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JOHN HUSSMAN ISSUES A RECESSION WARNING

JOHN HUSSMAN ISSUES A RECESSION WARNING

Courtesy of The Pragmatic Capitalist

John Hussman is officially sounding the double dip siren.  He issued a similar call in November of 2007:

Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn.

A few weeks ago, I noted that our recession warning composite was on the brink of a signal that has always and only occurred during or immediately prior to U.S. recessions, the last signal being the warning I reported in the November 12, 2007 weekly comment Expecting A Recession. While the set of criteria I noted then would still require a decline in the ISM Purchasing Managers Index to 54 or less to complete a recession warning, what prompts my immediate concern is that the growth rate of the ECRI Weekly Leading Index has now declined to -6.9%. The WLI growth rate has historically demonstrated a strong correlation with the ISM Purchasing Managers Index, with the correlation being highest at a lead time of 13 weeks.

wmc100628a JOHN HUSSMAN ISSUES A RECESSION WARNING

Taking the growth rate of the WLI as a single indicator, the only instance when a level of -6.9% was not associated with an actual recession was a single observation in 1988. But as I’ve long noted, recession evidence is best taken as a syndrome of multiple conditions, including the behavior of the yield curve, credit spreads, stock prices, and employment growth. Given that the WLI growth rate leads the PMI by about 13 weeks, I substituted the WLI growth rate for the PMI criterion in condition 4 of our recession warning composite. As you can see, the results are nearly identical, and not surprisingly, are slightly more timely than using the PMI. The blue line indicates recession warning signals from the composite of indicators, while the red blocks indicate official U.S. recessions as identified by the National Bureau of Economic Research.

Read the full article here.

Source: Hussman Funds 


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The Shanghai market isn’t really predicting anything

The Shanghai market isn’t really predicting anything

Courtesy of Michael Pettis 

A man looks at an electronic board at a brokerage house in Shanghai

It has not been a good year for the Shanghai stock market.  Since its closing peak at 6092 in October 2007, the closing high in the past year or so on Shanghai’s SSE composite was 3471, on August 4 last year.  Since then the market has been pretty bleak.  The SSE Composite finished 2009 by dropping nearly 6% from that high, to close at 3277.

This year things got only worse.  By May 20 the market had dropped a further 22% to close at 2556, and then bounced around for the past ten days closing yesterday at 2568.  In my May 12 blog entry, I finished the piece by saying “Last Friday the SSE Composite closed at 2688.  I bet it is much higher by the end of the summer.” 

Obviously my timing was off.  Within a week of my prediction the market had managed to lose another 132 points.  I still believe that the market will be higher by the end of this summer, and that within weeks we will see moves by the regulators to prop it up.  With all the liquidity sloshing around, all we need is a reasonable period off stability before the market comes roaring back, I suspect.

So am I predicting a strong economy?  Not really.  It is tempting to read falling stock prices as an indication that Chinese investors believe that the economy is poised to slow dramatically, and if the market surges, that Chinese growth is back, but we should be very cautious about how we interpret the meaning of the gyrations in Chinese stocks. 

We’re used to thinking about stock markets as expected-cash-flow discounting machines, and we assume that stock price levels generally represent the market’s best estimate of future growth prospects, but this is not always the case, and it is certainly not the case in China.  I am often asked to comment on big price moves on the Chinese stock markets and what they mean about growth expectations, but I usually try to caution people from reading too much meaning into the market.

Three investment strategies

To see why, it is probably useful to understand how investors make trading decisions.  This blog entry is going to be a pretty abstract piece on how I think about the underlying dynamics of a well-functioning capital market, and how these…
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DID GOLDMAN SACHS MANIPULATE JOURNALISTS AND STOCK PRICE ON SAME DAY AS SENATE TESTIMONY?

Mark Ames, co-editor of The eXiled, suggests Goldman Sachs’s tentacles extend even farther than we may have imagined. Mark’s thought-provoking articles, such as "Confessions of a Wall St. Nihilist: Forget about Goldman Sachs, our Entire Economcy is Built on Fraud" and "Fraudonomics: 10 Fun Fraud Facts" are published at Mark’s online home, The-eXiled, and at the NY Press’s Fraudonomics

The eXiled itself has fascinating history, being the second incarnation of The eXile, The eXile was a "Moscow-based English-language biweekly free tabloid newspaper, aimed at the city’s expatriate community, [combining] outrageous, sometimes satirical, content with investigative reporting" (wikipedia).  Vanity Fair described The eXile as subversive, “gutsy …direct, visceral… serious journalism… abusive, defamatory… poignant… paranoid." The written version in Russia was closed down in 2008. The online sequel lives on.  - Ilene 

DID GOLDMAN SACHS MANIPULATE JOURNALISTS AND STOCK PRICE ON SAME DAY AS SENATE TESTIMONY?

