by Market Shadows - February 9th, 2016 11:25 pm
Financial Markets and Economy
More than $7 trillion of government bonds offered yields below zero globally as of Monday, making up about 29 percent of the Bloomberg Global Developed Sovereign Bond Index.
Rates markets, at odds with Fed, seek clarity from Yellen (Business Insider)
While Federal Reserve Chair Janet Yellen is the one tasked with delivering a message over the next two days when she speaks to Congress, financial markets are keen to know if she has absorbed their message to her: stifle your rate hike plans.
In the 52 days since investors last heard from Yellen, when she held a press conference after overseeing the first U.S. interest rate hike in nearly a decade, markets have been roiled with volatility and increasing doubt about the health of the U.S. and global economies.
Sears Holdings Corp., the department-store chain run by hedge-fund magnate Eddie Lampert, plunged as much as 8.9 percent after an analyst warned that the company is no longer viable as a retailer in its current form.
Bank of America sees 25% chance of a U.S. recession in 2016 (Market Watch)
Despite increased chatter about the probability of an economic contraction, the odds of the U.S. slipping into a recession in the next 12 months are only about 25%, according to economists at Bank of America Merrill Lynch Tuesday.
Hedge Funds Make a Back-Up Plan (Bloomberg)
Hedge funds are bracing for another round of upheaval in the investment banking industry, judged by their closest day-to-day relationship.
by ilene - February 9th, 2016 6:45 pm
Nattering Naybob here at Phil's Stock World…
On the subject of Deutsche Bank and why are banks getting hammered? What Phil says is correct, the PPT or ubiquitous "they" don't want a repeat of 2008 and may intercede if necessary. TBD.
I don't want to lead anyone astray, but its what I've been Nattering about for quite awhile. It's not oil, it's not credit, it's not bank stocks, it's not (FILL IN THE BLANK). Those laments are symptoms of a much greater problem, simply put in ONE WORD: LIQUIDITY.
Now here is something to read, and, yes, it's from ZH, which makes Phil and my "conspiracy" theories, look tame. It's a purported email from a Deutsche Bank analyst sent out today. Some may not understand half of what he is writing about, unfortunately I do. And whoever wrote that email knows their stuff, i.e. how the bifurcated banking system really works, double entry ledgers and balance sheets.
Is that email REAL? If it's not it's a great media plant fed to the deep throat ZH. I dunno, but I'll tell you… not what I believe or think, but what I have researched and written about at length and do KNOW. Because I've had my head buried so far up their system, I know what they had for lunch and sometimes breakfast… I can confirm exactly what the email drives at and most of its other trade talk content, aside from the speculation as to solutions, as being spot on.
If this is a TRUE exemplar from an analyst inside DB, he is probably out of a job. If so, then what do you think the big boys or "they," who have known this for awhile, are doing behind the scenes? No panic, all is well here at DB, don't worry and pay no heed to …
Somebody either thinks they know something (spook the herd media narrative) or they know something (informed) and the elephants are quietly trying to get out the theatre doors. One or the other, and the selloff is no surprise to me. Take it for what its worth, the price of admission, a box of popcorn, sit back, relax and watch the show. Or not. TBD.
by ilene - February 9th, 2016 6:27 pm
Courtesy of Joshua Brown
If you’re still investing based on Wall Street’s forecasts, you’re like a clown in the zoo.
Bloomberg with a Two For Tuesday…
Goldman Sachs Group Inc. has exited five of six top trading recommendations for the year after they were thwarted by financial-market turmoil linked to signs of a slowdown in global economic growth.
The New York-based bank closed its call for dollar strength versus an equally weighted basket of the euro and yen, recording a potential loss of about 5 percent, Charles Himmelberg, chief credit strategist, wrote in a note to clients Tuesday. Goldman has also ended a bet on five-year five-year forward Italian sovereign yields versus their German counterparts for a loss of about 0.5 percent, Himmelberg wrote.
“five-year forward Italian sovereign yields” get the f*** outta here.
Oh, there’s also this: More Wall Street Strategists Are Cutting Their S&P 500 Estimates
Just five weeks into 2016, seven of the 21 strategists tracked by Bloomberg have lowered their projections for the Standard & Poor’s 500 Index amid a rout that wiped more than $2 trillion from prices. The cuts have reduced the average annual estimate, the first time that’s happened this early in a year since the Iraq war in 2003.
