It seems everyone is perplexed by the most recent irrational bout of July market action. Like clockwork, once July rolls in, the market surges, no questions asked. This year, the ramp is particularly blatant because as the attached chart demonstrates, bonds, which are a far more credible barometer of market (in)sanity, indicate the S&P is rich by at about 50 points. As this spread will most certainly converge eventually as we discussed previously, a short stock, short bond position would generate some much needed P&L in this world of deranged fractal algorithms. As to what may have caused the most recent bout of irrational exuberance, David Rosenberg has the most logical, and generic solution: excess liquidity and a short covering spree, and "nothing fundamental here."
From Breakfast with Dave
WHAT’S DRIVING THE MARKET?
We’ve been asked repeatedly how the stock market has managed to bounce off the nearby lows with such veracity. Especially with the ongoing weakness we have seen in the incoming U.S. economic data due to the fact that the retail investor still refuses to participate and is solely focused on income-generating strategies. The answer is that the market may have been on the receiving end of another few jolts of liquidity. M2 money supply has expanded $38.5 million in the past two weeks and the M1 money multiple has risen from 0.839 to 0.862.
When we go to the weekly data from the Fed, we see that “trading assets” on commercial bank balance sheets expanded to $325 billion in the past two weeks from $297 billion. And, when we go to the Commitment of Traders report, we see that there has been a big swing in the net speculation position on the S&P 500 “E-minis” on the Mercantile Exchange (futures and options) to a net long position of 28,172 contracts from 15,155 net shorts just two weeks ago. That’s a big part of the bounce-back — prop traders and short-coverings. Nothing fundamental here, as far as we can see.
JUST CALL IT A WHOLE LOT OF VOLATILITY
Last week’s 5.4% increase was the best performance since mid-July 2009 (week of July 17th). But yet, prior to last week, the S&P 500 saw the largest decline (-5% during the week of July 2nd) in eight
First, welcome to Michael Pettis. Michael is a professor at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets. He is also Senior Associate at the Carnegie Endowment for International Peace. Second, this is an excellent article that provides insight into the thoughts of the Chinese people. – Ilene
Three weeks ago China Daily published a pretty funny article about a recent survey on credibility that had taken place in China. According to the article,
At a time when shamelessness is pervasive, we are often at loss as to who can be trusted. The five most trustworthy groups, according to a survey by the Research Center of the Xiaokang Magazine, are farmers, religious workers, sex workers, soldiers and students.
A list like this is at the same time surprising and embarrassing. The sex business is illegal and thus underground in this country. The sex workers’ unexpected prominence on this list of honor, based on an online poll of more than 3,000 people, is indeed unusual.
It took the pollsters aback that people like scientists and teachers were ranked way below, and government functionaries, too, scored hardly better. Yet given the constant feed of scandals involving the country’s elite, this is not bad at all. At least they have not slid into the least credible category, which consists of real estate developers, secretaries, agents, entertainers and directors.
I am not sure what secretaries have done to get themselves such poor rankings (could they mean party secretaries?), and I am not sure what kind of directors they mean (movie directors? managing directors?) but not everyone found this survey funny. Last week a columnist in the People’s Daily had this to say about the same survey:
In recent years, China has already paid a high price for the prevailing credibility crisis. The annual losses caused by bad debts have reportedly amounted to about 180 billion yuan, and the direct economic losses induced by contract fraud each year is also up to 5.5 billion yuan. Besides, shoddy and fake products contribute to another great loss involving at least 200 billion yuan. Generally, credibility crisis would cost China as much as 600 billion…
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.
What has happened to America? Please show these numbers to anyone that does not believe that the United States is in decline. It is time for all of us to humble ourselves and face the reality of what has happened to our once great nation. For those of us that love America, it is heartbreaking to watch the foundations of our society rot and decay in tho...
Here's the latest weekend update from Serge Perreault, a Chartered Professional Accountant and market technician located near Montreal, Canada. Serge has been following the U.S. market in a series of weekly charts. Here is his update on the S&P 500.
This week, the S&P 500 remains neutral near a resistance, on above-average volume and on improving momentum.
Grgurich formulated his article after reading "an intriguing piece just published in Foreign Affairs, Brown University political economist Mark Blyth and London-based hedge fund manager Eric Lonergan argue the Fed could have done better by pursuing a far different type of grand policy experiment."
Investors are dumping shares in Yahoo, sending the stock down 5.0% to $40.08 after shares in Alibaba made their debut on the floor of the NYSE just before midday. Shares in BABA for their part initially traded up to a high of $99.70, a near 47% increase over the IPO price of $68.00. Typically, one would expect put options that are 5% out of the money with roughly 4-hours left to trade to see waning implied volatility. But, at the start of the trading session and ahead of the first trade for BABA, the Sep 19 ’14 40.0 strike put options were trading with 271% volatility or $0.30 per contract amid uncertainty as to how the start of trading for Alibaba would take shape.
Administradora de Fondos de Pensiones Provida S.A. (PVD) shares will not be trading on the NY Stock Exchange after today. Tomorrow, shares will be harder to sell. Strangely, I wasn't able to find information on the internet, but Paul just sent me a copy of the email he received from Interactive Brokers.
We're selling PVD out of the Virtual Portfolio today at $87.18.
From: Interactive Brokers dated July 18, 2014
Holders of AFP Provida S.A. American Depository Receipts (ADR) are advised that the Company has elected to terminate the Deposit Agreement effective 2014-09-18.
Although the stock market displayed weakness last week as I suggested it would, bulls aren’t going down easily. In fact, they’re going down swinging, absorbing most of the blows delivered by hesitant bears. Despite holding up admirably when weakness was both expected and warranted, and although I still see higher highs ahead, I am still not convinced that we have seen the ultimate lows for this pullback. A number of signs point to more weakness ahead.
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-r...
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Despite the various opinions on Bitcoin, there is no question as to its ultimate value: its ability to bypass government restrictions, including economic embargoes and capital controls, to transmit quasi-anonymous money to anyone anywhere.
Opinions differ as to what constitutes "money."
The English word "money" derives from the Latin word "moneta," which means to "mint." Historically, "money" was minted in the form of precious metals, most notably gold and silver. Minted metal was considered "money" because it possessed luster, was scarce, and had perceive...
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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...
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