by phil - December 9th, 2016 7:33 am
13 record highs for the Dow since the election!
We finished the day yesterday at 19,614 and that's up 1,731 (9.67%) from 17,883 before Donald Trump saved America just a month ago. 19,671 will be the official 10% move and we did flatline at 18,777 (the 5% line) on the way up but never a pullback. Per our fabulous 5% Rule™, we expect a 20% retrace of the 10% run so a 2% pullback from 19,671 would be 357 points back to 19,313 but we didn't even pause there on the way up, which is a possible indicator that we're in the midst of a 20% run – not at the top of a 10% run.
This is not, of course, unprecedented. When Obama was elected, the Dow was at 9,712 in November of 2009 and we added 1,000 points by Jan 14th, 2010 and hit 11,200 by April (up 1,488 or 15%) before having a significant correction and believe me, Republican voters were totally baffled by the markets reaction to that rally as well. Of course the Dow went on, in the Obama adminstration, to hit 13,600 in Sept for a total gain of 3,888 points or 40% but, at this rate, Trump should be able to blow that gain away before his first 100 days are up.
Because, after all, what's the difference how much we pay for stocks as long as there is someone else willing to pay more for them tomorrow. That's called "The Greater Fool Theory" and it works fantastically until you run out of fools but Trump got 60M votes – that is a really great number of fools we have to work with!
Trump just picked Andrew Puzder, CEO of CKE Restaurants, which is Hardees and Carl's Junior, who went private as Apollo bought them in 2010. Aside from being a strong opponent to raising the minimum wage and running ads like this, when speaking to Business Insider earlier this year, Mr. Puzder said that increased automation could be a welcome development because machines were “always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall or an age, sex or race discrimination case.”
by phil - December 8th, 2016 8:23 am
It has been an incredible month.
Since day one of the Trumpocalypse, money has been flying out of bonds and into equities, with much of the money going into ETFs (aka "dumb money") as bond traders don't tend to be stock pickers so we have widespread, indiscriminate buying that has been boosting our indexes to record levels.
This morning, the markets looked to Mario Draghi and the ECB to keep the party going and they have, indeed left their interest rates at 0%, punishing savers at least through March and they continue to buy bonds for as little as NEGATIVE 0.4% – effectively paying people to borrow their money. That bond buying program, however, has been trimmed a bit, from $86.4Bn to $64.8Bn and that in itself is miles down from the Summer, when the Euro was at $1.15 ($92Bn). We're waiting for Draghi's press conference but, even in the statement – they are already promising more easing if necessary.
The question is, necessary for what? Euro Stoxx have already climbed to within 20% of their pre-crash highs but, of course, the EU may have S&P envy, as our own leading index is now 60% higher than it was at the 2008 peak. Yes, 60% higher!
Amazingly, no one seems to care that the ECB has now bought $2.5 TRILLION worth of 0% interest bonds and our own Fed has bought $3.5Tn at an average of about 1.25% and that both entities have lost 20% in the last month (a combined $1.2 TRILLION) and that those losses will ultimately be passed down to the citizens, who are the ultimate funders of this massive corporate bailout program (they didn't buy your bonds did they?).
They will, of course, argue that they have caused rates to remain low and that has helped you buy a home or a car but, had they not kept rates artificially low, then the price of the home you bought would have been lower and probably the price of the car too because those markets tend to adjust to the payments people can afford so, by design,…
by phil - December 7th, 2016 8:39 am
I like this chart from Panamaorange at StockTwits:
I'm not a TA guy but I do know when things are overbought and oh boy are we overbought right now. Volume on the S&P ETF (SPY) was 57M yesterday as we busted up to new highs – that's about 1/2 "normal" volume of 100M, which is already down from 150M last year. Low volume means low conviction and we pair that with record ETF inflows (dumb money) of $56Bn and we know exactly what this rally is made of. Small Caps, Financials and Industrials captured most of the flows while, as noted yesterday, money is fleeing from Emerging Markets and Emerging Market Debt – we're simply the "safe haven" – for now…
And, of course, money is flowing out of bonds, which are a very bad thing to hang onto when interest rates are rising and December is on pace to blow November's numbers out of the water and, like Richard Gere, that bond money has nowhere else to go except into equities – regardless of how ridiculously priced they are.
