Let’s be clear. There are very few positives when considering the economic landscape. It is hard to see what the catalyst might be that could change the fortunes of the economy and the stock market. The old tricks, like we are going to spend more money we don’t have (i.e., the American Jobs Bill), don’t seem to be wetting the speculative appetites of investors. The market sold off hard the day after President Obama announced more of the same.
Let’s also be clear that prices remain above support levels carved out 2 weeks ago, and in my opinion, this bounce, which has yet to morph into a rally, isn’t dead until we get a weekly close below those support levels. So for now it is “game on” and the ball is in the bull’s court. For the SP500, that key pivot or level stands at 1133.65.
Let’s also be very clear one more time that prices on the major indices have pulled back to those support levels, and in my opinion this represents another buying opportunity for those aggressive investors looking to get long. But is it really aggressive? Well if you consider the recent price action and the lack of meaningful catalysts, I would probably say it is aggressive or speculative. On the other hand, with prices so close to support levels, your risk is lowered as you are buying against that level where you should be cutting your losses. Any weekly close below support levels should be reason enough to defend capital vigorously.
And lastly, let’s be really super clear, this is a bear market. (I made the “call” August 9). The current trade set up is a counter trend within a bear market. This is for aggressive traders. Research that I have shown in this article shows that if an investor did absolutely nothing — i.e., sat on their hands and did no trading — until the next buy signal, the most likely scenario is that they would be giving up no more than 5% in gains. In other words, looking to catch a bottom isn’t really necessary for outperforming the market. What is necessary is protecting your capital vigorously!!
The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors…
Importantly, this dour outlook has nothing to do with the company’s operating businesses, which Whalen thinks are fine. In fact, says Whalen, there’s no need for the bank to be restructuring them and firing thousands of employees (40,000 is the latest estimate) to improve its bottom line.
The part of Bank of America that’s not fine, in Whalen’s view, is the ongoing liability from the mortgage underwriting that Bank of America’s subsidiaries did during the housing bubble. The litigation exposure from this could be so humongous, Whalen argues, that it will bankrupt the company, forcing regulators to step in and restructure it.
And Whalen doesn’t think the country should wait for that day.
Instead, Whalen says, the government should just seize Bank of America and restructure its debt, equity, and legal obligations now. The company’s operating businesses—branches, commercial lending, wealth management, and so forth—should continue operating, and the company could then be refloated with a new ownership structure.
This would leave Bank of America clean, lean, and competitive—just like the strengthened GM after the forced auto-company bankruptcy.
But in the meantime, none of this is under discussion. Instead, says Whalen, Bank of America is rearranging chairs on the deck of the Titanic. And firing thousands of people who don’t need to be fired.
Greece isn’t ripping the cord this weekend, but it probably doesn’t matter.
Everyone’s throwing in the towel.
Headlines about Germany bracing for a Greek default are pretty telling.
Says Bloomberg: "Germany May be Ready to Surrender in the Fight to Save Greece."
The gist: After two years of step after step to prevent a default, all the smoke signals from Berlin indicate that the fight is over, and that Greece is probably going to default.
Of course, the market has known this was probably the outcome all summer, with short-term yields hitting cartoonishly high levels.
The question is: Can banks avoid an immediate hit, and will a Greek default cause a crisis of confidence in Italy, Spain, and elsewhere?
If there is a ray of optimism, it’s that Greek PM Papandreou certainly didn’t sound like he was throwing in the towel at his speech yesterday.
This time may well be different, but not in a positive way.
Despite the unprecedented nature of the current financial/fiscal/debt crises globally, a remarkable number of observers evince great confidence in their diagnoses and predictions. Given the unpredictability of the many colliding dynamics, one has to wonder if their confidence is misplaced, or perhaps unduly derived from the intrinsically false precision of their models.
To mention just one example of dozens, if not hundreds, John Mauldin quoted London-based UBS analysts in his weekly E-Letter (free, and always interesting). The analysts peg the risk of a breakup of the European Union as "close to zero probability."