“The reason there’s more divergence among forecasters is that equity strategists have a huge problem with predicting two wild cards right now: China and oil.”
Newsflash: You don’t need “wild cards” thrown into the mix. No one can ever do this reliably, it has nothing to do with oil or China. Next year it’ll be interest rates and Greece, or Chicken and Waffles or whatever comes down the pike.
Stop already. Strategists are interesting to read for context and to understand what other large pools of money and investors are thinking. Even the strategists themselves hate the fact that they have to play the target game.
And how could you not know better by now? Of course you do.
One of the benefits of having an investment process with diversification and a rules-based orientation is that you don’t end up chasing the guesses of others. Anyone’s guess is as good as anyone else’s in a world of almost infinite variability.
by ilene - February 9th, 2016 11:10 am
Courtesy of Lance Roberts of Real Investment Advice
Last week, I gave a presentation discussing the current market environment and the economy. As I was preparing the slide presentation, I noted some concerning similarities to a presentation that I gave in 2007. At that time, I was regularly discussing the potential onset of an economic recession, and then like now, I was dismissed as being a “perma-bear.” There was no inverted yield curve, the vast majority of the media saw no recession in sight, and the Federal Reserve continued to tout a “Goldilocks” economy. Yet, a year later, it was quite evident.
Currently, there is a plethora of commentary strongly suggesting that the U.S. economy is nowhere near recession currently. That may very well be the case, however, by the time the data is revised to reveal the recession it will be far too late for investors to do anything about it. The market, a coincident indicator of economic recessions historically, may already be revealing future economic data revisions will eventually disclose.
With the economy now more than 6-years into an expansion, which is long by historical standards, the question is: “Are we closer to an economic recession or a continued expansion?”
How you answer that question should have a significant impact on your investment outlook as financial markets tend to lose roughly 30% on average during recessionary periods. However, with margin debt at record levels, earnings deteriorating and junk bond yields rising, this is hardly a normal market environment within which we are currently invested.
Leading Economic Indicators
ISM Composite Index
Employment & Industrial Production
PCE & Imports
Corporate Profits As % Of GDP
The Broad View
by ilene - February 9th, 2016 10:37 am
Courtesy of Pam Martens
Janet Yellen Appears Before the House Financial Services Committee, November 4, 2015
Tomorrow, Janet Yellen will scurry over to the Rayburn House Office Building to give her semi-annual testimony to the House Financial Services Committee, now under the control of a deeply paranoid Republican majority when it comes to the Federal Reserve. (Not that some of that paranoia isn’t justified.) There is no question that Yellen will face hostile questioning from Republicans on the Committee, as she has in the past, although the questions tend to venture far afield from the real financial threats to U.S. stability.
Most Democrats, on the other hand, are so wedded to holding up the Dodd-Frank financial reform legislation as their grand achievement after the 2008 crash that they refuse to look out the window and see the equity capital of the Wall Street mega banks currently in a death spiral as the same banks invent ever more creative ways to loot the public and garner its distrust. With this fatal blind spot, House Democrats on the Committee are unlikely to fashion questions hinged to reality.
Thursday may hold out some promise, however. Yellen will present her semi-annual testimony to the Senate Banking Committee, beginning at 10 a.m. Since Republicans took control of the Senate in January 2015, this Committee has been chaired by Richard Shelby. Three Democrats well versed in Fed policy and the workings of Wall Street sit on the Committee: Senators Sherrod Brown, Elizabeth Warren and Jeff Merkley. Warren, in particular, has a penchant for zeroing in on hot button topics that produce nervous squirming from Yellen.
Back on July 15, 2014 when Yellen appeared before Senate Banking to present her semi-annual report, a tense exchange took place between Yellen and Warren. After reminding Yellen that Section 165 of Dodd-Frank mandated that the Wall Street mega banks had to submit annual, “credible” plans to the Fed explaining how they could be quickly liquidated if they got into trouble, rather than requiring another taxpayer bailout, Warren noted how massive some of these banks had become since the 2008 crash. Lehman Brother, said Warren, had $639 billion in assets and 209 subsidiaries when it failed in 2008 and it took three years to unwind the bank.…
by ilene - February 9th, 2016 10:33 am
Courtesy of Leonard Brecken via OilPrice.com
[As posted at Zero Hedge, here.]
