Have we corrected through time, rather than through price, enough to spark the next leg higher for the bull?
Consider: No new high since last May, a flat market over two years (three years for small caps), median declines for individual stocks of 30% – not enough? Or plenty, to set up a new rally?
That’s the question on everyone’s mind now as the averages approach re-approach their former highs. The bears say May has been a short-squeeze. They say you’re risking 20% to make 2% to the upside. The bulls (and there aren’t a lot of them) don’t have much to say to counter this, other than the possibility that economic growth picks up in the second half (what else is new) while the Fed becomes a well-telegraphed non-event.
Reading the morning note from Andrew Adams at Ray Jay, I came across this really interesting insight from a trade named Jesse Stine. In addition to pointing out that “Over the past three months (12 weeks), stock funds have lost $33 billion in assets while bond funds have gained $50 billion,” Stine talks about sentiment in the context of today’s actual conditions:
Jesse Stine’s Key Criteria for a Market Bottom:
1. An IPO market that has dried up completely.
2. S&P earnings hitting a bottom and turning higher. (Dollar drop/rising oil stimulant.)
3. A mass exodus from retail investors (dumb money) as they dump their funds.
4. Our “friends” at our investment banks tell us to sell stocks.
5. Zero market speculation in penny/microcap, Bio’s/speculative stocks.
6. Households at multi-decade lows in terms of stock ownership.
7. Retail investor bullishness under 24%.
8. A stretched bond market as investors seek the “safe haven” status of bonds.
9. Longer-term put/call ratios at extremes (investors seeking downside protection).
10. Warren Buffett buying stocks hand over fist after highest cash balance ever last year.
During the Live Trading Webinar, we shorted the Nikkei (/NKD) Futures at the 17,000 line, and we made a live $525 gain on /NKD along with another $580 on our Natural Gas (/NG) Futures longs. Making over $1,000 in a 2-hour webinar (plus another $110 on the Dow shorts) was plenty to lock in at the time!
00:02:30 AAPL stock, Trade Ideas, Long -Term Portfolio
00:08:40 Long-Term Portfolio: Trade Ideas
00:22:00 Checking on the Markets: NG, NKD, DOW,
00:25:36 Impact on Dollar inflation
00:29:54 Brexit, Rate hike in June
00:33:00 Spike result
00:33:45 SQQ calls
00:34:10 Futures Trade
00:36:14 Re-Invest in Dividends
00:42:30 TSLA: Gigantic Ponzi Scheme
00:44:32 TGT, HPQ, Short-Term Portfolio
00:49:54 Inflation is good for gold?
00:54:40 Low Rates
00:55:20 Checking on markets
00:56:05 Self-Driving Cars
01:01:52 Bullish on Gold or Nugget
01:03:16 Selling puts: The stock drops below the stike price. Now what? Buy the stock, roll the puts, or just get out? If the stock is AAPL, your approach would likely be different than if the stock was VRX.
01:06:30 Biotechs, printing organs, game-changing technlogy. Will we be able to 3-print a person, like in Star Trek?
01:10:45 Dollar – Upward pressure.
01:12:52 Oil report this morning – Mixed.
01:15:45 Oil, Natural Gas contracts
01:15:57 Checking on energy trades, Nikkei (NKD), Dollar (DX)
01:19:25 Brent crude oil – will it punch through $50? Don't just trade on technical factors. Evaluate the whole situation.
01:21:45 If the DX goes down that is bad for the NKD. DX down, Yen up…
01:22:25 Manipulation in the oil market will never stop. It's all BS but it's a game we all agree to play.
01:25:30 Futures. Example of Phil taking a big loss on oil when something blew up.
01:31:10 DX, NKD, currencies and risks.
01:34:45 SDS (SDS reflects S&P 500, subject to decay).
01:36:56 Digital Currencies – We're on Scandal-Watch, but Phil likes Greenbank Capital. It's important to get in a Ponzi scheme early!
01:45:39 Checking on the Market
Will minimum wage increases unleash the "robot revolution"? (Employers replace you with robots as their way of rebelling against the system.) Ed Rensi, Ex-McDonald's CEO, argues that they will. According to Rensi:
It’s cheaper to buy a $35,000 (£24,000) robotic arm than it is to hire an employee who’s inefficient making $15 (£10.20) an hour bagging French fries.
It's nonsense and it’s very destructive and it’s inflationary and [a minimum wage increase to $15 an hour would cause] a job loss across this country like you’re not going to believe.
3) Where it is cheaper for robots to do the job, they eventually will. Studies suggest that one third of jobs will be replaced by technology over the next two decades in Europe (source).
4) People who lose their jobs will stop paying taxes and start needing public assistance. The government may need to raise taxes and/or increase borrowing to increase funding for programs such as Medicaid/CHIP (Children’s Health Insurance Program or Children’s Medicaid), TANF (Temporary Assistance for Needy Families), EITC (Earned Income Tax Credit), and SNAP (Supplemental Nutrition Assistance Program or Food Stamps). (The High Public Cost of Low Wages.)
5) McDonald's et. al. will save money on labor costs (human labor - robot labor = savings). Costs will be transferred to the public domain in the form of public assistance. (The High Public Cost of Low Wages.)
6) Inequality will likely increase unless we take other measures to balance the changes that will likely result from…
Flipping out over how awesome this new post at Michael Batnick’s blog is, which presents the career arc of history’s most important investors of all time. He takes their dates of birth, advances them 22 years for a typical career starting point, and then overlays them with the future cumulative performance of the Dow Jones Industrial Average to give you a sense of how much wind they had at their backs.
Mike points out that “there’s a football field of white space” after David Einhorn’s and Ken Griffin’s start in the 1990’s (they were both born in ’68). The question is, where are the new giants of the investing industry? There are only five people here who were born post-1960.
The new giants are too young and new in the industry to have attained the sort of provenance that the pre-1968 born investors have.
Software and quant-driven funds that have been hugely successful do not have such publicly prominent people running them.
The lost decade for the S&P 500 between 2000-2009 upended the normal progression of star-making.
The money management field has gotten too crowded to create new superstars at the same rate.
Alpha has disappeared and, with it, the potential to notably excel on a relative basis.
They went into technology and real estate instead.
I’m open to other answers to this puzzle. What do you think?
Federal Reserve monetary policy once again came to the forefront as the Fed released its April minutes this week. After living through years of a ZIRP (Zero Interest Rate Policy) coupled with QE (Quantitative Easing), many market participants and commentators are begging for a swifter move back to “normalization” (a Federal Funds Rate target set closer to historical averages). The economic wounds from the financial crisis may be healing, as seen in the improving employment data, but rather than ripping off the interest rate Band-Aid quickly and putting the pain behind investors, the dovish Fed Chair Janet Yellen has been signaling for months the Fed will increase rates at a “gradual” pace.
Despite the more hawkish tone regarding the possibility of an additional rate hike in June, Fed interest rate futures are currently still only factoring in about a 26% probability of a rate increase in June. As I have been saying for years (see “Fed Fatigue”), there has, and will likely continue to be, an overly, hyper-sensitive focus on monetary policy and language disseminated by members of the Feral Reserve Open Market Committee.
For example, in 1994, despite the Fed increasing target rates by +2.5% in a single year (from 3.0% to 5.5%), stock prices finished roughly flat for the year, and the market resumed its decade-long bull market run the subsequent year. Today, the higher bound of Fed Funds sits at a mere 0.5%, and the Fed has announced only one target increase this cycle (equaling a fraction of the ’94 pace). Even if investors are panicking over another potential quarter point in June or July, can you say, “overkill?”
While the Fed is approaching the lower-end of the range for its employment mandate (unemployment currently sitting at 5%), despite the recent bounce in oil prices, core inflation remains in check (see Calafia Pundit chart below). This long-term benign pricing trend gives the Fed a longer leash as it relates to the pace of future rate hikes.
The Forgotten Depression tells of the slump of 1920-21: high unemployment, collapse in commodity prices, upsurge in bankruptcies and sharp break in stock prices. However, unlike the Great Depression, the 1920 affair was over in 18 months. What explains its brevity? James Grant, publisher of the prestigious Grant's Interest Rate Observer, tells the story of America's last governmentally-untreated depression; relatively brief and self-correcting which gave way to the Roaring Twenties…
As ValueWalk.com's Jacob Wolinksy explains, in 1920–21, Woodrow Wilson and Warren G. Harding met a deep economic slump by seeming to ignore it, implementing policies that most twenty-first century economists would call backward. Confronted with plunging prices, wages, and employment, the government balanced the budget and, through the Federal Reserve, raised interest rates. No “stimulus” was administered, and a powerful, job-filled recovery was under way by late in 1921.
In 1929, the economy once again slumped—and kept right on slumping as the Hoover administration adopted the very policies that Wilson and Harding had declined to put in place. Grant argues that well-intended federal intervention, notably the White House-led campaign to prop up industrial wages, helped to turn a bad recession into America’s worst depression. He offers the experience of the earlier depression for lessons for today and the future. This is a powerful response to the prevailing notion of how to fight recession. The enterprise system is more resilient than even its friends give it credit for being, Grant demonstrates.
BEIJING – Predicting ideal conditions for the rare sight, Chinese astronomers announced to Beijing residents Monday that the sky would be visible for a brief two-minute window tomorrow morning.
According to a statement from the China National Space Administration read in part, advising interested citizens to plan on waking early and to consider using a small telescope for better views of the sky.
“From approximately 6:14 a.m. to 6:16 a.m., a small section of the Earth’s atmosphere should be perceptible to the naked eye when looking towards the southwest in Beijing.”
“For anyone who hasn’t seen it before or isn’t sure what to look for, the sky will appear as a small, bluish area that should stand out clearly from its surroundings. We’ll also be streaming the phenomenon live on the official CNSA website for residents with obstructed views in their neighborhood.”
The agency added that anyone who missed out on witnessing the occurrence tomorrow would have to wait a while, as the sky was not expected to be visible again until late 2024.
While tongue in cheek – perhaps – not everyone is laughing and some are even attempting to combat the pollution. So here, as we noted previously, courtesy of VJ, are the 13 most head-scratching proposals intended to do just that: fix China's smog. Good luck.
#13. Sky Watering Skyscrapers
Technically, it is called precipitation scavenging. In actuality all this means is turning skyscrapers into giant sprinklers in an effort to wash the skies of pollution. “If you can offer a half-hour watering your garden, then you can offer a half-hour watering your ambient atmosphere to keep air clean . . . ,” rings the sales pitch of this rather lo-fi geoengineering strategy.
Basically, precipitation scavenging works on the premise that rain clears smog, so artificial rain should do the same. To create “rain,” giant sprinklers will be attached to the roofs of tall buildings in China’s most polluted cities. During times when the air pollution rises due to a lack of rain the sprinklers will turn on, pulling…
Summary: At the panic low in equities in February, fund managers' cash was at the highest level since 2001, higher than at any time during the 2008-09 bear market. Since 2009, allocations had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.
Since then, equities around the world have risen an average of 16%. Despite this, both cash and equity allocations are basically unchanged since February. This supports higher equity prices in the month(s) ahead.
Allocations to US equities fell to back to their 8-year low in May, a level from which the US should continue to outperform, as it has during the past year. Europe remains overweight. Emerging market allocations have jumped significantly in the past four months and are now overweight for the first time since September 2014, a high from which emerging market indices fell over the next half year.
The dollar is no longer considered overvalued. In the past three months, the dollar index has fallen 6%.
* * *
Among the various ways of measuring investor sentiment, the BAML survey of global fund managers is one of the better as the results reflect how managers are allocated in various asset classes. These managers oversee a combined $600b in assets.
The data should be viewed mostly from a contrarian perspective; that is, when equities fall in price, allocations to cash go higher and allocations to equities go lower as investors become bearish, setting up a buy signal. When prices rise, the opposite occurs, setting up a sell signal. We did a recap of this pattern in December 2014 (post).
Let's review the highlights from the past month.
Cash: Fund managers cash levels at the equity low in February were 5.6%, the highest since the post-9/11 panic in November 2001, and lower than at any time during the 2008-09 bear market. This was an extreme that has normally been very bullish for equities. Remarkably, with the SPX now 15% higher, cash in May (5.5%) is still near the highs. Even November 2001, which wasn't a bear
The billion dollar baby has now, officially, gone bye bye.
Just when you thought that the biggest ever "multi-billion" private company that also happens to be an utter fraud, would quietly disappear before it risked attracting even more unwarranted attention from regulators, enforcers, and criminal investigators which could potentially lead to prison time for "billionaire" Elizabeth Holmes, here she comes again reminding everyone of her fallen from grace presence, in this case with what should be the terminal news for this company, namely that as the WSJ reports (and as the company confirms) Theranos has told federal health regulators that the company voided and revised two years of results from its Edison blood-testing devices and has issued tens of thousands of corrected reports to doctors and patients.
As a reminder, the basis for Theranos ludicrous $9 billion valuation which it appears was achieved without anyone doing any actual due diligence, were the "Edison" machines which were touted as revolutionary – not just by Holmes but by the fawning media and even the Clintons. Theranos has now told regulators that it threw out all Edison test results from 2014 and 2015, effectively confirming it has no proprietary technology, and also validating that its valuation should be zero.
Worse, Theranos has told regulators that it used the Edison for 12 types of tests out of more than 200 offered to consumers and stopped using the devices altogether in late June 2015. In other words, Theranos' insane "valuation" was achieved on the basis of doing only 6% of blood tests in house (all of them erroneously we now learn), and outsourcing 94% to companies whose products actually worked and many of whom likely had a far lower valuation than the one at which a bunch of idiot billionaires "valued" Holmes' worthless company.
In the process of commiting fraud and building up her valuation, Holmes repeatedly gambled with people's…
Americans will be celebrating Memorial Day this weekend, to honor those who fought and died for the values they have traditionally cherished the most as a nation: life, liberty and the pursuit of happiness.
The world has changed dramatically in recent decades. The geopolitical situation is much more complex, with rising powers challenging America's supremacy. The intractable war on terror seems interm...
Semiconductors were the star of the week. The index cleared Match/April congestion and posted six consecutive winning days in a row. Technicals are all in the green and the index is above all key moving averages. Weakness will be a buying opportunity; a test of the 50-day MA would be a good start.
The Russell 2000 managed to regain the prior rising channel. Technicals are positive although it still has to make up relative ground against the Nasdaq. The index hasn't yet cracked new highs but one more days gain may be en...
China’s growth slows further. Japan ramps up the stimulus, bolstering the thesis that huge deficits are the next big financial mistake. The government’s fake numbers become a campaign issue. Charles Hugh Smith on why pension funds (that is, your retirement) are doomed. Great interviews with James Rickards and Helen Chaitman. Oil stabilizes and gold continues to correct. Look for next week’s COT report to be a lot less bearish. Bitcoin gets a serious cryptocurrency competitor. Trump clinches the nomination, but won’t debate Sanders. Clinton gets some bad legal news.
The rally in mining stocks since the first of the year has been very impressive.
The rally has taken Gold Miners ETF GDX up to test the 23% retracement of the collapse over the past 5-years. At the same time it is hitting the 23% level, two other resistance lines are being put to a test, with momentum at the highest levels in the past 5-years.
Graham Media Group, Inc., a Graham Holdings Company (NYSE: GHC) subsidiary, said it struck a deal with Nexstar Broadcasting Group, Inc. and Media General, Inc. to purchase WCWJ, a CW affiliate television station in Jacksonville, Florida and WSLS, an NBC affiliate television station in Roanoke, Virginia for $60 million in cash and the assumption of certain liabilities.
The agreement to acquire Nextar Broadcasting included pension obligations. Graham Media Group, Inc. would continue to operate both stations under their current network affiliations.
Graham Media said the acquisition is subject to approval by the FCC, other regulatory appr...
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Do you remember when you were growing up and all your friends were allowed Atari game consoles but you weren’t?
Well, I do and the things seemed as foreign to me as Venus. Mostly because the little time I managed to spend on the gaming consoles when my friends weren’t hogging them I found it all a bit silly. I never “got” computer games, and to this day still have poor comprehension of things like Angry Birds.
I suspect that many people around the world view Bitcoin in the same way as I view Angry Birds: with mild amusement and a general lack of understanding as to what the hell all the fuss is about.
I was thinking of this since a buddy of mine recently started ...
After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.
Although we try to stay focused on finding and managing promising trade ideas, the comments in the comment section sometimes take a political turn (for access, try PSW — click here!). So today, Jean Luc writes,
The GOP debate last night was just unreal – are these people running to be president of the US or to lead a college fraternity! Comparing tool size? The only guy that looks semi-sane is Kasich. The other guys are just like 3 jackals right now.
And something else – if Trump is the candidate, that little Romney speech yesterday is probably already being made into a commercial. And all these little snippets from the debate will also make some nice ads! If you are a conservative, you have to be scared now.
Phil writes back,
I was expecting them to start throwing poop at each other &n...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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