In my view, presented here many times, most recently in Why the Eurozone and the Euro Are Both Doomed (June 23, 2011), their "zero probability" is awfully confident about a complex situation that has no recent precedent--the Eurozone’s inherent contradictions and the immensity of its debt and political black holes are truly unprecedented.
The analysts go on to estimate the potential losses per person in a breakup:
We estimate that a weak Euro country leaving the Euro would incur a cost of around €9,500 to €11,500 per person in the exiting country during the first year. That cost would then probably amount to €3,000 to €4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.
The number of assumptions behind this analytic exercise is as remarkable as the false precision of its predictions. What if the "weak" nation (their phrase, not mine) exiting the Union chose to assert its sovereignty and renounce the debts owed to the big European banks? What if its imports were aligned (by broad-based national consensus) with its exports? What if the people of that "weak" nation peacefully retired their parasitic financial Elites and bankers from power?
Even assuming their prepostrous estimates of losses were even close to reality, did they factor into their model the "value" to the "weak" nation’s citizenry of freeing themselves from the jackboot of E.U. "integration," the code-word for the sacrifice of national autonomy and permanent servitude to the big European banks? Perhaps the citizens would gladly choose the "payment" of 10,000 euros in the present rather than pay 10,000 euros over time to the "too big to…
This time may well be different, but not in a positive way.
Despite the unprecedented nature of the current financial/fiscal/debt crises globally, a remarkable number of observers evince great confidence in their diagnoses and predictions. Given the unpredictability of the many colliding dynamics, one has to wonder if their confidence is misplaced, or perhaps unduly derived from the intrinsically false precision of their models.
To mention just one example of dozens, if not hundreds, John Mauldin quoted London-based UBS analysts in his weekly E-Letter (free, and always interesting). The analysts peg the risk of a breakup of the European Union as “close to zero probability.”
In my view, presented here many times, most recently in Why the Eurozone and the Euro Are Both Doomed (June 23, 2011), their “zero probability” is awfully confident about a complex situation that has no recent precedent--the Eurozone’s inherent contradictions and the immensity of its debt and political black holes are truly unprecedented.
The analysts go on to estimate the potential losses per person in a breakup:
We estimate that a weak Euro country leaving the Euro would incur a cost of around €9,500 to €11,500 per person in the exiting country during the first year. That cost would then probably amount to €3,000 to €4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.
The number of assumptions behind this analytic exercise is as remarkable as the false precision of its predictions. What if the “weak” nation (their phrase, not mine) exiting the Union chose to assert its sovereignty and renounce the debts owed to the big European banks? What if its imports were aligned (by broad-based national consensus) with its exports? What if the people of that “weak” nation peacefully retired their parasitic financial Elites and bankers from power?
Even assuming their prepostrous estimates of losses were even close to reality, did they factor into their model the “value” to the “weak” nation’s citizenry of freeing themselves from the jackboot of E.U. “integration,” the code-word for the sacrifice of national autonomy and permanent servitude to the big European banks? Perhaps the citizens…
When President Obama delivered his much anticipated jobs speech on Sep. 8, I was actually driving on one of those highways the President said would benefit from the infrastructure spending included in his proposed $447-billion American Jobs Bill. Listening to the live speech, and judging from the audience reaction, it was a good speech reminiscent JFK-style and was what American public wanted to hear. However, the proposed bill is short on implementation detail, and the claim that “Everything in this bill will be paid for. Everything” seems more of a wishful thinking and empty rhetoric as it rests on the assumption that the resulted budget and deficit cuts would not be rolled back by future leaders and policymakers. And that, of course, would not be President Obama’s problem.
Looking at the proposal on the basis of allocation, there does not appear to be any provision for the public sector, which is shedding jobs at an accelerated rate outpacing the job gains in the private sector due to budget cuts, revenue losses, and the winding down of the stimulus package. U.S.News noted that since the end of the recession, government employment--including federal, state, and local jobs--has fallen by roughly 600,000. Furthermore, there’s no provision for the housing sector which is still hemorrhaging from the financial crisis dragging down the rest of the U.S. economy.
