by phil - December 7th, 2016 8:39 am
I like this chart from Panamaorange at StockTwits:
I'm not a TA guy but I do know when things are overbought and oh boy are we overbought right now. Volume on the S&P ETF (SPY) was 57M yesterday as we busted up to new highs – that's about 1/2 "normal" volume of 100M, which is already down from 150M last year. Low volume means low conviction and we pair that with record ETF inflows (dumb money) of $56Bn and we know exactly what this rally is made of. Small Caps, Financials and Industrials captured most of the flows while, as noted yesterday, money is fleeing from Emerging Markets and Emerging Market Debt – we're simply the "safe haven" – for now…
And, of course, money is flowing out of bonds, which are a very bad thing to hang onto when interest rates are rising and December is on pace to blow November's numbers out of the water and, like Richard Gere, that bond money has nowhere else to go except into equities – regardless of how ridiculously priced they are.
And, of course, a person dumb enough to put their money into 30-year notes at 2% isn't going to think twice about running into equities that have a p/e of 30 – that's more like a 3.3% return, at least! That's also making dividend stocks extra expensive as the coupon clippers love dividend stocks and, as value investors, we're finding bargains very hard to find in that space but we're patient, we can wait for the correction.
Meanwhile, the Dow has climbed to the top of our target range already. Back on 11/25, we put up a hedge against our Russell Futures (/TF) shorts (was 1,350 then too!) that would cover us for an $11,250 profit if the indexes refused to back down – at the time I said:
In fact, the Russell 2,000 is just under 1,350 and that's up 200 points since early November (not counting their spike down) and that is just shy of 15% so the Dow is MILES behind
by clarisezoleta - December 7th, 2016 7:42 am
Financial Markets and Economy
European stocks on Wednesday added to the previous session’s sharp gains, boosted by advances in miners and banks. Optimism the European Central Bank will extend its stimulus program at Thursday’s meeting has spurred equity gains this week, particularly in so-called peripheral markets perceived as riskier.
Oil extended declines below $51 a barrel amid speculation a production boost from U.S. shale producers will counter the first output cuts from OPEC in eight years.
LONDON — The Office for National Statistics (ONS) admits it calculated the UK's trade deficit wrong.
The ONS discovered a "processing error" related to the trade in "erratic" goods, which includes gold, silver, precious stones, aircrafts, and ships.
China's Yuan Pessimists Are Multiplying (Bloomberg)
China is tightening capital controls as the imminent renewal of a foreign-exchange conversion quota adds to depreciation pressure on the yuan.
Oman, the largest Arab oil producer that’s not an OPEC member, plans to sell between $1.5 billion to $2 billion of bonds internationally in 2017 to plug a deficit caused by low crude prices.
A cut in global oil output by 1.8 million barrels a day would be enough to balance the crude market, and OPEC is ready to take further action if prices fail to stabilize, United Arab Emirates Energy Minister Suhail Al Mazrouei said in Abu Dhabi.
After half a decade of negative interest rates, Denmark’s economy is headed for an economic “boom” and risks running out of the labor resources needed to support sustainable growth, the central bank said on Wednesday.
by ilene - December 7th, 2016 1:26 am
Courtesy of Joshua M Brown, The Reformed Broker
The President-elect of the United States is outraging some of our largest strategic partners before even assuming office, feuding with sketch comedy shows and literally accusing people of crimes on Twitter in the early hours of the morning.
He’s disparaging the media on a daily basis. He’s said more complimentary things about Russia than he has about our allies over the last half-century from NATO. He’s conducting unprepared phone calls with Pakistan and Taiwan – the avowed enemies of India and China respectively – and inexplicably inviting his daughter to sit in on meetings with world leaders.
This sort of thing might be making you nervous. That’s understandable. Most smart people I talk too – including Trump supporters – have their fingers crossed that he will grow into the role he’s won for himself and stop doing embarrassing shit. He might. Lots of 70 year olds turn on a dime and make wholesale personality shifts. Okay, just kidding, but I’m trying to be optimistic.
Let’s say you’re not optimistic about the next four years. Well, my friend, Bloomberg has a feature just for you: The Pessimist’s Guide to 2017. It’s a compendium of scenarios in which things go very wrong in multiple categories. It’s probably too pessimistic, but I think that’s the point of the exercise.