And, of course, a person dumb enough to put their money into 30-year notes at 2% isn't going to think twice about running into equities that have a p/e of 30 – that's more like a 3.3% return, at least! That's also making dividend stocks extra expensive as the coupon clippers love dividend stocks and, as value investors, we're finding bargains very hard to find in that space but we're patient, we can wait for the correction.
Meanwhile, the Dow has climbed to the top of our target range already. Back on 11/25, we put up a hedge against our Russell Futures (/TF) shorts (was 1,350 then too!) that would cover us for an $11,250 profit if the indexes refused to back down – at the time I said:
In fact, the Russell 2,000 is just under 1,350 and that's up 200 points since early November (not counting their spike down) and that is just shy of 15% so the Dow is MILES behind
by phil - December 6th, 2016 8:13 am
We did get some awesome Consumer Spending numbers yesterday but, as you can see from the chart, it's more of a reflection of inflation than of a confident consumer that's out shopping. The cost of "essentials" has risen sharply since May, up 8% while discretionary spending has remained flat. I imagine when the credit card data comes out – we'll see that a lot of this spending has been debt-financed – not the best kind of spending...
Still, the market hates nuance so YAY!!! Speaking of nuances, did you know that Fitch, Moody's and the S&P have taken a record 1,971 negative ratings actions on emerging-market sovereign and government-related entities in 2016 – and the year isn't even over yet! Isn't that awesome??? Not since 2007-2008 have we had this kind of uptick in negative ratings and back then the record was only 1,400 – we shattered that in September!
Now I'm not going to say this is a bad thing because NOTHING is a bad thing as far as this market is concerned but, it's kind of a bad thing. 26% of the 134 Sovereigns rated by Moody's still have a negative outlook – so things can get even worse. When a sovereign defaults, there's a domino effect of companies, private and state-owned, that follow. For once, S&P, Moody's and Fitch may be giving investors early indications of what to expect. The message for now is clear: Developing nations are no longer doing that well.
I'm not going to dwell on the negative, not when Bloomberg did such a good job of it in their "Pessimist's Guide to 2017".
We tried shorting yesterday and that failed, with our stops quickly broken to the upside but we're at is again today. In yesterday's post, I said the Nikkei (/NKD) was my favorite short at 18,500 and we made a +$500 move down to 18,400 (now back to 18,450) but that was disappointing given the Dollars sharp fall back to 100 so today we're not into them but we do have 19,225 on the Dow Futures (/YM) and those components are very stretched and oil…
by phil - December 5th, 2016 8:27 am
Oh my God!
Shame on any editor who pretends politics shouldn't be discussed in financial posts – their cowardice has led to the election of a man who doesn't even understand that China has been propping UP their currency, at the insistence of the US and other nations, and have lately been REMOVING their supports and the devaluation of the Yuan is what the REAL market values are currently showing.
In May of last year, in fact, the IMF officially stated the Yuan was no longer undervalued. Since 2015, the People’s Bank of China, the central bank, hasn’t been keeping the currency cheap. Rather, it’s been defending the yuan, drawing down its foreign-exchange reserves in order to keep the value aloft.
Why would it do that, knowing that might hurt the export sector, which provides a huge share of jobs? In the last few years, demand for the yuan has come less and less from trade, and more from investment flowing into China to speculate on the currency’s appreciation against the dollar—a self-reinforcing phenomenon. Those inflows help prevent cash squeezes in the banking system, and push down borrowing costs. Letting the yuan’s value drop might drive that investment out of China, draining cash from the financial system dangerously fast.
Is it too political to point out that the President-Elect of the United States of America COMPLETELY WRONG in his currency statements. Trump isn’t just wrong about what Beijing is doing, he’s wrong about the impact it might have. This year, even though the yuan depreciated against the dollar, Chinese exports have not picked up thanks to the weak global economy. “It has become less effective and unnecessary for Beijing to use a cheaper yuan to boost exports,” noted Shuli Ren of Barron’s recently, because “the pie is getting smaller and competitive easing can only get you so far.”
Recently, with China’s foreign currency reserves falling to the lowest since 2011, the Chinese central bank are believed to have sold the dollar to ease yuan’s decline, in an attempt to curb record capital outflows—doing exactly the opposite of what Trump claims. Should I keep quite about this idiocy because this is a financial newsletter and Trump has armies of letter-writing fanatics that…
by phil - December 2nd, 2016 7:46 am
It's Non-Farm Payroll Day today.
We should be around 160,000 jobs and this is Obama's last report card as we approach 15M jobs added since 2010. This ranks Obama way behind Clinton, who created 22.9M jobs but still, it's a pretty good number. Much more important than jobs, however, is hourly earnings and those have been rising steadily over the same period and that's the number we need to watch for signs of whether or not the economy is healthy.
President Trump (get used to it) saved 800 jobs yesterday at a cost of just $7M in addition to continuing to provide United Technology (UTX) with $6 BILLION in defense contracts which make up a good portion of their $7.5Bn in profits. UTX thanked the President by shipping 1,300 jobs overseas anyway and closing another plant in Indiana – the state whose taxpayers are on the hook for the $7M bailout of the hugely profitable corporation.
CNBC analyst Jim Pethokoukis said Trump's speech at Carrier yesterday was "absolutely the worst economic policy speech since Mondale" but that's not fair as Trump isn't actually President yet so we shouldn't count it – I'm sure he'll be able to top it once he's actually in office – there's no way Trump will let himself come in second to Walter Mondale!
"The idea that American corporations are going to have to make business decisions, not based on the fact that we've created an ideal environment for economic growth in the United States, but out of fear of punitive actions based on who knows what criteria exactly from a presidential administration. I think that's absolutely chilling," he said in an interview with CNBC's "Closing Bell."
And that guy works for a CONSERVATIVE think tank!
This is going to be a fun four years and I'm very excited by the trading environment, with Presidential tweets moving the market up and down regularly. Meanwhile, China is wasting no time at all filling the Global leadership gap as President Xi headed straight to Latin America where he's set up a huge trade deal with Ecuador, raised the diplomatic status of Chile and initiated trade relations with Peru. China already has a wall but…
by phil - December 1st, 2016 8:26 am
What a crazy market!
On Tuesday, in the morning post, we put our foot down and called for index shorts in the Futures, saying:
And THAT is why we're short the market here. That's why we're short the S&P Futures (/ES) below the 2,200 line (with tight stops above) and Dow (/YM) 19,100, Nasdaq (/NQ) 4,875, Russell (/TF) 1,330 and even the Nikkei (/NKD) at 18,500 – because that same economy also can't sustain an ever-rising Dollar.
In fact, we called an audible in our Live Member Chat Room at 10:15 to catch the Russell short at 1,335 so really it was a $1,500 per contract gain for our Members but not a bad gain for you free readers either, more than enough to buy you a subscription so you don't miss those extra $500 moves next time, right? The adjustments I suggested to our Members in the morning were:
Oil stocks jamming up the indexes but there's an undercurrent of selling so good shorts at 19,200 (/YM), 2,212.50 (/ES), 4,880 (/NQ) and, of course, 1,335 (/TF). /NKD is no good because the Dollar is rising, now over 18,500 but very tempting to short.
The Dow (/YM) dropped to 19,120 for a $400 per contract gain and the the S&P (/ES) hit 2,195 for an $875 per contract gain and the Nasdaq (/NQ) fell to 4,805 for a $1,500 per contract gain so not bad for a day's work! In yesterday's Live Trading Webinar, we flipped to the Nikkei (/NKD) shorts, as they had the farthest left to fall and, of course, we are still liking the oil shorts (/CL) once the squeeze is over, as we test $50.50 this morning.
Watch for Brent (/BZ) to fail $52.50 and that's game on for the /CL shorts but no shorting above those lines. We caught a $1,000 per contract drop off our first test at $50 yesterday but overnight oil got jammed up again at the Asia open (as they had to square off their accounts at…
by phil - November 30th, 2016 8:28 am
You really can fool some of the people all of the time!
As wisely noted by the great George Bush II, there are some people you can count on to be fools and those people have put their money into oil over and over and over again since September on the same idiotic news that OPEC will cut production from 33Mb/d to 31.5Mb/d. Since that time, the OPEC members have INCREASED production to over 34Mb/d and the plan is to cut back to the more sustainable 31.5Mb/d and claim victory (and we are long oil in our Options Opportunity Portfolio, expecting it to work out for them).
