Posts Tagged ‘equity investors’

Legends of the Fall

Legends of the Fall

Courtesy of Joshua M Brown, The Reformed Broker 

Gramercy Park in Autumn

Firstly, I apologize for my recent absence from the site this week, I was temporarily struck down by a digestive attack that required 4 days of hospitalization and stomach pumping.  But I’m out and about and starting to make some new health changes… Josh Brown 2.0.  For example, Josh Brown 2.0 will probably not be rolling up pizza slices and wedging them into his face like "Italian Spring Rolls".  Josh Brown 2.0 will also not be taking escalators instead of stairs or putting butter in his coffee.

OK, back to the regularly scheduled programming.  Let’s start with the Sept/October/Fall market meme…

I see that the "September is the Cruelest Month" linkbaiting posts have already been arriving in droves.  I’ll shred them to pieces real quick typing with one hand and only about a tenth of my common sense.

Let’s start here with a bit from Minyanville:

The month of September gives equity investors a sinking feeling and for good reason: Historically, this has proven a bad month for the stock market.

Oy vey, when it starts like that, you already know you’re reading filler.  Allow me to deconstruct the genre of "month/season/timeframe" articles and posts so that you never waste your time on another one again:

1.  Timing - designed to coincide within a few days of the beginning of the new time frame (September in this case, post date on this example is Aug 30th)

2.  Post Title - The title will mention the month and within a descriptor or two attempt to scare you into to clicking on it.  It will work, you will click, because we were all conditioned by the same commercials as kids when Duck Tales came on after school.  Cereal was purchased, let’s keep it real.

3.  Data - They will steal all the data from either the Bespoke Investment Group or Ned Davis Research so just set your feedreader to grab both of those for the raw numbers minus the ex-banner ad salesman’s "contextualization".

4.  But wait! – About halfway through the post which has just given you all the historical reasons you should just blow your brains out rather than be invested, a White Knight shall come galloping up over the crest of the hill, banners aflutter, with a reason to live, dammit!  The White Knight will be the…
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HAVE WE SEEN CAPITULATION?

HAVE WE SEEN CAPITULATION?

Courtesy of The Pragmatic Capitalist

Napoleon I receiving the Capitulation of Ulm. Battle of Ulm, 16-19 October 1805. The outcome was a resounding French victory the capture of the entire Austrian army.

We’re not even close according to David Rosenberg:

“Short interest on the Nasdaq down 1.6% in the first week of August?

The Rasmussen investor confidence index at 80.4?  Call us when it hits 50, which in the past was a “classic” washout level.

Investors Intelligence did show the bull share declining further this past week, to 33.3% from 36.7%.  But the bear share barely budged and is still lower than the bull share at 31.2%.  Are we supposed to believe that at the market lows, there will still be more bulls than bears out there? Hardly.  At true lows, the bulls are hiding under table screaming “uncle!”.

Yes, Market Vane equity sentiment is down to 46, but in truth, this metric is usually in a 20-30% range when the market correction ends.  We are waiting patiently.

As for bonds, well, Market Vane sentiment is 73%. Now what is so bubbly about that.  Call us on extreme positive sentiment when this measure of excessive bullishness is closer to 90%, and we’ll be in the correction camp hopefully by the time this happens.”

I would tend to agree.  We have seen nothing in the fear gauges that convinces me that people believe in a sustained downturn in the economy. The cult of the equity investor has spent the last several months debating the possibility of a bubble in bonds, however, almost every single person who makes these claims is an owner of stocks and I have more and more trouble finding people these days who believe in bonds.  Yet, for some odd reason there is a never ending love affair with the equity portion of their portfolio.  Perhaps the bubble they should be more concerned about is the one that has been imploding underneath them over the course of the last 10 years. 


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TIM BOND: EQUITY INVESTORS ARE DANCING ON THE EDGE OF THE VOLCANO

TIM BOND: EQUITY INVESTORS ARE DANCING ON THE EDGE OF THE VOLCANO

Courtesy of The Pragmatic Capitalist

Detail view of the wall of a dam

Tim Bond of Barclays has been remarkably accurate in predicting the strength and length of the global equity rally.  Despite the many signs of weakness over the last 9 months Bond has remained very optimistic (read his bullish note from 2009 here).  He claimed that analyst estimates and high levels of bearishness would lay the foundation for a continuing equity rally.

