by Phil Davis - August 21st, 2014 6:01 am
I could take today off.
Why? Because I already wrote this article last month, on a Thursday, when the S&P was at 1,988 and topped out at 1,991, which was $199.06 on SPY and, as you can see from Dave Fry's chart, SPY topped out at $199.16 yesterday (before plunging back to $198.90 on strong volume into the close).
Will this time be different? I certainly hope so because last time, we plunged about 5%, back to 1,904 over the next 10 sessions and it's taken us another 10 to claw our way back for another attempt at an all-time high.
In our Live Member Chat this morning, we shorted the run-up in the Futures at Dow 16,990 (/YM), S&P 1,985 (/ES), Nasdaq 4,045 (/NQ) and Russell 1,155 (/TF) because, as I said to our Members:
I'm sorry but I simply can't reconcile this news with what's going on in the markets so I'm going to continue to lose money hedging to make sure we keep what we have. The alternative is going to cash but there is simply no way I can endorse getting more bullish on this market at this point.
One major difference this time is we DON'T have money flowing out of SPY (as much), as we did last month and we DO have the Fed's Jackson Hole conference tomorrow, which looks to Global Investors like a Santa Claus convention with Yellen, Draghi, Carney and Kuroda sitting under the spruce trees with gigantic bags of FREE MONEY – and that's why traders are as giddy as kids before Christmas this week.
But, Virginia, is there really a Santa Claus, or are the bulls hopes and dreams about to be crushed by cruel economic realities they have, so far, been avoiding like the plague (or Ebola)? Realities like China's horrific PMI this morning, that dropped from 51.7 to 50.3 (barely positive) and France's PMI, which is back in heavy contraction at 46.5 this morning. Retail Sales in the UK were up just 0.1% vs.…
by ilene - August 21st, 2014 2:48 am
Courtesy of Joshua M Brown, The Reformed Broker
A popular tale financial pundits and Fed critics like to tell around the campfire is that the Fed’s ultra-low rate policies have led to a speculative mania that has Americans chasing down risky investments for higher yields from sun-up til sundown. The “Chase for Yield” is, according to some, about to be our undoing – just look at the tremors caused by the early August blip of selling in the junk bond market for the latest evidence of this.
But what if the data suggested that, while many are ramping up their allocation to riskier assets, the lion’s share of people were not. What if it turned out that most people are doing just the opposite of “chasing” higher yields?
via MarketWatch (emphasis mine):
Data from the little-noticed financial accounts report show the American people have $10.8 trillion parked in cash, bank accounts and money-market funds that pay little or no interest. At the end of the first quarter, low-yielding assets totaled 84.5% of annual disposable personal income, the highest share in 23 years. Sure, people need to keep some money handy to pay their bills and some folks might have a few hundred or a few thousand in a rainy-day fund, but no one needs immediate access to the equivalent of 11 months of income. In essence, there’s $10.8 trillion stuffed into mattresses. That $10.8 trillion hoard represents a failure of Fed policy.
Since the Fed began quantitative easing in September 2012, U.S. households have socked away $1.17 trillion in their low-yield accounts. That means that 95% of the Fed’s $1.24 trillion QE3 ended up not in bubbly markets but in a safe and boring bank account.
But don’t let that alter your narrative, which by now is probably immaculately delivered and quite compelling.
Picture by ariesa66 at Pixabay.
by ilene - August 20th, 2014 5:29 pm
Surely, in 1999, everyone was both aware and excited about the milestones in the market – if we were anywhere near a mania-like atmosphere, wouldn’t we be seeing something similar today?
But instead of wall-to-wall market coverage – there was just about nothing. Most business sections mentioned it, but the stock rally didn’t make the front cover of anything. And even the mentions were skeptical in nature, there was precisely zero ebullience to be found in the mainstream press. (See ‘Meanwhile on Main Street…’)
Sorry, no bubble without an accompanying mania – bubbles are never just about price, but about investor behavior as well. The people who got this wrong, and were without the context of what a real bubble looks like, ended up missing out substantially.
And the funny part is that this disinterest in stocks continues to this day.
This week we learned that only 7% – SEVEN PERCENT – of Americans are aware that the US stock market went up by 30% last year.
