We are updating our suite of sentiment data again, mainly because it is so fascinating that a historically rarely seen bullish consensus has emerged – after a rally that has taken the SPXup by slightly over 210% from its low. Admittedly, a slew of such records has occurred in the course of the past year or so, and so far has not managed to derail the market in the slightest– in fact, since 2012, only a single correction has occurred that even deserves the designation “correction” (as opposed to “barely noticeable dip”).
While a number of positioning and survey data show a bullish consensus that easily dwarfs anything that has been seen before, this consensus is not reflected in expressions of exuberance by the broader public. “Anecdotal” sentiment seems more cautious and skeptical than the quantitatively measurable kind. Most likely this is because the vast bulk of the middle class has been so thoroughly fleeced in the last two boom-bust sequences that it finds itself in dire straits in spite of the reemergence of major asset bubbles across a wide swathe of assets. This includes by the way an astonishing revival of the bubble in real estate prices – see e.g. this 330 square foot shack in San Francisco, which recently sold for $765,000:
Yes, that tiny dark-brown thingy situated on a steep road sold for $765,000. The real estate bubble is back.
(Photo credit: SFARMLS)
Moreover, with the broad US money supply (TMS-2) having nearly doubled since 2008 and other major central banks inflating their money supply as well at breakneck speed, there has been more than enough “tinder” provided the world over to drive asset prices higher. This by the way makes a complete mockery of the constant refrain of central bankers that we are allegedly threatened by “deflation”. The inflationary effects of their monetary pumping are simply showing up in asset prices rather than consumer goods prices – ceteris paribus, a rapid inflation of the money supply always leads to prices rising somewhere in the economy.
The economy expanded at its fastest pace in more than a decade during the spring and summer, showing the U.S. has strengthened its economic footing despite increasing global uncertainty.
Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a seasonally adjusted annual rate of 3.9% in the third quarter, the Commerce Department said Tuesday.
The upward revision from a first estimate of 3.5% put the combined growth rate in the second and third quarters at 4.25%, affirming the best six-month pace since the second half of 2003. The output figures are inflation adjusted.
This Thanksgiving, I’m thinking about the economy and the improvement that now seems to be picking up speed. I’m thinking about the fact that stocks and 401(k) balances are all-time highs, unemployment is rapidly dropping toward decade-lows and innovation is exploding everywhere I look. I’m thinking about how fortunate we are to live in a country that reinvents itself for every generation – even though the transition period always looks bleak while we’re trudging through it. I’m thinking about the fact that, all things considered, the American capitalist system is still the envy of the world.
My blog turned six this month. I’m really fortunate that each year my audience has grown and readers have stuck with me. I’m proud that I’ve been able to influence people’s thinking in some small way and to have been a constructive voice when so many others were offering noise, pessimism and deliberate confusion in the guise of advice. I’m glad that I’ve met a thousand amazing people through my work here that I never would have crossed paths with otherwise. I’m grateful for my partners and clients and colleagues and friends.
The nation is healing. It hasn’t been easy and it hasn’t always been fair. There’s been plenty of room for dissent about this solution or that. The medicine was unconventional, controversial and slow to take effect, but it’s now undeniably producing the desired effect. Our
Stock buybacks are always a good thing… right? That’s what the mass media has trained investors to believe, but there are times when stock buybacks are a horrible strategy.
Let’s take a look at Herbalife, which has had very visible news items as billionaires like Carl Icahn, George Soros, Daniel Loeb, and Bill Ackman publicly debate the future of the company.
Herbalife shares have lost more than half their value in 2014 because of a Federal Trade Commission investigation and a big drop in profits. 50% is a huge haircut, but I believe Herbalife is poised for even more pain.
Rapidly Disappearing Profits
Herbalife recently reported its third-quarter results and they were just awful. Herbalife earned $0.13 per share in Q3, but that was a whopping 92% decline from the $1.32 it earned last year.
That’s awful, but Herbalife says business will be even worse going forward. The Wall Street crowd expected Herbalife to grow revenues by 7% in 2015, but the company said that its revenues will fall by -1% to -2% instead.
Part of that lower guidance is from the impact of the strong US dollar. Guidance for Q4 includes an unfavorable impact of $0.31 from currency conversions. If you remember, I previously wrote that the strong dollar was going to kill the 2015 profits of companies that do lots of business overseas.
I have to admit, I am skeptical of all the multilevel marketing businesses, but Herbalife is reinforcing that preconceived notion.