“Never has a bull market climbed a steeper wall of worry. Despite a proliferation of positive economic indicators, the consensus remains resolutely gloomy. Bullish economists are still rarer than hens’ teeth. The average forecast for Q3 US GDP growth is an anaemic 0.8% increase, which would be by far the slowest first quarter of any recovery on record.”

He couldn’t have been much more accurate.  The economic landscape is quickly changing, however, and Bond’s outlook is turning decidedly less optimistic.  Bond now believes the problem of debt is becoming contagious in Europe and that higher bond yields will accompany the process:

“Fiscal dynamics point towards higher government bond yields in many economies, including the UK and US.  History is unequivocal in linking fiscal deterioration to higher yields.  This point is clearly becoming recognized by investors.  As a result, a contagious process has started, during which risk premia in bonds, equities and currencies adjust higher to reflect the fiscal situation.  This process is unlikely to remain confined to southern Europe, but will eventually embrace all those economies with sizeable budget deficits.”

Bond has argued for much of the last year that low rates and de-leveraging were actually very bullish for equities.  As monetary policy begins to shift and fiscal policy remains imprudent the landscape is shifting.  Like Teun Draaisma, Bond is concerned about the impending higher rate environment that will accompany global rate increases and continuing risks associated with an indebted global economy.  Bond argues the long-term situation remains unfavorable for 3 primary reasons:

  • 1)  The majority of the G20 is a fiscal mess
  • 2)  Demographic trends of the G20 are highly negative
  • 3)  Containing the long-term government debt problem will be painful

Most alarming to Bond, however, is the close relationship between high…
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BONDS SAY DEFLATION, STOCKS SAY REFLATION. WHO IS RIGHT?

BONDS SAY DEFLATION, STOCKS SAY REFLATION. WHO IS RIGHT?

inflation, deflationCourtesy of The Pragmatic Capitalist

Stocks have surged 11% since June 10th.  At the same time, the 10 year treasury yield has declined almost 70 basis points to close at 3.18% yesterday.   What is curious here is that the stock market is telling a very different story from the bond market.  Bond investors (who tend to have a longer time horizon) are forecasting a long battle with deflation.  Equity investors (who tend not to think much farther than one quarter into the future), on the other hand, are putting their money on the line in the hopes that the reflation trade is alive and well.

Unfortunately for equity investors, they have a poor record of forecasting the future when compared to bond investors.   There have been 4 famous cases of such bond and stock divergences in the last 20 years.  The most famous is the summer of 1987.  We all know what occurred then.  The other three cases were fall ‘94, summer ‘98 and winter 2000.   All three preceded declines in the market.  Of all 4 instances, three of them preceded 15% declines in the S&P 500.

The real crux of the issue here is not terribly complex.  In order for corporations to tack on to the $80 in operating earnings that the equity market is currently pricing in for 2010, they will need pricing power.  The cost cutting and resulting margin expansion we are seeing is great in the near-term, but we’re unlikely to see pricing power and hence real revenue expansion without at least some inflation.  The bond market, however, is pricing in little to no inflation.  The bond market’s message is clear – we are in a deflationary world.  That doesn’t bode well for the prospect of corporate earnings and that likely means stocks are getting a bit frothy here.  Investors would be wise to take a step back and reconsider the risk/reward of owning equities once the euphoria surrounding Q3 earnings wears off….

Related -

John Paulson’s Huge Reflation Bet

Are 20 Years of Deflation Ahead of Us?

Photo: Goddesses of Inflation and Deflation, courtesy of  Elaine Supkis.

 


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Phil's Favorites

A Missing Caveat to Last Week's Sell-Off

 

A Missing Caveat to Last Week’s Sell-Off

Courtesy of 

First of all, congratulations to my friend Ari Wald on the fifth anniversary of his weekly technical note, Inflection Points, for Oppenheimer & Co. I’ve been reading him since the beginning and posting his insights often here at TRB.