Courtesy of Mark Ames  

William Hogarth's print

A reader brought to my attention a new rumor going around about the strange behavior of Goldman Sachs’s stock price. On April 27, the day Blankfein was dragged before Congress to testify about fraud, Goldman’s stock rose–even though every other financial stock in the S&P 500 dropped, all 78 of them, on a day when the overall S&P average tanked 2.3 percent.

According to Bloomberg that day:

Goldman Sachs Group Inc. had the only gain among 79 financial companies in the Standard & Poor’s 500 Indexas executives testified to a Senate subcommittee about mortgage securities.

Goldman Sachs advanced 0.7 percent to $153.04, while theS&P 500 Financials Index retreated 3.4 percent.

It’s an obvious question, just wondering if anyone has looked into this because as one reader wrote, “it makes no sense whatsoever.” Except as an expensive PR exercise funded by the bank’s insiders.

Whatever the case, that unexpected stock jump turned out to be wonderful news, the billionaires’ smackdown on all the resentful parasites trying to take down Goldman Sachs–this according to all sorts of media lickspittles who are rooting for Goldman. Here for example is The New York Daily News gloating over Goldman’s unexpected stock price rise:

I would be happy to let the whole United States Senate curse at me for just a fraction of the $2.8 million Goldman Sachs CEO Lloyd Blankfein made while he was testifying before a subcommittee this week.

The opinions of the senators carry so little weight that


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Carte Blanche for the Banksters

Carte Blanche for the Banksters

By MIKE WHITNEY writing at CounterPunch

Rear view of woman wearing fairy costume walking down a dirt road

Housing is still on the rocks and prices are headed lower. Master illusionist Ben Bernanke has managed to engineer a modest 7-month uptick in sales, but the fairydust is set to wear off later this month when the Fed stops purchasing mortgage-backed securities (MBS). When the program ends, long-term interest rates will creep higher and sales will begin to flag. The objective of Bernanke’s $1.25 trillion quantitative easing program was to transfer the banks’ toxic assets onto the Fed’s balance sheet.  Having achieved that goal, Bernanke will now have to find a way to unload those same assets onto the public. Freddie and Fannie, which have already been used as a government-backed off-balance-sheet dumping ground, appear to be the most likely candidates.

Bernanke’s liquidity injections have helped to buoy stock prices and stabilize housing, but the economy is still weak. There’s just too much inventory and  too few buyers. Now that the Fed is withdrawing its support, matters will only get worse.

Of course, that hasn’t stopped the folks at Bloomberg News from cheerleading the "nascent" housing rebound. Here’s a clip from Monday’s column:

"The U.S. housing market is poised to withstand the removal of government and Federal Reserve stimulus programs and rebound later in the year, contributing to annual economic growth for the first time since 2006. Increases in jobs, credit and affordable homes will help offset the end of the Fed’s purchases of mortgage-backed securities this month and the expiration of a federal homebuyer tax credit in April. ‘The underlying trend is turning positive,’ said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York."

Just for the record; there have been no "increases in jobs".  Unemployment is stuck at 9.7 percent with underemployment checking in at 16.8 percent. There’s no chance of housing rebound until payrolls start to rise. Jobless people cannot afford to buy homes.

Also, while it is true that the federal homebuyer tax credit did cause a spike in home purchases its effect has been short-lived and sales are gradually returning to normal. It’s generally believed that  "cash for clunker-type" programs (like the homebuyer tax credit) merely move demand forward and have no meaningful long-term impact.

So, it’s likely that housing prices — particularly on the higher end — will continue to fall until…
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How much money is Wells Fargo really making?

How much money is Wells Fargo really making?

Courtesy of Edward Harrison at Credit Writedowns

Wells FargoThe positive earnings announcement by Wells Fargo on Wednesday was marred by a sell recommendation from Dick Bove and a lot of chatter about credit writedowns and mortgage servicing rights (MSRs). I wanted to add a few words about the report, MSRs, and bank stocks more generally.

First of all, this has been a very good quarter for bank earnings. Many of the big names globally have surprised to the upside. this includes Goldman Sachs, Morgan Stanley, JPMorgan Chase, Wells Fargo, US Bancorp, SEB in Sweden, Credit Suisse in Switzerland and on down the line. As one would expect, most banks are profiting from record low interest rates.