This is quite a mania – a mania of apathy.
Gallup (via Jason Zweig):
by ilene - August 20th, 2014 8:54 am
This past week several reports came across my desk highlighting both the good news and the bad news about the future of automation and robotics. There are those who think that automation and robotics are going to be a massive destroyer of jobs and others who think that in general humans respond to shifts in employment opportunities by creating new opportunities.
As I’ve noted more than once, in the 1970s (as it seemed that our jobs were disappearing, never to return), the correct answer to the question, “Where will the jobs come from?” was “I don’t know, but they will.” That was more a faith-based statement than a fact-based one, but whole new categories of jobs did in fact get created in the ’80s and ’90s.
However, a new Wall Street Journal poll finds that three out of four Americans think the next generation will be worse off than this generation.
Barack Obama’s former chief economist Larry Summers began this chant of “secular stagnation.” It’s a pessimistic message, and it’s now being echoed by Federal Reserve Vice-Chair Stanley Fischer. He agrees with Summers that slow growth in “labor supply, capital investment, and productivity” is the new normal that’s “holding down growth.” Summers also believes that negative real interest rates aren’t negative enough. If Fischer and Fed chair Janet Yellen agree, central bank policy rates will never normalize in our lifetime. (National Review Online)
As the above-cited article asserts (and I agree), the term secular stagnation is a cover-up for the failure of Keynesian policies which, as my friends Larry Kudlow and Stephen Moore note, began in the Bush years and were doubled down on by the current administration.
Kareem Abdul-Jabbar, who is pursuing a career as a social commentator after dominating the NBA boards for so many years, tells us that Ferguson (which is on all the news channels all the time) is not just about systemic racism; it’s about class warfare and how America’s poor are held back.
by Phil Davis - August 20th, 2014 7:52 am
Fed Minutes Today (2pm).
That gives the bullish pundits another chance to read the tea leaves and promise MORE FREE MONEY to those who are silly enough not to be fully invested in stocks. As you can see from Dave Fry's SPY chart, only 56.7M shares were transacted yesterday and nearly half of those people were selling.
Perhaps 10% more buys than sells is 5.7M shares at $198.28 means it cost just $1.1Bn to move the $60Tn markets up 0.5% ($300Bn) – now that's leverage! With a lack of participation, those few buyers can really shove the markets around. Also, as Dave noted:
Hobson owned a livery stable and he rotated his horses to different stalls. He offered customers the choice of taking the horse in the first stable or none at all. Henry Ford also offered a variation of Hobson’s Choice since customers could buy a car in any color they liked, as long as it was black. The stock market offers many choices but only stocks are effective as bonds offer no yield while Fed policies have forced investors to stocks or nothing else.
This is basically the issue for investors in financial markets, buy stocks or nothing else. Farmland is admittedly in a bubble as Iowa farmland now goes for $8,500 per acre. If you can buy it right, some residential real estate offers a decent rental yield. Then there is the weird world of collectibles where you really need to know what you’re doing and have adequate cash.
So stock markets remain in play at least for most institutions. We’ve seen heavy volume sell-offs meaning most retail investors continue to loathe and leave markets. It remains a market for
by ilene - August 20th, 2014 2:04 am
Courtesy of Wade of Investing Caffeine
Investing in the stock market can be quite stressful, especially during periods of volatility…but investing doesn’t have to be nerve-racking. Investing legend T. Rowe price captured the beneficial sentiments of growth investing beautifully when he stated the following:
“The growth stock theory of investing requires patience, but is less stressful than trading, generally has less risk, and reduces brokerage commissions and income taxes.”
What I’ve learned over my investing career is that fretting over such things as downgrades, management changes, macroeconomic data, earnings misses, geopolitical headlines, and other irrelevant transitory factors leads to more heartache than gains. If you listen to a dozen so-called pundits, talking heads, journalists, or bloggers, what you quickly realize is that all you are often left with are a dozen different opinions. Opinions don’t matter…the facts do.
Finding Multi-Baggers: The Power of Compounding
Rather than succumbing to knee-jerk reactions from the worries of the day, great long-term investors realize the benefits of compounding. We know T. Rowe Price appreciated this principle because he agreed with Nobel Prize winning physicist Albert Einstein’s view that “compounding interest” should be considered the “8th wonder of the world” – see also how Christopher Columbus can turn a penny into $121 billion (Compounding: A Penny Saved is Billions Earned).