Ari makes sense of the price action and market cross-currents in a helpful, non-pedantic way, with enough detail for serious technicians but not so much so that you can’t understand what he’s saying. And his charts are always illuminating, no matter what’s going on.

Okay, here’s what Ari wants you...



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Zero Hedge

Enron 2.0? Jeff Skilling And Lou Pai Are Back With A "New Energy Venture"

Courtesy of Zero Hedge

Former Enron Chief Executive Jeff Skilling is out of prison after 12 years. And he’s getting the old gang back together again.

Just when you thought the world of business couldn’t get more ethically sound, and just when you thought you weren't going to get any more surefire signs of a market top, Jeff Skilling is recruiting his old friends and colleagues and "looking to get back in the energy business", according to a WSJ report.

But that isn’t even the best part - according to the report, Skilling has already landed an investment from former Enron executive and...



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ValueWalk

Tax Receipts Decline As Budget Deficit Reaches Record

By Gary St. Fleur. Originally published at ValueWalk.

The U.S budget deficit has widened as the corporate and individual tax receipts and other revenue declines in the face of federal spending reaching new heights.

geralt / Pixabay

Last year’s fiscal gap for February was $215.2 billion. It has now grown to $234 billion. This is larger than the last budget deficit record set in 2012. This increase is due to declines in tax receipts for October-February. The period saw a decline of 1 percent (1.3 trillion ) from the prior year while growth in federal spending rose upwards of 9 percent to 1.8 t...



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Chart School

Palladium Action Review

Courtesy of Read the Ticker.

Palladium is near its peak, or at least a consolidation. Russia and South Africa are the producers of palladium, and it looks like Putin has been able to play US Futures market for a lot of Russia gain! Which metal is next?


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Fundamentals are important, and so is market timing, here at readtheticker.com we believe a combination of ...

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Kimble Charting Solutions

NYSE Index Suggesting The Top Is In, Says Joe Friday

Courtesy of Chris Kimble.

Is a very broad stock index suggesting that a top is in play? What this index does to close this week should go a long way to answering that question!

This chart looks at the NYSE Index on a weekly basis over the past 4-years. Over the past 15-months, it has created a series of lower highs and lower lows inside of the shaded falling channel. It hit strong support around Christmas at (1) and a counter-trend rally started. The rally now has it testing the top of the falling channel at (2).

Joe Friday Just The Facts Ma’am- The NYSE index could be cre...



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Insider Scoop

10 Biggest Price Target Changes For Friday

Courtesy of Benzinga.

  • Buckingham cut the price target for Trinity Industries Inc (NYSE: TRN) from $32 to $26. Trinity Industries shares closed at $22.96 on Thursday.
  • Canaccord Genuity lowered the price target for Biogen Inc (NASDAQ: BIIB) from $396 to $275. Biogen shares closed at $226.88 on Thursday.
  • H.C. Wainwright cut the price target on Conatus Pharmaceuticals Inc (NASDAQ: CNAT) from $8 to $1.50. Conatus Pharmaceuticals shares closed at $2.91 on Thursday.
  • Wedb...


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Biotech

Marijuana is a lot more than just THC - a pharmacologist looks at the untapped healing compounds

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

 

Marijuana is a lot more than just THC - a pharmacologist looks at the untapped healing compounds

Assorted cannabis bud strains. Roxana Gonzalez/Shutterstock.com

Courtesy of James David Adams, University of Southern California

Medical marijuana is legal in 33 states as of November 2018. Yet the federal government still insists marijuana has no legal u...



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Digital Currencies

Facebook's cryptocurrency: a financial expert breaks it down

 

Facebook's cryptocurrency: a financial expert breaks it down

Grejak/Shutterstock

Courtesy of Alistair Milne, Loughborough University

Facebook is reportedly preparing to launch its own version of Bitcoin, for use in its messaging applications, WhatsApp, Messenger and Instagram. Could this “Facecoin” be the long-awaited breakthrough by a global technology giant into the lucrative market for retail financial services? Or will...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

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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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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