FTC and FBI Investigation
The Federal Trade Commission is investigating Herbalife for what could ultimately result in charges that Herbalife is operating an illegal pyramid scheme.
In March, the FTC sent Herbalife a civil investigative demand (CID), which is a subpoena on steroids because all the evidence produced by a CID can be used by other agencies in other investigations, such as the FBI, which is also investigating Herbalife.
The FTC outcome is unknown. Heck, Herbalife could eventually be declared innocent and pure… but I wouldn’t bet on it.
The old man’s eyes misted over as he looked down at his grandson, who sat at his feet, his young eyes alive with questions as he turned the heavy gold bar over in his hands.
”I’ve told you the story too many times to count,” said the man, half-pleading, but knowing full-well he’d soon be deep into the umpteenth retelling of a story he’d lived through once in reality and a thousand times more through the eager questioning of the young man now tugging at his trouser leg. “Why don’t I tell you the story of how I met your Grandma instead?”
“Because that’s boring.” The reply was borne of the honesty only a ten-year-old possesses.
“OK, OK,” said the old man, a smile creeping into the corners of his mouth, “you win.”
“It began in early November of 2014, when a man called Alasdair Macleod published a report on how the Chinese had been secretly buying gold for 30 years.
“Most people believed what the Chinese Central Bank had been telling the world — that they owned just 1,054 tonnes. That number, first published in 2009, had remained unchanged for over five years; but there was a group of people who refused to accept that the People’s Bank of China were telling the truth, and those people set about diligently doing their own analysis to try to determine what the real number might be.
“In early November of 2014, Macleod’s report — which went largely unnoticed because most people were busy celebrating new highs in the stock market and the fact that a newly strengthening dollar was forcing down the price of gold — laid out the case for there having been an astounding amount of gold bought by the Chinese over the previous three decades.
“According to Macleod, China saw an opportunity at a crucial time and, with a view on the longer term, they took it.”
Grandad dipped his thumb and forefinger into his vPad, which hovered just above the table, and pinched and cast a paragraph into the air before them.…
France ruled out delivery of the first of two Mistral warships to Russia and German Chancellor Angela Merkel said sanctions will stay as long as the government in Moscow does little to resolve the conflict in Ukraine.
When it takes up to four million pounds of sand to frack a single well, it’s no wonder that demand is outpacing supply and frack sand producers are becoming the biggest behind-the-scenes beneficiaries of the American oil and gas boom.
Demand is exploding for “frac sand”--a durable, high-purity quartz sand used to help produce petroleum fluids and prop up man-made fractures in shale rock formations through which oil and gas flows—turning this segment into the top driver of value in the shale revolution.
“One of the major players in Eagle Ford is saying they’re short 6 million tons of 100 mesh alone in 2014 and they don’t know where to get it. And that’s just one player,” Rasool Mohammad, President and CEO of Select Sands Corporation told Oilprice.com.
Frack sand exponentially increases the return on investment for a well, and oil and gas companies are expected to use some 95 billion pounds of frack sand this year, up nearly 30% from 2013 and up 50% from forecasts made just last year.
Pushing demand up is the trend for wider, shorter fracs, which require twice as much sand. The practice of downspacing—or decreasing the space between wells—means a dramatic increase in the amount of frac sand used. The industry has gone from drilling four wells per square mile to up to 16 using shorter, wider fracs. In the process, they have found that the more tightly spaced wells do not reduce production from surrounding wells.
This all puts frac sand in the drivers’ seat of the next phase of the American oil boom, and it’s a commodity that has already seen its price increase up to 20% over the past year alone.
Frac sand is poised for even more significant gains over the immediate term, with long-term contracts locking in a lucrative future as exploration and production companies experiment with using even more sand per well.
“You begin to believe your own responsibility to ‘get this guy’ – even though that’s complete bullshit….I think the Cramer thing was one of those that negatively impacted me like that because that came out of alchemy but it became such a big deal.”
– Jon Stewart on the The Howard Stern Show, 11/18/2014
Jon Stewart feels bad about the massive railroading that happened to Jim Cramer on The Daily Show in the aftermath of the crisis.
During an hour-long interview on the Howard Stern show this past week, Stewart and Stern got into a discussion about the trouble with viewer expectations that come along with doing a news show on important issues. Jon Stewart explains that it’s not really his role to have every moment be cathartic for everyone or for every interview to result in a gotcha moment. He brings up the Cramer example – wherein he essentially blamed a TV host for the entirety of the nation’s worst financial crisis in 70 years. In my book, Clash of the Financial Pundits, I take Jim’s side in calling the moment completely unfair, even though I’ve been a fan of The Daily Show and Jon Stewart’s since day one.