Recently, I dedicated some time studying in much further depth the explosion in volatility in the broader market as well as in underlying stocks. We have witnessed unprecedented volatility in E&P stocks in recent months. But the commodity crash is spreading to Biotechs and even the broader technology sector with the implosion of Linkedin stock last week.
First, it is important to note what is driving the incremental volume as overall investor participation in day-to-day trading wanes. Every investor has witnessed a huge decline in overall liquidity, in part due to an investor class disenfranchised by 7 to 8 years of central bank easing and resulting asset price distortions. If an investor can’t rationalize valuation then they simply won’t invest. That has exacerbated price movements by those who are left: shorts and algo-trades (i.e., computers). On the former, it’s clear that the unprecedented level of short positions in the E&P space and in futures market illustrate the drivers of this volatility.
But more importantly, the price surges on certain short-term headlines – such as a potential OPEC meeting on output changes – leads to spiking prices one day, only to have them revert lower in the days that follow. These are classic tells to short covering. Broadly speaking the advent of computer driven trading that "captures headlines" and trades off it is part of this. But also the computerization of portfolio management through low-cost ETFs has become an even greater force. And as a result, money flows are becoming increasing disconnected from fundamental price movements.
This is occurring institutionally and through retail-based wealth management adoption of new technology. It is why you see individual stocks rise and fall by double digits in a single day when fundamental events like an earnings report are released, like LinkedIn. Simply put, institutions play macro factors, such as central bank policy moves, pulling moneys in and out of ETFs irrespective of underlying stock fundamentals or valuations. It is why large-cap tech stocks have risen to ridiculous valuations, such as with AMZN, only to fall some 30 percent in weeks – again, largely tied to macro money flows.
by ilene - February 9th, 2016 9:51 am
Courtesy of Dana Lyons
The relatively few leaders (aka, “generals”) that had been propping up the indexes are being systematically taken out.
“The way we see it is that the 6-year bull market is running out of steam, the steam being the number of stocks contributing to its advance. This occurs at the end of cyclical bull markets, ala 1999 and 2007. Once the relatively few stocks that are still propping up the market roll over, there is no foundation of support left to prevent a significant decline. This isn’t doom and gloom propaganda. It’s just part of the market cycle and should be something to monitor closely as we enter 2016.” – Conclusion from our final 2015 post (and perhaps a dozen other posts).
The point of our statement above – and all of the warnings we issued regarding the deterioration of the market’s internals over the past year – was that eventually the few stocks that were propping up the major indexes were going to collapse under the weight of that burden. And at that point, there will be no foundation left across the broad market to continue to buoy the averages. Well, since the start of the year, and in particular over the past week, that inevitable reckoning has been unfolding. Those few leaders left standing at the end of 2016, aka the “generals”, have finally succumbed to the selling pressure that preceded them in the rest of the market.
This includes one of the last men standing: the internet sector. The unraveling of the internet stocks is a relatively recent development – and a swift one at that. This is what happens when there are very few areas attracting almost all of the money flow. Once that avenue too is shut off, the reversal can be powerful as all of the inflows attempt to exit at once. Such has been the case with the internet sector. Just 4 days ago, we posted an chart intraday of the Dow Jones U.S. Internet Index, noting the fact that the index was hitting an all-time high. Well, the index gave up its gains of early that day and has been plunging ever since as the selling has finally reached this sector as well.
by Market Shadows - February 9th, 2016 9:36 am
Financial Markets and Economy
Gold Up 12%, Silver Up 11% YTD As Stocks Crash … Again (Business Insider)
Gold jumped 2 percent to a 7-1/2-month high yesterday, briefly touching the psychological level of $1,200 an ounce. Falling bank shares and stock markets and worries over global economic growth and a new financial crisis prompted investors to seek the safety of gold.
Japan’s benchmark 10-year yields touched a record low of minus 0.01 percent Tuesday in the wake of the Bank of Japan’s surprise decision on Jan. 29 to charge some lenders on excess reserves held at the central bank. Governor Haruhiko Kuroda drove down yields to unprecedented levels after initiating a monetary base target in April 2013 and a boosting the BOJ’s bond purchases to a record in October 2014.
An unsettling trend has emerged from the heavy selling that sent global markets tumbling this year: Investors are getting nervous about the world’s biggest banks.
