Brian Pretti CFA's Contributions

One of the apparent conundrums of US Fed money printing in the current cycle is lack of headline inflation, at least as measured by the CPI. Certainly the CPI calculation itself is open to debate in terms of whether it is accurately depicting the cost of living in the US.

We all know what has been going on with Japanese politics, BOJ personnel reformation and Japanese financial markets since Abe was elected late last year. The Japanese have now joined the global central banking chorus of “whatever it takes”.

With the US Fed’s third quantitative easing program since 2009 announced in latter 2012, QE3, we know the Fed is explicitly targeting two key hoped for outcomes. First, Mr. Bernanke has told us he wants to see higher stock prices. So far, so good.

The Dow Jones, as well as a number of other equity indices, has recently achieved new all-time price highs. Was it really a question this would occur? We do need to remember we’re now just edging above price levels seen almost six years ago in 2007 and thirteen years ago in early 2000, and on an inflation adjusted basis we’re still close to 20% below old highs.

You’ve probably heard the talk making the rounds these days that margin debt is today as high as anything we have seen since 2007. In nominal terms, that’s exactly correct. So, is it really a reflection of “animal spirits” that are too highly elevated? After all, isn’t this exactly what Bernanke and friends wanted to have happen as the endgame for all the QE iterations?

One of the rationales I’ve heard for bullishness on the financial markets since I was an investment babe-in-the-wood is the “mountain of money” argument. Cash on the sidelines, etc. I’ve heard this at major market peaks and major market troughs.

When global central banks began to expand their balance sheets in an attempt to ward off the Great Recession of 2008-2009, their efforts were considered unprecedented.

A few weeks back I penned a discussion in these pages suggesting one of the most important issues for 2013 may be the potential for a shift in macro deflationary expectations among the investment community.

From year end 2006 to the present, the top six central banks globally have printed close to $12 trillion in new money. Quite the feat given that they started with a collective balance sheet of $5 trillion.

During the summer of this year I penned a discussion suggesting that we all watch durable goods orders (ex aircraft and defense spending) closely for clues as to how businesses were assessing and preparing for the Fiscal Cliff.

Over the last few months, jitters have gripped investors as the stock market has become a bit volatile on the downside. The last peak in stock prices came almost immediately after the Federal Reserve announced Quantitative Easing III in September.

It has been a rough couple of weeks for equity investors since the election. We’ve been treated to a virtually uninterrupted decline in price. The consensus wisdom is that now that the election is out of the way, investors are intently focusing on the fiscal cliff. The popular press is full of these stories.

A while back I penned an article that pointed out the US was experiencing the weakest service sector recovery cycle since the 1940’s at least. Important why? Simple enough, the bulk of modern day US GDP is driven by the service sector, especially the domestically focused components of GDP.

Let me start with an anecdotal data point. In the year 2007, the US paid $200 billion in interest costs on its outstanding government debt. In 2012 the US will pay approximately $200 billion on its outstanding government debt.

This is one of those discussions where I’m going to let the pictures do most of the talking… well, maybe. To the issue at hand, over the years I’ve consistently checked in on hopefully what we can term the views of corporate insiders.