by ilene - February 7th, 2016 2:15 pm
Courtesy of Lance Roberts of Real Investment Advice
RALLY FAILS, ALERTS RISE
Last week, I discussed the boost the market received as the BOJ made an unexpected move into negative interest rate territory combined with end of the month buying by portfolio managers. I wrote:
“However, the announcement by the Bank of Japan (BOJ) to implement negative interest rates in a desperate last attempt to boost economic growth in Japan was only the catalyst that ignited the bulls. The “fuel” for the buying came from the end of the month portfolio buying by fund managers.”
But more importantly, was the push higher by stocks that I have been discussing with you over the last couple of weeks. I wrote:
“Over the last few weeks, I have suggested the markets would likely provide a reflexive rally to allow investors to reduce equity risk in portfolios. This was due to the oversold condition that previously existed which would provide the “fuel” for a reflexive rally to sell into.
I traced out the potential for such a reflexive rally two weeks ago as shown in the chart below.”
As I stated then, the most important parts of the chart above are the overbought / oversold indicators at the top and bottom. The oversold condition that once existed has been completely exhausted due to the gyrations in the markets over the last couple of weeks. This leaves little ability for a significant rally from this point which makes a push above overhead resistance unlikely.
“Just as an oversold condition provides the necessary “fuel” for an advance, the opposite is also true.”
Here is the problem. I have updated the chart above through Friday’s close.
The rally failed at the previous reflex rally attempt during the late December/January plunge. This failure now cements that high point as resistance. Furthermore, the market continues to fail almost immediately when overbought conditions are met (red circles), which suggests that internals remain extraordinarily weak.
HEAD & SHOULDERS – NOT JUST DANDRUFF
by ilene - February 7th, 2016 1:51 pm
JESSICA DESVARIEUX, PRODUCER, TRNN: Welcome to the Real News Network. I’m Jessica Desvarieux in Baltimore. And welcome to this edition of the Hudson Report. Now joining us is MichaelHudson. He’s an economics professor at the University of Missouri Kansas City, and he has a new book out titled Killing the Host. Thank you so much for joining us, Michael.
MICHAEL HUDSON: It’s good to be here, Jessica. Since we last talked I’ve also been appointed a professor at Peking University in Beijing.
DESVARIEUX: Awesome. Congratulations. So Michael, let’s get right into it and talk about the big stories of 2015, economic stories, I should say. What would you say are thethree most important stories that people should be aware of?
HUDSON: Well, the leading story is that the economy has not recovered. That the 1 percent have recovered, but the 99 percent have not recovered. And there is no sign of recovery, or even any sign that the presidential candidates running in next year’s election are trying to do anything.
The next story is that the 1 percent have recovered. I’m told that the largest sustained gains in any kind of asset have been number one Andy Warhol paintings, and number two, Stradivarius violins. These are trophies for the rich. They’re going way up while wages are not going up and consumer prices are not going up.
And the third story would be international, that the United States has changed the rules of the International Monetary Fund. Essentially, the U.S. has dragged Europe into an economic war against Russia, China, and the BRICS.
DESVARIEUX: Can you be more specific about that last story? How are they doing that?
HUDSON: Well, earlier this month the International Monetary Fund changed its rules that it had had since 1945. The whole international financial system since 1945 was based on the fact that governments when they’re bailed out, or when they borrow from other governments, they have to repay their debts, and that the IMF is going to bring leverage to make sure that the international, intergovernmental finance system remains intact by saying it’s not
by ilene - February 7th, 2016 11:30 am
Courtesy of EconMatters
We are near the low in bond yields for the year, and with the global markets selling off but the employment numbers holding in there, we have a real conundrum for bond investors.
by ilene - February 7th, 2016 10:50 am
Courtesy of Pam Martens
Sanford (Sandy) Weill, the Man Who Put the Serially Charged Citigroup Behemoth Together
Last Wednesday something noteworthy happened on Wall Street. Four of the largest Wall Street banks, each holding trillions of dollars in derivatives, hit new 12-month lows in intraday trading. The banks are Bank of America, Citigroup, Goldman Sachs and Morgan Stanley. The banks recovered a little ground by the end of the week. These banks have two other things in common: they have been spending billions buying back their own stock and they all received bailouts during the 2008 crash.
Over the past six years, publicly traded companies in the Standard and Poor’s 500 Index have bought back $2.7 trillion of their own shares according to Bloomberg data. There are four major problems with this strategy: much of the buybacks are financed with debt; some of the buybacks simply offset insider selling or stock awards to executives; none of the money goes to growing or innovating the company; the timing of the buybacks could lead to stock market manipulation.