The question for the big banks is whether the huge writedowns they are still taking and the run-up in their stock prices since march limits any upside in valuation. For smaller banks, we should expect weaker results as they are more leveraged to the sectors of the economy like commercial real estate and construction loans which are still suffering.  Goldman and Morgan Stanley should do relatively better as they are really broker-dealers and both investment banking and sales & trading are doing well right now. On the whole, I have said I think upside is limited for the sector, but downside is vast. Hence I am bearish on bank stocks.

Let’s look at Wells Fargo (WFC) as an example of what is happening.

Wells reports record profits

Wells reported net income of $32 billion, a robust operating pre-tax profit of $10.8 billion, and record net income of $3.2 billion. Sounds wonderful. What’s not to like?  That was bank analysts Dick Bove’s initial impression as well. Live on-air at CNBC, he said Wells Fargo “is proving itself to be a standout.”


But, once Bove got a peek under the hood and started to crunch the numbers at Wells, he was significantly less impressed – so much so that he issued a sell rating literally nine hours later. And he took a lot of flak for this about-face.

The Wall Street Journal’s Market Beat reports:

Prominent banking analyst Dick Bove, who caused a stir Wednesday with seemingly contradictory remarks on Wells Fargo, has decided he’ll no longer provide immediate earnings commentary on air.

“I’m not


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Why Goldman Sachs Is Bullish, Sort Of

Why Goldman Sachs Is Bullish, Sort Of

Goldman Sachs, stock marketCourtesy of TIME

It’s a bit odd these days that some of the most bullish things driving stock prices are not facts but opinions. Earlier in July there was a nice market bounce thanks to bullish comments by long bearish analyst Meredith Whitney. On Monday it was an opinion coming from the investment strategy team at Goldman Sachs, which reported that the firm was raising its estimate for what companies in the S&P 500 would earn this year and next.

Goldman’s strategists raised their expectation for 2009 earnings by 30%, and they hiked the 2010 outlook by 19%. With that boost, the 2010 earnings for S&P 500 companies should be 45% higher than 2009, Goldman says. Those hefty upward revisions, which sent investors on a buying spree, didn’t come because consumers are suddenly spending more, nor because housing is bouncing back, neither of which Goldman asserts. The lion’s share of Goldman’s new optimism derives from the fact that banks look more profitable now than they did several months ago. (Read "How to Know When the Economy Is Turning Up.")

Banks are seeing some light in their trading operations—Goldman Sachs is a star performer in that category—there’s more mortgage refinancing happening, and credit card problems may be bottoming, all good stuff, say Goldman’s strategists. But there’s another important reason the earnings for S&P financial stocks are looking better— many of the sickies are gone from the index, including Lehman Brothers, Fannie Mae and Freddie Mac.

It’s not just the banking stock group that benefits by offloading its weaklings. A stock sector known an ‘Consumer Discretionary,’ which includes everything from automakers to fast-food retailers, is enjoying a more bullish earnings outlook too, thanks— you guessed it— to the dropping of GM stock, which had been a load of lead to this sector’s profitability. As a result of offloading GM, earnings for the group are expected to rise by 35% in 2009 and 40% in 2010.

Investors may respond with huge cheers to the new earnings forecasts, but Goldman Sachs is not so ebullient. In fact, the firm goes to great lengths to point out the distortions to its growth projections, and adds that without the GM affect the consumer-discretionary stock group would see a far more modest 17% growth next year—not bad, but no blowout.

The other sobering note in Goldman’s bullish report today…
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Help One Of Our Own PSW Members

"Hello PSW Members –

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 jennifersurovy@yahoo.com 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.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743"

Thank you for you time!

 
 

Chart School

S&P 500 Snapshot: After Two Record Closes, Flat for the Week

Courtesy of Doug Short.

The S&P 500 set record highs on Wednesday and Thursday, but by week's end the index had gone nowhere. It ended the day with a 0.48% loss and the week with a miniscule 0.01% advance from Friday's close. The 500 fared a bit better than key Eurozone indexes: Germany's DAX fell 1.52% and France's CAC 40 gave up 1.82%.

The yield on the 10-year note ended the day at 2.48%, down 4 bps from yesterday's close. It is now 4 bps above its interim closing low of May 28th.

Here is a 15-minute chart of the week. The S&P 500 is up 7.03% year-to-date.

Volume on today's losing trade was lighter than the two record closes that preceded it.

For a longer-term perspective, here is a pair of charts based on daily closes starting with the all-time high prior to the Great Recession....



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Zero Hedge

Please Don't Blame The Fed: Alan Greenspan Says "Bubbles Are A Function Of Human Nature"

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by David Stockman's Contra Corner

C’mon Alan! Bubbles Are Caused By Central Bankers, Not “Human Nature”

Alan Greenspan just cannot give up the ghost. During his baleful 18-year reign, the Fed was turned into a serial bubble machine—and thereby became a clear and present danger to honest free market capitalism and an enemy of the 99% who do not benefit from the Wall Street casino and...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Phil's Favorites

France Unemployment New High, Output Down 15th Month; Prices Drop 27th Month; Activity Up in Peripheral Europe; Outlook for Germany

Courtesy of Mish.

The grim economic news from France keeps piling up. Today, Europe Online reports Number of Unemployed in France Hits New High.
The number of unemployed people in France has hit a new high as the country grapples with the fallout of the financial crisis and a sluggish eurozone recovery, the Labour Department reported Friday.

At the end of June, there were 3.398 million people who were registered as being without a job in the eurozone‘s second-largest economy - 0.3 per cent more than in the previous month.

Compared to June of last year, the number of jobless was up 4 per cent.

In a glimmer of positive news, the number of unemployed youth was down compared to last year: those under 25 without a job d...



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Digital Currencies

BitLicense Part 1 - Can Poorly Thought Out Regulation Drive the US Economy Back into the Dark Ages?

Courtesy of Reggie Middleton.

An Op-Ed piece penned by Veritaseum Chief Contracts Officer, Matt Bogosian

This past weekend (despite American Airlines' best efforts), Reggie and I made it to the Second Annual North American Bitcoin Conference in Chicago. While there were some very creative (and very ambitious) ideas on how to try to realize the disruptive Bitcoin protocol, one of the predominant topics of discussion was New York Superintendent of Financial Services Benjamin Lawsky's proposed Bitcoin regulations (the BitLicense proposal) - percieved by many participants at the event as an apparent ...



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Insider Scoop

DigiTimes Reports Advanced Semiconductor Engineering Affiliate Receives Apple iWatch Orders

Courtesy of Benzinga.

An affiliated company of Advanced Semiconductor Engineering (NYSE: ASX), Universal Scientific Industrial, has reportedly received SiP module orders from Apple (NASDAQ: AAPL) for the iWatch according to industry sources, as reported by DigiTimes. Each SiP module costs approximately $60, which is 20% of the iWatch's rumored $300 price tag.

View full article http://www.digitimes.com/news/a20140723PD209.html

Posted-In: Digitimes...



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Option Review

Starbucks Options Volume Rises Ahead Of Earnings After The Bell

Volume in Starbucks options is running approximately three times the average daily level for the stock as of 1:15 p.m. ET ahead of the company’s third-quarter earnings report after the close. Shares in the name are up roughly 1.0% just before midday to stand at $79.95. Traders of SBUX options today are more active in calls than puts, with the call/put ratio hovering near 2.0 as of the time of this writing. Much of the volume is in 25Jul’14 expiry options contracts, most notably in the $80 and $83 strike calls which have traded roughly 3,350 and 2,550 times respectively and in excess of existing open interest levels in both strikes. A portion of the volume in the $80 and $83 calls appears to be part of a spread trade.

...

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Sabrient

Sector Detector: Bulls remain unfazed by borderline Black Swans

Courtesy of Sabrient Systems and Gradient Analytics

Despite a highly eventful week in the news, not much has changed from a stock market perspective. No doubt, investors have grown immune to the daily reports of geopolitical turmoil, including Ukraine vs. Russia for control of the eastern regions, Japan’s dispute with China over territorial waters, Sunni vs. Shiite for control of Iraq, Christians being driven out by Islamists, and other religious conflicts in places like Nigeria and Central African Republic. But last Thursday’s news of the Malaysian airliner tragically getting shot down over Ukraine, coupled with Israel’s ground incursion into Gaza, had the makings of a potential Black Swan event, which in my view is the only thing that could derail the relentless bull march higher in stocks.

Nevertheless, when it became clear that the airline...



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OpTrader

Swing trading portfolio - week of July 21st, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

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. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's the latest Stock World Weekly. Please use your PSW user name and password to log in. (You may take a free trial here.)

#452331232 / gettyimages.com ...

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Market Shadows

Danger: Falling Prices

Danger: Falling Prices

By Dr. Paul Price of Market Shadows

 

We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people's list of "things to worry about." 

All three major indices gave up some ground with the Nasdaq composite taking the hardest hi...



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Pharmboy

Biotechs & Bubbles

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...



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Promotions

See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.

Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.

Follow this link to register for their training webinar where they’ll demonstrate the tested and proven Algorithm powered by the same technological principles that have made GOOGLE the #1 search engine on the planet!

And get this…had you done nothing b...



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