by ilene - October 12th, 2015 8:30 pm
Courtesy of Howard Kunstler
Apropos of the recent Roseburg, Oregon, school massacre that left nine dead, President Obama said, “we’re going to have to come together and stop these things from happening.” That’s an understandable sentiment, and the president has to say something, after all. But within the context of how life is lived in this country these days, we’re not going to stop these things from happening.
And what is that context? A nation physically arranged on-the-ground to produce maximum loneliness, arranged economically to produce maximum anxiety, and disposed socially to produce maximum alienation. Really, everything in the once vaunted American way of life slouches in the direction of depression, rage, violence, and death.
This begs the question about guns. I believe it should be harder to buy guns. I believe certain weapons-of-war, such as assault rifles, should not be sold in the civilian market. But I also believe that the evolution of our Deep State — the collusion of a corrupt corporate oligarchy with an overbearing police and surveillance apparatus — is such a threat to liberty and decency that the public needs to be armed in defense of it. The Deep State needs to worry about the citizens it is fucking with.
The laws on gun sales range from ridiculously lax in many states to onerous in a few. Yet the most stringent, Connecticut, (rated “A” by the Brady Campaign org), was the site of the most horrific massacre of recent times so far, the 2012 Sandy Hook School shooting. The handgun law in New York City is the most extreme in the nation — limiting possession only to police and a few other very special categories of citizens. But it took the “stop-and-frisk” policy to really shake the weapons out of the gang-banging demographic. And now that Mayor Bill deBlasio has deemed that “racist,” gang-banging murders are going up again.
Which leads to a consideration that there is already such a fantastic arsenal of weapons loose in this country that attempts to regulate them would be an exercise in futility – it would only stimulate brisker underground trafficking in the existing supply.
by ilene - October 11th, 2015 4:03 pm
Despite a full slate of data, continuing international events, Washington maneuvering, and a possible record in Fed speeches, a new subject will command attention this week:
Will there be an earnings recession, and should we worry?
Prior Theme Recap
In my last WTWA I predicted that attention would focus on reasons behind the recent stock market volatility. That was a good guess. CNBC stayed with that theme late in the week as volatility dwindled. Steve Liesman even asked NY Fed President Dudley about the Fed role. His answer? Volatility was caused by world circumstances and the nature of the decision, not Fed policy or messaging. Most of the trading community was blaming the Fed anyway. To get the full weekly story, let us look at Doug Short’s weekly chart. This one saves more than a thousand words! (With the ever-increasing effects from foreign markets, you should also add Doug’s World Markets Weekend Update to your reading list).
While I naturally take a week-by-week approach, Doug’s update provides multi-year context. See his full post for more excellent charts and analysis.
We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead. You can make your own predictions in the comments.
This Week’s Theme
Despite the economic data and non-stop Fed chatter, the coming week will focus on earnings. In particular, there is the chance that year-over-year S&P 500 earnings will decline for the second consecutive quarter. Because of the two-quarter angle, some cite this as an earnings recession. I expect the pundits to be asking:
Will there be an earnings recession? And does it matter for stocks?
As always, the viewpoints are varied. I will emphasize the main ideas in this list, but there are plenty of gradations.
by ilene - October 10th, 2015 2:32 am
Courtesy of David Stockman
The US and world economies are drifting inexorably into the next recession owing to the deflationary collapse of commodities, capital spending and world trade. These are the inevitable “morning after” consequence of the 20-year global credit binge which has now reached its apogee.
The apparent global boom during that period was actually a central bank driven excursion into the false economics of household borrowing to inflate consumption in the DM economies; and frenzied, uneconomic investing to inflate GDP in China and the EM.
The common denominator was falsification of financial prices. By destroying honest price discovery in the financial markets, the world’s convoy of money-printing central banks led by the Fed elicited a huge excess of financialization relative to economic output.
The central manifestation of that was $185 trillion of debt growth during the past two decades——a stupendous explosion of credit which amounted to 3.7X the expansion of global GDP.
And even that ratio is an understatement. That’s because measured GDP has been artificially bloated by the monumental worldwide malinvestment and excess capacity arising from the credit bubble. That is, phony “growth” which under the laws of economics will be liquidated in due course.
But you wouldn’t have known that the global economy is about to hit the skids from Monday’s action. Bernanke kicked off the day in a Wall Street Journal op ed taking a bow for “saving the world”.
Then the stock market completed a rally from Friday’s post-NFP low, which amounted to 84 points (4.5%) on the S&P 500 during a seven-hour span of trading. That was even less time to “mission accomplished” than last October’s three-day Bullard Rip.