In the September 2014 issue of the Harvard Business Review, William Lazonick sized up the share buyback phenomenon like this:
“Given incentives to maximize shareholder value and meet Wall Street’s expectations for ever higher quarterly EPS, top executives turned to massive stock repurchases, which helped them ‘manage’ stock prices. The result: Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back shares for what is effectively stock-price manipulation.”
The SEC has a very lax rule, known as 10b-18, which provides a multitude of openings for stock price manipulation. As we previously reported, Wall Street banks can even carry out buybacks in their own dark pools as the self-regulators on Wall Street look the other way.
by ilene - February 7th, 2016 10:01 am
Tim Knight explains his bearish call on Apple Inc. stock which is largely based on the loss of Steve Jobs.
Courtesy of Tim Knight at Slope of Hope
Over the past ten months, in steps almost too small to be noticed by the mass media, Apple has shed over two hundred billion dollars in value. That's nearly one quarter of a trillion dollars in wealth which would have fed shareholder dreams of new houses, new boats, new jewelry, and mink coats, but……….it's gone.
The thing is, I think the slide is far, far from over. I wrote a piece earlier this year (which got picked up by some of the mainstream press) predicting that Apple would fall to the mid-70s. We're already heading into the low 90s, so my goofy prediction is seeming a little less insane.
Of course, it wasn't that long ago that buying Apple was a "no brainer" – indeed, a "bargain." God knows it wasn't hungry for media attention. This is the unedited home page of MarketWatch a while back:
So what's behind this fall? Lots of things (not the least of which is a wildly-overvalued market which, ultimately, will pound the Dow back into 4-digit land), but for Apple specifically, I think it's simple: the magic is gone again.
When I say "again", I am referring to something in my own personal experience. I worked at Apple HQ from 1987 to 1990. Steve Jobs had left the company two years earlier, although there was still Jobsian memorabilia scattered about, such as the 1985 planning binder from the Finance department which had an image of a dollar bill with Steve's face instead of George Washington's. On the bottom of the dollar bill were the words In Jobs We Trust.
This was the Sculley era. That is, John Sculley, the Pepsi boy whom Jobs famously lured to Apple in the early 1980s and, by the late 1980s, was sailing along with the winds of Jobs' former product prowess pushing his sailboat…
An Exasperated John Kerry Throws In Towel On Syria: “What Do You Want Me To Do, Go To War With The Russians?!”
by ilene - February 7th, 2016 9:48 am
“Russian and Syrian forces intensified their campaign on rebel-held areas around Aleppo that are still home to around 350,000 people and aid workers have said the city – Syria's largest before the war – could soon fall.”
Can you spot what’s wrong with that quote, from a Reuters piece out today? Here’s the problem: “could soon fall” implies that Aleppo is on the verge of succumbing to enemy forces. It’s not. It’s already in enemy hands and has been for quite some time. What Reuters should have said is this: “…could soon be liberated.”
While we’ll be the first to admit that Bashar al-Assad isn’t exactly the most benevolent leader in the history of statecraft, you can bet most Syrians wish this war had never started and if you were to ask those stranded in Aleppo what their quality of life is like now, versus what it was like in 2009, we’re fairly certain you’ll discover that residents aren’t particularly enamored with life under the mishmash of rebels that now control the city.
In any event, Russia and Iran have encircled Aleppo and once it “falls” (to quote Reuters) that’s pretty much it for the opposition. Or at least for the “moderate” opposition. And the Saudis, Turks know it.
So does John Kerry, who is desperate to restart stalled peace negotiations in Geneva. The problem for the US and its regional allies is simple: if Russia and Iran wipe out the opposition on the battlefield, there’s no need for peace talks. The Assad government will have been restored and that will be that. ISIS will still be operating in the east, but that’s a problem Moscow and Tehran will solve in short order once the country’s major urban centers are secured.
As we noted on Saturday, Riyadh and Ankara are extremely concerned that the five-year-old effort to oust Assad is about to collapse and indeed, the ground troop trial balloons have already been floated both in Saudi Arabia and in Turkey. For their part, the Russians and the Iranians have indicated their willingness to discuss a ceasefire but according to…
The Number Everyone’s Been Waiting For: Chinese Reserves Plunge By $100BN – What Does It Mean For Markets?
by ilene - February 7th, 2016 9:00 am
Zero Hedge is forecasting more volatility, based on the outflow of China's FX reserves in January. Read also: China is making a $3 trillion threat, but 'nobody' on Wall Street is scared.
The Number Everyone's Been Waiting For: Chinese Reserves Plunge By $100BN – What Does It Mean For Markets?
Courtesy of ZeroHedge
As we previewed on Thursday, the biggest event of the week, and perhaps of the month, was not Friday's nonfarm payroll report, but the January update of China's FX reserves, which the PBOC released last night. The number came out at $3.2309 trillion, down $99.5 billion from the prior month, and $8 billion less than the December outflow of $107.6 billion.