At $447 billion, the proposed Jobs Bill is about half the size of the first stimulus package passed under President Obama – the $787-billion American Recovery & Reinvestment Act of 2009 (ARRA 2009). While both bills have a significant portion allocated to tax cuts/relief, one notable difference is that the Jobs Bill 2011 has devoted a much greater percentage and dollar amount to infrastructure—31% or $140 billion vs. 10% or $81 billion in ARRA 2009. (See Chart)
In the speech, the President made reference to China’s construction spree noting that the U.S. has the capability as well to build out infrastructure on its own. The heart of the matter is that Beijing gets that ….three years earlier than the Obama Administration, which made a decision to go the ‘alternative’ route.
As a result, China has overbuilt in some areas, and…
Money supply is rising, but not just from money-printing by the Federal Reserve.
There are two articles of faith about U.S. money supply:
1) the Federal Reserve is printing scads of money
2) this expansion of money supply will weaken the dollar and fuel inflation.
So far so good, but as investors and traders it behooves us to be not just skeptical of received wisdom, but to also be wary of the infamous confirmation bias, in which we avidly seek data which confirms our already-set convictions.
This is a consequence of the human mind’s resistance to changing its convictions once they are set.
Experienced traders have learned the hard way that they benefit much more from actively seeking evidence that they’re wrong, not that they’re right, i.e. that they’ve missed some key data that does not confirm their current position.
In this spirit, let’s consider a data point submitted by long-time contributor B.C.:
In essence, the story suggests that U.S. money supply is surging because of external flows from Europe into U.S. banks as non-dollar assets are being liquidated and transferred into dollars in response to risk aversion (i.e. panic), and an understandable preference for dollar liquidity over increasingly risky assets held in euros.
Once again, avoiding confirmation bias, we might ask: what else other than external demand could spike the U.S. dollar above its critical resistance levels so quickly? If money supply growth is all Fed printing, then why is the dollar skyrocketing instead of plummeting? The dynamic offered above is the better explanation of how U.S. money supply can be expanding at the same time the dollar is spiking higher.
To ask another question: why can’t gold and the dollar rise at the same time? Is their inverse correlation set in stone? Why can’t the dollar and gold miners (HUI) rise at the same time? After all, if non-dollar assets are seeking a less risky home, wouldn’t that explain both the demand for dollars and assets such as shares in gold mines denominated in dollars?
Just for context, global financial assets are estimated to be in the $160 trillion range. $1 trillion isn’t such an overwhelming force in…
After the earlier sheer amusement from Jim O’Neill, we shift to pure entertainment of a more macabre variety, as Grant Williams submits his diary chronicling the last five days in the collapse of the Eurozone (and much more). “I am writing this piece on the Monday of a week in which the sheer number of potential catalysts in Europe is extraordinary and so, by way of a change, and as a social experiment of sorts, I am going to write this edition of Things That Make You Go Hmmm….. diary-style in order to catalogue a week’s worth of lack of cohesion, absence of unity, misalignment, mixed messages and u-turns as conjured up by the modern-day Keystone Cops at the helm of the Eurozone. This may mean we run a bit longer than usual, but you can always just read the days you care about… Hopefully I’ll see you all at the end of the week…”
Here are the people fighting for the survival of their jobs, their careers, and their legacy:
Gold Technical Outlook: Looks Set for Upside Break
Looking at the weekly chart on Gold (vs. USD), the sell-off from two weeks ago at the rejection of $1900 was impressive not so much in how much it dropped in a single week, but on how well it recovered. The following act in the next week was a solid weekly gain of 3.4% from an opening price of $1822 – 1864 closing towards the highs suggesting buyers were holding into the weekend and thus not taking profits. The following week was a sell-off but very mild in nature and a third week of price rejecting off the weekly lows. Three weeks of selling and three weeks of strong rejections off the lows clearly communicating to us anytime the shiny metal is sold off, buyers are eager to come back in. And each time, they are doing so with more confidence because every time, they are buying at a higher price suggesting they are happy to take any dips as an opportunity to buy (or invest/hold) more gold.