I’m not as worried about the trade stuff and the wall stuff as some of you, mostly because I don’t believe any of it will actually be pursued. I do worry about the potential for geopolitical mishaps that lead to armed conflict. I don’t think the undisciplined and uninformed bluster and bravado of a “business genius” is what typically makes the world safe, forgive me for feeling this way.
The Bloomberg Guide talks about things like North Korea testing long range missiles that can hold a nuclear device, about ISIS radicalizing central Asia, about Saudi Arabia and Japan developing their own military defenses further upon feeling abandoned, about Putin feeling emboldened, etc. Let’s assume you think any or all of these are legitimate concerns. Here’s one investment that might make sense…
by Market Shadows - December 6th, 2016 10:19 pm
Financial Markets and Economy
Oil prices on Tuesday ended lower for the first time since OPEC agreed on Nov. 30 to cut output, as data showing record high production in the producer group fed skepticism that it would be able to reduce supplies.
Brazil’s economic reform plan was thrown into disarray after a Supreme Court justice removed Senate chief Renan Calheiros just days before the upper house was scheduled to vote on a crucial spending cap bill.
Wall Street as Landlord: Blackstone Going Public with a $10 Billion Bet on Foreclosed Homes (The Wall Street Journal)
Jonathan Gray of Blackstone Group LP went on the biggest homebuying spree in history after the U.S. foreclosure crisis, purchasing repossessed properties from the courthouse steps and through online auctions.
From Brexit and rising polarization in Europe to the protectionist rhetoric of President-elect Donald Trump, this year's played host to a series of political ruptures that threaten a breakdown in the existing internationalist order.
The post-election advance in U.S. stocks fits into a pattern at the beginning of presidential cycles, and if history is any guide the rally greeting Donald Trump is only halfway done.
STOCKS HIT NEW HIGH, OIL DROPS: Here's what you need to know (Business Insider)
US stocks finished higher but little changed on Tuesday, and the Dow closed at an all-time high. Crude oil fell for the first day since OPEC agreed last Wednesday to cut production.
U.S. ‘Disappointed’ by Japanese Plan to Cut Drug Costs (The Wall Street Journal)
The U.S. government has written to a senior aide of Japan’s Prime Minister Shinzo Abe, calling on Tokyo to reconsider a plan that would allow more frequent pharmaceutical price cuts.
Here's how media giants see the future of advertising (BI Intelligence)
The media buying arms of the world's largest advertising holding companies have released their ad spend forecasts
by ilene - December 6th, 2016 6:15 pm
Courtesy of Joshua M Brown
[Yesterday] morning, the US stock market reacted to PM Renzi’s lost Italian referendum with a gigantic IDGAF, the Dow printing a new all-time high within minutes of the open. Hell, even the euro gained on the news – which is hilarious if you’re in the camp that says the odds of a Euro Zone break-up increase with every populist victory at the polls.
I call this phenomenon “crisis fatigue”. If everything is a crisis, then nothing is. BTW, Italy has now had 63 “new governments” since WWII so IDGAF is perhaps the most appropriate of responses, historically speaking.
Here’s a highly prescient tweet from Barbarian Capital I want to share with you:
Brexit: sharp dip, few days to recover
Trump: sharp dip, few hours to recover
Italy: probably just straight up
— Barbarian Capital (@BarbarianCap) November 28, 2016
Some smart people are telling the story that the market reacted positively to the news because “a euro without Italy and its debt burdens is actually a stronger currency / economic union.” Perhaps they’ll feel the same when Le Pen sweeps through France like a hurricane. Is a euro without France stronger? How about without the Netherlands? Should Germany leave to really make it rock-solid?
Another story being told is that the Italian referendum’s ‘no’ vote was extremely well-telegraphed and that, on its own, it doesn’t mean an exit from Europe – all it means is a caretaker government through 2018 where very little gets done or changed.
One more story – US stocks are now the safety trade again for global fund flows, so that chaotic happenings elsewhere serve to make the S&P 500 more desirable for those pulling money out of geopolitcal harm’s way. This is probably the most absurd one.
I would just say to be careful with narratives. Like sentiment – or Greek mythology for that matter – they are always ad hoc, and designed to explain the inexplicable.
by ilene - December 6th, 2016 6:01 pm
Courtesy of Joshua M Brown
I know I’m doing a lot of stuff about the alleged “Trump Rally” lately but I have good reasons: First of all, it’s the most dominant story in the market by far, now that the Fed is basically PGing a rate hike.
