by Phil Davis - July 30th, 2014 8:02 am
Yesterday went as expected.
As I told you in the morning post, the "rally" was nothing more than a prop job to allow a full day of selling right into the close. Now that the markets are closed, the S&P is being propped back up – 0.3% as of 7:30 am. May the farce be with you!
Of course, this morning, there may actually be something to get excited about as the 2nd Quarter GDP Report will come out at 8:30 and economorons are expecting a full reversal of Q1s 2.9% dive with a 2.9% gain forecast for Q2.
I don't know what numbers they are looking at (assuming they even bother – from their usual performance, they would be better off using darts) but I'm not seeing a big resurgance in Consumer Spending, which is 70% of the US economy. I don't see how our Trade numbers improved, although we did import less oil (to create artificial shortages and drive up prices for the consumers).
Business Investment seems to be up a bit and Inventories are a real wild card where a build will be a huge plus – even though, to me, it sort of indicates they are not selling anything and it's piling up on the shelf.
This is the fantasy chart for the GDP that is making the rounds this morning. Notice it's from the Commerce Department (aka MiniTru) and, like our Chinese Masters – they are able to make those numbers dance when they want to and, believe me, they REALLY WANT TO this Q as two down quarters in a row = the "R" word.
So we'll see if the GDP can get the rally back on track and, if not, it will be up to the Fed this afternoon (2pm) to pump up the jam and get the party going again with their statement. It's very possible the Fed timed their announcement on the afternoon of the GDP release BECAUSE they know they'll have to make a save in the afternoon. Also, it's no coincidence that Treasury is pushing $44Bn of 2-year and 7-year notes between GDP and the Fed – just in time to…
by Phil Davis - July 29th, 2014 8:28 am
Some of the people all of the time.
That's the basis for this rally – or what's left of it – as we see this pattern almost daily: A big(comparatively) volume sell-off followed by a "rally" on 1/3 to 1/4 of the volume that sold and then, once we hit a pre-programmed peak (about where we got to in the no-volume Futures), we have a bit of volume selling into the close.
This is how you can see those charts that show all the "smart money" running out of the market, even as the market goes higher. Why would they leave? Why would anyone leave this exciting market? The answer is, because those fund managers are well aware that, at some point, the music will stop and there will be no buyers to save them then. Best to get out now and avoid the rush.
That time was also "different," wasn't it? We had invented the Internet (well, Al Gore did) and easy monetary policy led to bank mergers and NAFTA ushered in an era of free trade that send tens of millions of jobs overseas, causing profits for US Corporations to soar and those good times were never going to end – until they did.
It's very hard to say when a rally like this will finally run out of gas but, when we stop making new highs and we have these BS daily, manipulative run-ups to cover the selling – that's probably a good time to get more cautious.
As noted on Dave Fry's S&P chart, it's ALL about the Fed and how much FREE MONEY the Fed will pump in and how long they will keep pumping it in, etc. You would think we'd be tired of the same old song and dance but why should we, when we GET PAID to join in?
Yesterday, for example, in our Live Member Chat Room, I called for a bottom on the Russell Futures (/TF), saying:
/TF below 1,130! One would hope that's it. Playable for a bounce over that line
by Option Review - July 28th, 2014 5:03 pm
by ilene - July 28th, 2014 1:49 pm
By John Mauldin
[E]conomists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.
It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences – an attempt which in our field may lead to outright error. It is an approach which has come to be described as the “scientistic” attitude – an attitude which, as I defined it some thirty years ago, “is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.
– Friedrich Hayek, from the introduction to his Nobel Prize acceptance speech in 1974
Last week we took a deep dive into how the concept of GDP (gross domestic product) came about. We looked at some of the controversies surrounding GDP statistics that we use to measure the growth of the economy, and we noted that the GDP tool seems designed to reflect and serve an economic theory (Keynesianism) that prefers to focus on the demand side of economic activity. If your measurement of the growth of the economy is entirely defined by final consumption (that is, consumer spending) and government spending, then if you want to try to improve growth you are left with just two policy dials to adjust:
- How do we increase consumption?
- How much government spending should there be to stimulate growth when the economy is in a recession?
But what if there are other ways to measure the economy? Might those other measurement tools suggest a different set of policies and methods to
by Phil Davis - July 28th, 2014 7:30 am
Shanghai popped 2.5% this morning.
The index flew back to it's highest level since Dec 16th as official Chinese data (ie questionable, at best) showed profits at China's largest Industrial Firms rose 17.9% in June from "just" 8.9% in May.
Despite the "stellar performance" of large-cap companies, the main reason the market is flying is because of a general consensus that Beijing may soon allow the banks to bring in more private of foreign strategic investors. Industrial and Commmercial Bank kicked the ball off by announcing a plan to raise $12.9Bn through the sale of preferred shares.
It's hard to reconcile this "good" news with the fact of the Baltic Dry Index (bulk shipping of raw materials) dropping back to 3-year lows in early July. Who then, is China selling to? Even the WSJ notes that major steel foundries like Tianjin have turned off their smelters – indicating a tremendous pullback in construction activity.
How is China achieving 7.5% growth if it is powering down steel plants and letting copper stockpiles build up? With debt. Despite official instructions to banks to curtail lending to overstretched developers and municipalities, loans are still increasing at rates twice as fast as the economy—and those numbers exclude a so-called shadow-banking lending system estimated at more than $5 trillion, or 80% of gross domestic product.
A big question is what happens to bad debts when the treadmill comes to a halt? Despite rhetoric about opening up the financial system to market pressures, there is clearly reluctance in Beijing to let lenders suffer losses. On Wednesday, for example, construction company Huatong Road & Bridge Co. somehow found the funds to make a bond payment that it had earlier warned it would miss.
Perhaps this is why the global reaction to the blazing Shanghai market is subdued at best. As you can see from the above chart, the Chinese market has been flying on this sort of "enthusiasm" since the start of Q2 but, as was made obvious last week, the other Global Markets are running out of steam.
by Sabrient - July 28th, 2014 2:50 am
Courtesy of Sabrient Systems and Gradient Analytics
Once again, stocks have shown some inkling of weakness. But every other time for almost three years running, the bears have failed to pile on and get a real correction in gear. Will this time be different? Bulls are almost daring them to try it, putting forth their best Dirty Harry impression: “Go ahead, make my day.” Despite weak or neutral charts and moderately bullish (at best) sector rankings, the trend is definitely on the side of the bulls, not to mention the bears’ neurotic skittishness about emerging into the sunlight.
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 SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Several market commentators have noted that the S&P 500 has gone nearly three years without a 10% peak-to-trough correction, which is the third-longest stretch in 25 years. The bears are simply lacking both leadership and new recruits in this low volatility, global-central-bank-liquidity-supported bull market. Not even renowned hedge fund manager Bill Ackman has been able to smack down the one stock that he “will go to the end of the earth” to destroy — Herbalife (HLF). Nevertheless, Friday’s weakness was notable, even though stocks found support (at the 20-day simple moving average for the S&P 500, and the 200-day SMA for the Russell 2000).
Indeed, there is plenty of global turmoil to create a stout Wall of Worry. Israeli/Palestinian relations are at a new low as violence escalates. Elsewhere, Muslim extremists are creating war and anarchy all over the world, thumbing their noses at the notion of democracy, cooperation, and mutual respect. And then there’s Russia and its shameless push to reestablish hegemony over their former satellite nations (and perhaps take back a little land while they’re at it). But investors finally reacted Friday when European Council President Herman Van Rompuy suggested that new sanctions against Russia should target oil companies, which could create a boomerang effect on the global economy.