"Day after day, Head in a cloud
The man of a thousand voices
Talking perfectly loud
"But nobody wants to know him
They can see that he's just a fool
And he never gives an answer" - Beatles
As we wait for Janet Yellen's semi-annual testimony before Congress, the UK Government is pulling out all the stops for the Remain camp, including well-known currency manipulator, George Soros and well-known ball manipulator, David Beckham. Many people will analyze Soros' BS so let's concentrate on what a really handsome, rich guy has to say:
I was also privileged to play and live in Madrid, Milan and Paris with teammates from all around Europe and the world. Those great European cities and their passionate fans welcomed me and my family and gave us the opportunity to enjoy their unique and inspiring cultures and people.
We live in a vibrant and connected world where together as a people we are strong. For our children and their children we should be facing the problems of the world together and not alone.
See, Europeans are nice, we should play with them! Of course, I'm not sure if reminding British Soccer Fans about other European teams is the best way to promote love and brotherhood… As usual, the Remain camp pushes the "safe" and "comfortable" angle because they have already lost the factual, economic and political arguments. The Remain campaign is all about fear of the unknown – even though the unknown, in this case, is simply going back to the way things were, pre-EU.
Pimco, the $1.5 trillion fixed-income manager located a stone’s throw distance from my office in Newport Beach, famously (or infamously) coined the phrase, “New Normal”. As former Pimco CEO (Mohamed El-Erian) described years ago, around the time of the Great Recession, the New Normal “reflects a growing realization that some of the recent abrupt changes to markets, households, institutions, and government policies are unlikely to be reversed in the next few years. Global growth will be subdued for a while and unemployment high.”
As it turns out, El-Erian was completely wrong in some respects and shrewdly prescient in others. For instance, although the job recovery has been one of the slowest in a generation, 14.5 million private sector jobs have been added since 2010, and the unemployment rate has been more than halved from 10% in early 2009, to below 5% today. However, the pace of global growth has been relatively weak since the 2008-2009 financial crisis, which has forced central banks all over the world to lower interest rates in hope of stimulating growth. Monetary policies around the globe have been cut so much that almost 25% of global GDP is tied to countries with negative interest rates (see chart below).
Source: Financial Times
The European central banks started the sub-zero trend in 2014, and the Bank of Japan recently joined the central banks of Denmark, Sweden and Switzerland in negative territory. The negative short-term rate virus has spread further to long-term bonds as well, as evidenced by the 10-Year German Bund (sovereign bond) yield, which crossed into negative territory last week (see chart below).
The New Abnormal
The unprecedented post-crisis move to a 0% Fed Funds rate target, along with the implementation of Quantitative Easing (QE) by former Federal Reserve Chairman Ben Bernanke, was already pushing the envelope of “normal” stimulative monetary policy. Nevertheless,…
That's what we're seeing in Europs since Thursday's lows as the Brexiteers retreat in the polls and we're having a HUGE rally across the board with a gap up into the open but kind of flat since, which does make me worry that this low-volume Monday action may reverse once again.
But, for now, let's just sit back and enjoy the show. Remember, this all turned around due to the assassination of a British Member of Parliament, which froze the campaign and reversed the momentum that the Leave camp was making just in time for the Remain crowd to run another huge campaign over the weekend – all coincidental I have been assured and who am I to argue with people who might be arranging political assassinations to further their agenda, right?
Of course, in the bigger picture (like this weekly chart of the same index), a 5% bounce is what we'd expect after a 1,000-point (27%) drop in European stocks since last summer and, using our 5% Rule™, that's what we call a weak bounce and we're not actually going to be impressed until we see the 3,200 line taken and held for more than a week.
Until then, we'll keep a close eye on our local indexes, especially the S&P 500, which has to show us the money above 2,100 before we're going to believe this time is actually different. You can see on the chart below, how often we have been teased up here and, right after the Brexit vote, which won't be final until Friday morning's count, we are heading right into earnings season and already this week we hear from ACN, ADBE, BBBY, BKS, FDX, KBH, KMX, LEN, LZB, RHT, SONC and WGO – so we'll have an early picture on a few sectors for Q2.
Today's action is mainly the short squeeze that began last Thursday and we're on the wrong side of this as well – as we added hedges last week and cashed out a lot of longs but we cashed out over 2,100 on the S&P, so we're not missing anything as long as we're still below that line and I'm certainly not going to chase any longs with…
These are the Federal Reserve’s expectations for where interest rates are headed, by year, from a Washington Post op-ed by Larry Summers. Suffice it to say, it’s not going well.
That orange line – let’s take a guess which direction it’s headed.
Here’s Sir Lawrence:
Watching the Fed over the last year there is a Groundhog Day aspect. One senses they really want to raise rates and achieve a more “normal” stance. But at the same time they do not want to tighten when the economy may be slowing or create financial turmoil. So they keep holding out the prospect of future rate increases and then find themselves unable to deliver. But they always revert to holding out the prospect of rate increases soon, partly for internal comity and partly to preserve optionality.