And second, it’s absolutely absurd and people are running around acting like maniacs, which I love. You guys know I love that.
Anyway, my friend Nick Colas, Chief Strategist at Convergex, a global brokerage firm in New York, put something out about how Americans are more susceptible to “the placebo effect” than patients anywhere else around the world. When you tell them they’re taking a drug, they are more prone to believe that it’s working and actually show improvement. Especially with psychiatric drugs although the effect is not limited to those.
American investors are the same people as American drug trial candidates, more or less, so it should be no surprise that they’re acting as though we already got a trillion in infrastructure spending, tax cuts, lap dances and whatever else might be coming.
It’s a sugar pill. The medication isn’t in our system yet but we believe it’s working already. You should see some of the sell-side research hitting my box. Anyway, here’s Nick:
The real magic of the current domestic stock market rally is that it pretends to forecast (with remarkable precision, it must be said) a set of legislative outcomes in 2017. You know the list: lower corporate and personal taxes, less regulation, more infrastructure spending. All this may come to pass, for after all President Elect Trump has the notional backing of a Republican Congress, and therefore the GOP essentially “Owns” the U.S. economy for the next 2 years. But even the most bullish assessment of this scenario must admit that it seemed very unlikely just a month ago. And yet investors have no problem bidding up risk assets like they just KNOW how the world will look in a year.
It is at times like these that I consider the Placebo Effect from the world of medicine. That’s the one where patients and research subjects report beneficial effects from a substance
by Market Shadows - December 6th, 2016 8:46 am
Financial Markets and Economy
European stocks were little changed, as a recent rotation out of so-called defensive sectors and into shares seen benefiting from economic growth eased. Utilities and real estate companies climbed with banks, while miners trimmed recent lofty gains.
China’s yuan rose for a second day after an unexpectedly strong central bank fixing spurred speculation that policy makers are supporting the currency.
LONDON — A year ago, tech investors were playing an anxious game of introspection over frothy market conditions: Are we in a bubble? Are we heading for a crash?
Pound’s climb pulls FTSE 100 lower; spread betters hit hard (Market Watch)
U.K. blue-chip stocks sagged Tuesday, hurt by a rise in the pound, while shares of spread-betting firms in the mid-cap market plunged after regulators said they will crack down on certain products.
German factory orders surged in October, suggesting growth in Europe’s largest economy will accelerate at the end of the year.
“What’s the country code for Australia?” Pemex Chief Executive Office Jose Antonio Gonzalez Anaya asks the six people in his 44th-floor office in Mexico City on Monday afternoon. “Is it 61? This might be our new partner calling.”
Analysts say investors may have popped the champagne cork too early on last week’s historic production cut from OPEC, a deal that helped fuel a nearly
by phil - December 6th, 2016 8:13 am
We did get some awesome Consumer Spending numbers yesterday but, as you can see from the chart, it's more of a reflection of inflation than of a confident consumer that's out shopping. The cost of "essentials" has risen sharply since May, up 8% while discretionary spending has remained flat. I imagine when the credit card data comes out – we'll see that a lot of this spending has been debt-financed – not the best kind of spending...
Still, the market hates nuance so YAY!!! Speaking of nuances, did you know that Fitch, Moody's and the S&P have taken a record 1,971 negative ratings actions on emerging-market sovereign and government-related entities in 2016 – and the year isn't even over yet! Isn't that awesome??? Not since 2007-2008 have we had this kind of uptick in negative ratings and back then the record was only 1,400 – we shattered that in September!
Now I'm not going to say this is a bad thing because NOTHING is a bad thing as far as this market is concerned but, it's kind of a bad thing. 26% of the 134 Sovereigns rated by Moody's still have a negative outlook – so things can get even worse. When a sovereign defaults, there's a domino effect of companies, private and state-owned, that follow. For once, S&P, Moody's and Fitch may be giving investors early indications of what to expect. The message for now is clear: Developing nations are no longer doing that well.
I'm not going to dwell on the negative, not when Bloomberg did such a good job of it in their "Pessimist's Guide to 2017".
We tried shorting yesterday and that failed, with our stops quickly broken to the upside but we're at is again today. In yesterday's post, I said the Nikkei (/NKD) was my favorite short at 18,500 and we made a +$500 move down to 18,400 (now back to 18,450) but that was disappointing given the Dollars sharp fall back to 100 so today we're not into them but we do have 19,225 on the Dow Futures (/YM) and those components are very stretched and oil…