People generally refer to Warren Buffett as a “Value” investor, but in fact, despite the Ben Graham moniker, Buffett has owned some of the greatest growth stocks of all-time. For example, Coca Cola Co (KO) achieved roughly a 20x return from 1988 – 1998, as shown below:
If you look at other charts of Buffett’s long-term holdings, such as Wells Fargo & Company (WFC), American Express Co (AXP), and Procter & Gamble – Gillette (PG), the incredible compounded gains are just as astounding.
In recent decades, there is no question that stocks have benefited from P/E expansion. P/E ratios, or the average price paid for stocks, has increased from the early 1980s as long-term interest rates have declined from the high-teens to the low single-digits, but the real lifeblood for any stock is earnings growth (see also It’s the Earnings, Stupid). As…
by ilene - August 20th, 2014 1:36 am
Sometimes, just sometimes, you need to stop for a second, take a step back, and reconsider the simplest pieces of any puzzle.
David John Moore Cornwall was a real-life spy. A spook. An agent. He worked for Britain’s MI5 and, later, MI6 intelligence services.
Whilst there, Cornwall began a little hobby that, in today’s world, would be unthinkable for a serving intelligence officer: writing novels about the secret world in which he lived and worked.
He chose a nom de plume with a certain je ne sais quoi: John le Carré. The hero of le Carré’s first two novels, Call for the Dead andA Murder of Quality, was George Smiley, a somewhat ordinary spy who grew up in a middle class family and attended an “antiquated Oxford college of no real distinction” but who, apparently, had“the cunning of Satan and the conscience of a virgin.”
Smiley was everything other spies of the time — fictional ones, at least — weren’t:
(Wikipedia): The spy novel writing of John le Carré stands in contrast to the physical action and moral certainty of the James Bond thriller established by Ian Fleming in the mid 1950s; the le Carré Cold War features unheroic political functionaries aware of the moral ambiguity of their work, and engaged in psychological more than physical drama. They experience little of the violence typically encountered in action thrillers, and have very little recourse to gadgets. Much of the conflict is internal, rather than external and visible.
Unlike the moral certainty of Fleming’s British Secret Service adventures, le Carré’s Circus spy stories are morally complex. They emphasise the fallibility of Western democracy and of the secret services protecting it, often implying the possibility of East-West moral equivalence…
In 1979, the BBC adapted what is perhaps le Carré’s most famous novel for television, casting the great Alec Guinness as Smiley in a seven-part miniseries that changed the face of television.
The series, Tinker, Tailor, Soldier, Spy, was a smash hit
by Option Review - August 19th, 2014 3:58 pm
by Phil Davis - August 19th, 2014 8:06 am
You've gotta love those trend lines.
Chart people sure love them and we love chart peopel because they are SOOOOOOOO predictable and predictable behavior is behavior we can bet on and that makes us happy. Today we'll be seeing the 50-day moving averages on the Dow, the NYSE and the Russell all tested at the same time – what happens next will tell us a lot about this rally.
As I pointed out to our Members in our Live Chat Room this morning, though we may be past our bounce levels and though we are now challenging the 50 dmas, we still have 3 of 5 of our Must Hold levels red on the Big Chart – that's not too impressive. Consider what a 50-day moving average is. It means that, over the last 50 days, half the time the index has been above the line and half the time it's been below – so how impressive should it be to see the index back in the middle?
Nonetheless, Chart People believe it's some mystical symbol that gives them a rally signal and half the time they are right – so the religion of TA continues to prosper! As you can see from Dave Fry's SPY chart from yesterday, 75% of yesterday's gain came on no volume as we gapped up in the Futures and the rest of the day's trading was one of the lightest of the year.
The reason I like Dave is because he's one of the only TA people who actually pay attention to volume and this volume is total BS. Still, it's enough to stampede the retail suckers back in and God bless them because they throw money at us to sell them the things we liked when they were out of favor.
In May and June, for example, we compiled a Buy List for our Members, which had 29 trades we liked for the rest of 2014. Here's a few that we are done with already: