee Munson, chief investment officer at Portfolio LLC, suggests investors brace themselves for a letdown.

    "I think we're going to be again disappointed by the mobile app growth," he says in the attached video. "Without that what else is there?"

    Not much as far as Wall Street is concerned. As was the case when they went public a year ago, Facebook still struggles to monetize users, particularly those migrating to mobile platforms. Any signs that FB is lagging the pace of migration from desktop to handheld will be poorly received.

    FB also needs to assuage claims that the number of users in developed markets is already shrinking. Claiming over 1 billion users is a fantastic accomplishment, but it's also about 1/3 of the entire online world. Right now most of the street is looking for growth while the reality of large numbers suggests retention of such a massive user base would be an upside surprise.

    Related: Facebook Needs a New CEO, Says Munson

    User growth going negative isn't on most analyst radars even if the press is starting to ponder the idea.

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  • The U.S. Treasury this week announced plans to retire $35 billion in notes, the first time the government has paid down debt since 2007.

    It’s a significant milestone for Treasury and $35 billion is a lot of money for mere mortals, but barely a drop in the $16.7 trillion bucket of our nation’s debt.

    Among others, Michael Pento, president of Pento Portfolio Strategies, believes the U.S. Treasury market is a massive bubble destined to pop with devastating consequences.

    U.S. Treasuries are “the most overpriced, oversupplied and over-owned market in the history of American markets,” says Pento, citing current Treasury yields as 550 basis points below the 40-year average, the massive inflows into bond funds (nearly $120 billion from 2008-2012) and the 140% increase in issuance since the end of 2007.

    Unlike most, Pento is willing to put a timeline on when he believes the bond bubble will burst, which is the theme of his not-so subtly titled new book: The Coming Bond Market Collapse.

    Sometime

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  • Apple (AAPL) and gold spent a decade making true believers rich only to gut them over the last 6 months. From October 1st of 2012 to the middle of this month, shares of Apple dropped 40%. At the same time, safe haven-seekers long the SPDR Gold Trust ETF (GLD) got drilled by 25%.

    Gold and Apple aren't "supposed" to move in lock-step. As Lee Munson, chief investment officer of Portfolio LLC notes in the attached clip, the first thing they teach you in "little trader's school" is that gold and stocks move opposite to one another.

    Assets don't care what you think should happen. Not only did Apple and gold drop in synch, they bottomed together as well. Since the start of last week shares of Apple are up more than 11% and the GLD ETF has tacked on half that amount.

    With gold trading like a lower beta version of Apple, Breakout asked Munson the same thing we did last June: Which would you rather own? Munson's going with Apple again, but only for the very patient.

    Read More »

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