"The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement."
That idea – and those words, written by James Truslow Adams in 1931 – forms the foundation upon which the country was built.
But that foundation has cracked.
It’s one thing to fantasize about living the American Dream from regions outside the United States. It’s another to be already living in America and to not be able to attain it.
And while the American Dream ensures that no one is legally barred from reaching their full potential, it doesn’t prevent individuals from being held back in other ways. After analyzing the cost of living and median income levels in 74 U.S. cities, we found significant obstacles to obtaining the American Dream across the country.
Picture Perfect, American Dream–Style
Imagine it: You own a 1,480-square-foot home with a one-car garage, perfect for your family of four and all your needs, all nicely contained by a manicured front lawn and a white picket fence. You also have the funds for two adults-only dinner dates and one trip to the movies per month.
Sounds nice, right? That version of material wealth and comfort will cost you roughly $3,547 per month, or $42,548 per year.
The bulk of your expense is not even the mortgage; instead, it’s the monthly groceries. Clearly, you have very hungry mouths to feed.
Based on three criteria, we can easily divide the 323.5 million people living in the United States into “those who can afford to live on easy street” and “those who cannot” – the “haves” and “have-nots,” a concept that American literature has widely explored and that American citizens experience every day.
This chart shows how much the Bureau of Labor Statistics (BLS) suppresses rent inflation in its CPI measure. It’s a major tool the government uses to suppress CPI.
A problem with the economic establishment’s focus on the CPI to measure “inflation” is that the CPI was never intended to measure “inflation” per se. Its purpose has always been to index government benefits, salaries, and contracts. The goal is to keep costs down by manipulating index to increase at the lowest possible rate that the BLS can present to the public with a straight face and the pretense of statistical accuracy.
The biggest tool that the BLS gives for manipulating CPI is the idea that housing prices do not count toward inflation because houses are assets, not consumption goods. Apparently the rationale is that assets don’t “inflate,” they “appreciate.” The BLS historically included house prices in CPI, but that became problematic because they were increasing too fast, pushing CPI up at a rate which the government simply could not afford. So the BLS stopped including house prices in CPI in 1982 after a couple of years of double-digit increases in CPI. In the place of actual housing inflation, the BLS substituted a made-up number called Owner’s Equivalent Rent (OER) .
The BLS starts with a survey of renters re how much rent they are currently paying. That becomes the basis for a line item in the CPI called Rent of Primary Residence. The BLS uses that item as a basis for annually benchmarking OER. Then they ask a tiny sample of homeowners how much they think their house would rent for. The BLS uses that survey of owners to estimate the rate of increase in OER, between the benchmark rent surveys. This method of “measuring” rent increases has consistently and systematically suppressed the recognition of the actual inflation rate of rent.
Anyone who spent half their life in the real estate business and anyone who has ever rented an apartment for a few years and then moved to another apartment, knows well that rent after a couple of years living in the same place is not the same as what the rent would be if they were moving to a comparable apartment.
The rent you are paying after you have lived in a place for a few years is set by the initial
Ooops, sorry, that headline is supposed to be at the end of the day.
I guess we'll leave it and see how the day goes but I was just interviewed by Reuters and that's what we decided would happen today, though you'll have to wait for the official headline until the close. At the moment, our Futures are down slightly after a nice rally into yesterday's close saved us from DOOM! The S&P Futures (/ES) ran all the way up to 2,070 and that was up 10 points for a $500 per contract gain from my morning call along with similar gains on the other indexes.
Before we went up, we went down hard yesterday and, as I said in the morning post "Probably have to wait for the Dollar to be done rallying – it should stop before 95." As you can see from this Dollar chart, we went a bit further than I thought and the Dollar topped out at 95.50 around 10:45 but the effect was as expected on the indexes once it ran out of steam:
If you're going to trade the Futures, or be any kind of day-trader, you HAVE to learn to understand the relationship between currency, commodity and equity pricing. That's why I talk about all those other, boring things every day – our system is based on the philosophy that, if you give a man a fish – you feed him for a day but, if you teach a man to fish – you feed him for life! We teach our Members HOW the market work so they understand how to make adjustments without having to rely on other people to tell them what to do.
Yesterday morning, right in the morning post (that you can get every day for $3 by subscribing here) we decided to go long on oil above $47.50 and even after the open, it was still around $47.70 and, I said (at 7:49): "…we expect at least a $1 bounce to $48.50 and that WILL PAY $1,000 per contract. So this is me, telling you how to make $1,000 per contract trading oil – not bad for a $1,000/year newsletter, right?" Remember – I can only tell you what the market is going to do and how to make money playing it – the rest is up to you!
There's something very satisfying about being able to tell 1M people how to make $1,000 in a day on a trade – it fulfills my Robin Hood tendencies – especially when we are sticking it to the manipulators – like we do on these oil trades!