So here we are again circling the 2000 mark on the S&P 500—a level first crossed 440 days ago. Undoubtedly, the casino is knee-jerking upward because Goldman has already made an unsecret audible call, instructing the Fed to substantially defer lift-off well into next year.
As its New York based chief economist and B-Dud doppelganger, Jans Hatzius, informed clients:
“……..a slowdown in output and employment may justify the Fed keeping the near-zero rate policy for much longer, well into 2016 or potentially even beyond………Further bad news on output and employment could potentially result in quite a large shift in the monetary policy outlook.”
by ilene - October 9th, 2015 12:00 am
By John Mauldin
I remember the first time I walked into Henry Blodget’s new startup, Business Insider, back in 2009. Twelve fresh-faced kids were crammed into a room about the size of my bedroom, pounding away on laptops, creating a new destination website. He took me over to a corner; we sat down in front of a few cameras; and he began shooting question after question at me, later turning the session into a series of interviews.
You walk into his office today and it’s still packed wall-to-wall with fresh-faced kids (the older I get the younger they look), but the offices are much larger, and it seemed to me last time that there had to be at least 150 people in them. But the interviews are still quick-paced, even if they’re now conducted in a special room, with upgraded equipment.
One of the things Business Insider is noted for is compelling headlines. They republish much of the work from Mauldin Economics, but they often come up with more interesting headlines for our content than we do. And they still produce a lot of original material as well.
This week’s Outside the Box is a brief note from Henry himself, with the snappy title “Market history is calling, and it’s saying stock performance will be crappy for another ~10 years.” Beyond the compelling headline is a look back at historical market performance and market cycles, with almost a dozen charts to illustrate Henry’s thesis. It’s a quick read, but investors should pay attention to his main premise: if you’re looking for returns that are north of zero, you’re going to have to be a better-than-average investor.
As an aside, I want to pass along my congratulations to Henry on the rather outsized offer (in the multiple nine figures) he has received from a German publisher for his business. I’ve always admired his determination and focus, and I enjoy watching another businessman prosper.
Now here’s a good one for you. I’m sitting in my dentist’s chair this morning, he’s checking on the laser-evisceration of my gums he performed last week, and he says, “You know, most older people have the opposite problem from you – they have too little in the
by ilene - October 8th, 2015 3:31 am
Courtesy of Joshua Brown, The Reformed Broker
I won’t go so far as to say that these are the only charts that matter, but I think right now – at this moment – they could be.
Below, I’m doing a few ratio charts to demonstrate that the sectors in the eye of this year’s storm – emerging markets, materials, oil stocks and industrial metals – are all staging dramatic comeback rallies relative to the S&P 500. To me, this is a more important story than anything happening with bonds or biotechs. These are the very sectors / asset classes that have brought global risk appetite to its knees this year. If they’re truly putting in a bottom, sentiment about global growth could materially improve (pun intended), providing support for risk assets in general.
Just this morning, Morgan Stanley put out a big call saying it’s time to buy the metals and mining stocks. It’s definitely an outlier, as 2015 numbers repeatedly get ratcheted down for the group.
The good news is that these ratio charts are all breaking out to the upside, relative to the US stock market overall. Haven’t seen this in quite awhile. I’ve included 50-day moving averages for perspective. The top pane for each chart is relative strength, the bottom pane is pure price.
First, here’s the Emerging Market ETF (EEM) vs the SPY, now above the 50-day:
Here’s the materials SPDR ETF (XLB), with a nice confirmation by momentum (RSI charging toward 70):
Here is the energy sector SPDR vs the SPY, also on fire with an 11% jump in a week’s time:
Finally, a risk ratio that has not yet popped but may be hammering out a tradeable bottom – the Shanghai Composite vs the SPY. It stopped going down at the end of August. But can it get up? Because that would be the mother of all sentiment squeezes. Literally no one thinks it can. Maybe the consensus is right – but what if it’s not? Is anyone positioned for that?
Bottoms are nearly impossible to call in real-time, so this is probably, at best, a useful thought exercise for most investors. But if these charts are getting constructive, it would represent a huge weight lifting off of everyone.
by ilene - October 7th, 2015 9:20 pm
For quickest access to the PSW webinars, subscribe to our YouTube channel here.
Major Topics: Economy, Markets, S&P Chart, 5% Portfolio, Long-Term Portfolio, Butterfly Portfolio, GDP, Oil, Gold, Silver, FED, DAX, IBB, Standard Business Cycle, Corporate Profits, TLT, NLY.
