Market Talk

GMO’s Jeremy Grantham continues to be among the most coherent, rational and entertaining voices commenting on US markets and the economy. His latest quarterly piece is the usual must-read, titled “Night of the Living Fed.” Here’s a little taste:

In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.

Enjoy the rest here.

- “In this recovery there is less job creation, less household formation, and less demand for housing units than a normal recovery. This is sort of a circular trap for both GDP growth and employment,” Calculated Risk says. “This is one of the reasons I expect the unemployment rate to tick up over the next several months.

- FusionIQ CEO Barry Ritholtz makes the argument that US bonds are resembling tech stocks during the dot-com bubble. “What made the dot-com situation so pernicious was that anyone who was judged on relative performance (i.e., mutual fund managers), were all but forced into these names in order to keep up,” Ritholtz says at The Big Picture. “Very few people — Buffett and Grantham come to mind — managed to both avoid both chasing these names and losing their client base.”

- There’s no denying the strong quarterly profit reports coming from S&P 500 companies in 2Q. But the notion that strong profits actually represent good news is “murky at best,” Derek Thompson writes at the Atlantic. “High unemployment is, strangely, both dampening revenue and enhancing profits.”

- Mortgage Bankers Association reports refinance activity surged 17% amid historically low interest rates. But Miller Tabak’s Peter Boockvar notes purchasing fell 3.4% and remains just 3.5% off lowest level since 1997. “This economic response to low rates is indicative of our whole economy that has the Fed now pushing on a string,” Boockvar says. “In times of deleveraging, lower rates only encourage refi’s, not new economic activity whether the purchase of a home or the expansion of a business.”

- Boston Fed argues economists aren’t to blame for missing the housing bubble, which absolutely baffles naked capitalism blogger Yves Smith. “It is truly astonishing to watch how determined the economics orthodoxy is to defend its inexcusable, economy-wrecking performance in the runup to the financial crisis,” Smith says.

- UPS recently said in a 10-Q that the impact of the health-care reform legislation “was not material” to its financial results, which shocks Footnoted blogger Michelle Leder, especially since many companies have said they’ll take big charges related to legislation, including AT&T’s (T) $1B charge.

- Since Fed’s announcement last week to reinvest proceeds from expiring MBS, the dollar’s risen while crude oil and S&P 500 have tumbled. “A cynic, however, might look at the lackluster reaction and think that the US central bank is losing some of its market-firepower in terms of unconventional monetary policy,” FT’s Alphaville says. “And an even bigger cynic might think that the market is simply holding out — or pushing — for a bigger bout of unconventional policy. Either way though, something’s out of sync here — the market or the Fed.”

- Tech blog Download Squad says Google (GOOG) and hardware maker HTC (2498.TW) are teaming up to build a tablet device that runs GOOG’s Chrome operating system. The blog says the tablet will be offered in conjunction with Verizon (VZ) and launched on Nov. 26, or Black Friday, the busiest shopping day of the year in the US.

- Is the Web really dead? The blogosphere debates.

- Looking to succeed at the dating game? Maybe its time to get off match.com and other dating sites and hit the athletic fields. WSJ explains.

This time it really is different!

I got rich in the dot-com bubble — for three months. Well, I should say richer. I didn’t actually get rich. And in the end, I got poorer. But I did catch the tail end of the bubble, and for a couple of months, I got the thrill of riding that tiger. It was kind of fun.

Back in 2000, Dow Jones switched their compensation plans, from a lump-sum bonus at the end of the year and a defined contribution plan, to a 401(K) with a company match and contribution at the end of the year. The new plan started on Jan 1, 2000. I’d never owned stocks before, and for three months, I remember going every single day to the plan’s website and watching the number rise.

We were actually giddy, we thought this was the best idea ever, we thought we were going to retire rich. The thing was going up exponentially, it seemed, every day. Of course, like so many other idiots, I was getting in at the top. But it felt great, right until March 10, 2000, the very top, the end of the ride. The bubble burst, my 401(K) cratered, and I learned a very valuable lesson.

The funny thing is, until I actually had money invested, I was extremely skeptical about the market. Kind of comes with the territory of being an editor. We all used to rail against the ideas floating around, that “this time it’s different,” that earnings don’t matter, that the Dow was going to 36,000. But once my own accounts started rising, well, well I was making money. I knew it was a scam. But still, I was making money.

But, in the end, it was all hype. Nothing was different. Earnings of course matter. And the Dow wasn’t going anywhere near 36,000. And, boy, the dot-com bubble was a simple matter compared to the financial meltdown of ’08. I know everybody’s kind of got disaster fatigue these days and is ready to accept almost any “truth” that’s being sold out there: that everything’s better now, job growth is going to explode on the scene, Tim Geithner’s a misunderstood genius.

But there are plenty of good reasons to remain cautious. Job growth has not appeared yet, and isn’t going to appear in any great numbers for a good long time. There simply isn’t any reason for employers to start adding hundreds of thousands of new workers, month after month. The states in these United States every day are finding themselves at the end of their financial ropes. And all Geithner did was throw an unlimited amount of money at the banks, because he could, because he ran the Treasury, then whitewash the whole thing with a rigged stress test.

Cripes, I could have done that.