by phil - July 3rd, 2014 7:36 am
Happy Birthday America!
The markets are closed tomorrow and today is a half day but the trend is certainly our friend on the S&P as we haven't been below the 200 day moving average since December of 2011 (except a couple of very brief dips). Though the average volume is about 30% lower than it was back then – it's still an impressive feat.
Of course, if 10% of the market was manipulated before and the manipulators haven't left (they certainly haven't) – even if the level of manipulation remained the same, 30% of the 90% that wasn't manipulated (retail investors) did leave (possibly BECAUSE of the manipulation) and that means now manipulators control 10% of the remaining 70%, a 42% increase in manipulation! Of course we know it's much worse than that because now the Central Banksters perform their own brand of market manipulation. As noted by Salient Partners in a great article about PBOC Manipulation:
The explicit purpose of recent monetary policy is: to paper over anemic real economic growth with financial asset inflation. It’s a brilliant political solution to the political problem of low growth in the West, because our political stability does not depend on robust real economic growth. So long as we avoid outright negative growth (and even that’s okay so long as it can be explained away by “the weather” or some such rationale) and prop up the financial asset values that in turn support a levered system, we can very slowly grow or inflate our way out of debt. Or not. The debt can hang out there … forever, essentially … so long as there’s no exogenous shock. A low-growth zombie financial system where credit is treated as a government utility is a perfectly stable outcome in the West.
So China has indeed learned the most valuable lesson of Capitalism – that money is a meaningless contstruct that can be freely manipulated to fit whatever narrative the Government wishes to spin and that debt is not to be feared, but embraced, especially by our Corporate Masters – because our National Debt becomes their Private Profits!
by phil - July 2nd, 2014 8:25 am
Wheeeeeee – a new record!
Actually, we shouldn't get too excited as it's a new record every day but it's still fun to celebrate while the all-time highs are lasting. The Dow fell just 2 points shy of 17,000 but ended up 44 points short – that's one we'll watch closely today, along with NYSE 11,000 – a level I have long stated will force us to turn more bullish if it holds.
Unfortunately, with the low-volume holiday trading, we won't be able to confirm these moves until next week but that doesn't bother TA people, who ignore everything but the squiggly lines on the charts and they say RALLY!!! I imagaine this weekend we'll see "Dow 20,000" on a magazine or two but that's still a far cry short of the 36,000 we were promised on the cover of the Atlantic back in January of 2000.
The Dow topped out that month at just under 12,000 so 17,000 is, in fact, good progress but still over 50% short of the level we were supposed to hit 10 years ago and let's not forget that we visited 6,600 first! So, maybe not the right time-frame and maybe not a smoothe ride – but we're heading in the right direction – now.
Not wanted to fight the mega-trends, we went wtih the flow and added Dow laggard IBM on Monday at noon in our Live Member Chat Room with the following trade idea:
IBM is on our Buy List but not in our Portfolio yet as I was hoping they'd have a weak Q2 and go down a bit but I'm nervous my theory on Watson will gain traction and send IBM back up so let's add 5 short 2016 $160 puts at $9.40 to the LTP and, if IBM goes lower, we'll be happy to sell 10 more and add a bull call spread.
by phil - July 1st, 2014 7:50 am
And, by another, I mean another $340Bn that the Fed paid out to their Bankster buddies in "Reverse Repo" purchases at the end of the month. That's right, the Fed essentially bought THE ENTIRE STOCK MARKET (in terms of transaction value) from the banks over the last few days of June and THAT injection of cash is how they kept the rally going into the end of the quarter.
As you can see from the NY Fed's own chart (via Dave Fry and Zero Hedge), this kind of charity buying isn't unusual for the Fed – more like Standard Operating Procedure to inflate equity prices into the end of each quarter. Does it work? Sure, look at the results:
As you can see - as the market gets more and more expensive, it takes more and more money to push it higher. Also note the Fed tweaked (hopefully not twerked – there's an image of Yellen I don't want burned in my mind!) their timing to move it close and closer to the very last day, to maximize their bang for the buck.
UNFORTUNATELY, as you can see from the S&P chart above, these effects are short-term and demand a correction in the not too distant future.
What's very interesting is that our stimulus theory is still holding up. We developed this back in 2012, through observation of the effect of Central Banksters market meddling on Global Equities and it turns out that $10Bn per quarter buys 1 S&P point. Look how perfectly that aligns on the chart!
Bill Dudley, New York Fed president, warned last month that if use of the repo facility were to grow too quickly it might “result in a large amount of disintermediation out of banks through money market funds and other financial intermediaries into the facility. This could encourage further enlargement of the shadow banking system.”
by phil - July 1st, 2014 7:10 am
By Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni
by phil - June 30th, 2014 8:22 am
I'm NOT going to depress you.