My take is that the people wanted blood and Jim basically served himself up for a crucifixion. Stewart had a target he could rage against who was willing to do it – but what The Daily Show didn’t count on was Jim Cramer not fighting back. The segment comes off as atrociously one-sided owing to Cramer’s lack of defense. This despite the fact that the Mad Money host is just one person and had absolutely nothing to do with the actual causes of the crisis in real life. Had Cramer pushed back and brought up his vigorously alerting the Federal Reserve to the markets’ problems in advance, it would have been entirely justified. But he didn’t bother. Like any trader, he saw what the story was on-set and simply cut his losses.
Full audio of the Howard Stern interview with Jon Stewart in the embed below, the Cramer stuff is discussed at the 35 minute mark.
Russia and its redoubtable president, Vladimir Putin, have been much in the news lately. The latest flurry came when Putin was taken out behind the woodshed at the G20 conference in the Philippines last weekend over his recent moves to inject more Russian troops and arms into Ukraine.
For today’s Outside the Box we have two pieces that deliver deeper insights into the situation with Russia and Putin. The first is from my good friend Ian Bremmer, President of the Eurasia Group and author of Every Nation for Itself: Winners and Losers in a G-Zero World. You probably caught my mention of Ian’s presentation at the institutional fund manager conference where we both spoke last weekend. He had some unsettling things to say about Russia; and so when he followed up with an email to me on Monday, I asked if he’d let me share the section on Russia with you. Understand, Ian is connected, and so what you’re about to be treated to here is analysis from way inside. (He’ll be presenting at our Strategic Investment Conference again next April, too.)
Then we turn to a piece that my friend Vitaliy Katsenelson published last week in his monthly column in Institutional Investor. I need to preface this one by mentioning that Vitaliy was born in Murmansk, Russia, where he lived until age 18, when his family emigrated to the US. Fast-forward 23 years, and today Vitaliy is Chief Investment Officer for Investment Management Associates in Denver and author of the highly successful Active Value Investing: Making Money in Range-Bound Markets and The Little Book of Sideways Markets. That’s quite a journey, and Vitaliy has some very strong feelings about the country he left as well as the one he came to. In his intro to today’s piece he admits,
[This is] one of the most emotionally taxing things I ever wrote. A few days ago my wife looked at me and said, “When are you going to be done with it; this article is bringing…
Here's an interview with Jim Grant in the Graham & Doddsville newsletter, edited by the Students of Columbia Business School. The interview begins on page 1 and then continues on page 52: INTERVIEW WITH JAMES GRANT
G&D: Given the current state of the economy and the low interest rate environment, it sounds like you perceive risks that others do not. What facts, measures, or indications bother you most?
JG: Here’s a fact: China’s banking assets represent one-third of world GDP, whereas China’s economic output represents only 12% of world GDP. Never before has the world seen the likes of China’s credit bubble. It’s a clear and present danger for us all. And here’s a sign of the times: Amazon, with a trailing P/E multiple of more than 1,000, is preparing to build a new corporate headquarters in Seattle that may absorb more than 100% of cumulative net income since the company’s founding in 1994. Now, there are always things to worry about. Different today is the monetary policy backdrop. Which values are true? Which are inflated? In a time of zero percent interest rates, it’s not always easy to tell.
G&D: Where can the average investor find income?
JG: The average, risk-averse investor can’t. There’s none to be had, at least none in natural form. To generate yield, you must apply leverage. This is the stuff of businessman’s risk. A pair of examples: Annaly Capital Management (NYSE:NLY), a mortgage real estate investment trust, which changes hands at 83% of book value to yield 11.4%; and Blackstone Mortgage Trust (NYSE:BXMT), a new real estate finance company, which trades at 113% of book value to yield 6.43%. We judge both to be reasonable risks. More speculative, but—we think, also priced appropriately for the risk—are long-dated Puerto Rico general obligation bonds. The 5s of 2041 trade at 65.40 to yield a triple tax-exempt 8.18%. Widows and orphans stand clear.
G&D: What about the great debate over tapering?
JG: Grant’s is on record as saying that the Fed won’t taper. Or, that if it does taper, it will likely de- taper—i.e., reverse course to intervene once more— because the economic patient is hooked on stimulus.