This clearly communicates the underlying buyers are not afraid of the short term effects CME margin hikes may have on it or their futile (and puerile for that matter) attempts to manipulate something the market clearly wants to have and to hold. If they were afraid, they’d simply wait for a longer or deeper correction but the elevated buying rejections/levels suggests traders and holders appetite has not been satiated and continues to be part of their desired palette.
As a trader and quantitative technician, this all communicates continued upside pressure and a likely breakout (and close) above the $1900 barrier is coming soon to a market near you. We feel whoever is attempting to depress the prices (albeit sovereigns or manipulators alike) will soon have to yield the $1900 barrier and a close above it.
It should be noted that Gold (vs. USD) has only closed down on a weekly basis 13x this year out of 37 weeks (35% of the time). Of those 13x it closed down, only 5x (38%) did it close the following week down. We suspect this week will follow the majority pattern of another up-close on a weekly basis with renewed interest (not like people…
Like a Swiss watch, Goldman’s Jim O’Neill, who refuses to acknowledge that decoupling between the US and the BRICs not only never existed, but was always a flawed premise to begin with, has released his latest dose of Kool-Aid, in which he bets the horse track on, you guessed it, Chinese decoupling…. Sigh. Then again what can one expect: just like Bernanke will keep trying QE until QE succeeds (it won’t) or the market breaks; and just like the Krugmanites will keep pushing for an ever bigger fiscal stimulus (because the last one is never big enough, regardless of how big it is), why should one expect the latest addition to Goldman’s biggest loss leader (GSAM) be any different. And what makes this particular episode not only tragic but very much comic, is that the former “Red Knight” now sees the Chinese launch of a fully convertible and floating Yuan by 2015 as the panacea to the US stock market, and Goldman bonus doldrums (because when one cuts to the chase, that’s really what it’s all about). Little does it bother the BRICer that the advent of a new reserve currency would have a devastating impact not only on existing risk markets, but on so-called risk free ones as well. Remember that 0.000% yield on last week’s 4 week bond auction? Yeah… that would not come back. Ever. Anyway, with the upcoming week sure to provide significant tears, especially to European readers, here is at least some comic relief (yes, O’Neill does in fact “applauds” the move by the pegging move by the SNB – apparently loading up the asset side of your balance sheet with toxic paper which may or may not exist post the Greek expulsion is considered prudent when one is a Goldman partner) to start it off with.
From Goldman’s Jim O’Neill
THE ST LEGERS TO THE RESCUE – OR NOT?
Another tumultuous week comes to an end, coinciding with the 10 year anniversary of 9/11 adding to a weekend mood of reflection on the past decade.
There have been a remarkable number of things happening this week, especially on the policy front. Unfortunately, this has not included major policy developments on the European front, which continues to be the biggest source of disturbance to world markets. Worryingly, the hole…
The housing market 'recovery' has provided substantial support to the U.S. economic growth. The housing-related activities, which Guggenheim's Scott Minerd defines as private residential investment, personal expenditures on household durable goods, and utilities, as well as consumption wealth effect from home price appreciation, have positively contributed to real GDP growth for five consecutive quarters. In the first quarter of 2013, housing-related activities contributed more than half of the growth in the real GDP. That seems a significant burden to be carrying for a sector now seeing da...
Bloomberg reports China Swaps Surge as Cash Squeeze Sees Demand Wane at Debt Sale. China’s one-year interest-rate swap rose by the most in 22 months as the central bank refrained from adding funds to the financial system to ease a cash squeeze, causing demand to fall at a government debt auction.
“The cash shortage may get even worse before the quarter-end because banks will have to hoard cash to meet loan-to-deposit ratio requirements,” said Chen Qi, a strategist at UBS Securities Co. in Shanghai. “The central bank probably won’t come out to intervene unless there is a sharp decline in economic growth and large capital outflows.”
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Futures Tick Higher Ahead of Fed
U.S. equity futures traded slightly higher ahead of the much anticipated Federal Reserve meeting Wednesday. With rumors of tapering, not tapering, and Chairman Bernanke stepping down, all eyes will be on the policy statement, the revised forecast, and the chairman's press conference.