If you want to be depressed about the market, check out my Twitter Account, where I posted our Morning Alert to Philstockworld Members (and you can become one of those HERE) in which I aired my concerns with the Global Macros.
As you can see from Dave Fry's SPY chart, the volume on Friday was very low – incredibly so as it was a Russell re-balancing day, when we can usually expect very HEAVY volume. Today is, in fact, the very last day of Q2, so we expect "window-dressing" to hold us up for at least another day but then there's only 2 and 1/2 days until the 3-day weekend, so perhaps the charade can continue all week.
I didn't mention the US because we've already had extensive discussion of how the US changed the rules on GDP calculations last year to add 3% to our GDP but NOW I need to mention the US's contribution to data manipulation because it turns out that a revision to the way Pensions are being accounted for has goosed Corporate profits by 6%, adding another $500Bn (3%) to our GDP!
Even worse, it's retroactive (see chart above) and improves HISTORICAL EARNINGS as well! This smoothes out the GDP charts and doesn't make it look like we did something in 2014 to pump it up – isn't that clever? Not only does it pretty up the GDP and boost Corporate Earnings (so the S&P's p/e looks like 18.5 when it's well over 20), but it also fools investors into thinking that pension obligations at blue-chip companies are not as bad as they really are.
No wonder the volume in the market is approaching zero – who can play in a game where they change the rules every few months (and surreptitiously, at that!)? Even with the record amount of buybacks by US Corporations in 2013, GAAP (Generally…
by phil - June 27th, 2014 8:14 am
I forgot to talk about something important yesterday.
Turkey was caught FAKING their trade data, with Prime Minister Erdogan, working with Economic Minister Caglayan LAST YEAR to manipulate their $800Bn economy by sending gold overseas to boost their export numbers. How a team that included Turkey’s economy minister sought to manage the current account deficit, as the gap is called, by juicing exports to Iran is laid out in a 300-page document prepared by Turkish investigators in 2013. Caglayan and his collaborators also came away with tens of millions of dollars in bribes, according to the document, which has been cited in parliament by opposition lawmakers.
That's how things are being done in the World's 18th-largest economy and, notice CHINA (3rd) is one of the countries participating in this scam, as is Iran (21st) and Dubai in the UAE (30th). We already know China is involved in all sorts of economic manipulation, including building entire empty cities just to boost their GDP numbers. China, in fact, is in the midst of another set of scandals, with tens of Billions (GS estimates $160Bn) in bank loans backed by silver and copper collarteral that does not, in fact, exist (maybe they "got it" from Turkey?).
by phil - June 26th, 2014 8:29 am
What a fantastic market!
We went UP yesterday despite a 3% drop in GDP. Imagine what would happen if we had a positive GDP – watch out Dow 20,000! Of course the volume was stupidly low (20% less than Tuesday's much bigger sell-off) and the rally was led by the broadcast media broadcasters, large-cap companies that jumped 5%ish on the Supreme Court decision against Aereo.
But who cares? A rally is a rally. Our multi-national Corporate Masters don't care that the US economy is tanking – that just means more free money from the Fed and a cheaper labor force for them and we are investing in the stock of those companies, not the US economy!
Are we perhaps getting a bit overbought? Well, sure, if you want to compare us to markets in which the World's Central Banking Cartel wasn't pumping in an average of $5 TRILLION per year into the markets (via their Banskter buddies, of course). $29Tn is right about 25% of the total value of global equities and it's no coincidence that the S&P (and other major indexes) are now 25% higher than they were at the last market top:
Yes, it's true: If you put 25% more water (liquidity) into a bathtub you will get 25% more water in the tub – AMAZING!!! At some point, you tub will runneth over but getting back to about where we were before the crash (liquidity drained out of the tub) probably isn't going to do it. As I pointed out way back in June of 2010 with "The Worst Case Scenario: Getting Real With Global GDP!", we didn't break the tub – which is why, at the time, we bullishly expected it to be refilled at some point.
As noted by Business Insider, what we have now is a Liquidity Bubble, where money is forced into the system and flows through the path of least resistance which, with the Fed artificially depressing bond rates, leads only to equites.
by phil - June 25th, 2014 8:30 am
Does this look healthy to you?
We did manage to pull out of a tailspin back in 2011 – the last time our GDP went negative but, funny story – in July of 2011, the S&P fell from 1,350 to 1,100 by August 9th and it gyrated between 1,100 and 1,200 until October when the Fed's "Operation Twist" (because "Operation Screw the Poor" got bad test scores) gave us a boost.
Notice how this post picks up right where yesterday's post left off – I'm clever that way! Yesterday we had the chart that showed us that 10% of our GDP ($1.5Tn) is the result of Fed fiddling and, without it, the GDP would be right back at those 2009 lows. Whether or not you THINK QE will ever end, you sure as hell better have a plan for what you will do in case it does!
Russell Investments put out their Economic Indicators Dashboard yesterday and it's a nice snapshot of the where the economy is.
The lines over the boxes are the 3-month trends and, thanks to the Fed, 10-year yeilds are just 2.48% and that's keeping home prices high (because you don't buy a home, you buy a mortgage).
Inflation is creeping up and expansion (today's topic) is negative and getting lower. Meanwhile, consumers remain oblivious as the Corporate Media fills them with happy talk. Meanwhile, this BLS chart (via Barry Ritholtz) says it all as manufacturing (good) jobs continue to leave our country at alarming rates:
Almost all of the growth spots are from fracking with a little auto production picking up as well. Overall, 1.6M net manufacturing jobs have been lost since 2007 and, much more alarming, the median household income for those lucky enough to still have jobs is down almost 10% over the same period of time.
In other words, if it wasn't for Fed Money, we'd have no money at all! In yesterday's Webinar (replay available here) we talked about how the Fed is like a guy spraying a hose on kids in the…
by phil - June 24th, 2014 8:24 am
The new Big Chart is here:
Oooh, ahhh – look how high those levels have gotten. We discussed the whys for these adjustments in our weekend post and how is, of course, The Fed – along with the other Central Banksters who have been pumping up the economy by giving so much money to the top 0.001% that they have nowhere left to put it but equities and, so, we rally!
Top 0.001% (out of 7Bn people on Earth, that's 70,000 and, of course, that includes about 20,000 Corporate Citizens as well – even thought they are often owned by wealthy individuals – a double bonus for them!) corporations have so much money, they are running around buying each other and buying their own stock – anything they can think of to get rid of all the money the Central Banks are handing out. Well, anything but hiring people or investing in R&D, Infrastructure, Cap Ex or anything that would actually GROW the businesses.
What the World's wealthiest businesses and individuals DO spend their money on is teams of accountants and lawyers who help them to shuffle their money around through various overseas shell corporations in order to avoid paying taxes. Here's how Google knocks their tax rate down to just 2.4% in 4 easy steps:
Now we have companies flat-out leaving the US to avoid taxes but it's not US taxes they are avoiding – it's ALL taxes. Medtronic (MDT), for example is acquiring Covidien (COV) for $43Bn and the combined group will be domiciled in low-tax Ireland, the official home of its merger partner, COV.
Medtronic’s executives will stay in Minneapolis and Covidien’s will remain in Mansfield, Mass. Covidien, then part of Tyco, left America for Bermuda in 1997 before moving to Ireland in 2009. The deal thus involves an inversion with a “foreign” firm that has itself already inverted: a sort of “inversion squared”.
by phil - June 23rd, 2014 7:55 am
What a busy weekend!
We finished part 3 of our Merry May Trade Review and it was merry indeed with 31 of 37 trade ideas coming up winners in week 3, giving us a total of 125 wins and 17 losses (88%) for the first 3 weeks of the month. Needless to say, we were generally bullish but some of our bull misses, like ABX, CLF, FCX are exactly the kind of trades we should be looking at as new entries – if this rally is going to continue.
We also updated Big Chart's Must Hold Levels this morning to a more aggressive zone in our latest installment of "Charts from the Future." While we are still rally-skeptical, we're not going to fight the Fed from a TA perspective – we're simply moving up the lines which will tell us to get more bearish – just in case the market ever does head lower again (doesn't seem like it will happen with the VIX at 10.85, does it?).
Meanwhile, the chart of the day is the Hang Seng, which fell off a cliff at 2pm (2am, EST) as China's Beige Book showed the economic slowdown deepening in Q2. Capital spending showed weakness and fewer companies applied for credit with the slowdown hurt hiring and wages, and interest rates offered by shadow lenders fell below levels offered by banks.
“Since investment has been the engine of the economy for the past seven years, this weakness has sweeping effects on sectors, regions and gauges of firm performance. Overinvestment has been an addiction and withdrawal symptoms will not be pretty.”
For the first time since the China Beige Book survey began in 2012, no sector showed an improvement compared with the previous quarter, according to today’s report. Transportation, mining and retail slowed andservices weakened more sharply. The survey showed “dramatic differences” between parts of the real estate industry, with commercial and residential realty “pummeled while construction held up fairly well,” China Beige Book said.