This morning, Iran's oil minister said Russia will be on board with a 1.4Mb cut (total) and that will bring them down to 32.5Mb/d, which is 1Mb/d HIGHER than what they said in September but what difference do facts make in post-election America? Just last night, the American Petroleum Institute (API) reported a weekly 2.3M barrel surplus of Oil (/CL) at Cushing, OK along with a 3.36Mb surplus in Gasoline (/RB) and a 2.24Mb surplus of Distillates – and that's after a holiday weekend, when demand was supposed to pick up.
As you can see from this chart of our oil inventories, we are already nearly at full capacity, more than 10% over the top of the range that was set last year and, if EIA confirms the API build at 10:30, $50 oil will be a nice shorting spot because the US alone has a 50Mb surplus vs last year so – even if OPEC where our only supplier, it would take months just to work off our own massive surplus – and that's assuming US producers don't rush in to fill any production gap OPEC leaves on the table.
Aside from OPEC, it's a big data day on the last day of the month and we expect all hands to be on deck to prop up the markets and close November at those all-time highs so your friendly neighborhood bankster has some nice-looking charts that they will be able to use to pressure you to make "tax-advantaged" moves…
by phil - November 29th, 2016 8:37 am
The low-volume rally comes to an end – now what?
As you can see from this chart of On-Balance Volume, there's been a HELL of a divergence between it and the S&P and, in the end, OBV usually wins out. OBV is a momentum indicator that uses volume flows to predict price and it's generally very accurate – except when certain key stocks are being propped up in order to create the illusion that there is index strength when, in fact, the people manipulating the market are dumping everything else they hold into the greedy hands of the retail suckers. Then it looks like this.
Maybe this time is different, right? Like last fall, when OBV tanked in November and the market didn't collapse in November or December – it collapsed in January, falling from 2,100 to 1,800. That's only 14% and we're up 7% since Trump was elected so a net loss of just 7% from where you were before the election is no reason not to BUYBUYBUY expensive stocks now, is it? At least that's what the stock pushers are telling us on TV and they are on TV – so they couldn't be lying to us, could they?
Remember the great bull markets of the 50s and 60s or the late 90s? What did they have in common? Rising wages! Rising wages are the foundation for sustained economic growth and we're simply not there yet and you KNOW what happens when wages stagnate and prices rise, don't you? Assuming you are not having this article read to you, you were on the planet 8 short years ago when we last suffered the consequences of things rising to the point at which people could no longer afford them.
And by people, of course, I don't mean you – you are in the investor class and you have something 80% of the people in this country do not have, which is MONEY! You have money in your checking account and money in your savings account – in fact, you have SO MUCH MONEY that you are able to plan for your future – very much unlike 240M of your fellow countrymen.
by phil - November 28th, 2016 8:17 am
This is strange.
Trump claims millions of people voted illegally and is using that argument to claim that a recount of the election results is not necessary. Fortunately, he doesn't have his finger on the button just yet and there will be a recount in 3 states (MI, PA and WI) and, though it's not likely to change anything in the end, it's likely to cause a bit of market turmoil – in addition to everything else that's going on.
Imagine if the election is overturned and the entire 10% Trump rally evaporates overnight – that would be interesting. Nothing to worry about so far as we've made it to end-of-month window-dressing time and it's very unlikely "THEY" will let the markets drop away from record highs to close out November but December is going to be trickier as we have that Fed meeting on the 14th and this week already we have 7 Fed speakers to pave the way to the anticipated hike:
As you can see, just the Dallas Fed on the calendar this morning but then things heat up quickly as we get our 2nd estimate of 3rd Quarter GDP tomorrow after the hawkish Fed VC, Fisher has his say but Dudley cleans up after the data and then we see how confident the consumers really are. Friday is non-Farm Payroll but first we have to get past the OPEC meeting on Wednesday and there's another part of the recent rally that might reverse hard and fast if no deal is reached.
As you can see from the earnings calendar, we've pretty much run out of interesting companies to watch so the data becomes more important this time of year, until the earnings cycle starts again in January.
Fortunately, our friends at Goldman Sachs were kind enough to lay out a roadmap for us that takes us all the way through 2017, where the firm predicts we'll finish as 2,200 on the S&P which, unfortunately, is 13-points LOWER than we closed on Friday. In fact, our Q1 S&P projection is for 2,125, down 4.2% from where we are now but clearly…