Those of you who were motivated enough to join us for this week's Live Weekly Webinar (which was free yesterday as well) caught a nice $5 profit trading the Dow Futures but the reason we got out of that so quickly was that the Russell Futures made a much better short at 1,151.20 after we went over the Fed statement and decided it was, on the whole, bearish.
Now that we've had a nice little sell-off, we like seeing the Dollar rejected at 95 and we've flipped long for a bounce off these levels. I sent out a News Alert early this morning (6:12) and again, it was tweeted FOR FREE with our long levels as I concluded in the Alert:
So good opportunities to bounce into the weekend and we can take a bullish stab at 17,500 on /YM, 2,060 on /ES, 4,390 on /NQ, 1,140 on /TF and even 15,550 on /NKD, since that happens to be the -2.5% line, so it should
In the wake of Orlando, I feel somewhat ambivalent about dragging us back to the world of economics. As I write this note, it is still unclear what the reaction of the country will be to the largest shooting massacre ever on US soil. Everywhere I turn, it seems that people are trying to spin this in one direction or another, always filtered through their own worldviews.
My friend David Kotok of Cumberland Advisors frequently offers common-sense commentary on a wide variety of topics, and he sent out his observations on the recent tragedy with a good summary of the rather stark and unpleasant choices in front of the American people. We are using drones to kill American citizens in Yemen. The surveillance of Americans is already intense. The terrorist in Florida was a homegrown American citizen and had already been investigated twice by the FBI. You can read David’s commentary here. This event has major implications for surveillance and what will pass for privacy in the future. Guaranteed to make Baby Boomers uncomfortable.
But moving on, for your Outside the Box reading today I bring you something I never expected to see: Ambrose Evans-Pritchard, writing in his regular Telegraph column that he is going to vote for leaving the EU, that is, for Brexit. Ambrose is unabashedly pro-European, while being very critical of the European Commission and the way Brussels runs things; but he is also a patriotic British citizen (who mostly lives in France, I think). His access to the inner circles of Europe is amazing and leaves me a tad jealous. His explanation as to why he will vote to leave the EU doesn’t focus on the usual rhetoric (which I think he probably disdains). Rather it is a thoughtful analysis of the role of nation states and the significance of national sovereignty.
He leads off like this:
With sadness and tortured by doubts, I will cast my vote as an ordinary citizen for withdrawal from the European Union.
Let there be no illusion about the trauma of Brexit. Anybody who claims that Britain can lightly disengage after 43
Markets have been turned upside down by a surprise Brexit result and the resignation of David Cameron. While there is looming uncertainty around how this will affect the United Kingdom and Europe from an economic perspective, it might be just the tip of the iceberg in terms of long-run consequences.
A Brexit opens the door for future events that would be previously unfathomable by popular opinion, ...
By Jacob Wolinsky. Originally published at ValueWalk.
George Soros is back again with a dire warning – the Brexit could lead to the disintegration of the European Union. I noted in his earlier op-ed that Soros only focused on UK concerns with the EU and not with a EU break-up, but that it must surely be on his mind since he has warned that the EU is on the verge of collapse and Brexit now will hasten it. This too was my biggest fear regarding Brexit and even though I think Europe needs to get a hold of its immigration policy I favored remain. It looks like Soros so far is proving right – the IRA is back with demands in Ireland, the Scotts might vote for independence, there is talk of Italy breaki...
We continue to receive requests for updates to the "Best Stock Market Indicator", which used to be a regular guest post from John Carlucci. Here is an update of the "Carlucci" indicator along with a summary of John's explanation on how he uses it.
As John described it: "The $OEXA200R (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the "sweet spot" time period in the market when you have the best chance of making money."
Great Britain’s decision to extricate itself from the EU has consequences that are at once far-reaching and unknown. By Friday morning, no market was immune. Great Britain’s currency, the pound, had fallen to its lowest levels since 1985, and the FTSE (an index of the London stock exchange) and DAX (a German stock index) plummeted. In the U.S., markets opened in the red, gold (a co...
I have mixed feelings about Brexit today. Clearly the European institution need reforming. The addition of so many countries in the last 20 years has created a top heavy administration. The Euro adds more complexities to the equation as the ECB policies cannot fit every country's problem. On the other hand, a unified Europe has advantages as well – some countries have benefited from the integration.
For Britain, it's hard to say what the final price will be. My guess is that Scotland might now vote for independence as they supported staying in Europe overwhelmingly. Northern Ireland might be tempted to leave as well so possibly RIP UK in the long run. I was talking to some French people and they were saying that now there might be no incentive for France to stop immigrants from crossing over to the UK like they do now and simply allow for travel there and let the UK deal with them. The end game is not clear to anyone at the moment....
One week ago, when bitcoin first crossed above $700 on the seemingly insatiable Chinese buying which we forecast last September (when bitcoin was trading at $230) would take place as a result of China's capital controls (to much pushback by the "mainstream" financial media), we tried to predict what may happen next. We said that "it could go much higher. That said, anyone who bought last September when the digital currency was trading at $230 may be advised to take some profits, and at least make...
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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.
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 email@example.com 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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