And even as China added $3.4 billion to its gold reserves, which rose to $63.6 billion or an increase of half a million ounces to 56.66 million, this reduced the total amount of Chinese foreign reserves to the lowest level since May 2012, and down from the $4 trillion peak in the summer of 2014 when the US Dollar started its rapid appreciation on rate hike concerns, and led to nearly a trillion dollars in Chinese capital outflows.
Recently, an important question that has emerged is for how much longer can China sustain its FX intervention before tapping out and letting the hedge funds win with their short Yuan bets once total reserves drop below the critical redline of approximately $2.7 trillion as calculated by the IMF – the answer is between 5 months and 10 months assuming monthly reserve burn rates of $130BN to $60BN.
That, however, is a bridge we will cross some time in the summer of 2016.
For now the real question is what does the January Chinese FX outflow mean for risk come Monday's open, and how will it affect markets when they start opening tonight, if not in China which is closed for the week for its new year celebrations.
Recall that in our Thursday preview we warned that according to one of the more prominent bears from BofA, Michael Hartnett, had the reserve outflow come in well below expected, it would unleash a "vicious bear market rally."
This is what we said:
by Market Shadows - February 7th, 2016 1:27 am
Financial Markets and Economy
Wall Street has finally learned an important lesson about Tesla (Business Insider)
The past month has been horrific for Tesla's shareholders.
After hitting $240 on the last day of 2015, shares have lost one-third of their value. Something close to $10 billion in market cap has been erased.
The world’s biggest sovereign wealth fund criticized Volkswagen AG’s ownership structure, saying it concentrates too much power with the Porsche-Piech family and puts minority shareholders at a disadvantage amid the carmaker’s emissions crisis.
Ho-hum, another week, another multimillion-dollar settlement between regulators and a behemoth bank acting badly.
The most recent version involves two such financial institutions, Barclaysand Credit Suisse. They agreed last Sunday to pay $154.3 million after regulators contended that their stock trading platforms, advertised as places where investors would not be preyed on by high-frequency traders, were actually precisely the opposite.
Chinese companies have been acquiring foreign companies at an unprecedented rate, and we're likely to see a lot more of it this year.
The stellar performance in German government bonds over the past few weeks may finally run out of steam.
These are the hedge fund strategies everyone wants in on (Business Insider)
Investors have piled into a select few hedge fund strategies lately.
Barclays' capital solutions group analyzed how hedge funds' assets under management have grown in the last two years.
Barclays surveyed 110 funds, collectively managing around $375 billion in assets.
Trading Performance: Getting To That Next Level (Trader Feed)
I recently spoke with the traders at SMB and shared a few
by ilene - February 6th, 2016 8:00 pm
Fighting to Lose
An election has been described as two wolves and one lamb voting on what to have for dinner.
We’re going to make a difference on election day! Or maybe not…
Actually, there was never any doubt about what was on the menu. An election is really when the wolves scrap over who gets the choicest pieces. To bring new readers fully into the picture… It doesn’t matter who won in Iowa. Major policies are not determined by the voters but by the more or less permanent elite who run the government, aka the “Deep State.”
The Fed is an instrument of the Deep State, not of the people. This sounds conspiratorial. But it doesn’t require any hidden agenda or secret handshakes. Most people want power, money, and status. If you can get control over the government – the only institution that can steal and kill, legally – you’ve got it made. That’s why so much money is spent trying to get elected or to influence public policy.
The U.S. presidential campaign has seen surprisingly strong showings from two “outsiders”: Donald Trump and Bernie Sanders. Why? As former Congressional staffer turned Deep State whistleblower Mike Lofgren recently told Bonner & Partners Investor Network editor Chris Lowe, it’s because each in his own way warns voters about the wolves. The insiders, according to Trump and Sanders, are predatory and incompetent.
Bernie and the Donald – voters like them because they are seen as the anti-establishment choices. The press decries them as “populists” and “nutcases”, which means they must be doing something right. As an aside, the European press is completely apoplectic over Trump, to our unending amusement.
The Deep State is more predatory and less incompetent than it appears. It fights wars, for example, not to win them… but to lose them. The War on Poverty has been going on for more than 50 years. Still no sign of victory. But it has financed countless careers and retirements of government operatives.
The resounding “success” of the so-called “war on poverty.”
by ilene - February 6th, 2016 10:57 am
Courtesy of EconMatters
The China currency debate in financial markets is rather interesting right now with many market ramifications. A rapid depreciation in the Chinese currency could lead to an Asian currency market crisis. I can see both sides of the current debate of a rapid devaluation versus a prolonged drawn out devaluation of the currency.