LZB - La-Z-Boy, Inc. – Shares in furniture producer, La-Z-Boy, Inc., increased as much as 3.9% to $19.80 at the start of the session, the highest level since 2004, ahead of the company’s fourth-quarter earnings report after the closing bell today. Options volume is up ahead of the report, with roughly 400 contracts in play this afternoon versus average daily volume of around 80 contracts. Trading in La-Z-Boy call options is outpacing puts, with the call/put ratio up above 4.3 as of the time of this writing. Some traders appear to be p...
Today's market meme was "pleasant trading ahead of the Fed." The recently troublesome and highly volatile Nikkei finished the day with a minor slip of -0.20%, and the eurozone was on hold with the EURO STOXX 50 closing a hair below flat at -0.07%. On the home front, the June CPI report for May offered no surprises and the housing numbers (permits and starts) were a bit light but not statistically significant. With no news from June FOMC until tomorrow afternoon, the S&P 500 opened at its intraday low, 0.04% above yesterday's close, and traded with no drama to its intraday high, up 0.92%, in the mid-afternoon. The buying eased in the last 45 minutes of trading and the index closed with a modestly trimmed gain of 0.78%.
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After the volatile session yesterday, the S&P 500 has broken back above the channel we have been discussing for a few weeks and now the Russell 2000 and NASDAQ appear to be joining (was not the case yesterday). If not for the focus on the FOMC presser tomorrow you'd have a nice clean breakout starting here. Tomorrow is of course a major wildcard.
On a related note – the 50 day moving average has been quite the support in 2013. In fact no year other than 1995 in the past 30 comes close to what we are seeing this year. ...
The market responded well today to good economic news and to the positive and somewhat surprising response to the election of a moderate Iranian President. Some moderation in Turkey didn’t hurt either, and overnight positive markets in Asia and Europe gave bullish investors enough encouragement to buy equities broadly.
This drove all three major domestic indices up about 1% before a late small selloff left the S&P 500 Index up nearly 1% and the Nasdaq and Dow Jones Industrial Average both up well over 0.5%. We think it likely this week that the market will challenge highs set in late May.
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Click here for the latest Stock World Weekly. Sign in with your PSW user name and password, or sign up for a free trial. There's an interesting option trade on LULU presented in the newsletter this week.
Trivia on lululemon via Paul Price, article found in NYTimes.
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
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By Craigzooka
I am going to share with you how I manage my IRA and the power of reducing your cost basis. My goal each year is a 20% return in my IRA. Sometimes I make it and sometimes I don't, but I believe that all of my success is due to reducing my cost basis. To illustrate the power of reducing your cost basis here are some trades we did last year. These trades are taken from an educational portfolio we ran in a paper-trading account for a little more than a year.
We bought RIG on 5/15/2012 for $44.13, sold it on 1/18/2013 for $46 but booked a profit of $1,154.
We bought MT on 1/4/2012 for $19.24, sold it on 12/21/2012 for $15 but booked a profit of $454.
We bought CHK on 1/27/2012 for $21.93, sold it on 10/19/2012 for $18 b...
Stock market posts another record setting week, but the big news came after Friday’s close.
Courtesy of NASA
The stock market put on another record setting show with the Dow Jones Industrial Average (NYSEARCA:DIA) closing at a record high 15,118 and the S&P 500 (NYSEARCA:SPY) closing at 1633.70, another all time closing high.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1%, the S&P 500 (NYSEARCA:SPY) climbed 1.2%, the Nasdaq Composite (NYSEARCA:...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well, well, well....it is good to know that there are others in the scientific arena who believed that YMI Bioscience's data (cough - Gilead) is a better drug than Incyte's Jakafi. Now, the definitive data are still unknown, but there was enough evidence from a Phase 2 trial to take a small risk for a huge reward. So, let's forget about Apple (AAPL), and do nothing but biotechs from now until Congress passes universal health care coverage for prescriptions....and drive the prices down so that research and development is no longer feasible to conduct in the US. Even Seattle Genetics (SGEN) has been on a tear as of late...
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Bank of America is doomed, says bank analyst Chris Whalen, the founder and managing director of Institutional Risk Analytics. (See video here)
This time may well be different, but not in a positive way.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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