3:05 S&P Chart
5:08 5% Portfolio, Trade Ideas
14:15 Long-Term Portfolio, Short Puts, Review Position
16:45 Short-term Portfolio is to protect the Long-Term Portfolio.
18:54 Butterfly Portfolio is self-hedging Portfolio
20:00 “Make sure your broker has your money in insured account.”
22:23 “Our financial system is collapsing, we almost went to butter economy.”
26:35 Long-Term Portfolio, Material Stocks. Review Position, Trade Ideas Puts and Calls
33:48 Silver Chart
37:36 “The Government will just print money.”
40:10 The Worst-Case Scenario: GDP, Oil, Gold, Silver
47:30 Oil: Contracts run out.
50:10 5% Portfolio Review Position. Note: To make 400% you have to wait a year.
51:30 Fed: No help from emerging market, the Fed's balance sheet is maxed out.
53:00 SLW Puts and Calls spread
54:31 S&P Chart
56:10 DAX Chart, Futures
57:00 Draghi doesn’t talk about policy… Forget it we’re going down!
59:58 Standard Business Cycle: Contractions Financials Profits, GDP decrease, Commodity fall, Property Values fall, Recession, Bond rise, Inflation fall, Short-term rates fall, Economy looks weak, Stock prices rise, Economic Recovery, Economy Overheating, Bonds fall, Commodity rise, Inflation rise
1:03:48 Corporate Profits vs. GDP.
1:10:55 Biotech: IBB
1:20:27 TLT Trade Ideas, Puts and Calls
1:27:35 NLY Profits and Dividends, Trade Ideas Puts and Calls.
by ilene - October 6th, 2015 2:10 pm
Courtesy of Wade of Investing Caffeine
This article is an excerpt from a previously released Sidoxia Capital Management complementary newsletter (October 1, 2015). Subscribe on the right side of the page for the complete text.
“Anyone can run a hundred meters, it’s the next forty-two thousand and two hundred that count.”
Investing is a lot like running a marathon…but it’s not a sprint to the retirement finish line. The satisfaction of achieving your long-term goal can be quite rewarding, but attaining ambitious objectives does not happen overnight. Along the hilly and winding course, there can be plenty of bumps and bruises mixed in with the elation of a runner’s high. While stocks have been running at a record pace in recent years, prices have cramped up recently as evidenced by the -2.6% decline of the S&P 500 stock index last month.
But the recent correction should be placed in the proper perspective as you approach and reach retirement. Since the end of the 2008 Financial Crisis the stock market has been racing ahead at a brisk rate, as you can see from the total return performance below (excluding 2015):
This performance is more indicative of a triumph than a catastrophe, but if you turned on the TV, listened to the radio, or surfed the web, you may come to a more frightening conclusion.
What’s behind the recent dip? These are some of the key concerns driving the recent price volatility:
- China: Slowing growth in China and collapse in Chinese stock market. China is suffering from a self-induced slowdown designed to mitigate corruption, prick the real estate bubble, and shift its export-driven economy to a more consumer-driven economy. These steps diminish short-term growth (albeit faster than U.S. growth), but nevertheless the measures should be constructive for longer-term growth.
- Interest Rates: Uncertainty surrounding the timing of a 0.25% target interest rate increase by the Federal Reserve. The move from 0% to 0.25% is like walking from the hardwood floor onto the rug…hardly noticeable. The inevitable move by the Fed has been widely communicated for months, and given where interest rates are today, the move will
by ilene - October 4th, 2015 10:42 pm
Courtesy of Joshua M Brown
There was a lot of excitement about the market’s dramatic reversal to the upside on Friday. What began as a down 250-open for the Dow Jones Industrial Average ended with an up-200 close. It is understandable to see investors cheering this type of action – it’s quite a relief to see early morning losses turn to gains so quickly and forcefully.
Unfortunately, it would be ahistorical to think that this is somehow indicative of the resumption of the bull market. The reality is that the biggest intraday point swings in history have all taken place in the context of downtrends and bear markets.
The below table goes back to 1987 and obviously points are not the same as percentages, but I think you’ll get the idea:
15 of these 20 large intraday point swings for the Dow occurred on days during which the Dow ended with a loss, 5 of 20 were on up-days. Every single of one of these large swings took place during a market crash (we can debate the 2010 “Flash Crash” on the merits of time frame) save for the latest entrant, August 24th of this year. 9 of the top 10 intraday point swings took place during the infamous 4th quarter of 2008.
