Things are looking up this morning.
Europe has come back from Boxing Day with a nice 1.5% pop in Germany, Italy and France while the UK and Spain are up about 1% as well. 11,000 is the bull line on the Dax and 10,500 is the bear line – so we're bouncing around in-between at the moment, just as we are on the S&P between 2,000 and 2,100 and the Dow between 17,000 and 18,000.
On the whole, it's all just one big consolidation – but what are we consolidating for? None of your time should be spent looking at the index charts this week – not when the volume is less than half of what it is on normal days. Yesterday on SPY, for example, just 66M shares were traded and the average volume is 118M. That was the lowst full-day trading of the year and it followed Christmas Eve's 48M so the two days together barely added up to a "normal" day.
What you should, however, be concerned about is how FAKE the action was as it drove the McClellan Oscillator well into overbought territory. The McClellan Oscillator is a breadth indicator derived from Net Advances, which is the number of advancing issues less the number of declining issues. It's a momentum indicator, similar to MACD that gives us an idea of whether or not a rally is broad-based enough to be sustained and, clearly, this one isn't.
What we have going on at the moment is good, old-fashioned window-dressing – aimed at painiting a picture of 2015 that will be sold to potential investors in 2016. The brokers need you to put your money in the market so they can charge you fees – that's how the game is played and it really helps their sales pitch if the market wasn't negative the year before so all stops are pulled out to get us green at the end of the year.
Case in point – while JPM and other big banks have already raised the deposit rates they pay to their Top 1% clients, the only increase that was passed down to the bottom 99% since the Fed hike has been the fees they CHARGE for home, business and credit-card loans. As usual, the rich get richer and the poor get poorer…
If we expect the economy to turn around in 2016, we first need to see some changes made in the way money is distributed throughout the economy. How is it going to help the Global Economy if the Top 1% get 10% richer but the bottom 99% stay flat or lose ground — again? We've already milked all the rally we're likley to see from luxury stocks – even Imelda Marcos had to stop buying shoes once she ran out of closet space!
As we close out 2015 we have a lot of lingering problems in the Global Economy that aren't going to go away by raising credit card rates. In fact, the US's $1.4Tn Student Loan debt pile would only get worse – as will our currently $320Bn annual interest payment on our outstanding $18Tn in Government Debt.
Japan's faith in the radical reforms of Abenomics is failing, while China's growth is slowing. Latin America is also a mess – from Brazil's massive corruption scandal to Argentina's efforts to turn around its government. The mood doesn't get better in Europe, as the continent faces an economic and refugee crisis, and Britain threatens to leave the EU. On the political and security front, the implosion of the Middle East continues.
We already knew the "unicorn" companies in the US had ridiculous valuations and that, in turn, trickled up to the Nasdaq, where valuations also got out of control (see AMZN, NFLX, etc.). Hanergy (HNGSF) is a Chinese unicorn where $20Bn of PRESUMED market value has disappeared in 6 months. Earlier this year, Hanergy was the World's most valuable solar equipment manufacturer and they are still huge ($1.6Bn) but their shares are suspended pending an SEC investigation.
Sure, it's only China and mostly Chinese investors who saw all their money vanish in a puff of smoke so who cares? But what if next it's Uber ($50Bn) or Lyft ($3Bn) or Xiaomi ($46Bn) or AirBnB ($25Bn) or Palantir ($20Bn) or SnapChat ($16Bn)? There don't have to be any shenanigans to kill the values – just a failed IPO or a shift in sentiment can do it and suddenly venture funds all over the country begin to report losses and the tide quickly turns and spills over into the broad markets.
150 still-private companies have an impled valuation of over $600Bn and where, exactly, is that money going to actually come from? When they do finally go public (or attempt to) they will be asking for Trillions in valuations and, as in China, that money will be drained away from old-school companies to support the dreamers – because investors, like unicorns, are always chasing rainbows – even though they have never actually caught one.
There's a whole lot of chasing going on as we close out 2015 – we're not chasing anything until we see how 2016 comes out of the gate. For now, we remain "Cashy and Cautious" into the New Year.