Now’s the time to buy stocks — the stars are aligned (Market Watch)
Can anyone “call” a stock market bottom? Nope. But by tracking the right signals, you can get close.
Three “stars” I follow to spot market turns say we’re just about there.
These four points unlock the secret to cracking China's luxury market (Business Insider)
The huge anti-corruption and anti-extravagance campaign led by president Xi Jinping, has transformed China's burgeoning luxury goods sector forever.
Luxury goods have become less accessible to the growing Chinese middle class, and less acceptable for members of China's elite.
Last year’s sure thing in credit markets is quickly becoming this year’s nightmare for bond investors.
Convertible bonds are alluring as stocks slip (Market Watch)
The performance of the equity and convertible bond markets diverged in the fourth quarter as
by ilene - February 8th, 2016 9:12 pm
Courtesy of Wade of Investing Caffeine
It was another bloody week in the stock market (S&P 500 index dropped -3.1%), and any half-glass full data was interpreted as half-empty. The week was epitomized by a Citigroup report entitled “World Economy Trapped in a Death Spiral.” A sluggish monthly jobs report on Friday, which registered a less than anticipated addition of 151,000 jobs, painted a weakening employment picture. Professional social media site LinkedIn Corp. (LNKD) added fuel to the fire with a soft profit forecast, which resulted in the stock getting almost chopped in half (-44%)…in a single day (ouch). [This analysis does not even include today's sharp selloff.]
It’s funny how quickly the headlines can change – just one week ago, the Dow Jones Industrial index catapulted higher by almost +400 points in a single day and we were reading about soaring stocks.
Coherently digesting the avalanche of diverging and schizophrenic headlines is like attempting to analyze a windstorm through a microscope. A microscope is perfect for looking at a single static item up close, but a telescope is much better suited for analyzing a broader set of data. With a telescope, you are better equipped to look farther out on the horizon, to anticipate what trends are coming next. The same principle applies to investing. Short-term traders and speculators are great at using a short-term microscope to evaluate one shiny, attention-grabbing sample every day. The investment conclusion, however, changes the following day, when a different attention-grabbing headline is analyzed to a different conclusion. As Mark Twain noted, “If you don’t read the newspaper, you are uninformed. If you do read the newspaper, you are misinformed.”
Short-termism is an insidious disease that will slowly erode short-run performance and if not controlled will destroy long-run results as well. This is not a heretic concept. Some very successful investors have preached this idea in many ways. Here are a few of them:
‘‘We will continue to ignore political and economic forecasts which are an expensive distraction for many investors and businessmen.” –Warren Buffett (Annual Newsletter 1994)
‘‘If you spend more than 14 minutes a year
by Market Shadows - February 8th, 2016 8:29 pm
Financial Markets and Economy
Greg Ip had a piece in the Wall Street Journal yesterday discussing the debt burden in the USA and how low interest rates have “moved back” the “hands on the doomsday debt clock”. The article touches on the important topic of entitlement spending and whether it’s sustainable, but does so in a manner that misleads readers about why this might be a problem.
For instance, Ip says that “higher federal borrowing puts upward pressure on interest rates”. This is classic “crowding out”,an argument that has been thoroughly debunked in the last 20 years as interest rates have fallen despite soaring government debts around the globe.
(Higher interest rates are correlated to higher government debt?)
Charlie Stenger, a currency-broker-turned-recruiter, has seen it all. One fired trader wept in his office. Another admitted he hadn’t told his wife he was unemployed, and left the house every day in a suit to sneak off to a coffee shop. Then there are the delusional guys, who carefully explain how they’re not interested in jobs that don’t pay as well as those they just lost.
Tesla can't catch a break (Business Insider)
Tesla Motors fell as much as 10% on Monday, adding to a slide that's brought the shares to their lowest level in two years.
They are now trading below $150 apiece, down about $90 from where they ended 2015.
21st Century Fox Inc., Rupert Murdochs film and TV company, posted fiscal second-quarter profit that met analysts estimates, as growth in the cable and broadcast television businesses mostly countered lower revenue from filmed entertainment.
SEC Raises Concerns About Bond ETFs (Wall Street Journal)
Most investors in mutual funds and exchange-traded funds probably don’t worry much about liquidity. After all, fund