The source of the Fed’s problem (which, of course, is everyone’s problem) is that there ought to be deflation. In a time of technological wonder, prices ought to fall, as they fell in the final quarter of the 19th century. As it costs less to produce things (and services), so it should cost less to buy them. In an attempt to force the price level higher by an arbitrary 2% a year, the central bank inevitably creates too much money. Those redundant dollars don’t disappear.
Yawn. We'd be a lot more impressed if all the gains for the day didn't come pre-market – in the even thinner-traded futures, followed by a day of choppy trading on anemic volume.
Still, it is what it is and what it is is another new high and another record monthly gain and we don't know why but we made $10,000 yesterday in our Short-Term Portfolio as our bullish positions (because we thought we were too bearish last week) came through for us in spades.
$10,000 is, of course, a ridiculous amount of money to make in a single day in a $100,000 porfolio. In part, it's a reflection of the extreme volatility in the options chains, as those prices fluctuate wildly. Since we sell a lot of premium when the VIX is high, we benefit when it gets low again. Also, we're getting closer to January and we have a lot of January plays where time is on our side – it's not really an accident, this is how we set up our trades – they are simply working out better than we expected them to.
Now we're up 70% for the year again and we have to consider whether or not we should take the money and run or just let them ride. To some extent, we're protecting the much larger gains in our $500,000 Long-Term Portfolio, which is up 26% for the year ($130,000), which puts our $70,000 gain in the STP into the proper perspective.
If we cash the STP, then the LTP is unprotected (as it's all bullish) and that's not acceptable but we COULD decide to cash out our longs and that would leave us VERY BEARISH in the STP, probably over-protecting the LTP but that might be a good thing into January.
So, let's consider our STP longs and what we should do with them:
20 USO Jan $29 calls at $1.05, now $1.30 – up 23.8%
We just bought these last Thursday and our premise remains (success at the OPEC meeting this weekend – I guess…
We are updating our suite of sentiment data again, mainly because it is so fascinating that a historically rarely seen bullish consensus has emerged – after a rally that has taken the SPXup by slightly over 210% from its low. Admittedly, a slew of such records has occurred in the course of the past year or so, and so far has not managed to derail the market in the slightest– in fact, since 2012, only a single correction has occurred that even deserves the designation “correction” (a...
While not hyperinflating, the slow and insidious diminishment of the fiat US Dollar's purchasing power (and thus the living standards of lower- and middle-class Americans - who are not balls deep invested in the US stock 'market') is nowhere more evident than in the soaring costs of Thanksgiving Day dinner during the Fed's 100 year reign...
The Final University of Michigan Consumer Sentiment for November came in at 88.8, a bit off the 89.4 preliminary reading but up from from the October Final of 86.9. As finaly readings go, this is a post-recession high and the highest level since July 2007, over seven years ago. Today's number came in below the Investing.com forecast of 90.2.
See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Nimble Storage Inc (NYSE: NMBL) reported its third quarter results on Tuesday after market close. The company reported a loss of $0.15 per share, slightly better than the $0.16 per share loss analysts were expecting, while revenue of $59.10 million was higher than the $57.75 million analysts were expecting.
In a note to clients on Wednesday, Katy Huberty of Morgan Stanley noted that the company “continues to disrupt the storage market” as new customer adoption doubled year-over-year, increasing its installed base to more than 4,300 customers.
The analyst also notes that international investments are “beginning to pay off” as revenue grew 135 percent from a year ago, contributing 20 percent of total revenue in the quarter.
However, Huberty singles out the addition of the Fibre Channel (FC) protocol. The analyst states that the company has now ex...
With warmer weather arriving to melt the early snowfall across much of the country, investors seem to be catching a severe case of holiday fever and positioning themselves for the seasonally bullish time of the year. And to give an added boost, both Europe and Asia provided more fuel for the bull’s fire last week with stimulus announcements, particularly China’s interest rate cut. Yes, all systems are go for U.S. equities as there really is no other game in town. But nothing goes up in a straight line, not even during the holidays, so a near-term market pullback would be a healthy way to prevent a steeper correction in January.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based Sector...
By Rod Garratt and Rosa Hayes - Liberty Street Economics, Federal Reserve Bank of New York
In June 2014, the mining pool Ghash.IO briefly controlled more than half of all mining power in the Bitcoin network, awakening fears that it might attempt to manipulate the blockchain, the public record of all Bitcoin transactions. Alarming headlines splattered the blogosphere. But should members of the Bitcoin community be worried?
Miners are members of the Bitcoin community who engage in a proce...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
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I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract o...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
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 firstname.lastname@example.org 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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