The point is that massive intraday point swings, regardless of direction, are not synonymous with “healthy” action, they are indicative of deep confusion and fear within the various layers of the investor class firmament. Friday’s action could be the beginning of a classic October “Bear-killer” rally, but it is way to soon to be drawing that conclusion.
Why? Because there’s still a lot of work to do within the stock market, not just on price itself.
The next chart I created is meant to show that the episode we’re contending with now has been long in the making. Anyone searching for day to day “reasons” as to why the market makes a volatile move would do well to understand that the internals had been portending the correction for a long time now; the sins beneath the surface had been piling up, despite the seemingly benign lack…
by ilene - October 1st, 2015 3:20 pm
Courtesy of Dana Lyons
4th quarters in years ending in “5″ have typically been big…but will it be enough to save 140-year streak of positive “year 5′s”?
Way back on January 3, we posted a note on an interesting and unusual streak. Using the S&P 500 (and the S&P Composite from Robert Shiller, pre-1950), every year ending in a “5″ has posted a positive return since 1875. In other words, the last 13 "5″ years have left stock investors “high-fiveing” each other.
We will say right off the bat that, no, we do not, nor do we recommend basing one’s investment approach on this phenomenon. It is likely mainly due to coincidence, with a healthy dose of positive Presidential Cycle “Year 3″ tailwind mixed in for several of the years. Nevertheless, it is a consistent and compelling track record.
Of course we had to jinx it. At least the streak is in serious jeopardy at the moment, with the S&P 500 down roughly 8% going into the 4th quarter.
The S&P 500 needs to close the year above 2058.90 to avoid breaking the 140-year old streak. That’s a gain of over 8% from current levels. A pretty tall task for the upcoming 4th quarter, huh? Actually, according to today’s Chart Of The Day, all it would take is an average “5″ year 4th quarter to close the year positively.
We looked at the performance of the Dow Jones Industrial Average (we have more confidence in that quarterly data than the S&P) in the 4th quarter of every “5″ year since 1900. As it turns out, all 11 of the years have displayed positive performance, with an impressive +10.3% average return.
As the chart shows, the positively skewed performance is not the result of any “outlier”-type years either. One may argue that there are technically 2 outlier years in 1905 and 1985 (I like to chalk 1985 up to the Bears winning Super Bowl XX…but that’s probably just another coincidence), at +18.3% and +16.4%, respectively. However, the majority of the years (6) saw 4th quarter returns between +4.2% and +9.5%. So the consistency of this phenomenon has been impressive.
by ilene - September 28th, 2015 6:01 pm
Courtesy of Mish.
In the wake of yet another big market selloff (biotechs down over 6% today), the Nasdaq 100 index down 2.87%, and the S&P down 2.56%, mainstream media parrots floated numerous reasons behind the selloff.
All of the parrots are wrong.
Lack of Inflation?
Bloomberg interviewed Jeff Korzenik, Fifth Third Bank's chief strategist in its piece What's Really Driving Today's Selloff in U.S. Stocks?.
In the accompanying video, Korzenik blamed the Fed and a "lack of visible inflation".
In the same video segment, Jamie Dimon bragged about the strength of the US economy and the health of the US consumer. As long as a bubble is expanding, things always look good.
Of course the idea that inflation is a benefit to stocks and the economy is preposterous, but that's what puppets have been trained to believe, and say.
China to Blame?
Reuters writer Noel Randewich says Wall Street Drops as Anxious Investors Eye China.
"U.S. stocks finished sharply lower on Monday and were on track for their worst quarter in four years as investors worried about the health of China's economy and its potential impact on the timing of a U.S. interest rate increase."
Is Hillary to Blame for Biotech Smash?
Reuters writers Ransdell Pierson and Bill Berkrot say Democrats Take Aim at Drug Prices, Prompting Sharp Drops in Biotech Stocks.
Democratic lawmakers on Monday attacked "massive" price increases of two heart drugs from Canada's Valeant Pharmaceuticals International Inc, fueling a rout in drugmaker shares on worries of a government and insurer clampdown on U.S. drug prices.
The Democratic House members also urged panel Chairman Jason Chaffetz, a Republican, to invite Valeant Chief Executive Michael Pearson to testify at a hearing next week. That would put him in the same hot seat as Martin Shkreli, chief executive officer of privately held Turing Pharmaceuticals, who had already been called to testify.
Tiny Turing has been widely criticized for a price hike of more than 5,000 percent for its Daraprim treatment for a dangerous parasitic infection.